U.S. Treasury Proposes Adding Biotechnology to Outbound Investment Restrictions on China

On October 22, 2026, the U.S. Department of the Treasury (Treasury) published a Notice of Proposed Rulemaking (NPRM) that would add biotechnology to regulations under the Comprehensive Outbound Investment National Security (COINS) Act. The change could create a significant obstacle for American biopharma companies that have been looking to capitalize on the abundance of innovative technologies coming out of China.

Enacted in December 2025, the COINS Act restricts certain U.S. outbound investments into technologies “that benefit a foreign adversary’s military modernization efforts, surveillance states, and human rights abuses.” Technology categories already covered under the law include semiconductors and microelectronics, quantum information technologies, and artificial intelligence.

The NPRM is aimed at certain outbound “covered transactions” by U.S. persons involving a “covered foreign person” tied to a country of concern, where the transaction relates to “covered national security technologies and products.”

It remains to be seen how these parameters will be formally defined following the comment period. In the meantime, our Life Sciences Industry Team breaks down the implications and impact for stakeholders in biotech and pharma.

What Transactional Structures Do the Proposed Rules Potentially Restrict?

• Risk is highest when equity and capital-raising are involved, whether that is through licensing models featuring an equity component (such as the “NewCo” model), subscriptions in a financing round, warrants, flat-out company acquisitions, or deals involving convertible instruments.
• “Entrance into a joint venture” is mentioned as a controlled area within the rules framework. Treasury notes that “joint venture” refers to the plain-English meaning of the term, i.e., “as involving the contribution of capital and/or assets by two parties and the sharing of profits and losses.”
  • It is worth being mindful of joint venture (JV) deal structures that fund new facilities, scale-up, or capacity expansion.

What Transactional Structures Appear to Be ‘Safe’?

• Contractual arrangements “other than those for technology transfer or technical knowledge transfer” and fee-for-service drug research and development (R&D) collaborations, are largely spared from the restrictions. In other words, “pure” licensing feels safe.
• If a U.S. person purchases a royalty stream or revenue interest from a covered foreign person, the arrangement can resemble an investment-like exposure, depending on its structure. That being said, the proposed rules do not specifically set parameters for these instances.
• Distribution agreements are typically commercial in nature and barring embedded language pertaining to equity, present low levels of risk.

Who Will Be Most Impacted?

• In recent years, Big Pharma companies have increasingly viewed Chinese biotech firms as a core source of early- and mid-stage pipeline assets. M&A and JV structures could be materially impacted by the framework, despite Big Pharma moving more toward licensing and NewCo models that provide global commercialization rights without assuming full ownership risk.
  • Big Pharma companies should be aware of potential scrutiny on strategic minority stakes that accompany licensing and co-development structures. For example, co-development arrangements where pharma takes shares for governance, alignment, or economics may be impacted. Additionally, any instrument that is equity or equity-like (preferred, convertibles, warrants, SAFE-like) presents classification risk under the proposed framework.
• Investors, particularly those involved in spinning out new companies when licensing Chinese products, will bear significant impact.
  • The COINS Act lists “acquisition of an equity interest” in a Chinese entity as a “covered national security transaction.” Current COINS language defines Chinese ownership of 50% or above as constituting a Chinese entity, but under the new proposed rule any deal involving an equity interest component may be subject to Treasury scrutiny.
• Biopharma corporate development teams pursuing China JVs or equity-linked partnering will likely hit hurdles prior to closing.
• China-based biotech platforms in advanced or dual-use-adjacent areas that have historically depended on U.S. strategic and financial capital stand to be heavily affected by the new framework.
• In-house counsel and compliance teams will need to operationalize a new screening and notification regime (i.e. classify biotech activities as prohibited/notifiable/out-of-scope).
• Contract Manufacturing Organization (CMOs), Contract Development and Manufacturing Organization (CDMOs), and Contract Research Organization (CROs) involved in advanced or dual-use biotech in China stand to be impacted despite the NPRM’s focus on investment and not trade, as investing in capacity providers is common (strategic stakes, JVs, build-operate-transfer models) and JVs that expand “industrial-scale” biological production, advanced gene editing pipelines, or other covered production capabilities could be subject to scrutiny.

What’s Next?

• Treasury is requesting that stakeholders submit comments by December 7, 2026. The rules are expected to be finalized by March 2027. Extent of revisions remains to be seen.
  • Ballard Spahr attorneys can assist clients and industry stakeholders in providing comments to the Treasury ahead of the December 7 deadline. Please contact a member of our Life Sciences Industry Team.
• In the meantime, stakeholders can consider the following as de-risking measures to avoid scrutiny under the proposed rules framework:
  • Establish “ownership” at the outset. Create a cross-functional working group to view everything from a bird’s-eye perspective and establish a “stop-the-line” process for deal teams.
  • Build a transaction screening tool and intake questionnaire.
  • Produce an internal “biotech scope guide” aligned with the NPRM definitions, which can include plain-English descriptions of in-scope versus likely out-of-scope.
  • Integrate COINS screening procedures into all phases of deal processes (e.g. pre-LOI/term sheet, pre-signing, and pre-closing).
  • Update compliance program controls and recordkeeping.

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