Treasury issued the proposal (91 Fed. Reg. 67396) on October 22, 2026; publication followed on October 26. It implements the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act). Comments are due December 7, 2026. The biotechnology expansion is not yet effective. Industry groups are engaging with Treasury to seek a more targeted approach. Biotechnology Innovation Organization (BIO) has cautioned against overly broad restrictions, while the Massachusetts Biotechnology Council (MassBio) has announced plans to submit comments. Treasury is seeking input on narrower pharmaceutical and equipment coverage, leaving room for substantive changes before finalization. The extent of any revisions remains uncertain; the analysis below addresses the proposal as currently drafted. Our October 27 LawFlash covers the broader proposal.
THE PROPOSAL REACHES THERAPEUTIC DRUG DEVELOPMENT
The pharmaceutical provision covers developing, engineering, or using a biological system or component to modify, enhance, produce, or control pharmaceutical compounds or delivery mechanisms. Examples include small molecules, vaccines, cell and gene therapies, and monoclonal antibodies. Therapeutic purpose and chemical manufacture of the finished drug do not themselves resolve coverage. Treasury seeks comments on the undefined term “biological system” and narrower pharmaceutical or equipment coverage. Diligence must examine actual activities.
Separate provisions cover specified sequencing, bioinformatics, laboratory automation, brain-computer interfaces, and biomanufacturing equipment. A purchase alone does not meet those development or production conditions; use may trigger the pharmaceutical provision. Biotechnology has no notification tier: the $50,000 exception for otherwise-notifiable transactions does not protect prohibited biotechnology investments.
LICENSING AND INVESTMENT FOLLOW DIFFERENT RULES
Upfront fees, milestones, and royalties would not alone make a license a covered investment. Equity in a covered Chinese developer conducting specified activities requires separate assessment; earmarking proceeds for an uncovered program would not itself remove entity-based coverage. The public-securities exception covers qualifying exchange- or OTC-traded securities, but not investments affording governance rights beyond standard minority protections. Knowledge includes facts discoverable through reasonable and diligent inquiry.
Equity and contingent interests, including warrants and convertible instruments, may be covered. Acquisition and conversion require separate review; the conversion limb applies to instruments acquired on or after effectiveness. Debt with financial or governance rights characteristic of equity but not typical of a loan may also qualify.
For co-development, Treasury invokes the ordinary meaning of joint venture: contributions of capital or assets and sharing of profits and losses. No separate entity is required. Routine payments to contract research organizations (CROs) or reimbursement for clinical costs would not, alone, establish a venture. The joint venture provision requires a covered foreign person as a partner and the US participant’s knowledge, at entry, that the venture will conduct or plans to conduct prohibited activities. The venture itself need not be a covered foreign person.
Separate Biotech Investment National Security Act (BINSA) bills H.R. 9102 and S. 5316 would add licensing of prohibited technology from a covered foreign person; neither is enacted. Treasury’s proposal prohibits evasion.
NEWCOS REQUIRE TWO SEPARATE ANALYSES
For a US subscription, first test whether NewCo is a covered foreign person with relevant activities. Non-US entities may qualify through Chinese incorporation or a principal place of business there. Ownership, control, and financial attribution can also make offshore or US-organized entities covered persons. Relevant country-of-concern persons’ direct and indirect holdings are aggregated, with a 50% threshold tested separately for equity, voting interests, and board voting power. Power to direct management or policies, including by contract, is a separate test; Chinese-origin intellectual property alone is insufficient.
Financial attribution (§ 851.208(a)(8)) requires both a qualifying relationship and a financial threshold. The target must directly or indirectly hold a qualifying voting or equity interest, board seat, or contractual management power in a covered person conducting qualifying activities. It must derive more than 50% of annual revenue or net income or incur more than 50% of annual capital expenditure or operating expenses from or through those businesses. Aggregated sources must each contribute at least $50,000 of the measure tested. The voting/equity limb excludes interests that would satisfy § 851.501(a) if held by a US person.
A holding company owning equity in a Chinese antibody developer that generates 60% of the holding company’s net income could meet the test. The threshold measures income, not ownership; royalties alone do not establish the qualifying connection.
Reducing Chinese equity below 50% may address ownership, but not control, attribution, or the second inquiry: venture formation. Licensed technology and development capital contributed under shared profit-and-loss arrangements may form a joint venture even in a US NewCo. Giving the licensee final decision-making authority on a steering committee may reduce control concerns but does not provide a safe harbor from the joint venture rules. The draft specifies no shared-control condition. Review vetoes over budgets, development plans, and regulatory strategy alongside contributions and shared economics.
