US-China Biotech Transactions: Navigating Each Country’s Evolving Regulatory Landscape

The regulatory landscape governing US-China biotech transactions is evolving rapidly on both sides of the Pacific. Multiple legislative proposals, executive actions, and administrative rulemakings are proceeding in parallel, each at different stages of maturity and each subject to significant political uncertainty. While the proposals discussed in this LawFlash should not be treated as settled law, we provide a high-level overview of the current trajectory to help deal teams on both sides calibrate risk and plan accordingly.

THE US REGULATORY TRAJECTORY

The COINS Act: Outbound Investment Controls

Enacted in December 2025 as part of the FY2026 National Defense Authorization Act (NDAA), the Comprehensive Outbound Investment National Security Act currently covers artificial intelligence, semiconductors, and quantum computing. Biotechnology is not yet included, but Section 809 grants Treasury authority to designate additional sectors without new legislation. Senior members of Congress, including the Chairman of the House Select Committee on China, have publicly suggested that Treasury consider exercising this authority for biotechnology.

Treasury must issue final implementing regulations by March 13, 2027. Whether biotechnology will be included, and whether covered transactions would face outright prohibition or mandatory notification, remains the single most consequential open question in this space.

Notably, the US biopharmaceutical industry secured a carve-out for licensing transactions when FIRRMA was enacted and its implementing regulations were adopted, and is now mobilizing significant lobbying resources to preserve that carve-out against the current wave of proposals. While the China Hawks in Congress appear to have the upper hand, the outcome is by no means certain.

BIOSECURE Act and the 1260H Expansion

Also enacted in December, the BIOSECURE Act restricts federal agencies from contracting with designated “biotechnology companies of concern.” Its direct legal scope is limited to government procurement, not private-sector licensing. However, this month the US Department of Defense (DoD) updated its Section 1260H list of Chinese Military Companies to include, for the first time, several prominent biotech firms.

Section 1260H designation does not automatically result in BIOSECURE designation, but the overlap in policy concerns has caused many market participants to view it as a potential indicator of future risk. While this does not prohibit private transactions, it has significantly elevated board-level sensitivity to China biotech relationships. The practical “halo effect” on deal appetite is real, even where no legal constraint applies.

FY2027 NDAA: Hardening the Infrastructure

The House and Senate Armed Services Committee drafts of the FY2027 NDAA (June 2026) propose expanding the 1260H framework in several significant ways:

• Extending the sunset to 2035
• Broadening designation criteria to cover “informal associations” with the Chinese military
• Most critically, linking 1260H designations to the Federal Acquisition Security Council, which could trigger governmentwide exclusion orders rather than merely DoD procurement bans

These drafts have not yet been reconciled or enacted, but they signal a direction of travel reflected in current committee drafts to escalate consequences.

BINSA: Targeting Licensing Directly

On June 12, Representatives Moolenaar (R-MI) and Dingell (D-MI) announced the Biotech Investment National Security Act (BINSA). This bipartisan bill would amend the COINS Act framework to expressly add “licensing of a prohibited technology from a covered foreign person” as a covered transaction.

If enacted, this would be the first legislation to bring pharmaceutical licensing structures, not just equity investments, within the outbound investment regulatory perimeter. BINSA remains a discussion draft and faces the full legislative process. Its enactment is not assured—the biopharma industry views this as a direct challenge to the licensing carve-out it obtained under FIRRMA and is expected to oppose it vigorously—but its bipartisan origin from the Select Committee on the CCP suggests the proposal may receive serious consideration.

CFIUS: The Persistent Inbound Risk

While much attention is focused on outbound investment, the Committee on Foreign Investment in the United States (CFIUS) remains a critical hurdle for inbound transactions. CFIUS jurisdiction over biotech transactions, particularly those involving sensitive personal data (such as genomic datasets) or critical technologies, is a major regulatory consideration even for inbound licensing or NewCo structures.

Deal teams must assess whether a transaction structure triggers mandatory filing requirements or presents national security risks that could lead to CFIUS intervention.

Other Signals: Clinical Data and Research Security

Two additional policy signals merit monitoring. First, the House Appropriations Committee included language in its FY2027 Food and Drug Administration report directing the agency not to accept clinical data from Chinese investigation sites. It is important to note that committee report language is not legally binding and may not be reflected in final appropriations legislation, but it is indicative of direction.

Second, introduced on June 11, the Web of Biological Data Act would establish a unified national biological data platform, signaling that biological datasets are increasingly viewed as sensitive national security assets. Neither creates immediate legal obligations but both inform the broader trajectory.

THE CHINA REGULATORY TRAJECTORY

State Council Decree No. 837: Outbound Investment Under New Scrutiny

On June 1, China’s State Council published the Regulations on Outbound Investment (Decree No. 837), effective July 1, 2026. This is the first administrative regulation to consolidate China’s previously fragmented outbound investment rules (NDRC Order 11, MOFCOM Order 3, SAFE circulars) into a single, elevated legal instrument.

The regulation establishes a formal outbound investment security review system, broadens the definition of outbound investment to include indirect investments through offshore platforms, and, critically, explicitly targets “offshore washing” (i.e., using Cayman/BVI/Hong Kong structures to place China-origin capabilities beyond regulatory reach). Regulators can now “look through” corporate form to reach China-origin strategic capabilities. See our recent LawFlash on Decree No. 837 for more information.

