US Proposes Curbs on Chinese Biotech Investment, While Leaving Most Drug Licensing Open

New limits would target investment, not every drug deal

The US Treasury Department proposed restrictions on October 22, 2026, that would bring biotechnology into its outbound investment controls, potentially blocking American equity investments and some joint ventures involving Chinese drug developers while leaving most traditional drug licensing agreements outside the program.

The difference matters for deals worth billions of dollars. Bristol Myers Squibb's agreement with Hengrui Pharma, potentially worth $15.2 billion and covering 13 early development programs, illustrates the licensing model that would generally remain open. Pfizer's partnership with 3SBio included a $100 million equity investment, a feature that could put a similar future transaction within the proposed prohibition.

Treasury is seeking public comments through December 7, 2026. The proposal is still a draft, and no date has been set for the final rules to take effect. Companies therefore face a period of planning around restrictions whose scope may change.

The biotechnology provisions are part of a wider expansion of controls covering sensitive technologies and countries that Washington considers security concerns. For drug companies and investors, the central question is how Treasury draws the boundary between financing a foreign biotechnology business and paying for the right to develop its medicine.

That boundary also matters to patients. American drugmakers increasingly look to Chinese laboratories for promising treatments to add to their development pipelines, the collection of experimental medicines they hope to bring to market. The proposal would preserve a major route for acquiring those treatments while restricting some ways of funding the companies that discover them.

What biotechnology would be covered?

Treasury's proposed definition of pharmaceutical compounds reaches across much of modern medicine. It includes small molecules, vaccines, blood products, allergen treatments, cell and gene therapies, monoclonal antibodies, other therapeutic proteins and drug delivery systems.

Small molecules are relatively simple chemical compounds used in many conventional medicines. Monoclonal antibodies are laboratory produced proteins designed to recognize a particular target, such as a feature on a cancer cell. Cell and gene therapies use living cells or changes to genetic material to treat disease.

The proposed biotechnology restrictions also extend to certain biological materials, biofuels, biomanufacturing equipment and facilities, biological design and sequencing technologies, and work involving pathogens or toxins subject to export controls. Biomanufacturing uses living cells or other biological processes to produce materials, including medicines.

Software and equipment used for automated scientific discovery or experimentation would also fall within the proposed prohibition, alongside bioinformatics tools and brain computer interfaces. Bioinformatics uses computing to study biological data. Brain computer interfaces seek to connect brain signals with devices, potentially allowing a person to control electronics without moving their hands.

Treasury is asking whether the pharmaceutical definition should be narrowed to advanced or frontier technologies. Its answer will help determine whether the final restrictions reach a broad range of familiar drug development activities or a smaller group of emerging capabilities.

Why ordinary licensing would generally remain open

Traditional licensing agreements usually give one company permission to develop and sell a drug discovered by another. An American company might pay a Chinese developer an initial fee, further payments when research or sales targets are reached, and royalties based on sales. It may receive rights to the medicine outside China while the original developer keeps Chinese rights.

Those payments generally purchase rights to an asset rather than ownership of the developer. Treasury's proposed categories focus instead on equity acquisitions, certain debt financing, new business investments, corporate expansions, joint ventures and some investments through limited partnerships.

Ordinary licensing and research collaborations paid for as services would therefore generally fall outside covered transactions. Treasury's explanation includes an exception for arrangements designed to evade or avoid the rules, making the substance of an agreement important alongside its label.

Bristol Myers Squibb's potential $15.2 billion Hengrui agreement shows the commercial importance of that approach. Its 13 programs give the American company multiple opportunities to develop new products. The headline value is a potential total, rather than a single payment made when the agreement was signed.

For patients, keeping this route open means American companies could continue obtaining Chinese drug candidates and investing in their further development. Those candidates would still need to pass the testing and approval processes required in the markets where the companies want to sell them.