US CONNECTIONS OF FOREIGN INVESTORS
US persons include citizens, permanent residents, US-organized entities and their foreign branches, and persons in the United States. US parents must take all reasonable steps to prohibit and prevent prohibited transactions by controlled foreign entities. A fund’s US general partner, managing member, or investment adviser within the specified statutory definition can establish a parent relationship without majority ownership.
A US decisionmaker at a foreign firm cannot knowingly direct equity, debt, venture, conversion, or greenfield transactions that would be prohibited if undertaken by a US person. Recusal before approval must cover recommendations, transaction-document work, and negotiations. US nationality does not itself prevent employment at the firm.
A US LP’s acquisition of a non-US fund interest may be covered where the LP knows at acquisition that the fund likely will invest in covered foreign persons in specified sectors and the fund undertakes a transaction that would be covered if made by a US person. The LP exception requires either committed capital not exceeding $2 million across the fund’s investment and co-investment vehicles, or a binding assurance that its capital will not fund prohibited or notifiable investments, as applicable. Rights over the covered foreign person beyond standard minority protections defeat either alternative.
Treasury expressly explains that an otherwise qualifying assurance protects the LP under this investment route if the fund breaches it. The protection does not extend to directing, evasion, or separate direct or indirect transactions.
Sequence matters. Where the LP enters before the fund acquires covered equity, § 851.209(e) distinguishes the LP interest from an indirect equity acquisition; the specific LP test still applies.
If covered holdings already exist when the LP enters, Treasury’s preamble identifies a potential separate indirect-transaction route. A side letter addressing the LP exception cannot be assumed to resolve that route. Fund entrants therefore need portfolio diligence as well as contractual protection; direct co-investments require separate review.
These LP restrictions do not themselves prohibit investments by an independent non-US fund.
EXISTING ARRANGEMENTS AND FUTURE FUNDING
The March 13, 2027 statutory rulemaking deadline is not an effective date. Part 850 governs earlier activities within its scope. Biotechnology’s addition does not automatically require divestment of historical holdings. Test each closing and funding tranche against eventual effectiveness; earlier signing or closing does not itself protect later investments.
The commitment exception covers transactions fulfilling a binding, uncalled capital commitment entered before effectiveness. Its text is not limited to funds, but an ordinary signed acquisition agreement does not, by itself, establish such a commitment. New commitments require independent assessment; the exception does not cure earlier Part 850 violations.
Greenfield or expansion investments in China may qualify where the US person knows or plans they will establish a covered foreign person conducting prohibited activities or cause one to conduct them. A wholly US-owned Chinese antibody facility can therefore be covered. The intracompany exception permits noncovered operations and maintenance of covered operations predating effectiveness; upgrades and expansion remain unresolved.
A national-interest exemption requires Treasury’s discretionary written approval. Nonbinding feedback concerns whether an actual prospective transaction would be prohibited. Requests require a direct financial interest, material terms in binding documentation, and identified parties. Treasury may decline, with no response deadline. Feedback is neither authorization nor exemption.
CHINESE TECHNOLOGY EXPORT REQUIREMENTS
China’s Announcement No. 48 requires interim registration before exports of technologies in Annex 1, including ownership transfers, licensing abroad, and changes in the technology’s owner or actual controller to a foreign party. Registration began October 16, 2026, and includes exports begun but incomplete. It differs from approval under the proposed catalogue: the new prohibitions and restrictions remain drafts, with comments due November 15, 2026.
Proposed platform entries cover proprietary, reusable cell and gene therapy and siRNA technologies supporting multiple drugs. They prohibit ownership transfers but exclude retained-ownership licenses, specified outsourced services, and specified product-related processes. A separate entry covers specified pathogen enhancement and directed-passaging technologies (267302J), without the ownership-only limitation. Restricted entries address proprietary discovery and validation of globally undisclosed targets in those fields. Automatic licensing is contemplated for licensing those restricted technologies; it is not license-free export, and procedures remain unresolved. Our October 20 China export LawFlash explains further.
IMPLICATIONS FOR CROSS-BORDER BIOTECH TRANSACTIONS
For pending transactions, these issues should be addressed while commercial terms remain negotiable. A license with equity consideration should specify what happens if the shares cannot lawfully be issued or acquired. NewCo investors and collaboration partners should assess governance and shared economics alongside future financing needs; replacing equity with cash may leave joint venture concerns unresolved. Fund investors should separately examine existing portfolio exposure and obligations to provide additional capital.
China’s requirements raise a further execution question: Which technology can be delivered, under what registration or licensing requirements, and when? Agreements should allocate responsibility for those steps and address the consequences for payments, development obligations, and termination if delivery or funding becomes restricted. Although industry engagement with Treasury may reshape the final US rules, parties negotiating today should agree on how those contingencies will be handled before committing to a structure.
