Treasury Draft Rules Ban U.S. Equity in Chinese Biotech but Spare Licensing Deals

Key points

• The Treasury’s draft rules categorize 'pharmaceutical compounds,' including small molecules, vaccines, and gene therapies, as prohibited technologies for outbound investment in China.
• The regulations target equity acquisitions, joint ventures, and greenfield investments, but exclude standard asset licensing deals where U.S. firms pay royalties for ex-China rights.
• The rules implement the COINS Act, enacted in December 2025 as part of the national defense bill, which expanded restrictions beyond semiconductors and AI to include biotech.
• Transactions completed before the COINS Act’s enactment on December 18, 2025, are exempt from the new restrictions.
• The Treasury is accepting public comments until December 7, 2026, and is specifically asking for feedback on whether to narrow the definition of 'pharmaceutical compounds' to focus only on frontier technologies.

Background

In September 2026, reports indicated the Treasury was drafting rules that would preserve most Chinese biopharma licensing deals, leading to a surge in Chinese biopharma stocks. This followed a record-breaking first half of 2026 for Chinese out-licensing deals, valued at $110 billion. The current proposal represents a formalization of those earlier drafts, moving from informal guidance to a binding regulatory framework under the COINS Act.

How outlets are covering it

Fierce Biotech and STAT emphasize that while the rules are sweeping, they spare the majority of multi-billion-dollar licensing deals, offering relief to business development teams. Endpoints News frames the release as a potential 'kill off' of China biotech deals, highlighting the divisive nature of the issue. AP News provides broader context, noting the rules also target AI and hypersonic systems, and quotes Chinese officials who criticized the move as an overstretch of national security concepts. Industry leaders like John Crowley of BIO and Kendalle Burlin O’Connell of MassBio argue that overly broad restrictions could weaken U.S. competitiveness and hinder access to new therapies, while national security advocates like Craig Singleton view the rules as a necessary signal to track capital flows that could enhance adversary military capabilities.

Why it matters

The proposed rules could fundamentally reshape the structure of U.S.-China biopharma collaborations, forcing a shift away from equity-based partnerships and NewCo models toward pure licensing agreements. This may limit the flow of capital to Chinese biotech firms while preserving access to their drug pipelines for U.S. companies, potentially affecting the pace of innovation and the competitive landscape in global pharmaceutical development.

What to watch

The Treasury Department will review public comments submitted before December 7, 2026, before issuing a final rule. Industry stakeholders are expected to lobby for a narrower definition of 'pharmaceutical compounds' to exclude standard drug modalities and focus only on advanced or frontier technologies. The final rule’s scope will determine the extent to which U.S. companies can engage in equity investments and joint ventures with Chinese biotech firms.