Original source：Morgan Stanley Asia LimitedFirst published on Unhidea：Original source date：
Key takeaway
Morgan Stanley expects the globalization of Chinese innovative drugs to continue through compliant partnerships and licensing at later stages, but policy boundaries around deal structures will affect partnership paths and companies’ bargaining power.
How has the policy assessment changed since September?
The US Treasury’s draft COINS rules would bring biotechnology under US outbound investment restrictions, covering activities related to biological systems such as small molecules, antibodies, vaccines, and cell and gene therapies. Morgan Stanley believes this challenges its more moderate policy assessment from September.
The bank believes high interest rates and limited valuation support, together with policy uncertainty, could weigh on sector sentiment. However, the report’s front page still gives China’s healthcare sector an “attractive” industry view.
The draft has not yet taken effect, and the consultation period will end on 7 December 2026. The Treasury will then review the feedback and formulate final rules, specifying their scope, exceptions and effective date.
Why are licensing and whole-company acquisitions affected differently?
Morgan Stanley believes standalone licensing deals without investment or joint venture arrangements are relatively less affected. The assessment therefore focuses on whether a deal includes investment, joint venture or similar features, rather than solely on the type of drug technology.
If the relevant draft provisions are finalized, whole-company acquisitions of Chinese biotechnology companies by US persons covered by the rules will be prohibited; exceptions remain for qualifying offshore acquisitions. This is consistent with the bank’s previously low expectations for mergers and acquisitions.
Where does the uncertainty lie in NewCo collaborations?
The NewCo/co-co model, which conducts collaborations through newly established companies, is a key unresolved issue, and offshore vehicles are also involved. The final scope and interpretation of joint venture arrangements will determine which structures can continue to be used.
The Treasury does not plan to publish a list of entities covered by the rules, but proposes to allow evidence to be submitted confidentially. US transaction participants must still determine for themselves whether a transaction is restricted. Therefore, US parties bear the due diligence responsibility for determining whether a collaboration structure complies.
Which companies are better able to adapt to changes in partnership paths?
Morgan Stanley expects that, if the restrictions are implemented, the globalization of Chinese innovative drugs will continue through adjustments to partnership approaches and licensing projects at later stages. The way overseas opportunities are realized will change with compliance requirements.
The bank favors well-funded companies with scarce assets and a demonstrated ability to monetize projects repeatedly: funding allows them to advance projects to later stages and then seek more favorable partnership terms. This is its reasoning for differentiation among companies based on the policy constraints.
