Trying to find common ground during a “Biotech Hangout” discussion in January about whether China’s biotech growth should be curbed, TD Cowen analyst Yaron Weber argued that an increasingly innovative China is not the end of the world “as long as we can license those drugs, launch [new companies] and bring that IP and then own the global commercial market.”
Now, a new policy from President Donald Trump, although yet to be fully fleshed out, could affect the U.S. biopharma industry’s ability to maintain each of those conditions. The development comes as the U.S. biotech sector has increasingly tapped Chinese innovation in recent years, sending billions of dollars into the country in exchange for rights to promising new therapies.
On Feb. 21, Trump issued a memorandum titled the “America First Investment Policy” for several federal leaders. Emphasizing national and economic security, the policy aims to restrict both inbound and outbound investments related to “foreign adversaries” in certain strategic industries. The document puts China front and center and mentions both healthcare and biotechnology among the sectors it will regulate.
In a potential enhancement of an interagency enforcement group called the Committee on Foreign Investment in the United States (CFIUS), Trump is directing the U.S. government to use “all necessary legal instruments” to restrict China-based entities from investing in certain strategic sectors, including healthcare.
Simultaneously, Trump telegraphed “new or expanded restrictions” on outbound U.S. investment in areas implicated by China’s Military-Civil Fusion strategy, including biotechnology. Under the fusion strategy, China has been mixing civilian enterprises and entities with military R&D and production.
The new Trump policy lacks details, leaving plenty of room at this point for interpretation and eventual execution. But it signals that Trump intends to double down on a tough stance against China in key areas of national security concern.
“My main concern is that this policy adds yet another layer of uncertainty to the life sciences sector, which has been depressed for the past three years,” Laurie Burlingame, a partner at the law firm Morgan Lewis, said in an email interview with Fierce Pharma. “An uncertain economic environment coupled with legislative and regulatory uncertainly is unlikely to assist the life sciences industry in its recovery.”
Depending on how the administration defines “investment”—and the extent to which new restrictions apply—the policy could disrupt the U.S. biopharma industry’s interactions with China in three major ways.
First, U.S. biopharma companies risk losing a large pool of potential drug candidates for in-licensing—if such transactions were to be considered a type of “investment” blocked under the Trump administration. Nearly a third of molecules that large pharma companies obtained in 2024 through licensing deals were sourced from Chinese biotechs, according to a recent Stifel report (PDF) based on data from Dealforma.
Second, the administration’s policy could make it harder to form new U.S. biotech startups built on assets from China.
In an increasingly popular model, called the “NewCo,” a Chinese drugmaker spins off certain assets and partners with investors to form a new U.S.-based company. Under this business structure, the Chinese firm often retains an equity stake in the U.S. biotech, allowing it to reap long-term value. It remains unclear whether a Chinese firm’s taking of such an equity stake—not through cash but instead providing intellectual property—could be viewed as an act of “investing.”
According to Trump’s memorandum, the U.S. will continue to “welcome and encourage passive investments from all foreign persons.” However, the Chinese investor must have no controlling stake, no voting power, no board seat or any other governance rights, or non-public access to technical information, the memo states. This sounds impossible under the “NewCo” model given the newly created firm’s core intellectual property hails from China.
Third, U.S. biotech startups might lose Chinese venture capital funds as a source of potential investment, while U.S. states might not be able to attract Chinese biopharmas to establish new operations.
Disruptions to biotech licensing deals unlikely—for now
Based on the policy’s current text, a ban on licensing drugs from China seems unlikely, according to Burlingame and Stifel analyst Tim Opler.
“An investment is buying an equity stake in a company,” Opler said in an interview with Fierce Pharma. “So in theory, there might be prohibitions of using U.S. money to own equity stakes in Chinese-domicile biotech companies.”
“Licensing is an asset transaction where one party gives money, [and] the other one gives rights to use an asset,” he continued. “So it’s not the same as buying a piece of equity.”
“Based on what’s been proposed so far […] I see the proposed policy as not having particular impact on cross-border, U.S.-China biotech deals,” Opler said.
Burlingame, who specializes in transactions in the life sciences and tech industries, also believes that it’s unlikely that a licensing deal would be deemed an “investment” under the policy.
