U.S. Treasury Department and China’s MOFCOM Propose Restrictions on Biotechnology Transactions

In the midst of a raging national security and economic policy debate over how best to approach growing U.S.-China competition in biotechnology, both the U.S. and China have proposed new steps that could prohibit or restrict a wide range of deals and collaborations between U.S. and Chinese entities, while allowing many licensing deals to proceed. For life sciences leaders, these developments reinforce the need to assess drug pipelines, enabling platforms, manufacturing capacity, and sensitive biological data as strategic assets. National security considerations increasingly require careful examination at the outset of business development and planning, when companies still have flexibility as to counterparties, technology access, and deal terms and structure.

The U.S. Department of the Treasury (Treasury) and Ministry of Commerce of the People’s Republic of China’s (MOFCOM) proposals are addressed in detail in this Advisory.

U.S. COINS Act Proposal

On October 22, 2026, Treasury issued a Notice of Proposed Rulemaking (the Proposed Rule) to implement the Comprehensive Outbound Investment National Security (COINS) Act, enacted in December 2025 as part of the Fiscal Year 2026 National Defense Authorization Act. For life sciences companies and investors, one of the most consequential changes is the addition of biotechnology as a new category of “prohibited technology,” which under the Proposed Rule includes the development of many pharmaceutical compounds.

Key Takeaways

• Biotechnology would become a prohibited technology category. U.S. investors and companies would be barred from engaging in certain investment-related activities, including buying a stake in, or forming a joint venture with, a company that does specified biotechnology work and is based in China or another listed “country of concern” (Cuba, Iran, North Korea, Russia, or Venezuela under the Nicolás Maduro Moros regime). 
  
• The proposed definition is broad and not limited to advanced biotechnology. It reaches the use of a “biological system” (a term Treasury does not define) to develop or make “pharmaceutical compounds,” a category that could range from conventional small-molecule drugs to cell and gene therapies, as well as certain laboratory and manufacturing equipment. The Proposed Rule also covers a broad array of non-biotechnology sectors.
  
• Investments and joint ventures are in scope; traditional in-licensing deals currently are not. A U.S. company’s license to rights in a molecule developed by a Chinese company would not be covered, but a license combined with an equity stake, or a collaboration in which the parties share capital, assets, or profits, likely would be implicated under the Proposed Rule.
  
• Nothing is final. Comments are due December 7, 2026, and Treasury’s limited explanation for adding biotechnology may lead to a narrower rule or a legal challenge. Treasury is soliciting comments on whether it should narrow the rule to focus only on advanced or frontier biotechnologies.

The Existing Program and the COINS Act

The proposed biotechnology restrictions build upon Treasury’s Outbound Investment Security Program (OISP), which was first established through Executive Order 14105 in August 2023 and subsequently implemented through regulations at 31 C.F.R. Part 850 (Part 850), effective January 2025. As described in our November 2024 Advisory, Part 850 prohibits, or requires notification of, certain U.S. person transactions with persons connected to China that are engaged in specified semiconductor and microelectronics, quantum information, and artificial intelligence (AI) activities. The current regulations found in Part 850 do not apply to biotechnology. 

The COINS Act codified the OISP framework and directed Treasury to issue implementing regulations. The act names five technology areas: (1) semiconductors and microelectronics; (2) AI; (3) quantum information technologies; (4) high-performance computing and supercomputing; and (5) hypersonic systems. It also allows Treasury, after consulting congressional committees and providing notice and comment, to add technologies that “enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern.” As described further below, Treasury is now proposing to use that authority to add certain biotechnology activities to the list of prohibited technologies. 

The Proposed Rule

Consistent with the COINS Act, the Proposed Rule would expand prohibitions on U.S. persons from investing in or forming a joint venture, among other covered activities, with a covered foreign person that engages in a prohibited technology. Covered activities involving a covered foreign person that engages in notifiable technology would be subject only to a notification requirement.

A covered foreign person would include any entity incorporated in China and other specific countries of concern (Cuba, Iran, North Korea, Russia, or Venezuela under the Nicolás Maduro Moros regime). The term U.S. person means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States, including any foreign branch of any such entity, or any person in the United States.