Equity stakes and shared ventures face closer scrutiny

Pfizer's 3SBio partnership shows why a licensing agreement can require more than one legal assessment. Alongside licensing a cancer antibody, Pfizer invested $100 million in the Chinese company. Equity gives an investor ownership in a business, so that component would fall into a different category from a payment for drug rights.

Future transactions using that structure could face a prohibition on the equity investment even where a conventional licensing agreement could proceed. Venture capital firms that buy ownership stakes in Chinese biotechnology companies would face the same central issue.

Joint ventures create another uncertainty. Treasury has chosen not to supply a special regulatory definition, instead describing arrangements in which two parties contribute capital or assets and share profits and losses. A venture would not need to establish a new legal entity to be covered.

Pfizer's $10.5 billion collaboration with Innovent Biologics covers 12 assets, including four programs the companies plan to develop together globally. They would share development costs and profits or losses in the United States and Europe. Those features make Treasury's treatment of joint ventures especially relevant to collaborations of this kind.

The proposal's treatment of transactions completed before the law's enactment on December 18, 2025, makes completion dates another important consideration. Companies assessing existing agreements will need to examine when a transaction was completed and what obligations or investments remain.

Arrangements known as NewCos could also require scrutiny. These involve forming a new biotechnology company around assets licensed from China, sometimes with the Chinese licensor receiving an ownership stake. Ownership thresholds, investment flows and the proposal's rules against evasion could all affect how such arrangements are assessed.

How the broader security program is changing

Congress passed the Comprehensive Outbound Investment National Security Act, commonly called the COINS Act, in December 2025 as part of the defense authorization law for fiscal year 2026. It put an existing executive program into law and expanded its reach.

The earlier program began with President Joe Biden's 2023 executive order targeting American investment in Chinese semiconductors, quantum computing and artificial intelligence. Treasury subsequently established the Outbound Investment Security Program to administer those controls.

The proposed expansion covers hypersonic systems, high performance computing, supercomputing and biotechnology, alongside other sensitive technologies. Hypersonic systems can travel at least five times the speed of sound. The geographic scope extends beyond mainland China, Hong Kong and Macao to Russia, Iran, Cuba and North Korea.

Treasury Secretary Scott Bessent described the national security purpose of the proposed regulations in a statement:

The proposed regulations would strengthen the existing Outbound Investment Security Program to prevent our adversaries from using U.S. investment to develop critical technologies that threaten U.S. national security.

Craig Singleton, a senior fellow at the Foundation for Defense of Democracies, explained the concern about investment itself:

Capital can accelerate military-relevant capabilities just as surely as technology transfer can.

Biotechnology has drawn particular attention because tools used for medical research, biological production and the analysis of genetic information can also have military or security applications. Treasury is proposing to regulate investment in specified capabilities rather than treating every commercial connection with a Chinese company alike.

The $50,000 exception has a narrower role

A proposed $50,000 exception is important for smaller investors, but its application depends on the transaction category. Some descriptions of the proposal present $50,000 as a general threshold; the detailed exception concerns transactions that would otherwise require notification.

Under that provision, an American investor could qualify for an exception from notification when cumulative transactions with the relevant covered foreign business or joint venture do not exceed $50,000 over the preceding 12 months. Transactions in a prohibited category remain subject to the prohibition at smaller amounts.

Publicly traded securities, certain investment funds, some transfers within a corporate group and routine administrative activities may qualify for other exceptions. Special governance rights attached to an investment can affect whether an exception applies. Investors therefore need to examine the rights they receive, the business involved and its technology, as well as the amount invested.

American companies would also need to consider transactions made through foreign businesses they control. Treasury expects investors to conduct reasonable and diligent inquiries into the identity and activities of their investment targets.

The proposal includes a process for nonbinding guidance and anonymous public explanations intended to help investors assess difficult cases. Jason Chipman, a WilmerHale partner and former Justice Department lawyer, said the changes would require more substantial compliance programs to manage risk.

Drugmakers warn about costs to innovation

Pharmaceutical and biotechnology groups have cautioned that broad restrictions could make it harder for American businesses to develop promising medicines. Their concern is that limits on investment and collaboration could weaken US companies while Chinese research continues.