She pointed to the Treasury Department’s recently issued Final Rule on Outbound Investment (ROI), which was finalized under the Biden administration. Colloquially known as a “reverse CFIUS” or “outbound CFIUS,” the rule either prohibits or requires notifications for certain types of U.S. investments in Chinese companies developing national security-related technologies, including semiconductors and microelectronics, quantum information technologies and artificial intelligence.
One type of investment targeted by the rule is a joint venture. In explaining the final rule, the Treasury Department specifically said that a licensing arrangement itself does not amount to a “joint venture,” and therefore is not covered.
“The Trump administration could seek to expand the ROI to cover the biotechnology industry, but seems unlikely that a typical drug licensing arrangement would be added to the list of covered transaction types given that this policy also states that the United States welcomes passive foreign investments that allows U.S. businesses to flourish,” Burlingame added in the email interview.
Despite what Trump has written, the possibility of a potential threat to U.S-China biotech licensing deals still exists beyond the current text; after all, the exact rules have yet to be spelled out.
Rick Sofield, a partner and co-head of the national security group at law firm Debevoise & Plimpton, is taking a cautious view on what business strategies might be targeted for future enforcement.
“It is unclear how the word ‘investment’ will be defined in any specific regulations that stem from this new policy,” Sofield said in an email interview with Fierce Pharma.
Existing CFIUS regulations define investment as the acquisition of an equity interest, he said. But in this case, “we won’t know for sure until any new regulations are promulgated.”
Politically and procedurally, efforts to ensure national security sometimes play out in unpredictable ways. Take the BIOSECURE Act, which has sparked concerns about potential disruptions to timely drug development and production of critical medicines. The bill was originally designed to block China’s access to U.S. genome sequencing data, but it was later altered to become a broader clamp-down on Chinese biopharma contract manufacturers and research service providers.
Opler acknowledged that the possibility of a licensing crackdown exists, but he argued it would hurt U.S.’ interests.
“It’s always possible that there could be restrictions on cross-border pharmaceutical licensing activity,” Opler said. “It would be sort of self-defeating, in a way, right? Why would we deprive patients in the United States of access to innovations from other countries?”
“Can you imagine how much fun it would be now to be at GSK or some European company like Genmab, and now you have no U.S. competition for your licensing deals? You cannot prohibit global access to Chinese innovation,” Opler said of that theoretical scenario.
Still, those European firms could be swept up in an environment where the Trump administration decides to flex its muscle.
The U.S. has a history of so-called “long-arm jurisdiction,” facilitated by its dominant economic status in global trading. European pharma companies such as AstraZeneca and Novartis have in the past fallen victim to the Foreign Corrupt Practices Act, which prohibited U.S. persons and entities from bribing foreign government officials to benefit their business interests. Enforcement of the act has been paused under the Trump administration.
CFIUS has often extended its jurisdiction to target investments in companies ostensibly outside of the U.S. if they boast U.S. subsidiaries or enough activities and assets in the U.S. to be considered a “U.S. business,” even if not as a formal legal entity, Sofield noted.
“For that reason, foreign companies with activities in the U.S. need to be mindful of the potential for long-arm jurisdiction” coming from the new Trump policy, Sofield argued.
National security takes priority
Opler’s competition warnings aside, it’s not an unpopular view in the U.S. these days that national security represents the nation’s top priority, and that certain sacrifices can be justified.
“One thing that you should all think about, whether you’re pro-free-trade or not, is this, would you support free trade with Japan in 1936, would you have supported free trade with Germany in 1938?” Stephen Moore, an economist with the Heritage Foundation, said during a recent Open to Debate event on whether Trump was right to increase tariffs on Chinese imports.
“I think it’s worth it to subtract a little bit of our economic potential, given the giant size of the China threat,” Scott Paul, president of the Alliance for Manufacturing, said during the debate.
After the Biotechnology Industry Organization (BIO) last year switched its position to support the proposed BIOSECURE Act, BIO president John Crowley acknowledged that the bill would cause disruptions in drug development. But he argued that “biotech is a national security imperative” and the pros outweighed the cons. The industry lobby group later helped negotiate changes to the bill that would give the industry additional time to switch away from Chinese service providers, but some companies are still concerned about finding and transitioning to reliable new vendors in time.