Under the Proposed Rule, a prohibited technology would include a wide range of biotechnology activities. As a rationale for the proposal, Treasury states that certain advanced or sensitive biotechnologies in countries of concern pose an “acute risk to U.S. national security,” including through biological weapons proliferation, brain-computer interfaces, supply chain harm, and efforts by those countries to build their own capabilities in technologies with military, intelligence, and surveillance uses.

The Proposed Biotechnology Additions

Although Treasury frames its concern around “advanced or sensitive” biotechnologies, the text is not so limited. Under proposed § 851.226(r)-(u), “prohibited technology” would include:

• Pharmaceutical Compounds. The development, engineering, or use of a biological system or any component thereof to modify, enhance, produce, or control pharmaceutical compounds and their delivery systems. The definition expressly includes small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies and other recombinant therapeutic proteins.
• Other Agents and Materials. The development, engineering, or use of a biological system or component thereof to modify, enhance, produce, or control certain restricted or novel agents and toxins, energetic materials, novel or high-performance functional materials, or biofuels.
• Brain-Computer Interfaces. The development or production of invasive, partially invasive, non-invasive, or hybrid brain-computer interfaces and associated software.
• Biomanufacturing Equipment. The development, construction, or production of biomanufacturing equipment and associated software or technology, as identified in Export Control Classification Numbers 2B352, 2D352, and 2E001 on the Commerce Control List.
• Other Related Technology or Equipment. The development or production of certain other technologies, including biological sequencing technology; certain flow cytometers and cell sorters; certain liquid chromatography mass spectrometry instruments; certain computational and bioinformatics tools; and hardware, robotics, or software for automated scientific discovery or experimentation.

“Development” would cover any stage before serial production, including design research, prototype testing, and pilot production. It would also apply to work done through or in collaboration with an “affiliate” of the covered foreign person.

In addition, the Proposed Rule would define a “prohibited technology” to include engagement by a covered foreign person or a covered joint venture in a “notifiable technology,” where the entity or any of its affiliates or subsidiaries is included on certain U.S. government lists. Those lists include, among others, the U.S. Department of Defense’s list of Chinese military companies operating in the United States (known as the “1260H List”) and the list of “biotechnology companies of concern” identified under the BIOSECURE Act. For additional information on the 1260H List and the BIOSECURE Act, see our June 2026 Advisory.

List screening should be one part of that assessment. The absence of a counterparty from a government list should not be treated as resolving whether its activities fall within the proposed biotechnology categories. As a practical matter, diligence should examine relevant affiliated parties, research partners, and government or military relationships, with follow-up on discrepancies between public information and counterparty representations.

The Impacted Transactions

Consistent with the COINS Act, the Proposed Rule would apply only to certain “covered national security transactions,” which generally include investments in, and joint ventures with, covered foreign persons. Relevant transactions include buying an ownership stake, making a loan that can convert to ownership or carries investor-like rights, and certain other specified arrangements. The Proposed Rule thus would prevent U.S. investment firms from investing in most Chinese biotech companies.

Importantly, the Proposed Rule would not apply to standard in-licensing deals between U.S. pharmaceutical companies and Chinese biotech firms. As we covered in our June 2026 Advisory, those licensing deals have surged in recent years, reaching a record $137 billion in total deal value in 2025. While standard licensing arrangements would not be covered, arrangements that involve a U.S. pharmaceutical company licensee acquiring equity in the Chinese licensor would likely be prohibited. Further, the Proposed Rule would also place certain restrictions on the activities of non-U.S. subsidiaries of U.S. companies, including with respect to activities undertaken by non-U.S. subsidiaries of countries of concern.

The Proposed Rule would also apply to “joint ventures” with Chinese biotech firms, although Treasury does not define the term. Treasury instead relies on what it calls the term’s plain meaning: two parties contributing money or assets and sharing profits and losses. Treasury also contends that a “joint venture” does not require the establishment of a new entity and can be located anywhere. Accordingly, co-development deals between U.S. firms and Chinese biotechs, in which the parties jointly cover development costs and share in any resultant profits, could potentially qualify as a prohibited joint venture. 

