Key Takeaways

• Treasury proposes designating biotechnology as a prohibited technology sector, reaching certain U.S. investments and transactions involving China (including Hong Kong and Macau) as well as biotechnology companies and platforms in other foreign adversary countries.
• These proposed restrictions are transaction based: certain U.S. person covered transactions would be prohibited, such as equity investments, equity-like debt, and qualifying joint ventures into certain categories of biotechnology, but the Proposed Rule would not categorically prohibit all licensing of Chinese-developed drug candidates or purchasing contract manufacturing services.
• Under some circumstances, entering into a joint venture can be a “covered national security transaction” under the Proposed Rule, even without forming a new entity or issuing equity. Structuring conventional biotechnology licensing and joint venture arrangements requires additional analysis to determine whether such transactions would be prohibited under the Proposed Rule.
• Treasury is accepting public comments on the Proposed Rule through December 7, 2026, giving industry an opportunity to shape the final scope. Final regulations will be issued thereafter.

On October 22, 2026, the U.S. Department of the Treasury (“Treasury”) issued a notice of proposed rulemaking (“Proposed Rule”) to implement the Comprehensive Outbound Investment National Security (“COINS”) Act, legislation passed on December 18, 2025, that established a statutory framework for building upon the existing Outbound Investment Security Program (“OISP”) (31 C.F.R. Part 850). Significantly, the Proposed Rule adds three new categories of sectors restricted for U.S. outbound investment – biotechnology as well as two technology sectors included in the COINS Act (i.e., high-performance computing and supercomputing and hypersonic systems).

In general, the OISP prohibits, or requires advance notification¹ to Treasury of, certain transactions involving U.S. persons and specific technology sectors. As a policy matter, Congress took aim at preventing U.S. investment from helping foreign adversaries advance their military, intelligence, surveillance, or cyber-enabled capabilities. The Proposed Rule would implement the COINS Act’s framework through the proposed regulations to be codified at 31 C.F.R. Part 851.

This alert will focus on U.S. biotech-related investments in China (including Hong Kong and Macau). The Proposed Rule, and the COINS Act from which it originates, apply to investments in additional countries and in other critical industries, but those implications are beyond the scope of this piece.²

If the Proposed Rule is implemented as drafted, U.S. Person investment in and other transactions involving certain biotechnology companies and platforms from China (and other countries of concern) would be prohibited. The restrictions remain transaction based. The Proposed Rule sweeps broadly, but it does not categorically prohibit all licensing of Chinese-developed drug candidates or purchasing of research and development services from Chinese companies. However, biotechnology and biopharmaceutical companies, investors, and transaction counsel must carefully analyze contemplated transactions, including the boundary between conventional licensing and joint ventures, the treatment of U.S.-financed new companies leveraging Chinese drug discovery capabilities, and the implications for existing platform collaborations.

This Proposed Rule is not yet effective. Treasury seeks public comments on the Proposed Rule by December 7, 2026.

   1.   Who would be subject to the Proposed Rule?

The Proposed Rule would prohibit or subject to notification certain direct or indirect “covered national security transactions” involving U.S. Persons and their controlled foreign entities.

U.S. Persons are defined in the Proposed Rule as any U.S. citizen or permanent resident (i.e., green card holder), any entity organized under the laws of the United States or of any jurisdiction within the United States (including any foreign branch of any such entity), or any person—regardless of citizenship or residence status—in the United States.

Controlled foreign entities are any entities incorporated in, or otherwise organized under the laws of, a country other than the United States of which a U.S. Person is a “parent” (as defined in the Proposed Rule).

The Proposed Rule maintains the OISP’s prohibition on U.S. Persons “knowingly directing” transactions that would otherwise be prohibited under the OISP if engaged in by a U.S. Person, subject to specific recusal requirements for the U.S. Person.

