China healthcare out-licensing: Proposed US rules could preserve most China drug out-licensing, but biotechnology remains unresolved

Overview

This China healthcare event note assesses a Reuters report that the US Treasury Department may permit most licensing transactions between US pharmaceutical companies and Chinese biotech or pharmaceutical companies. JPMorgan sees this as a near-term reduction in perceived regulatory tail risk, not a final resolution for biotechnology-related cross-border deals.

Core views

JPMorgan interprets the Reuters report of 18 September as potentially materially less restrictive for China-originated drug out-licensing than investors had feared. The reported Treasury rules could allow US pharmaceutical companies to continue licensing most Chinese drug candidates, with restrictions concentrated in narrow areas such as pathogens and potentially weaponizable technologies rather than a blanket prohibition. If confirmed, this would reduce a key tail risk to the out-licensing model Chinese biotech and pharmaceutical companies use to globalize their pipelines. The report emphasizes that the policy remains unfinished. Treasury is expected to release a proposed rule for COINS implementation in the fall, with a final rule due in March next year. The rules are subject to change, particularly if the White House intervenes, and are unlikely to be unveiled before President Trump's meeting with President Xi. JPMorgan therefore characterizes the Reuters report as an immediate de-risking factor rather than confirmation that biotechnology licensing will remain outside the regime. The economic scale of the market may help explain why the administration is considering licensing carefully. Pharmcube data show China-originated out-licensing transactions had roughly US$115bn of aggregate potential value in 2025; in 1H26, deal value approached US$110bn. The report also highlights a move from single-asset transactions toward platform access: BMS agreed a 13-project transaction with Hengrui involving US$600mn upfront and up to about US$15.2bn in total potential value, while Pfizer signed a 12-program oncology deal with Innovent including US$650mn upfront and up to about US$9.85bn in total potential value. The principal unresolved issue is whether Treasury's COINS rules will explicitly include biotechnology. Biotechnology is not currently among the covered technologies, which are AI, semiconductors, quantum information, high-performance computing and hypersonic systems. However, Treasury has independent authority to add technologies, including biotechnology, in its implementing rules. JPMorgan notes reported pressure from some House representatives and smaller US biotech companies to sever US-China biotechnology ties through proposed BINSA legislation and direct appeals to Treasury Secretary Bessent. This leaves biotechnology language in the proposed rules as the central item for investors to monitor.

Analysis framework

The report starts with the reported policy terms, compares them with the broader restrictions investors had feared, and then tests their importance against the scale and evolving structure of China-originated licensing transactions. It concludes by separating the immediate regulatory signal from the remaining uncertainty over whether biotechnology will be added to COINS implementation.

Methodology notes

• Event-Driven and Behavioral FinanceEvent-driven analysis

  Policy-event analysis

  The report assesses how a reported Treasury rule could change perceived regulatory risk for China-originated licensing transactions, while distinguishing an initial news signal from the eventual final-rule outcome.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hengrui

  Example of a Chinese company participating in a platform-level out-licensing transaction with BMS.

  Strengths

  Its 13-project deal illustrates the scale of platform-level access transactions.

  Comparison

  The report contrasts platform-level deals with earlier single-asset licensing arrangements.

  Risks

  Potential biotechnology inclusion in COINS restrictions could affect cross-border licensing.

• Innovent

  Example of a Chinese company participating in an oncology licensing transaction with Pfizer.

  Strengths

  Its 12-program transaction illustrates the growing platform-level structure of China-originated licensing.

  Comparison

  The deal is presented alongside the BMS-Hengrui transaction as evidence of the shift from single-asset deals.

  Risks

  Potential biotechnology inclusion in COINS restrictions could affect cross-border licensing.

Key data

• China-originated out-licensing potential value in 2025roughly US$115bnAccording to the Pharmcube database
• China-originated out-licensing potential value in 1H26approached US$110bnReported aggregate value of deals from China
• BMS-Hengrui transactionUS$600mn upfront; up to ~US$15.2bn total13-project platform-level deal
• Pfizer-Innovent oncology transactionUS$650mn upfront; up to ~US$9.85bn total12-program deal
• Rule timetableProposed rule in fall; final rule due in March next yearExpected COINS implementation timing cited by the report

Impact & implications

The report argues that narrower restrictions would support the viability of Chinese biotech firms' pipeline-globalization and out-licensing model. It does not regard the development as definitive because a biotechnology designation under COINS rules could still damage sentiment and alter the practical scope of permitted deals.

Risks

• The proposed Treasury rules are not finalized and may change, including through White House intervention.
• Treasury could add biotechnology to COINS Act implementation rules, which the report says could hurt sentiment toward China-originated out-licensing.
• Reported political pressure, including proposed BINSA legislation, could push for tighter US-China biotechnology restrictions.

What to watch

• The precise Treasury language on biotechnology in the proposed COINS rules.
• Whether biotechnology is added as a covered technology under COINS implementation.
• The proposed-rule release expected in the fall and the final rule expected in March next year.