Biotech Licensing and Business Development in China

Biotech licensing from China: why it matters now

Biotech licensing has reversed direction in China. A decade ago, most deals involved multinational companies licensing established products into China. Today Chinese biotech companies are among the most active sources of new molecules worldwide, and international pharmaceutical groups routinely in-license Chinese-originated antibodies, bispecifics, antibody-drug conjugates, cell therapies and small molecules for global or ex-China rights. Deal sizes, measured by headline value including milestones, have reached record levels in 2025 and 2026, though upfront payments remain a much smaller fraction of the headline figures.

That shift has created a distinctive set of legal and commercial questions. Chinese licensors must clear technology export, human genetic resources, data and foreign exchange rules before value can leave China. International licensees must manage due diligence on Chinese patents and clinical data, US and European regulatory expectations, and new geopolitical risk, including US BIOSECURE legislation enacted in December 2025. Investors in NewCo structures need offshore vehicles that can receive Chinese assets lawfully. This page gives a general overview for all three groups. It is general information, not PRC legal advice.

Deal structures in biotech licensing

The choice of structure drives almost every other issue, from Chinese approvals to tax and dispute risk. The most common models are summarised below.

Inbound biotech licensing, where a foreign company licenses a product into China, remains important too, particularly for rare disease, vaccines and late-stage assets. It raises the mirror-image issues: technology import rules, the royalty withholding tax payable by the Chinese licensee, and allocation of responsibilities between the foreign marketing authorisation holder and the Chinese partner.

Worked example: a NewCo. Suppose a Shanghai biotech agrees with a group of US investors to place global ex-Greater China rights to a Phase I bispecific antibody into a Delaware NewCo. The biotech will receive a minority equity stake, an upfront cash payment and milestones. A realistic workplan would start with a technology export classification and a review of the clinical package for human genetic resources and personal information. In parallel, the biotech would prepare outbound investment filings for the NewCo shares, since it is acquiring offshore equity, and agree with investors what happens if filings are delayed. Signing would usually occur with the licence's effectiveness, or the cash payment, conditional on contract registration or an export licence.

Post-closing, the parties must manage ongoing technology transfer, joint development of the Chinese and ex-China programmes, data sharing across the border and governance of a company in which the Chinese licensor is both shareholder and supplier. Exit planning matters from day one: an IPO or trade sale of the NewCo may require further Chinese filings for the licensor's stake, and drag-along and tag-along rights should be drafted with those steps in mind.

Chinese approvals and filings to plan for

Out-licensing is not regulated by a single approval, but several regimes can apply. The sequence matters because some must be completed before signing or before the licence takes effect.

1. Technology export. Under the Technology Import and Export Administration Regulations, technologies are freely exportable, restricted or prohibited by reference to the Catalogue of Technologies Prohibited or Restricted from Export, which includes certain biotechnology items. Restricted technologies need a licence from commerce authorities before the contract takes effect; freely exportable technologies need contract registration, which is also used by banks when processing payments. Classification should be done before signing.
2. Human genetic resources. If the licensed package includes samples or genetic information derived from Chinese patients, the Regulations on the Administration of Human Genetic Resources apply. Providing such information abroad requires a filing and, where public health, national security or the public interest may be affected, a security review. Oversight moved from the Ministry of Science and Technology to the National Health Commission in the 2023 to 2024 institutional reform.
3. Data export. Clinical data containing personal information, and any data classified as important, falls under the cross-border data regime of the Personal Information Protection Law and Data Security Law. Depending on volume and type, transfers need a standard contract filing, certification or a security assessment, unless an exemption applies. See cross-border data transfer.
4. Outbound investment. In a NewCo deal, the Chinese company acquiring offshore equity generally needs outbound direct investment filings or approvals with the development and reform commission, commerce authorities and, through banks, foreign exchange registration. See outbound direct investment approvals.
5. Merger control. An acquisition, or a licence that gives control of a business with identifiable turnover, may need clearance from the State Administration for Market Regulation if the 2024 turnover thresholds are met: combined worldwide turnover above RMB 12 billion or combined China turnover above RMB 4 billion, with at least two parties each above RMB 800 million in China.

Diligence and key terms in biotech licensing

Diligence on a Chinese asset follows the same logic as anywhere else, with some local features. Licensees typically review:

• Patent position. Ownership, chain of title from inventors and any university or hospital collaborators, employee-inventor remuneration, foreign filing licences for inventions made in China, and freedom to operate in key markets.
• Clinical data quality. Whether trials meet ICH GCP, site inspection history, data integrity, and whether the US Food and Drug Administration or European Medicines Agency will accept data generated mainly in China. Regulators have indicated they expect data applicable to their own populations, so many licensees plan bridging or global trials.
• Manufacturing. Who makes the drug substance and product, whether the contract manufacturer could be affected by BIOSECURE or other restrictions, and the feasibility of technology transfer.
• Regulatory filings. Status of INDs in each country and who holds them, plus Chinese data protection and patent term compensation positions.
• Corporate approvals. Board and shareholder approvals, and, for listed licensors, disclosure and shareholder vote requirements on the relevant exchange.

Assets that originated in universities, hospitals or state-owned research institutes need extra care. Chinese law encourages the transfer of scientific and technological achievements and lets institutions keep and share the proceeds, but internal approval, valuation or public disclosure procedures may apply, and inventors are often entitled to statutory rewards. Licensees should confirm that the licensor acquired the asset through a valid process and that no institution or inventor can later challenge the chain of title or claim further payment.