Importantly, the Proposed Rule would reach transactions structured to evade or avoid its application. Life sciences companies and investors should therefore carefully evaluate whether arrangements involving the biotechnology sector in China, as well as other countries of concern, could be perceived as efforts to evade the Proposed Rule’s obligations.

The potential enforcement implications also warrant attention. Proposed § 851.104 would assess knowledge in light of a reasonable and diligent inquiry; contractual assurances alone should not substitute for investigating contradictory information. Proposed § 851.701 provides for civil penalties and potential compelled divestment. Companies should preserve the factual basis for their conclusions and establish a process for escalating potential violations to counsel, including consideration of applicable reporting and voluntary disclosure provisions.

Comment Opportunity

In the Proposed Rule, Treasury recognizes that its proposal to include biotechnology activities as “prohibited technologies” may lead to “significant public health risks or harm U.S. businesses” in the biotechnology sector. Accordingly, Treasury is particularly interested in comments on whether it should adopt a narrower scope in the final rule. In particular, Treasury is soliciting comments on:

• Whether and how it should limit the scope of “pharmaceutical compounds” to focus on advanced or frontier technologies
• Whether and how it should focus on instances where a “biological system” is developed using certain equipment or technologies identified in the Proposed Rule
• Whether it should limit the scope of covered equipment and technologies to focus on advanced or frontier technologies
• Whether and how it should define covered “biological systems,” “biofuels,” and “novel or high-performance functional material”

Comments are due December 7, 2026.

Companies considering comments should assess, with concrete examples, how particular restrictions could affect clinical development, patient access to medicines, or the resilience of U.S. supply chains. Comments can also propose workable distinctions between product-specific therapeutic development and potential transfers of reusable capabilities that may raise national security concerns. This would help Treasury evaluate narrower alternatives while developing a record relevant to any subsequent challenge.

Potential for Legal Challenge

Treasury may add technologies beyond those named in the COINS Act only if they “enable the military, intelligence, surveillance, or cyber-enabled capabilities” of a country of concern. Treasury’s explanation for adding biotechnology is brief and general: it does not explain how ordinary commercial biopharmaceutical development meets that standard, or why it warrants an outright ban rather than a reporting requirement. A final rule that retains the pharmaceutical compound category in its current form, together with undefined terms such as “biological system,” could potentially be vulnerable to legal challenge. 

Timing and Considerations

As noted, the Proposed Rule is not yet in effect. Any expansion or modification of the OISP, including the proposed investment restrictions targeting the biotechnology sector, would not take effect unless and until a final rule is published, likely in early 2027. In the interim, in addition to commenting on the proposal, life sciences companies and investors can:

• Map exposure. Inventory and assess existing, pending, and planned equity holdings and collaborations involving shared capital or assets involving countries of concern, and flag arrangements that combine licensing with equity or profit sharing.
• Contractual protections. For pending deals, consider contractual representations on whether the counterparty is a covered foreign person that engages in a prohibited technology and strong protections if the deal is entangled in COINS Act restrictions under a final rule.
• Diligence and governance. Bring counsel, scientific personnel, and business development teams together early to identify the activities and capabilities implicated by a proposed deal. Document the record and rationale when resolving material red flags, and review board and investment committee materials for consistency with the transaction’s actual purpose and structure.
• Congressional action. Watch for legislative developments that seek to expand the COINS Act to apply to licensing arrangements. As we covered in our June 2026 Advisory, lawmakers have introduced the Biotech Investment National Security Act (BINSA) in the House, which would add licensing arrangements to the COINS Act’s list of covered transactions. Although its path to enactment is unclear, BINSA signifies a continued bipartisan focus on the national security implications of licensing deals between U.S. pharmaceutical companies and Chinese firms. 
• Parallel national security requirements. Separately assess applicable sanctions, export controls, and the U.S. Department of Justice’s Data Security Program, including rules addressing certain transactions involving access to Americans’ bulk human genomic or health data. An arrangement outside the outbound investment rules may still implicate these regimes. Map data access, research support, and technology transfers alongside the movement of capital; each regime has its own coverage criteria and exceptions.

