Treasury’s China Biotech Ban Leaves Drug Licenses Open

The U.S. Treasury Department on October 22 proposed a ban on American equity stakes in Chinese biotech firms that make drugs, while leaving ordinary licensing deals outside the rule. Comments run through December 7. A later final rule would set the start date.

The draft would carry out the Comprehensive Outbound Investment National Security Act, written into the fiscal 2026 defense bill, and Secretary Scott Bessent added biotechnology to the proposed regulations beside chips, super intelligence, quantum technology, supercomputing and hypersonic systems.

Licensing Deals Still Clear the Proposed Rule

A Treasury official told reporters the same day that the notice does not address licensing deals. Chris McGuire, a senior fellow at the Council on Foreign Relations and a former National Security Council official, wrote that the draft does not prohibit licensing of products, public-stock purchases, or exports, even as it hits private capital.

That split is the whole design. Covered deals are equity, certain convertible debt, greenfield expansions, joint ventures and some fund stakes in a “covered foreign person” that works on a prohibited or notifiable technology. Paying cash, milestones and royalties for rights to a molecule, with no share purchase, does not meet that definition unless someone uses the license to dodge the rule.

Jocelyn Ulrich, vice president for policy and research at PhRMA, the brand-drug lobby, said most China deals still take that license form, with the U.S. firm holding the molecule outside China and running American trials. “As long as U.S. companies are able to develop, run clinical trials in America, and bring it through the FDA process, we don’t see that there is a national security concern with that,” she said.

The health-data firm IQVIA counted 61 China-to-international partnering deals in the first half of 2025, 37 of them with a U.S. company, and put aggregate spend on Chinese-originated assets at $48.5 billion in that half, against $44.8 billion for all of 2024. Those figures are the pipeline the draft would meet, and most of that flow is license paper, not share certificates.

What Treasury Put on the Banned List

Biotechnology is the add-on. The 2025 law named five sectors and let the secretary bring in more if they enable military, intelligence, surveillance or cyber tools of a listed country. Bessent used that power. The draft treats pharmaceutical compounds as a prohibited technology, spanning small molecules, polymers, vaccines, blood products, allergenics, cell and gene therapies, monoclonal antibodies, other recombinant proteins and their delivery systems.

BIOTECH ACTIVITIES ON THE PROHIBITED LIST

• Bio-derived materials: Certain compounds and materials made with biological systems, including the drug list above.
• Factory gear: Biomanufacturing equipment and facilities.
• Design tools: Biotechnology used in biological design, sequencing and related work, plus bioinformatics software.
• Lab automation: Hardware or software for automated scientific discovery or experimentation.
• Brain interfaces: Brain-computer interface work, grouped with the same ban.

A U.S. person includes citizens, green-card holders, U.S. entities and their foreign branches, and the duties also reach companies they control abroad. Listed countries are China (including Hong Kong and Macau), Cuba, Iran, North Korea, Russia, and Venezuela under the Maduro regime as the fact sheet defines it. A foreign firm can also be covered if more than 50 percent of a key financial metric traces to such a person.

COVERED VERSUS EXCEPTED

The $50,000 figure is a paperwork floor, not a free pass around the ban. A U.S. person who must file would have 30 days after closing, or 30 days after learning facts that would have made the deal covered. Treasury also sketched a path to ask whether a live deal is prohibited, and a separate national-interest exemption from the ban.

An Equity Kicker Like Pfizer’s Would Be Banned

The license desk is open. The share purchase that often rides with a license is not. When Pfizer closed its ex-China license for 3SBio’s PD-1/VEGF antibody SSGJ-707 on July 24, 2025, 3SBio received a $1.25 billion payment and Pfizer also made a $100 million equity investment, with an option on China rights of up to $150 million. That close landed before the December 18, 2025 enactment date, so the completed deal sits outside the new statute. A copy of that template after a final rule would hit the equity ban.