Key contract terms deserve careful drafting. Territory definitions should address Hong Kong, Macao and Taiwan explicitly. Development diligence obligations should be measurable. Milestones should be tied to objective events. Royalty provisions need clear rules on net sales, stacking, reductions on loss of exclusivity and audit. Improvements and jointly developed IP need ownership and licence-back rules. Supply provisions should cover transitional supply from China and the right to qualify second sources. Governing law is often New York, English or Hong Kong law, with arbitration in Hong Kong, Singapore or New York.

Geopolitics and foreign regulation

US policy is the most important external variable for biotech licensing involving China. The BIOSECURE provisions, enacted in the National Defense Authorization Act for fiscal year 2026, restrict US federal agencies from procuring certain biotechnology equipment and services from designated biotechnology companies of concern, and from contracting with or funding entities that use them in performance of federal contracts, grants or loans.

Unlike earlier drafts, the enacted text, signed into law on 18 December 2025, does not name companies. Designation turns mainly on the US Department of Defense's 1260H list of Chinese military companies, with the Office of Management and Budget due to publish a list of biotechnology companies of concern within a year of enactment, followed by implementing guidance and amendments to federal procurement rules; existing contracts receive transitional protection. In June 2026 the Department of Defense added WuXi AppTec to the 1260H list, a designation the company disputes, so the timing and scope of the first OMB list should be checked.

For licensees, BIOSECURE matters mainly through manufacturing and services: an asset whose supply chain relies on a designated company could become harder to sell to US government-funded customers. Licence agreements increasingly include representations about suppliers, covenants to qualify alternative manufacturers and allocation of switching costs. Other US measures, including CFIUS review of foreign investment in US biotech companies, export controls on certain biotechnology equipment and tariff policy affecting pharmaceutical imports, should also be considered. Our page on US-China cross-border issues covers the wider context.

Chinese policy remains supportive of out-licensing but alert to strategic technology. Chinese companies should expect authorities to scrutinise transfers of technology classified as restricted, large datasets of Chinese patients and genetic information. In an environment where either government could introduce new measures, contracts should include change-in-law clauses, termination rights and agreed steps if approvals are withdrawn.

Tax, payments and capital markets

Payment flows in biotech licensing raise several tax questions. When a Chinese licensee pays royalties to a foreign licensor, Chinese withholding tax applies to the royalties, at a statutory rate of 10 per cent for non-resident enterprises, often reduced under a tax treaty, together with value added tax. When a Chinese licensor receives upfront and milestone payments, the income is taxable in China, but qualifying technology transfer income of a resident enterprise may benefit from a corporate income tax exemption for the first RMB 5 million and a 50 per cent reduction above that, subject to conditions. Foreign withholding taxes on payments to the Chinese licensor, and treaty relief, also need checking. See indirect transfers and non-resident tax.

Foreign exchange is usually manageable for registered technology contracts, but banks will ask for contract registration certificates and tax filings before remitting large amounts. NewCo shareholdings need ongoing outbound investment and foreign exchange compliance, including on future financing rounds and exits.

Capital markets shape deal timing. Many licensors are listed on the Hong Kong Stock Exchange under Chapter 18A for pre-revenue biotech companies, or on the Shanghai STAR Market, and a licence can be price-sensitive information that must be disclosed promptly. Large transactions may require shareholder approval under listing rules. Our page on HKEX Chapter 18A and 18C listings explains the Hong Kong framework.

Accounting and valuation also affect structure. Licensors listed in Hong Kong or on the STAR Market often prefer larger upfront payments that can be recognised as revenue, while licensees may prefer back-ended milestones that reduce risk. Equity components, such as a licensee subscribing for licensor shares, can bridge the gap but raise their own listing rule, connected transaction and foreign investment questions. Earn-outs and contingent value rights in acquisitions of listed Chinese biotech companies need careful drafting under both the listing rules and the takeovers regime that applies.

Disputes and common mistakes

Disputes in biotech licensing tend to arise at predictable points: whether a milestone was achieved, whether the licensee used commercially reasonable efforts, whether a product falls within the licensed scope, who owns improvements, and how royalties are calculated. Termination disputes, especially after a licensee deprioritises an asset, are common. Arbitration in Hong Kong or Singapore is popular because awards can be enforced both in mainland China and in most licensee home jurisdictions.

Interim relief is often decisive. Where a licensor fears misuse of know-how after termination, or a licensee needs continued supply, parties may seek emergency arbitrator orders or court-ordered preservation. Under the arrangement between the mainland and Hong Kong on court-ordered interim measures, parties to Hong Kong-seated arbitrations administered by qualifying institutions can apply to mainland courts for preservation, a useful tool when assets or data sit in China.

The most common mistakes we see in biotech licensing transactions are:

• Signing before confirming technology export classification, leaving the licence ineffective until registration or a licence is obtained.
• Including Chinese patient samples or genetic data in the transferred package without human genetic resources filings.
• Vague diligence obligations that make "commercially reasonable efforts" disputes almost inevitable.
• Ignoring how a NewCo will exit, including whether the Chinese parent's outbound filings permit the planned IPO or sale.
• Underestimating supply chain dependence on Chinese contract manufacturers in light of BIOSECURE.

Related pages include pharmaceuticals, IP licensing and commercialisation and health and medical data.

How TRW & Co helps

We act for international pharmaceutical companies, investors and Chinese biotech companies on biotech licensing and business development. We structure out-licences, co-development deals, options, NewCos and acquisitions; draft and negotiate agreements under New York, English, Hong Kong and other non-PRC laws; coordinate diligence across patents, clinical data and supply chains; analyse US and EU regulatory and national security exposure; and advise on arbitration strategy. We explain how Chinese technology export, human genetic resources, data and outbound investment rules affect each deal, and work with licensed PRC law firms for PRC legal opinions, filings and approvals. To discuss a transaction, please contact us.