Implications for Cross-Border Biotech Structures

The practical impact is significant. Chinese biotech companies with purely domestic corporate structures now face substantially greater difficulty obtaining approvals to establish offshore holding companies (Hong Kong or Cayman holdcos) for the purpose of overseas IPO or NewCo participation. Some market participants have reported longer review timelines and increased documentary requirements for red-chip restructuring. For companies that have not yet established an offshore structure, the window to do so is narrowing.

Importantly, pure license-out transactions—wherein a Chinese biotech grants territorial rights in exchange for cash milestones and royalties, without taking equity in an overseas entity—generally remain outside the scope of Decree No. 837 and continue to be encouraged by Chinese regulators as a form of technology export earning foreign exchange.

However, transactions involving equity consideration (such as the Chinese licensor receiving shares in a NewCo), joint venture arrangements, or outright IP transfers are increasingly likely to trigger the new security review mechanism. Furthermore, the application of this new review mechanism to hybrid structures (e.g., upfront cash combined with equity milestones or warrants) remains uncertain. The distinction between “licensing for cash” and “licensing for equity” has become a critical structural variable on the China side as well.

THE CONVERGENCE: DEAL DESIGN IN AN ERA OF DUAL-SIDED SCRUTINY

The central structural insight emerging from these parallel developments is that the distinction between “licensing for cash” and “licensing for equity” has become the single most important regulatory variable for cross-border biotech transactions on both sides of the Pacific simultaneously.

NewCo structures—in which a Chinese biotech licenses assets to a newly formed offshore entity in exchange for equity in that entity—have become popular over the last several years as a mechanism for Chinese biotechs to access US capital markets and global development capabilities. These structures now sit at the precise intersection of both US outbound investment scrutiny (potential COINS Act coverage, BINSA) and China outbound investment security review (Decree No. 837).

The simultaneous tightening on both sides creates a convergence that deal teams must navigate carefully. On the US side, equity-linked structures (NewCos, JVs) face potential outbound investment scrutiny; on the China side, the same structures face outbound investment security review. Pure licensing remains the structure with the least regulatory friction on both sides—but BINSA, if enacted, would close that gap on the US end. The net effect is an increasing premium on early planning and structural flexibility.

For deal teams, the key takeaway is not that transactions have become impossible—multiple large cross-border biotech deals have closed in 2026, and market activity continues. Rather, it is that the era of structuring transactions without regard to regulatory trajectory is over.

Companies that develop institutional competence in mapping their structural exposure, building regulatory flexibility into term sheets, and maintaining awareness of legislative timelines will have a meaningful advantage—both in speed of execution and in resilience against future rule changes.

For business teams evaluating term sheets today, the practical implication is straightforward: structures involving equity ownership carry increasing regulatory uncertainty, and teams should avoid committing to a single structure before regulatory analysis is complete.

KEY CONSIDERATIONS FOR DEAL TEAMS

Given the evolving regulatory landscape, deal teams currently structuring or negotiating cross-border biotech transactions should consider the following:

• Preserve multiple structural pathways. Avoid locking into a single transaction structure (e.g., NewCo with equity) before regulatory analysis is complete.
• Evaluate the cash/equity spectrum. Understand where a proposed structure falls on the licensing-for-cash to licensing-for-equity continuum and how that positioning affects regulatory exposure on both sides.
• Build regulatory flexibility into term sheets. Consider regulatory-change termination rights, structural optionality clauses, and contingency structures that allow adaptation if rules change.
• Assess CFIUS exposure early. Even inbound licensing or NewCo structures may trigger CFIUS jurisdiction if they involve sensitive personal data, genomic datasets, or critical technologies.
• Monitor key milestones. July 1, 2026 (Decree No. 837 effective date); late 2026 (Treasury proposed rule on COINS Act sector designations); March 13, 2027 (Treasury final implementing regulations).
• Do not assume current regulatory gaps will persist. The absence of a current prohibition (e.g., BINSA not yet enacted) does not mean a structure is permanently safe. Plan for a range of outcomes.

KEY DATES AND MILESTONES TO WATCH

• July 1, 2026: China’s Decree No. 837 takes effect.
• Late 2026: Treasury’s proposed rule on COINS Act sector designations expected.
• March 13, 2027: Statutory deadline for Treasury’s final implementing regulations.
• 2027 (timing uncertain): FY2027 NDAA conference reconciliation; BIOSECURE FAR updates; BINSA legislative progress.

Deal teams should treat these dates as planning anchors while recognizing that political dynamics may accelerate or delay any of these timelines.

LOOKING AHEAD

The regulatory environment for US-China biotech transactions is not binary—it is not “open” or “closed.” What is emerging is a more structured landscape that rewards regulatory awareness, thoughtful deal design, and advance planning.

We will continue to monitor developments on both sides of the Pacific and provide updates as the picture clarifies. Each of the topics addressed above warrants deeper analysis for specific transaction structures, and we are available to discuss how these developments may affect your particular situation.

Because many of these developments remain proposals, draft legislation, or evolving administrative initiatives, companies should avoid assuming that any single regulatory outcome is inevitable.

UPCOMING EVENT

Morgan Lewis will be hosting a fireside chat for life sciences deal teams to discuss practical structuring considerations in greater detail. Several key regulatory milestones are expected between July 2026 and March 2027 that could materially affect transaction planning.

Companies currently evaluating NewCo, licensing, or JV structures may benefit from assessing regulatory flexibility before committing to a definitive structure. If you would like to receive an invitation, please contact the authors.