   2.   What would the Proposed Rule prohibit?

Covered National Security Transactions

As defined in the Proposed Rule, “covered national security transactions” include, but are not limited to, the following direct or indirect transactions involving a U.S. Person:

• Equity investments: Direct or indirect acquisitions of equity or contingent equity interests (including conversion of contingent equity interests) in covered foreign persons.
• Equity-like debt: Loans or comparable debt financing arrangements that provide rights characteristic of equity investments, such as interests in profits or certain governance rights.
• Joint ventures: Entry into qualifying joint ventures with covered foreign persons, regardless of where the venture is located.
• Establishment or Expansion of Prohibited or Notifiable Technology Sectors: Acquisitions, leases, development, or expansion of operations or assets in Countries of Concern that result in a covered foreign person engaging in prohibited or notifiable technology sectors.
• Certain fund investments and indirect transactions: Certain acquisitions of a limited partner or equivalent interest in a venture capital fund, private equity fund, fund of funds, or other pooled investment funds in non-U.S. person vehicles.

Scope of prohibited biotechnology

The Proposed Rule prohibits U.S. Person investment and other covered national security transactions involving the following biotechnologies:

• Development, engineering, or use of a biological system—or any component of a biological system—to modify, enhance, produce, or control certain compounds or materials:
  • certain agents or toxins;
  • energetic precursor or energetic material, including propellants, explosives, and pyrotechnics;
  • novel or high-performance functional materials (e., a bio-derived product that exhibits novel or enhanced properties, such as an adaptive or protective coating, bio-cement or other material for agile infrastructure, material capable of self-repair or self-assembly, and a biosensor);
  • pharmaceutical compounds, including, small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies or other recombinant therapeutic proteins, as well as their delivery mechanisms; and
  • Biofuels (e., fuel made or derived from a bio-based feedstock);
• Development or production of brain computer interfaces (including invasive, partially invasive, non-invasive, and hybrid systems that enable interaction between the brain and its environment, as well as associated software);
• Development, construction, or production of certain biomanufacturing equipment, including components and associated software or technology, subject to export controls; and
• Development or production of other specified technology, equipment, components, and associated software, including biological sequencing technology, certain flow cytometers and cell sorters, certain liquid chromatography mass spectrometry instruments, computational or bioinformatics tools (e., for research design, optimization, modeling and simulation, discovery, or assessment of biological systems or processes), and hardware, robotics, or software for automated scientific discovery or experimentation (including laboratory automation or cloud lab infrastructure).

Biotechnology was not explicitly designated as a prohibited technology sector in the COINS Act by Congress. However, the COINS Act authorizes the Secretary of the Treasury—subject to consultation with Congress and notice and comment rulemaking—to add and define additional technology sector categories that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a Country of Concern. This Proposed Rule represents Treasury’s first effort to add an additional technology sector, namely, biotechnology.

The inclusion of biotechnology as a prohibited technology sector highlights growing concerns across both the Executive and Legislative branches about the risks to U.S. national security posed by certain biotechnology developments in China. The developments in the Proposed Rule come after the introduction of the Biotech Investment National Security Act of 2026 (BINSA) in June 2026 (bipartisan proposed legislation expanding the COINS Act to cover certain biotechnology transactions) and the 2025 passage of the BIOSECURE Act (restricting U.S. federal dollars from being used to procure or fund certain biotechnology products or services provided by entities deemed to present threats to U.S. national security interests and imposing related U.S. Government contracting restrictions).

Parties have until December 7, 2026, to submit comments for consideration by Treasury regarding the Proposed Rule’s inclusion and definition of biotechnology as a prohibited technology sector.