China MOFCOM Proposal

The COINS Act Proposed Rule was released just under a week after MOFCOM and China’s Ministry of Science and Technology (MOST) issued Announcement No. 48, which contains proposed revisions to the Catalogue of Technologies Prohibited and Restricted from Export (the Catalogue) under China’s export control regime. While narrower in many respects relative to the Treasury proposal, the new revisions target certain cell and gene therapy (CGT), small interfering RNA (siRNA), and pathogenic microorganism technologies, as well as AI and photovoltaic technologies.

The proposed revisions to the Catalogue are not yet in force. Public comment is due by November 15, 2026, and it is unclear when the final version will be released.¹ If and when the proposed revisions are adopted, they are not expected to apply retroactively to completed technology exports.

MOFCOM Technology Export Framework

The Catalogue was first issued in 2001 and has been amended four times, most recently in 2025. The Catalogue is a negative list, identifying technologies that may not be exported or may be exported only with government approval. A technology export generally includes a transfer of patents, patent application rights, know-how, or other technology from mainland China to an overseas party by assignment or license. The prohibitions and restrictions apply only to the technologies, and not the products utilizing the prohibited or restricted technologies.

Three Tiers of Technology Restrictions

MOFCOM maintains three tiers of technology restrictions:

• Prohibited technologies. A technology listed in the prohibited section of the Catalogue may not be exported. In practice, this means the transaction must be restructured to fall outside the scope of the prohibition, for example, where only ownership transfers are prohibited, by retaining ownership in China and licensing instead of an ownership transfer.
• Restricted technologies. A technology listed in the restricted section of the Catalogue may be exported only after government review and licensing. Under the existing framework, the exporter must apply for and obtain a Letter of Intent for Technology Export from the local provincial-level commerce department before entering into substantive negotiations or signing a technology export contract. The authority then reviews the executed contract and either rejects it or approves it by issuing a technology export license. The technology export contract becomes effective only upon issuance of the license.
• Freely exportable technologies. Technology that is neither prohibited nor restricted may generally be exported without government review or approval. The relevant technology export contract must be registered with the competent authority within 60 days after the contract takes effect in order to facilitate related procedures, such as tax filing, foreign exchange approval, and customs clearance.

Proposed New Categories

(1) CGT and siRNA Technologies

a. Prohibition on ownership transfers of certain technology platforms

The proposed Catalogue would prohibit ownership transfers of proprietary technology and process platforms for CGT and siRNA drugs. Notably, the prohibition is narrower than a general ban on CGT or siRNA transactions. The proposal expressly states that the following are not affected:

• Non-ownership licensing
• Outsourced R&D or manufacturing services using the relevant technology or process
• Technology and processes needed for the development, testing, manufacturing, quality control, marketing approval, or compliance of a specific drug product in a business development transaction

A covered “technology and process platform” is a reusable, foundational set of common technologies developed through sustained research and development and capable of supporting multiple drug products. Technology or processes used only for development of a single drug product are excluded. The dividing line is whether the transfer conveys a repeatable platform capability or product-specific technology for development or commercialization of a single asset.

b. Restrictions on novel target discovery and validation technologies

The proposed Catalogue would restrict ownership transfers and non-ownership licensing of proprietary novel target discovery and validation technologies for CGT and siRNA drugs. 

A “novel target” is a drug target not previously disclosed anywhere in the world through patents, academic literature, public databases, industry technical materials, academic conferences, or similar channels. The covered “novel target discovery and validation technologies” include technologies used to screen for, discover, and confirm such a novel target and to identify a point of action.

Outbound licensing of these restricted technologies would be eligible for “automatic licensing” or other expedited processes. The same expedited processes are contemplated for exports connected with use of overseas resources for joint R&D, public-health emergencies, and humanitarian relief. MOFCOM’s Q&A, dated October 16, 2026, describes the policy as supporting international collaboration, but the proposal does not yet specify whether “automatic licensing” will operate as a filing, simplified review, deemed approval, or other procedure.