BIO did not respond to Fierce’s request for an interview on the new Trump policy.
Limiting licensing deals with Chinese companies has one potential benefit to the U.S.: The money from those transactions could theoretically be redirected to U.S. biotechs.
During the January “Biotech Hangout” discussion, longtime biotech investor Brad Loncar highlighted the growing role that Chinese assets are playing in the biotech business development scene. At the same time, he pointed to layoffs happening at U.S. companies, saying “I don’t think those two things are unrelated.”
“I think that discovery work and smaller biotech companies are in big trouble if this trend continues, and it will have a real impact on jobs and money,” Loncar explained.
Last year, upfront payments from biopharma licensing deals that went to Chinese companies totaled $6 billion, Loncar noted.
“That $6 billion, or maybe even more, would have gone to XBI companies,” he said, referring to the popular U.S. biotechnology stock index.
“It’s clear that this is an issue that a lot of people are starting to feel and starting to think about,” Loncar said. “And my personal opinion is that something is going to happen in Washington.”
BIOSECURE Act has not become law, and it suffered a setback on its legislative path in 2024. Still, many biopharma companies have already started making plans to pivot away from Chinese contract development and manufacturing organizations (CDMOs).
Despite this ongoing trend, neither Stifel’s Opler nor Morgan Lewis’ Burlingame believe the new Trump policy will chill the biopharma industry’s dealmaking appetite with regard to China.
“China has heavily invested in the biopharma sector, and as a result, over the past few years, we have seen a proliferation of novel drug products that have originated there,” Burlingame said.
“As the U.S. continues to grapple with containing healthcare costs, including in relation to drug pricing, I believe that U.S. biopharma companies and other investing groups are incentivized to seek out the best potential drug product candidates worldwide in an attempt to address these concerns as well as the concerns of patients,” she said.
A foreseeable impact amid uncertainties
One chilling effect that Burlingame does foresee is on Chinese venture capital firms’ willingness to invest in U.S.-based startups.
Despite Trump’s welcoming stance toward passive investment, “most VCs want to play an active role in their portfolio investments and actively seek out voting, board, and other governance rights,” Burlingame noted.
China’s share of global biotech VC raised grew to 18.9% by 2020 from 3.5% in 2010, according to a report last year from the Information Technology & Innovation Foundation. These VC firms may shy away from investing in U.S. companies “due to concerns that their potential investments will be [highly] scrutinized, making it costly and too time consuming to target the U.S. market,” Burlingame argued.
Similarly, although the “NewCo” model won’t be entirely blocked, it will “require refinements in terms of what is permissible” under Trump’s policy, she said.
Take Jiangsu Hengrui Pharmaceuticals’ landmark creation of the U.S.-based startup Kailera Therapeutics—which originally went by the moniker “Hercules CM NewCo”—as one example. The biotech startup emerged last year with a whopping $400 million in funds backed by Bain Capital, RTW Investments, Atlas Venture and Lyra Capital, plus a portfolio of obesity candidates from Hengrui.
To reach that deal, Hengrui took a 19.9% stake in the new company and formed a joint management committee with Hercules to coordinate development and potential drug commercialization. That deal structure would not have been possible under Trump’s new policy.
Without an active equity stake and additional governance rights, the “NewCo” structure may become less attractive compared with a simple out-licensing transaction, Burlingame suggested.
Besides any new hurdles to the “NewCo” approach, the Trump policy also specifically calls on CFIUS to evaluate establishing authority over “greenfield” investments, Debevoise’s Sofield noted. Under this approach, foreign companies create U.S. subsidiaries from the ground up, rather than buying existing facilities to get into the country.
This expansion of CFIUS likely won’t be a surprise to Chinese biopharmas looking to tap into the U.S. market. Geopolitical risk is one important reason why they’ve opted for the “NewCo” model rather than establishing subsidiaries of their own.
Of course, all these analyses are based on Trump’s high-level document, which may become more restrictive when implemented by specific government agencies or be left to dry without further action as other issues take priority on the administration’s agenda.
“I don’t see any particular scope under which the U.S. would be prohibiting reasonable minority stakes as part of these NewCo deals,” Opler said. “So far, I don’t see anything, but let’s see what transpires. There could be impact, depending on how the policy evolves.”arker development pipeline
