Chinese pharmaceutical firms’ US expansion plans to come up against brick wall of greater regulatory scrutiny

Chinese pharmaceutical companies, biotech firms in particular, will face rising regulatory hurdles in conducting acquisitions in the US, Fitch analyst says

Expansion by Chinese contract development and manufacturing organisations could be affected by new executive order, Simon-Kucher and Partners executive says

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The Biden executive order is the first one to provide formal presidential guidance on the risks that should be considered by CFIUS when review transactions. Photo: Shutterstock

Published: 5:00am, 3 Oct 2022

Chinese pharmaceutical companies will see their US expansion plans curtailed by tougher regulatory scrutiny, analysts said.

The tightened regulation of deals involving biotechnology and biomanufacturing in the United States could result in fewer transactions getting approvals, and could lead to China-based biotechnology companies seeking targets in Europe and Belt and Road Initiative countries.

“We believe transactions involving biotechnology and biomanufacturing will be subject to stringent screening by the Committee on Foreign Investment in the United States [CFIUS], as the US is keen to protect its technological leadership and therefore national security,” said Flora Zhu, corporate research director at Fitch Ratings.

Her remarks came after an executive order by US President Joe Biden on September 15, which clarifies and lays out the key US industries and business sectors that should expect heightened regulatory scrutiny from CFIUS. The committee was founded in 1975 with the authority to block direct foreign investment in US companies on national security grounds. Biden’s executive order says that it should take into consideration the potential impact on US technology leadership and critical US supply chains that may affect national security, when reviewing deals.

“The executive order is the first one to provide formal presidential guidance on the risks that should be considered by CFIUS when review transactions, since its establishment and it clearly states that biotechnology is included,” Zhu said. “We believe Chinese pharmaceutical companies – biotech firms in particular – will face rising regulatory hurdles in conducting acquisitions in the US.”