(2) Pathogenic Microorganism Technologies

The proposed Catalogue would prohibit export of technologies for artificial genetic modification and directed passaging gain-of-function of pathogenic microorganisms with any of the following characteristics: (1) function-enhancement technologies for known or potential pathogenic microorganisms; (2) passage culture systems and processes used for large-scale proliferation of pathogenic microorganisms, directed accelerated evolution, and stable maintenance of specific virulence characteristics; or (3) artificial controlled passage induction technologies simulating natural evolutionary processes.

Given the nature of these technologies, unlike the platform prohibition for CGT and siRNA, this category is framed around the nature and capability of the technology and is not limited to ownership transfers. Licensing of covered technologies would therefore be prohibited. MOFCOM’s Q&A explains that the measure is intended to protect human health and national biosecurity.

Immediate Requirement: Interim Pre-Export Registration

Announcement No. 48 establishes an interim registration regime, which took effect October 16, 2026 and will remain in place until the revised Catalogue is formally issued and implemented. Before exporting any technology listed in the proposal, the exporter must register with MOFCOM. This obligation also covers exports that began but were not completed by October 16, 2026.

Covered scenarios include outbound ownership assignments, licensing of domestic technology abroad, and a change in the owner or actual controller of domestic technology to an overseas entity or person. Registration is conducted through MOFCOM’s technology trade management system prior to export, and requires detailed information on the parties, technology, use, and transaction price.

Key Takeaways

The proposed revisions to the Catalogue signal a more granular approach to biotechnology export controls by the Chinese government: protecting reusable China-origin platforms and sensitive biosecurity capabilities while preserving pathways for product-specific collaborations and non-ownership transactions. The proposed revisions also signal the Chinese government’s continued support for out-licensing of biotechnology, which has been previously identified as a key industry and has grown to a multi-billion-dollar industry. 

For multinational and emerging biotechnology companies, the immediate priority is to identify relevant outbound technology flows and comply with interim registration. Going forward, agreements with Chinese partners should include:

• Representations and warranties as to whether the technology falls within the current Catalogue or the proposed Catalogue, with an obligation to update that assessment as the rules are finalized
• Allocation to the Chinese party of responsibility for obtaining any required registration and export license
• Conditions making technology transfers, and where feasible, the related upfront and milestone payments, subject to completion of any required registration or licensing
• Notice and cooperation obligations regarding regulatory inquiries and changes in law
• Suspension, milestone-extension, restructuring, and termination rights, with refund and indemnification protections, if a transfer is prohibited or materially delayed

Companies should also test whether a proposed restructuring works under both countries’ rules. A licensing structure that avoids an ownership transfer under the Chinese proposal may still raise U.S. national security issues if the commercial deal comes with equity or joint development measures. Before committing capital, confirm that the parties can lawfully deliver the technology, data access, and/or support needed.

The proposal should be viewed not only as a transaction-control development, but also as part of the broader use of national security regulations to preserve strategically important technologies and biological capabilities within China. As noted, the proposal remains subject to public comment, and implementation details have not yet been clarified. 

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In recent years, China-origin assets have accounted for an increasing share of global biopharmaceutical deal activity. Policymakers in the United States and Europe are giving sustained attention to biotechnology as a strategic sector, including through proposed restrictions on Chinese biotechnology service providers, outbound investment screening, and scrutiny of genomic data flows. 

The proposed revisions may be viewed as part of a complex reciprocal dynamic. Companies should plan for a period in which both ends of a China-West biotechnology transaction are subject to national security review or limitations, and in which measures adopted in one jurisdiction may prompt calibrated responses in the other.

Companies should continue to monitor these developments and adjust their business and product development strategies to mitigate potential regulatory risks.

If you have any questions about the content discussed in this Advisory or would like more information, including about submitting comments on the proposed revisions, please reach out to one of the authors or your existing Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.