Where are the rules stricter than J.P. Morgan expected?

  • The U.S. Treasury’s proposed rules under the COINS Act include biotechnology among the technologies subject to investment prohibitions, explicitly covering drug compounds and delivery systems, including small molecules, vaccines, cell and gene therapies, and antibodies. Investments covering these technologies would be prohibited rather than merely subject to reporting, leading J.P. Morgan to view the proposal as more negative than it had previously expected.
  • The policy assessment diverged from the short-term share-price reaction: on the day before the report, the HSHCI fell 5.6% and the HCI fell about 2%; the HSHCI had rebounded by the time the report was written. J.P. Morgan therefore believes the market may already have priced in the worst-case scenario, although it remains negative on the rules themselves.

Why are financing risks clearer while the impact on drug licensing is harder to determine?

  • Proposed prohibited transactions include equity investments, convertible debt or debt with equity-like features, joint ventures and new businesses involving covered entities. J.P. Morgan therefore sees greater risks for private financing and equity-linked partnerships in China’s biopharmaceutical industry. An exception remains for publicly traded securities, subject to additional restrictions on governance rights.
  • Drug out-licensing turns on the definition of a transaction: the exception for contractual arrangements excludes transfers of technology or technological know-how, so licensing transactions do not automatically qualify for it. At the same time, standalone drug licensing is not expressly listed as a prohibited transaction, and activities outside the definition of a covered transaction remain outside the rule’s constraints.
  • Some investors believe provisions concerning the acquisition, leasing or development of assets that cause the relevant party to engage in restricted technologies could cover drug licensing. J.P. Morgan has reached no definitive conclusion, believing the scope requires legal interpretation and that financing restrictions cannot be equated directly with a ban on all licensing transactions.

How do the rules apply differently when European and Asian pharmaceutical companies license drugs from China?

  • The rules constrain U.S. persons and foreign entities they control, covering transactions involving covered foreign persons connected to areas of concern, including mainland China, Hong Kong and Macao. Whether a partner is a U.S. person is an important factor in determining whether a transaction is restricted.
  • Under J.P. Morgan’s interpretation, licensing transactions between Chinese pharmaceutical companies and European or Asian pharmaceutical companies that are not U.S. persons do not, in themselves, trigger COINS restrictions. Pressure on U.S. partnership channels and changes across all overseas licensing channels for Chinese drugs should therefore be assessed separately.

Why could the final scope still change?

  • As of the report date, the proposed rules had not taken effect, and the deadline for public comments was 7 December 2026. The Treasury is seeking comments and considering whether to narrow the scope of covered drugs and devices to advanced or cutting-edge technologies; this would directly affect the business activities covered by the investment prohibition.
  • The proposed rules also acknowledge that the restrictions could pose public health risks or harm relevant U.S. companies. J.P. Morgan expects industry groups to continue raising concerns during the comment period and therefore sees room for changes to the final text.
  • Another separate policy milestone is the list of ‘biotechnology companies of concern’ under the BIOSECURE Act. Based on the statutory deadline described in the report, J.P. Morgan expects the list may be published in December 2026. The industry is simultaneously watching two policy developments: finalization of the investment rules and publication of the list.