Trump’s ‘America First’ Investment Policy Raises Uncertainty for US-China Biotech Dealmaking

Impact of the ‘America First Investment Policy’

In a significant move that could reshape the landscape of U.S.-China biotech relations, President Donald Trump recently introduced the “America First Investment Policy.” While this policy is still in its formative stages, it poses potential impediments to the growing collaborations within the biopharma industry between the two nations. Analysts and industry leaders are apprehensive about the policy’s potential ramifications on licensing agreements, the formation of new biotech startups, and the overall flow of investment from Chinese venture capital.

During a recent discussion known as the “Biotech Hangout,” TD Cowen analyst Yaron Weber argued against the notion that China’s increasing competitiveness in biotechnology is alarming, as long as the U.S. can license Chinese-developed drugs and maintain intellectual property rights. However, Trump’s newly enunciated policy complicates this dynamic significantly.

Key Outline of the Policy

On February 21, Trump made headlines by issuing a memorandum advocating for protectionist measures that target investments from “foreign adversaries,” primarily focusing on China. The document highlights healthcare and biotechnology among key sectors that will come under regulatory scrutiny. Trump’s directive suggests enhancing the role of the Committee on Foreign Investment in the United States (CFIUS), empowering the U.S. government to restrict investments from China in certain strategic areas, thus emphasizing national security concerns.

Interestingly, while the memo asserts a continued welcome for passive investments from foreign entities, it imposes stringent conditions meant to prevent foreign control over U.S. firms in sensitive sectors like biotechnology.

Potential Disruptions to Drug Licensing and Startups

The ambiguity contained within the memorandum raises a number of questions. Industry experts like Laurie Burlingame from Morgan Lewis law firm express concerns that the lack of clarity could generate further uncertainty in the already cautious life sciences sector, which has been struggling for growth over the past three years. Three key areas of disruption emerge from this policy:

1. Loss of Licensing Opportunities

Should the U.S. classify licensing agreements with Chinese entities as a form of “investment,” major American biopharma companies could face a reduction in available drug candidates for in-licensing. A recent Stifel report highlighted that nearly one-third of licensing deals in 2024 derived from Chinese biotech firms, underscoring the significance of these partnerships.

2. Difficulty in Establishing New Biotech Startups

The appeal of the “NewCo” model, where a Chinese drugmaker collaborates with U.S. investors to create a new biotech company while retaining an equity stake, could also face challenges. The ambiguity surrounding whether providing intellectual property could be deemed an investment under the new restrictions disproportionately affects this model, which is increasingly common in today’s biopharma landscape.

3. Diminished Access to Chinese Venture Capital

The policy may prompt Chinese venture capital investors to withdraw from the U.S. market. With the threat of increased scrutiny and regulatory obstacles, many VCs may reconsider their willingness to actively engage with U.S.-based biotech firms. This risk is highlighted by Burlingame, who notes that most VCs seek governance rights and active roles in their investments, which the new policy could preclude.

Licensing Deals Likely to Persist

Despite the restrictive nature of the ‘America First’ policy, analysts predict that it will not significantly impact existing cross-border licensing agreements between U.S. and Chinese biotech firms—at least for now. According to Stifel’s Tim Opler, licensing is more of an asset transaction than an investment, suggesting that current licensing agreements may not fall under the intended prohibitions of the new rule.

National Security vs. Economic Potential

In light of ongoing discussions about national security, some argue that despite potential economic setbacks, prioritizing national interests is essential. Economists engaged in discussions around the policy have drawn historical parallels, weighing the pros and cons of unrestricted trade with nations deemed security threats.

While opinions may vary on the importance of a protective policy, the consensus remains that increasing restrictions on U.S.-China biotech dealings will ripple through the sector, potentially halting promising collaborations that drive innovation and improve healthcare outcomes.

The Way Forward for U.S.-China Biotech Relations

As the implications of Trump’s America First Investment Policy become clearer, stakeholders in the biopharma sector will need to navigate a cautious yet strategic path. Continued dialogue between private sectors, analysts, and federal agencies will be crucial to foster innovation, maintain robust biotech partnerships, and address national security concerns effectively.

In conclusion, while the U.S. biotechnology sector has forged strong ties with Chinese innovation, the recent policy shift adds layers of complexity to an already evolving relationship. Understanding the balance between national security and economic opportunity will be vital as both nations attempt to adapt to this new landscape.