   3.   When does a biotechnology collaboration become a covered joint venture?

Under the Proposed Rule, a U.S. Person is prohibited from entering into a joint venture—wherever located—formed with a “covered foreign person” when the U.S. Person knows the joint venture will or plans to engage in a prohibited biotechnology activity. See Proposed Rule, 31 C.F.R. § 851.209(a)(3). The Proposed Rule does not separately define “joint venture.” Treasury clarifies that it relies on its ordinary meaning, i.e., involving contributions of capital and/or assets and the sharing of profits and losses, and that establishment or formation of a new legal entity is not required. The issuance of equity is likewise not required for a transaction to be a prohibited “covered national security transaction.” Treasury provides further guidance that contractual arrangements (other than those for technology transfer or technical knowledge transfer) for the procurement of material inputs for any covered national security transactions would be explicitly excepted from coverage under the Proposed Rule.

However, because customary biotechnology collaboration structures often involve contributions of capital and assets, such proposed transactions should be carefully reviewed to ensure that such transactions would not be viewed as “joint ventures” that implicate prohibited biotechnology “covered national security transactions” if the Proposed Rule is implemented as drafted. The range of potential “covered national security transactions” is wide and U.S. national security interests are rapidly evolving, so companies and their counsel need to carefully consider the implications of the Proposed Rule for any contemplated transaction.

• Traditional asset licenses. Under the Proposed Rule, a Chinese biotechnology company may license a defined drug candidate to a U.S. company in exchange for upfront payments, development and regulatory milestones, and sales royalties. The agreement may establish a joint steering committee and information-sharing obligations. These features do not, standing alone, necessarily establish a joint venture, but the transaction structure should be reviewed under the OISP and Proposed Rule to determine if features of the arrangement may be more likely viewed as a joint venture or conferring “equity-like” rights.
• Co-development and cost-sharing arrangements. Parties may allocate clinical development expenses while maintaining separately negotiated territorial rights and commercial economics. Sharing research and development expenses is not necessarily equivalent to sharing the profits and losses of a joint enterprise. However, the distinction may become less clear where the parties jointly fund discovery, select targets, control development decisions, or share resulting intellectual property. Where a particular arrangement may fall along this spectrum merits careful consideration.
• Co-development and co-commercialization (“Co-Co”) arrangements. Co-Co collaborations often involve contributions of technology and/or capital, shared operating profits and losses, and joint decision making. As such, these arrangements are more likely to be viewed as establishing a joint venture under the Proposed Rule, even without a separately incorporated entity.

Certain transactions may qualify as “excepted transactions” under the Proposed Rule. See 31 C.F.R. § 851.501. Such excepted transactions under the Proposed Rule include transactions secondary to a covered national security transaction (e.g., contractual arrangements, excluding technology or technical knowledge transfer, or the procurement of raw material inputs) and ordinary or administrative business transactions. While these may include technology licensing, consulting, or procurement contracts, Treasury seeks comments on how to define these categories of excepted transactions. Even if such transactions may not be prohibited or subject to notification under the Proposed Rule, other regulatory regimes may prohibit these transactions or require U.S. Government authorizations.

As currently drafted, Treasury’s expansion to cover biotech transactions will apply to transactions “completed” after the Proposed Rule becomes effective (but that may change depending on what happens during the notice and comment period). Otherwise, the Proposed Rule excepts transactions “completed” before December 18, 2025, but only those transactions not otherwise subject to the existing OISP regime (31 C.F.R. Part 850). Accordingly, this exception may not eliminate prohibition or notification requirements for activities involving other technology sectors.

Industry may benefit from additional clarification from Treasury regarding when a transaction is “completed”. Under the Proposed Rule, a later exercise of an option, new investment commitment, amendment, or entry into a distinct joint venture requires independent analysis to determine whether such activity constitutes a new covered transaction. Treasury will evaluate whether a transaction has been completed by looking to the substance of the activity. Companies should therefore review not only newly proposed transactions but also material future rights and elections under existing collaborations, particularly where those arrangements involve continuing joint discovery, governance, or shared commercial economics.

