As Washington steps up efforts to tighten cross-border life sciences deals involving Chinese assets, Beijing is moving to strengthen its own grip on biomedical innovation, rolling out a draft policy that would ban or restrict the export of key biopharmaceutical technologies.
In a proposed update to its export blacklist released (in Chinese) on Friday, the Chinese government revealed that it seeks to block foreign acquisitions of proprietary cell and gene therapy, small interfering RNA (siRNA) and gain-of-function pathogen platforms. In this case, platforms are defined as sets of reusable technologies that can support the development of multiple drugs.
At the same time, the new rule would restrict the full transfer of proprietary technologies for identifying and verifying drug targets in the areas of cell and gene therapy and siRNA to foreign entities. Unlike a total ban, a restriction would mean that such agreements would require approval from regulatory authorities.
Biopharmaceutical assets are among 40 key technologies targeted by the government’s update, which also covers AI and photovoltaic green energy.
The proposed policy comes as China has become a major exporter of biomedicines. According to Chinese drug regulators, foreign transactions in Chinese biotech assets reached $120 billion in August this year, a 36% year-on-year jump.
However, the actual impact of the proposed rule on Chinese biopharmaceutical transactions may be limited.
For biopharmaceutical deals, the new regulations can be summarized as “regulating transfers while leaving licensing unconstrained,” Aaron Gu, a partner at Chinese law firm Han Kun specializing in healthcare and life sciences, told Fierce.
While seeking to retain ownership of key proprietary technologies within China’s borders, the proposed export ban explicitly excludes several common types of commercial development. Licensing agreements, as well as the use of know-how to provide outsourced research and manufacturing services, do not fall under the ban, a spokesperson for the Chinese Ministry of Commerce stressed during a question-and-answer session with the media (in Chinese).
Likewise, licensing of drug target identification and verification technologies will generally be approved, the spokesperson added.
This describes almost all Western deals involving Chinese biotech assets so far. Despite the increase in the number and value of deals, U.S. and European biopharmaceutical companies and venture capitalists have focused almost exclusively on purchasing specific drugs from their Chinese counterparts or using a platform to identify new molecules. It is rare for ownership of a platform to change hands.
As of July 1, only five of China’s 121 cross-border biopharmaceutical licensing deals this year involved a transfer of ownership, according to local biopharmaceutical data intelligence service provider PharmCube.
One deal that likely would not have been possible under the proposed new rule was AstraZeneca’s $1 billion acquisition of Gracell Biotechnologies, which developed the FasTCAR platform for manufacturing CAR-T cells. When announced in late 2023, the deal was hailed as Big Pharma’s first full acquisition of a Chinese biotech.
Explaining the government’s reasoning in the question-and-answer session, the spokesperson presented the proposal as supporting “orderly international collaboration around Chinese biopharmaceutical technologies.” As for the pathogen component, the spokesperson cited national security reasons.
Rumors began circulating in May that the Chinese government was seeking to curb acquisitions of biopharmaceutical platforms. At the time, a purported Commerce Department blacklist circulating online also proposed banning other popular modalities such as multispecific antibodies, antibody-drug conjugates, and protein degraders from the platform.
The Chinese government has been surveying research institutes and biopharmaceutical companies over the past two years, trying to better understand the field’s technological landscape, a senior Chinese biopharmaceutical industry official told Fierce in a June interview.
The assessment was launched in response to concerns about the practice of licensing or selling early-stage drug candidates — referred to by locals as “selling green shoots” — because Chinese biotechs lack the experience or liquidity to conduct late-stage clinical trials and global commercialization, the person said.
“What the authorities don’t want to see is someone using China’s resources to build a big R&D engine, with the sole aim of selling the entire company abroad, because China would eventually lose its capabilities,” the executive said, commenting on the rumor.
“But if you structure it as a partnership, I still own it,” the executive added. “You’re just licensing it so foreign companies can develop it overseas while paying you royalties and milestone payments. I don’t think the Chinese government is against that kind of arrangement.”
“Many of these agreements retain rights for China, meaning they will not impact the development and commercialization of these drugs domestically, so Chinese patients still have access to world-class medicines,” the director continued. “Second, Chinese companies can earn financial returns from these deals, thereby generating foreign exchange for the country. If you think about it from those angles, that’s really the underlying rationale.”
Today, the draft policy released is “significantly better than market expectations,” Han Kun’s Gu said.
The previous list was rumored to “cover almost all the most important frontiers of Chinese biopharmaceutical business development deals,” he observed. “There was widespread market concern that Chinese cross-border deals would take a hit. »
“By deliberately excluding licensing structures, the government has clearly taken into account the norms of biopharmaceutical deal negotiation and the dynamics of cross-border collaboration, reflecting strong support from a policy perspective,” Gu said.
The Chinese government is seeking comments on the proposed new rule until November 15. Foreign buyers should conduct due diligence regarding this draft policy, Gu said. He noted that before the revised export control catalog is officially promulgated, any export of technologies falling within the regulated scope must be registered with the Ministry of Commerce.
Beijing is tightening controls on foreign biopharmaceutical transactions just as China hawks in Washington step up efforts to curb U.S. purchasing of Chinese biotech assets. Congressman John Moolenaar (R-MI), Chairman of the House Select Committee on the Chinese Communist Party, and Congresswoman Debbie Dingell (D-MI) recently introduced the Biotechnology Investment National Security Act, aimed at subjecting Chinese biopharmaceutical deals to greater scrutiny.
However, the project did not advance in Congress. The U.S. Treasury Department, which would be responsible for enforcing the proposed restrictions, is working on rules that would likely preserve the ability of U.S. companies to enter into most licensing deals for Chinese drugs, Reuters reported last month, citing three people who were briefed on the process.
Editor’s Note: The story was updated at 2:50 p.m. to include a data point provided by PharmCube.
China’s growing role as a source of biopharmaceutical innovation is one of the hot topics discussed at Fierce Biotech’s high-impact event in London next month. Find out more information and register by clicking on the banner below:
Gn bussni
