Hilton Yin
Dacheng Lawfirm, China
hilton.yin@dentons.cn

In recent years, Chinese life sciences companies have become much more active in the global deal market. China’s outbound licensing value reached a record US$137.7bn in 2025,¹ accounting for roughly half of global pharmaceutical licensing deal value.² In 2026, according to Xinhua, citing information released by the National Medical Products Administration on 28 March 2026, outbound licensing transactions by Chinese innovative drug companies exceeded US$60bn in the first quarter alone, approaching half of the full-year total for 2025.³ This growth highlights China’s increasing role as both a source of innovation and a key counterparty in cross-border transactions. At the same time, however, regulatory complexity is starting to affect how deals actually get done, most notably by weakening what used to be taken for granted as ‘closing certainty’.

Unlike traditional cross-border transactions, where antitrust clearance is often the main regulatory hurdle, uncertainty in China’s life sciences deals is now driven by the combined effect of three regimes: foreign investment security review, cross-border data regulation, and human genetic resources (HGR) control. Legally, these regimes are separate. In practice, however, they are closely linked and often apply together.

A key issue is ‘control’. Whether a foreign investor is seen as having ‘actual control’ does not only determine if a security review is required, it also affects how regulators look at data access, involvement in R&D, and post-closing integration. At the same time, whether data or HGR-related information can be accessed or transferred may directly shape valuation, closing conditions, and even the deal structure itself.

Under the Measures for Security Review of Foreign Investment, ‘actual control’ is the central test. It is defined broadly and can include significant influence over business decisions, personnel, finance, or technology, including through veto rights. In practice, however, the analysis often goes beyond formal governance rights. Regulators may look at whether the investor can influence research and development (R&D) direction, data use, or technology integration. In life sciences transactions, especially those involving biotech platforms or core R&D capabilities, this makes security review more likely.

China has also built a comprehensive framework for cross-border data transfers, including the Personal Information Protection Law, the Data Export Security Assessment Measures, the Standard Contract Measures, and the Provisions on Cross-border Data Flows. These rules set out different compliance paths depending on the type and volume of data. That said, regulators have significant discretion in how they classify data and assess how it will be used or accessed.

In practice, this means that key data assets, such as real-world data, pharmacovigilance data, and clinical trial data, cannot simply be transferred or integrated into buyer’s global systems after closing. Instead, access is often structured through mechanisms such as anonymisation, onshore storage, or controlled remote access.

HGR regulation adds another layer of complexity. Under the relevant regulations and implementing rules, any ‘participation’ by foreign parties in the collection, storage, or use of HGR materials or information may trigger approval or filing requirements. While some international clinical trials can proceed under a filing regime, activities involving the provision or open use of HGR information generally require prior approval or reporting. In practice, ‘participation’ is interpreted broadly. It may include technical support, data access, or even algorithm training involving relevant datasets. As a result, even minority investments can trigger regulatory requirements if they involve data access or technical interfaces.

From a deal execution perspective, the key issue is not whether approval will ultimately be granted, but how these rules affect the path to closing. In many cases, they lead to longer timelines, more complex conditions precedent, and real limits on post-closing integration.

As a result, due diligence is no longer just about compliance, it is about whether the deal can actually close. This typically involves:

• identifying and classifying data, samples, and information, including personal data, sensitive data, important data, and HGR-related materials;
• mapping historical cross-border data flows;
• checking prior approvals, filings, and any compliance gaps; and
• analysing control in substance, including board rights, veto rights, R&D decision-making, and data access.

Transaction documents also need to reflect these realities. Parties now commonly include security review clearance, data transfer arrangements, and HGR approvals or filings as conditions precedent, or sometimes as payment conditions. Long-stop dates, regulatory cooperation obligations, and termination rights are also more heavily negotiated. In addition, tailored representations, warranties, and covenants on data and HGR issues are increasingly important.

In terms of deal structure, the traditional ‘single-step’ acquisition is often no longer the preferred approach. Instead, parties are moving toward more flexible, staged structures. A common approach is a two-step model – starting with a licensing or collaboration arrangement to secure key assets, followed by a later equity investment. Another is to use a NewCo to separate business operations, IP, and data.

These structures do not reduce regulatory requirements, but they make them more manageable. By sequencing the transaction – rather than trying to solve everything at closing – parties can address regulatory issues step by step and reduce execution risk.

In conclusion, life sciences transactions involving China are moving away from a purely approval-driven model toward one focused on regulatory pathway design. In practice, market dynamics now play as important a role as formal legal requirements in determining deal success. Transaction teams therefore need to look beyond valuation and negotiation and focus on structuring deals that can work within security review, data transfer, and HGR constraints. Closing is no longer simply the final step of a transaction, it is the result of getting the regulatory approach right.

Notes

1     Reuters, ‘China biotech licensing boom to hit record in 2026 as pipeline swells’, 13 February 2026: www.reuters.com/sustainability/climate-energy/china-biotech-licensing-boom-hit-record-2026-pipeline-swells-2026-02-13.

2     Goldman Sachs, ‘China Is Increasing Its Share of Global Drug Development’, 17 December 2025: www.goldmansachs.com/insights/articles/china-is-increasing-its-share-of-global-drug-development.

3     Xinhua, ‘China’s outbound licensing exceeds USD 60 billion in Q1 2026’, 29 March 2026: www.xinhuanet.com/20260329/f15ff214ffb349a9b02fb104b241a834/c.html.