   4.   Can parties rely on Treasury’s proposed feedback process?

The Proposed Rule establishes a mechanism for parties to request Treasury’s confidential feedback or anonymized public guidance regarding whether a prospective transaction would be prohibited. As currently drafted, Treasury’s feedback would be non-binding and therefore would not provide a safe harbor. Further, Treasury asserts that it would not obligated to respond to the request.

The Proposed Rule requires that such requests be submitted by a party with a direct financial interest in an actual—not hypothetical—transaction. Treasury notes that while an executed contract would not be required, the material terms of the prospective transaction would need to be identified in a binding written agreement or other binding document to demonstrate that the transaction is not hypothetical. The requirement that the transaction terms be identified in a binding document may create practical difficulties in biotechnology transactions, where parties commonly use largely non-binding term sheets while conducting diligence and negotiating definitive agreements.

Additionally, the party requesting such feedback would be required to provide sufficient detail regarding the transaction (e.g., in the form of an executed contract, term sheet, or other written documentation) for Treasury to provide feedback, including at a minimum:

• information about the requester and any party to the transaction;
• a detailed description of the structure of the transaction (including the form of investment, governance and information rights, timing, and completion date);
• a detailed description of the products, services, technologies, or activities implicated by the transaction;
• all operative documents and material term sheets, draft agreements, side letters, and other written materials reflecting the transaction;
• any other information that the requester believes would be relevant to the application of the Proposed Rule to the transaction; and
• a certification that the request contains true, correct, and complete disclosure of all material facts and circumstances known to the requester.

   5.   What are practical considerations for biotechnology companies and investors?

Companies evaluating China-related biotechnology transactions should consider several steps:

1. Assess the transaction structure to determine jurisdiction under the Proposed Rule. Determine whether the arrangement would constitute a covered national security transaction. While the Proposed Rule is not yet effective, parties should be attuned to whether a transaction presents a heightened risk of becoming subject to the OISP if the Proposed Rule is implemented largely as drafted.
2. Review economic, governance, and intellectual property arrangements. Evaluate capital and technology contributions, clinical cost-sharing, profit-and-loss participation, target-selection rights, joint decisionmaking, and access to proprietary U.S. intellectual property and technology. Additional existing regulatory regimes may be relevant to such transactions, including U.S. Government authorizations and other restrictions.
3. Map how U.S.-funded companies use Chinese discovery platforms. Review long-term research-services, target-discovery, and licensing arrangements with Chinese platform companies. Consider the scope and duration of U.S. funding, who selects targets, who owns resulting intellectual property, and whether the parties share governance or economic gains and losses. Arrangements that look like research procurement on paper may still present a risk of being treated as a contractual joint venture or an indirect covered national security transaction if the Proposed Rule is implemented largely as drafted.
4. Inventory existing collaborations. Identify future options, funding commitments, profit-sharing elections, and amendments that may constitute future transaction events, and analyze whether such transactions present a heightened risk of becoming subject to the OISP if the Proposed Rule is implemented largely as drafted.
5. Consider submitting public comments. The biotechnology industry may benefit from clearer distinctions among conventional licensing, cost-sharing, research services, and contractual joint ventures, as well as narrower technical definitions of prohibited biotechnology. Reach out to Foley Hoag’s team with questions on how the OISP and Proposed Rule may affect you and for support on submitting public comments.

¹ The Proposed Rule, as drafted, prohibits certain U.S. Person investment in the biotechnology sector. The Proposed Rule does not currently include any types of U.S. Person investment in biotechnology that would be permissible subject to notification. However, transactions involving other technology sectors may be permissible subject to notification.

² The Proposed Rule expands the list of foreign adversaries to include Cuba, Iran, North Korea, Russia, and the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros (together, “Countries of Concern”). Treasury recognizes that the Maduro regime no longer exists so Venezuela no longer meets this definition, but cautions that investors must still conduct due diligence as transactions in Venezuela might otherwise be subject to OISP jurisdiction under the Proposed Rule.