Jocelyn Ulrich, vice president for policy and research at the Pharmaceutical Research and Manufacturers of America, described the group's position:

American patients want to have access to the most cutting-edge treatments as quickly as possible, and the ecosystem includes a lot of promising science from China right now.

John Crowley, president and chief executive of the Biotechnology Innovation Organization, supported treating biotechnology as a strategic industry while warning against an approach that creates uncertainty for researchers and investors. He put the concern directly:

We cannot restrict our way to success.

Kendalle Burlin O'Connell, president and chief executive of MassBio, said international partnerships and licensing agreements can bring promising discoveries into the American development pipeline, where US companies spend money advancing potential therapies. Incubate, a coalition of life sciences venture capital investors, also warned about consequences for American biotechnology and public health.

Treasury's decision to seek comments on a narrower pharmaceutical definition gives these groups a specific opening to argue for changes. The debate will center on which technologies create security risks and which financial arrangements allow American businesses to continue developing medicines.

Markets react as both countries tighten controls

Chinese biotechnology shares fell following the proposal. Genscript Biotech dropped as much as 14% in Hong Kong, while Insilico Medicine fell 5.2%, Duality Biotherapeutics 3.9%, CSPC Pharmaceutical 3.4%, Jiangsu Hengrui 3% and Innovent Biologics 2.2%.

Washington has also used procurement rules to restrict links with designated Chinese biotechnology businesses. The US Biosecure Act, passed in 2025, restricts federal agencies and companies receiving government funding from using or procuring services from designated firms. Procurement restrictions govern purchases and services, while the Treasury proposal addresses investment.

China is making its own changes. Beijing recently proposed adding biomedical technologies to its export control list while explicitly allowing drug licensing deals to continue. Both governments are therefore drawing boundaries around biotechnology ties while preserving a route for some medicine licensing.

Treasury's compliance estimates show that the proposal reaches beyond the largest pharmaceutical agreements. Using PitchBook data covering roughly 2023 through 2025, the department identified about 300 relevant investments involving nearly 230 American investors across the technology sectors under consideration.

Treasury doubled the annual averages for its administrative estimates because commercial data may miss transactions. It projected about 150 organizations responding each year, 200 submissions and approximately 18,000 hours of annual reporting and record keeping. Estimated annual information collection costs range from $2.31 million to $5.274 million.

Comments, enforcement and the next decisions

Treasury already has an enforcement record under the existing investment program. In July 2026, it fined an American company $200,000 after a subsidiary failed to report a $92,500 investment in a Chinese artificial intelligence and robotics company. The fine was more than twice the investment amount.

The proposed framework would allow civil penalties up to the greater of an inflation adjusted $250,000 or twice the value of the transaction. Treasury could also require prohibited investments to be divested or transactions to be unwound.

The main dates trace the proposal's development and the next opportunity to change it:

• 2023: President Biden launches restrictions on outbound investment in selected Chinese technology sectors by executive order.
• December 18, 2025: The COINS Act is enacted as part of the defense authorization law for fiscal year 2026.
• July 2026: Treasury issues the $200,000 penalty over an unreported investment.
• October 22, 2026: Treasury proposes expanded rules, including biotechnology.
• December 7, 2026: Written public comments are due.

Treasury will review those comments before issuing final regulations. For companies planning deals now, the most consequential decisions concern the pharmaceutical definition, the treatment of collaborations that share costs and profits, and the interaction between licensing agreements and ownership stakes.

Key Points

• Treasury proposes adding biotechnology to US outbound investment controls involving China and other countries of concern.
• Traditional drug licensing and research services would generally remain outside covered transactions.
• Equity investments, certain financing arrangements and joint ventures face tighter restrictions.
• The proposed $50,000 exception concerns notification requirements, rather than permission for prohibited investments.
• The pharmaceutical definition could narrow after public comments, which close on December 7, 2026.
• The final rules and their effective date have yet to be set.