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Washington Just Moved to Wall Off Chinese Biotech. Big Pharma Got a Door.

Treasury's proposed COINS Act rules would bar U.S. equity investment across broad swaths of Chinese biotech -- while sparing pharma's record-setting cash licensing deals. What's banned, what's exempt, and what it means for the industry.

Alpha One

23 Oct 2026 • 6 min read

On Thursday afternoon, the U.S. Treasury Department published a proposal that would do something no American administration has done before: draw a regulatory line around much of China's biotechnology sector and tell U.S. investors not to cross it.

The Notice of Proposed Rulemaking, issued October 22 under the Comprehensive Outbound Investment National Security (COINS) Act, would expand Washington's outbound investment screening program — until now focused on semiconductors, quantum computing, and artificial intelligence — into biotech for the first time. Equity investments, joint ventures, and greenfield projects involving broad categories of Chinese biotech would be prohibited outright or require notification to Treasury.

And yet the most revealing part of the proposal is not what it bans. It is what it spares. According to the Financial Times, pharmaceutical licensing deals built on cash payments — the structure behind this year's record-setting wave of American and European deals for Chinese-discovered drugs — would remain untouched. Pfizer and Eli Lilly can keep buying the molecules. What American capital can no longer do, if the rule is finalized as written, is own the labs that make them.

That split — rent the science, don't fund the scientist — is the clearest statement yet of how Washington intends to manage a dependency it can no longer ignore.

What Treasury Actually Proposed

The COINS Act became law on December 18, 2025, as part of the Fiscal Year 2026 National Defense Authorization Act. It took the outbound investment program President Biden created by executive order in August 2023 — implemented by a Treasury final rule that took effect January 2, 2025 — and codified it into the Defense Production Act, directing Treasury to write expanded regulations.

The statute names five technology sectors: semiconductors and microelectronics, artificial intelligence systems, quantum information technologies, high-performance computing and supercomputing, and hypersonic systems. But it also gives the Treasury Secretary authority to add technologies that "enable the military, intelligence, surveillance, or cyber-enabled capabilities" of a country of concern. Secretary Scott Bessent used that authority to add a sixth: biotechnology.

"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," Bessent said in Treasury's announcement.

Within biotech, the proposed prohibitions reach deep into the industry's modern toolkit: certain bio-derived compounds and materials, biological design and sequencing technologies, biomanufacturing equipment and facilities, bioinformatics tools, brain-computer interfaces, and hardware or software for automated scientific discovery — the AI-driven lab systems that are increasingly where drug discovery actually happens.

The countries of concern are China (including Hong Kong and Macau), Cuba, Iran, North Korea, and Russia. Venezuela, listed in the statute under the Maduro regime, has effectively dropped off: Treasury's accompanying FAQ notes that the United States recognized Delcy Rodríguez as Venezuela's head of state in March 2026, so the designation no longer applies.

One linguistic footnote captures the moment: following a September executive order directing agencies to replace the term "artificial intelligence" in certain documents, the proposed rule refers throughout to "super intelligence systems."

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Why Biotech, and Why Now

The timing is not subtle. China's drug industry has gone, in roughly five years, from fast follower to indispensable supplier of new medicines — and American money has been riding the boom.

Chinese drugmakers' overseas licensing deals had reached a potential $139.4 billion in total value by October 8 of this year, according to data provider PharmCube, as reported by Reuters — already surpassing the $138.8 billion recorded for all of 2025. Upfront payments alone hit $8 billion in the first three quarters, more than last year's full-year total.

The deals keep landing. This week, Switzerland's Roche signed a collaboration with China's Hansoh Pharmaceutical for a portfolio of antibody-drug conjugates valued at roughly $15 billion in potential milestone payments. On Friday morning — hours after Treasury's proposal dropped — Endpoints News reported that Gilead had struck a China licensing deal with $1.3 billion upfront for an oral IL-23 drug.

This is precisely the dependency that worries Washington's security establishment: the same Chinese labs supplying Western pharma pipelines sit inside an ecosystem the Pentagon and Congress view through the lens of dual-use risk — gene sequencing, biomanufacturing scale, and AI-driven discovery platforms with plausible military applications. The COINS Act proposal is the third leg of a broader campaign, following the BIOSECURE Act's push to cut Chinese contract manufacturers out of U.S. supply chains and the Defense Department's Section 1260H blacklist of "Chinese military companies."

The Carve-Out Is the Policy

Read cynically, the licensing exemption is a concession to the most powerful lobby in the dispute. Read charitably, it is an admission that the U.S. drug pipeline cannot currently function without Chinese chemistry. Both readings are probably correct.

The result is a one-way valve: American pharma can keep importing Chinese innovation through cash licensing deals, but American venture capital and private equity would be barred from owning a piece of the companies generating it. U.S. investors helped build China's biotech sector — crossover funds and dollar-denominated venture firms were foundational backers of its last decade of growth. If this rule is finalized as proposed, that era ends.

The industry sees the risk differently. The Biotechnology Innovation Organization, the sector's main lobby, warned that an overly broad approach could create uncertainty for innovators and "may unintentionally risk weakening US biotechnology competitiveness," the Financial Times reported.

Beijing's response was predictable in direction, notable in specifics. A researcher at a commerce ministry think tank told the state-run Global Times that the curbs amount to "wishful thinking" that cannot reverse China's momentum — and warned they would mostly succeed in shutting American investors out of China's innovation boom. On that second point, at least, BIO and Beijing agree.

Public markets took the proposal in stride. Shares of WuXi Biologics rose about 1% in Hong Kong on Friday, and WuXi AppTec gained about 2% in Shanghai — unsurprising, since the proposed rule explicitly excepts publicly traded securities, along with index funds, ETFs, small limited-partner positions, and deals completed before the COINS Act's enactment. The target is private capital formation, not portfolio flows.

What Happens Next

The proposal is not yet law. Comments are due by December 7, 2026, and Treasury will issue final regulations — and set an effective date — only after reviewing them. Until then, the existing 2025-era rules (covering chips, quantum, and AI, but not biotech) remain in force.

For investors and operators, the practical consequences are already visible:

U.S. venture and private equity exposure to Chinese biotech is now a compliance question, not just an allocation question. The rule applies a "knowledge standard" that includes information obtainable through reasonable diligence — ignorance will not be a defense.
Enforcement has teeth. Violations carry civil penalties up to the International Emergency Economic Powers Act maximum, and Treasury can compel divestment of prohibited transactions.
The licensing boom likely accelerates. If equity routes close while cash licensing stays open, more of the value of Chinese drug discovery will be transferred through upfronts, milestones, and royalties — the exact structures setting records this year.
Watch the comment file. Pharma, venture capital, and the national security hawks all have reasons to push the final rule in different directions. Where the biotech definitions land — especially around bioinformatics and automated discovery tools that overlap with ordinary drug development — will decide how much of the industry this actually touches.

The deeper story is that biotechnology has formally joined semiconductors in the category of technologies the United States treats as strategic terrain rather than ordinary commerce. The last time Washington did this to an industry, the result was export controls, fab subsidies, and a decade-long realignment of global supply chains. Biotech's version of that process started Thursday.

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