U.S. Proposal Seeks to Restrict Biotech Investment in China, Pressuring Short-Term Sentiment
AI summary card
U.S. Proposal Seeks to Restrict Biotech Investment in China, Pressuring Short-Term Sentiment
The Chairman of the U.S. House Select Committee on the Chinese Communist Party wrote to the Treasury Department recommending that biotechnology be added to the list of prohibited technologies under the Consolidated Appropriations Act’s foreign investment national security provisions (COINS Act). Nomura believes the foundational drivers of U.S.-China life sciences collaboration remain intact over the long term, though short-term investor sentiment may be weighed down.
- A U.S. congressional proposal recommends adding biotechnology to the list of technologies subject to national security restrictions on outbound investment.
- Cites two recent large-scale licensing deals — Innovent-Lilly and Hengrui-BMS — as evidence of deep U.S.-China collaboration in life sciences.
- Draws parallels with the actual impact of the Biosecure Act, concluding that cross-border collaboration will persist over the long term.
- The mid-May U.S.-China leaders’ summit may help ease trade tensions.
- Short-term sector sentiment may weaken, yet investors have shown muted reactions to recent licensing announcements.
Report interpretation
Overview
This Nomura research report focuses on a new U.S. proposal that could disrupt U.S.-China cross-border life sciences collaboration. On May 21, 2026, the Chairman of the U.S. House Select Committee on the Chinese Communist Party sent a letter to the Treasury Department recommending that biotechnology be designated a prohibited technology under the Consolidated Appropriations Act’s foreign investment national security provisions (COINS Act). The report cites Innovent Biologics’ licensing deal with Eli Lilly and Hengrui Medicine’s agreement with Bristol Myers Squibb (BMS) as recent examples demonstrating the depth of U.S.-China cooperation in life sciences. Nomura argues that, given the sector’s strategic importance to human progress and its multi-trillion-dollar market scale — and drawing lessons from the actual implementation impact of the Biosecure Act — cross-border collaboration is expected to remain robust over the long term. Furthermore, the U.S.-China leaders’ summit in mid-May may help ease trade tensions. However, in the near term, this proposal could weigh on sector investor sentiment.
Core views
The report’s central thesis is 'long-term optimism, short-term caution.' From an event perspective, this is not the first time the U.S. has raised objections to cross-border life sciences collaboration with China; however, this proposal involves multiple stakeholders — including U.S. pharmaceutical companies, Congress, the Treasury Department, and investors — making its ultimate outcome difficult to predict. Drawing comparisons to the Biosecure Act, Nomura expects limited real-world impact: U.S.-China life sciences collaboration, as a cornerstone of human advancement and valued at over $1 trillion, is unlikely to decouple. From a market reaction standpoint, despite frequent recent licensing announcements, share prices of Innovent Biologics and Hengrui Medicine have not risen significantly — suggesting investors have become desensitized or have already priced in such news. This implies that even amid new geopolitical noise, downside risk to share prices may be limited, while upside catalysts remain scarce; short-term sentiment is therefore tilted negative. On valuation, Hengrui Medicine’s A-share target price of CNY 87.49 is derived from a DCF model assuming a WACC of 8.7% and a terminal growth rate of 5.0%, with the CSI 300 Index as the benchmark index. As of May 22, 2026, Hengrui’s A-share closing price was CNY 50.47, and its H-share closed at HKD 61.35; Innovent Biologics’ H-share closed at HKD 80.95.
Analysis framework
The report adopts an 'event-driven + historical analogy' analytical framework: First, it identifies the nature and potential transmission channels of the latest policy proposal; second, it draws analogies to the actual enforcement outcomes of the Biosecure Act to infer the likely implementation intensity of this proposal; third, it assesses current market sentiment by examining stock price reactions to recent licensing announcements. This three-layer analysis — 'policy shock → historical precedent → market pricing' — helps readers understand why institutions maintain 'Buy' ratings despite rising geopolitical tensions.
Methodology notes
DCF Valuation
The report applies a DCF model to derive Hengrui Medicine’s target price, forecasting future free cash flows and discounting them using the WACC (Weighted Average Cost of Capital), plus a terminal growth assumption, to arrive at intrinsic value. This is the mainstream valuation method for innovative pharmaceutical pipelines in the biopharma industry, as the value of innovative drug companies primarily resides in the present value of future cash flows generated during patent protection periods.
Expectation Gap and Market Expectation Management
The report observes that neither Innovent Biologics nor Hengrui Medicine experienced significant share price appreciation following recent large-scale licensing announcements — indicating that 'good news' has either been fully priced in or that investors have grown indifferent. Such 'events failing to trigger commensurate price movement' serves as a critical signal for gauging short-term sentiment positioning and identifying potential expectation gaps.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Hengrui Medicine (600276.SS / 1276.HK)A representative example of U.S.-China cross-border licensing collaboration; recently entered into a major partnership with BMS
- Strengths
- Strong international BD capability, rich pipeline of innovative drugs
- Risks
- Next round of VBP (Volume-Based Procurement) price cuts, narrowing valuation premium, underperformance in BD execution or clinical development
- Innovent Biologics (1801.HK)A representative example of U.S.-China cross-border licensing collaboration; recently entered into a major partnership with Eli Lilly
Key data
- Hengrui Medicine A-Share Target PriceCNY 87.49Based on DCF model, WACC 8.7%, terminal growth rate 5.0%
- Hengrui Medicine A-Share Latest Closing PriceCNY 50.47As of May 22, 2026
- Hengrui Medicine H-Share Latest Closing PriceHKD 61.35As of May 22, 2026
- Innovent Biologics Latest Closing PriceHKD 80.95As of May 22, 2026; Buy rating
Impact & implications
The report concludes that, if implemented, this proposal would primarily affect short-term investor sentiment rather than fundamentally alter the U.S.-China life sciences collaboration landscape. For leading firms such as Hengrui Medicine and Innovent Biologics — which have established strong international licensing capabilities — BD (Business Development) capability remains a core competitive advantage, though valuation premiums may narrow. Over the long term, complementary demand between U.S. and Chinese partners at the early-stage molecular innovation level persists, and full 'decoupling' runs counter to industry interests.
Risks
- Risk of further price cuts in the next round of VBP (Volume-Based Procurement)
- Narrowing of valuation premium
- Underperformance in BD (Business Development) execution or clinical development