Treasury Proposes Banning U.S. Biotech Investment in China

The U.S. Treasury wants to prohibit U.S. investment in certain Chinese biotechnology companies, and it has set a December 7, 2026 deadline for industry to respond. On October 22, 2026, Treasury issued a notice of proposed rulemaking to implement the Comprehensive Outbound Investment National Security (COINS) Act, legislation passed on December 18, 2025. The new rules would be codified at 31 C.F.R. Part 851.

The Proposed Rule adds three restricted sectors to the existing Outbound Investment Security Program (OISP, 31 C.F.R. Part 850): biotechnology, high-performance computing and supercomputing, and hypersonic systems. Notably, Congress never explicitly named biotech in the COINS Act — Treasury is using its authority, subject to congressional consultation and notice-and-comment rulemaking, to add sectors that enable military, intelligence, surveillance or cyber capabilities of countries of concern. This is the first sector Treasury has added on its own.

What does this change for biotech dealmakers? If implemented as drafted, U.S. Person investment in and other transactions involving certain biotechnology companies and platforms from China — including Hong Kong and Macau — would be prohibited. The regime also covers Cuba, Iran, North Korea, Russia, and Venezuela under Nicolás Maduro Moros, though Treasury concedes the Maduro regime no longer exists and cautions that Venezuela deals may still fall under OISP jurisdiction, so diligence is required.

The sweep is broad but not categorical. The Proposed Rule does not flatly prohibit all licensing of Chinese-developed drug candidates or purchasing of R&D services from Chinese companies. Still, the Foley Hoag analysis flags three pressure points: the boundary between conventional licensing and joint ventures, the treatment of U.S.-financed startups leveraging Chinese drug discovery capabilities, and existing platform collaborations.

Who's covered?

The rule reaches U.S. Persons — citizens, green card holders, U.S.-organized entities including their foreign branches, and anyone physically in the United States regardless of status. It also covers their controlled foreign entities. The OISP's prohibition on U.S. Persons "knowingly directing" otherwise-prohibited transactions survives, subject to specific recusal requirements.

When does a collaboration become a covered joint venture?

Treasury doesn't define "joint venture" separately. It relies on the ordinary meaning: contributions of capital or assets plus sharing of profits and losses. No new legal entity is required. No equity issuance is required either, according to 31 C.F.R. § 851.209(a)(3).

That's the trap for biotech. Customary collaboration structures routinely involve capital and asset contributions, so deals could be recharacterized as prohibited joint ventures. Contractual arrangements — other than technology or technical-knowledge transfer — for procuring material inputs are explicitly excepted. So are transactions secondary to covered transactions and ordinary administrative business transactions, though Treasury is seeking comments on how to define those categories. Even if excepted here, other regulatory regimes may still require U.S. government authorization.

Timing matters too. The rules would apply to transactions "completed" after the effective date, and transactions completed before December 18, 2025 are excepted — but only if they aren't already subject to the existing OISP regime. A later option exercise, new investment commitment, amendment, or distinct joint venture requires independent analysis as a potential new covered transaction. Treasury will look at substance over form. Companies should review not just new deals but material future rights under existing collaborations, especially where there's continuing joint discovery, governance, or shared commercial economics.

Can you ask Treasury first?

The Proposed Rule creates a mechanism to request confidential feedback or anonymized public guidance on whether a prospective deal is prohibited. Don't count on it. Treasury's feedback would be non-binding — no safe harbor — and Treasury says it isn't obligated to respond at all.

Requests must come from a party with a direct financial interest in an actual, not hypothetical, transaction. Material terms need to be in a binding written agreement or other binding document. That creates real friction in biotech, where parties commonly run on non-binding term sheets during diligence and definitive-agreement negotiations.

Why biotech, why now

The proposal follows the June 2026 introduction of the bipartisan Biotech Investment National Security Act (BINSA), which would expand the COINS Act to cover certain biotech transactions, and the 2025 passage of the BIOSECURE Act, which bars federal dollars from procuring biotech products or services from entities deemed national security threats and imposes related contracting restrictions.

One quirk: as drafted, the rule prohibits certain U.S. biotech investment outright but includes no biotech category permissible merely subject to notification — unlike other sectors where notification is an option.

The comment window closes December 7, 2026. What Treasury hears between now and then will shape whether the final rule keeps biotech's broad definitions — and whether the sector's standard deal structures survive them.