Biotech Added to US Outbound Investment Rules: Buying Pipelines Is Still Fine, Buying Equity Is Not

On 22 October the US Treasury published a notice of proposed rulemaking under the COINS Act that adds biotechnology as the sixth controlled technology sector — and the only one the Treasury added on its own authority. Drug compounds, biomanufacturing equipment and facilities, biological design and sequencing, brain-computer interfaces, bioinformatics tools, flow cytometers and LC-MS systems would be prohibited. Conventional in-licensing agreements paid in cash without equity, and fee-for-service R&D collaborations, are explicitly carved out. Comments run to 7 December; a final rule is targeted before 13 March 2027.

On 22 October the US Treasury released a notice of proposed rulemaking (NPRM) implementing Section C of the Comprehensive Outbound Investment National Security Act (COINS Act). The document formally adds biotechnology as the sixth controlled technology sector, alongside semiconductors and microelectronics, artificial intelligence, quantum information, high-performance and supercomputing, and hypersonic systems. The difference: the first five were designated by Congress, while biotechnology is the only category the Treasury added under its own delegated authority.

For Chinese CXOs and biotech companies the significance is not that another restriction has been added. It is that the proposal separates capital from services for the first time: equity and quasi-equity are prohibited, while fee-for-service outsourcing and cash-paid licensing are carved out. Where that line falls will shape the channels for Chinese biotech out-licensing and CDMO order-taking for years.

The prohibited list: from drug compounds to flow cytometers

The proposal places the following in the prohibited rather than notifiable category: certain biological-derived compounds or materials, biomanufacturing equipment and facilities, technologies related to biological design and sequencing, brain-computer interfaces, bioinformatics tools, laboratory automation and cloud laboratory infrastructure, and specific equipment and software such as genetic analysis technologies, flow cytometers and liquid chromatography-mass spectrometry (LC-MS) systems.

The definition of drug compounds is extremely broad: small-molecule compounds, polymers, vaccines, blood products, allergens, cell and gene therapies, monoclonal antibodies, other recombinant therapeutic proteins, and the delivery systems that carry them into the body. In practice almost every pipeline asset is covered.

The covered transaction types are equally broad: equity acquisitions, convertible debt financing, new investments, joint venture formation, and investment in certain limited partnership interests. The proposal also names two lists as identifiers of covered entities: the Section 1260H Chinese Military Companies List under the NDAA, and the Biotechnology Companies of Concern List that the Office of Management and Budget is required to prepare under Section 851 of the FY2026 NDAA — the BIOSECURE Act.

That deserves separate emphasis. The BIOSECURE Act previously operated mainly as a supplier exclusion for federal procurement. Now its list mechanism is wired into investment screening. The same list begins to determine both whether a company can win US government contracts and whether it can raise US capital.

The carve-outs are where the line actually sits

The proposal generally does not cover two categories of transaction: conventional technology in-licensing agreements, and drug R&D collaborations conducted on a fee-for-service basis. Treasury's Q&A document states explicitly that these two account for most of the multibillion-dollar deals between Western pharmaceutical companies and Chinese partners.

In industry language: money for pipelines is fine, money for equity is not. Gilead's 22 October agreement to pay USD 1.275 billion in cash upfront for PepStar Therapeutics' oral IL-23R programme, including HCXT-2001, is the textbook move on this line — cash consideration, asset transfer, no equity relationship. Zymeworks' licence to Roche for the DLL3 trispecific T-cell engager, announced the same day (USD 55 million upfront, USD 40 million on Phase 1b initiation, up to USD 718 million in milestones), follows the same model.

What the line cuts away is the structure that dominated the past two years: the NewCo. A Chinese asset contributes the pipeline, a dollar fund contributes capital, and both hold equity in a newly formed offshore company that then raises or sells. The proposal's anti-evasion provision extends review — previously triggered only when the Chinese party held at least 50% of a NewCo — to all China-related NewCo transactions involving an equity acquisition. A 30% NewCo stake could now require notification or be prohibited outright.

For BD teams this turns deal structuring from a tax and valuation question into a compliance-line question. The same asset may be acquirable outright but unsellable via a joint venture.