HOW RECENT CHINA DEALS WOULD FARE

Laurie Burlingame, a life-sciences lawyer at Morse, Barnes-Brown & Pendleton, had already flagged that a sector add, by itself, was unlikely to sweep ordinary product licenses because the statute is built around equity. The Innovent collaboration is the harder case. The two firms will co-develop four programs and share development costs plus U.S. and European results. Treasury declined to define “joint venture” beyond the ordinary meaning, a contribution of capital or assets and a sharing of profits and losses, and said the term would not require forming a new entity. The official who said licenses are out of scope would not say how co-development and co-marketing would be treated.

Venture Funds, Joint Ventures and the NewCo Path

U.S. venture funds that buy private Chinese biotech shares are the cleanest target. So are greenfield plants and most partnership vehicles that mix capital with a listed-country firm. Index funds and exchange-traded products that hold public Chinese names would still clear, which is how large retirement accounts already sit in those stocks.

A newer U.S. habit is the NewCo. Venture investors form an American company around assets licensed from China, and the Chinese licensor often takes shares in the new firm so it keeps some upside. Under the statute, Chinese ownership at 50 percent or more would pull that NewCo into coverage. The draft’s anti-evasion language could also reach smaller stakes if the equity is there to get around the ban. Deal lawyers will spend the comment period arguing about that line.

Jason Kelly, co-founder and chief executive of Ginkgo Bioworks and former chair of the U.S. National Security Commission on Emerging Biotechnology, cheered the add. He wrote that newly acquired drugs originating in Chinese startups have gone from roughly 0% to 50% over five years, and that U.S. patients still supply most of the world’s branded-drug profit while China pays far less at home.

Great to see the leadership from @SecScottBessent adding biotechnology to the COINS Act list of strategic technologies.

We've been hollowing out the US biotechnology startup ecosystem with newly acquired drugs originating in Chinese startups going from roughly 0% to 50% over… https://t.co/GngNTOeEiy

— Jason Kelly (@jrkelly) October 22, 2026

His figure is about where Big Pharma now shops for assets, not about the rule’s 50 percent parent test. The policy fight under it is simple. If U.S. venture money leaves Chinese private biotech, the next crop of licenseable molecules still gets built, just with European, Japanese, Middle Eastern or domestic Chinese capital. The license desk can keep buying. The American claim on the companies that invent those molecules gets thinner.

China Drafted Its Own Biotech Export List

Washington is not writing in a vacuum. In mid-October, China’s Ministry of Commerce proposed tighter limits on the foreign sale of some biopharma innovations, including domestic cell-and-gene therapy technologies. The ministry said licensing that looks like other major economies’ rules could continue, and that it did not intend to block what it called normal international technical cooperation.

A U.S. drug lobbyist, speaking without attribution, read that package as a set of levers Beijing can pull if Treasury goes further. Yanzhong Huang, who studies Chinese health politics at the Council on Foreign Relations, said the pattern matches a wider Chinese push to keep core know-how at home while still letting firms cash out through licenses. Beijing’s own five-year pharmaceutical plan, issued in September, called the sector a national pillar alongside chips, batteries and robots.

House China committee chair John Moolenaar, a Michigan Republican, has pressed Bessent to treat biotech as prohibited technology and to look at licensing and commercialization, not only share purchases. The October 22 notice went the other way on licenses. That is the compromise industry spent months seeking, and it is also the hole hawks will try to close in comments.

High-Bandwidth Memory Joins the Chip Controls

Biotech is the new political fight. The rest of the notice hardens the older chip and computing screen. The semiconductor ban still covers certain design software, fabrication and advanced packaging tools, and specified advanced chips. It would grow to radiation-hardened chips, photonic chips, high-bandwidth memory and more classes of advanced integrated circuits. Supercomputer investment stays banned. High-bandwidth, low-latency interconnects would pick up a notice duty.