Timeline and lobbying: five weeks left

The rule remains a proposal. Public comments close on 7 December; a final rule is targeted before 13 March 2027, with the effective date to be set in the final document. Until then the restrictions are not binding.

Opposition comes from US industry itself. The Biotechnology Innovation Organization warned that an overly broad approach creates uncertainty for innovators and investors and may unintentionally weaken US biotech competitiveness. PhRMA, long opposed to China investment restrictions, argues patients want the most advanced therapies as fast as possible and much promising science in the current ecosystem comes from China. The Taxpayers Protection Alliance called the proposal heavy-handed.

Beijing responded quickly. On 24 October MOFCOM said the proposed rules discriminatorily expand and tighten restrictions on investment in China, called it a typical case of over-broadening national security, expressed serious concern and firm opposition, and said China reserves the right to take corresponding measures. The foreign ministry had made a similar statement on 23 October.

One easily missed detail shows the enforcement teeth: in July the Treasury fined a US company USD 200,000 after a subsidiary invested USD 92,500 in a Chinese AI and robotics company without notifying. A USD 92,500 investment producing a USD 200,000 penalty indicates the notification duty is not a paper provision.

The numbers behind the timing

According to PharmCube data cited by Reuters, potential value of Chinese biotech out-licensing deals reached USD 139.4 billion as of 8 October, exceeding the USD 138.8 billion recorded for all of 2025. Upfront payments reached USD 8 billion in the first three quarters, also above the USD 7.2 billion full-year 2025 total. Roughly one third of the global drug pipeline originates in China.

These numbers explain why two things are happening at once: US pharma is accelerating its shopping in China while US policy accelerates its restrictions. Commercial motive and security narrative are pulling on the same table, and the proposal chose a middle path — clear the transactions, block the equity.

Three channels of impact on Chinese CXOs

First, orders are largely unaffected directly. Fee-for-service development and manufacturing collaborations are explicitly carved out, which means the CDMO and CRO business model — charging for services, holding no equity, taking no royalty — sits inside the exemption. The Chinese share of client pipelines will not change because of this document.

Second, what is hit on the capital side is the equity-for-orders route. Over the past two years some Chinese biotechs moved pipelines offshore through NewCos and routed manufacturing orders back to China, and some CDMOs bound clients through joint ventures or minority stakes. Compliance costs for both structures rise sharply under the new rules. If the NewCo channel narrows, two substitutes are likely: selling the asset outright to an MNC (cash consideration, inside the exemption), or keeping the pipeline onshore and taking development work on service contracts. Both produce CDMO orders, but with different timing and pricing — one-off recognition versus instalments.

Third, a two-way tightening of equipment and tools. Flow cytometers, LC-MS, genetic analysis, bioinformatics tools, laboratory automation and cloud labs fall within scope, affecting not just investment but technology collaboration and supply chains. For domestic CDMOs this means reassessing procurement cycles, spare-parts assurance and data compliance for high-end analytical instruments and lab software. For domestic substitute suppliers it is a clear window.

Editor's view: a three-way split, institutionalised

Read alongside other October developments, the document completes an increasingly explicit three-way split: people can come, goods can be sold, money cannot be invested. In mid-October, MOFCOM and MOST's revised draft export control catalogue moved antibodies and small-molecule targeted drugs out of the tightened scope. In late October, the US added biotech to investment prohibitions while exempting licensing and services. Both sides did the same thing at the same time — keep the transaction, remove the binding.

The direct implication for CXOs: over the next three years the competitive question is not who can raise dollar funds but who can make their services irreplaceable. A capital retreat will compress the number of pipelines at financing-dependent small biotechs, but it will also concentrate the surviving pipelines on CDMOs with certifications, capacity and delivery records. That is the same phenomenon as the order concentration repeatedly visible in October's Q3 reports, seen from the other side.

The risks are equally clear. The rule is still a draft and the final text may narrow or tighten. The comment period to 7 December is industry's last window. If a final rule lands before March 2027 and takes effect, 2027 will be the first full year of application, and NewCo transactions, cross-border joint venture capacity and equipment procurement will all be stress-tested at once.