On September 29, Executive Order 14434 told agencies to say “super intelligence” and “SI” in place of artificial intelligence in certain papers. The draft follows that order. McGuire’s read is that the SI definition is wide enough to catch most Chinese software products and many firms that only embed the systems, including robotics and drones. He also expects those definitions, and the biological-systems language, to narrow before a final rule.

HOW OUTBOUND CONTROLS GREW

1. August 9, 2023: An executive order starts the outbound program on semiconductors, quantum technology and artificial intelligence in China, Hong Kong and Macau.
2. January 2, 2025: Treasury’s Outbound Investment Security Program takes effect under 31 C.F.R. Part 850.
3. December 18, 2025: The COINS Act becomes law inside the fiscal 2026 defense bill, putting the screen in statute and adding hypersonic systems and supercomputing, plus more listed countries.
4. October 22, 2026: Treasury issues the proposed rule and adds biotechnology, high-bandwidth memory and a broader SI definition.
5. December 7, 2026: The public comment window closes. A later final rule will set the effective date.

McGuire pointed to a split inside the administration that the notice does not resolve. Treasury is tightening what Americans may invest in. Commerce has been easing some advanced-chip export licensing toward China. Capital and goods are being handled as if they were different problems. For a fund, they are the same Chinese balance sheet.

BIO Wants a Narrower Definition of a Drug

The draft is not in force. Treasury opened a comment period concluding December 7, 2026 and asked, among other things, whether “pharmaceutical compounds” should be cut back to advanced or frontier technologies so ordinary medicines are not swept in. That question is the industry’s opening.

Under President Trump’s leadership, we are committed to putting America’s national security first. 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.

Scott Bessent, Secretary of the Treasury, October 22, 2026 notice

John Crowley, president and chief executive of the Biotechnology Innovation Organization, granted the strategic point and then drew a line around it. “The details of the proposed Treasury Department rules matter. We cannot restrict our way to success,” he said. In May he had put the patient version more sharply, asking how Washington would tell American companies they could not touch a Chinese lab’s cure for a rare pediatric cancer.

We cannot restrict our way to success. As Treasury considers comments on the proposed rule, we need to ensure that we do not have an overly broad approach that would create uncertainty for innovators and investors, and that may unintentionally risk weakening U.S. biotech competitiveness.

John Crowley, president and CEO, Biotechnology Innovation Organization

Kendalle Burlin O’Connell, chief executive of MassBio, said Massachusetts firms use foreign licenses to pull discoveries into U.S. development, and that security rules should not blunt that path. Assistant Secretary for Investment Security Christopher Pilkerton said the proposal is aimed at the network and supply chain that come with an investment, which export controls do not fully reach.

WHERE EXPERTS DISAGREE

• The security case: Kelly and other hawks say U.S. capital and know-how have already moved too much of the drug frontier into Chinese startups, and that a capital ban is the remedy.
• The license case: Ulrich and Crowley say a molecule that a U.S. company develops, trials and takes through the FDA is not a security leak, and that a wide compound definition would slow patients.
• The gray zone: Deal lawyers are less worried about a clean royalty license than about cost-sharing collaborations, NewCo equity and anti-evasion language that could still catch the structures Big Pharma used in 2026.

If the final rule keeps the license carve-out and only bans share purchases, U.S. drugmakers can keep buying Chinese-origin candidates the way they do now, with term sheets that drop the equity kicker. If comments push Treasury to treat co-development as a joint venture, or to shrink the compound list to a handful of dual-use tools, the same notice becomes a much smaller instrument than Thursday’s headlines described. The filing window is where that fight now sits.

Disclaimer: This article is news reporting and analysis of a proposed Treasury investment rule. It is informational only and does not constitute investment, legal or medical advice, and it is not a recommendation to enter, restructure or abandon any cross-border biotech transaction. Readers considering such deals should consult qualified securities counsel, and patients should consult a licensed physician about any therapy. Figures, deal terms and the status of the proposal reflect the Treasury notice and company statements cited here and may change when a final rule is issued.