China's Proposed Technology Export Restrictions

By Morgan Kohler, Executive Editor

On Oct. 16, China’s Ministry of Commerce (MOFCOM) and Ministry of Science and Technology issued Joint Announcement No. 48, a draft amendment to the country’s catalog of technologies prohibited or restricted for export. It covers 40 technologies across artificial intelligence, biomedicine, and photovoltaics. Five are biomedical. Public comment closes Nov. 15, and related dual-use export control announcements take effect Nov. 18, when the Dual-Use Items Export Control List is updated.

Three of the five biomedical categories would be prohibited: proprietary cell and gene therapy (CGT) technology process platforms, proprietary small interfering RNA (siRNA) drug technology process platforms, and pathogenic microorganism gain-of-function technologies. For the two platform categories, only outbound transfers of ownership would be barred.

The remaining two are restricted, requiring an export license rather than being banned. They cover proprietary technologies for the discovery and validation of wholly new CGT targets, as well as siRNA targets, in each case where the entity holds independent intellectual property rights and the targets have not previously been publicly disclosed.

What This Means For Drug Discovery

Prohibition is a problem for corporate development to solve, whereas restriction is a scientific one.

What the restricted categories cover is methodology: how a previously undisclosed target in these two modalities gets found and validated. Notably, the draft does not separately require that the discovery method itself be novel. Rather than the novelty test attaching to the technique, it attaches to the target. A conventional screening and validation workflow applied to a target nobody has published can therefore fall inside the restricted category, while an exotic method applied to a known target would not.

For a discovery organization with a Chinese partner in CGT or siRNA, that turns an ordinary scientific question into a classification question. Is the joint work asset development, or is it target discovery and validation? The answer determines whether a license is needed, and the people who can answer it are the scientists running the collaboration. The contracts team reading the agreement are unable to do so.

The carve-outs are narrower than initially indicated. A platform, under the draft, is an accumulated, reusable set of underlying common technologies capable of supporting multiple drugs. Technology developed for a single drug falls outside that definition, as does the work necessary to develop, test, manufacture, quality control, and market a specific candidate in an international collaboration. Out-licensing agreements, joint research arrangements, and outsourced manufacturing that leave ownership in China are explicitly excluded from the prohibition. In practice, a Western company can license a Chinese siRNA asset indefinitely, but it can’t acquire the company that owns the siRNA platform.

That reframes a common strategy. Companies that treated an early-discovery collaboration in these modalities as an option on later acquisition (license now, buy the platform if it works) are looking at a path the rule would close. While licensing output remains available, that is not the case when it comes to converting a partnership into ownership of the discovery platform.

One requirement is already operative. Although the amendment has not been adopted, MOFCOM has imposed interim pre-export registration on the listed technologies, and that requirement reaches transactions already underway but not completed.

The second-order effect is on the value of internal capability. If external target discovery in CGT and siRNA now carries new diligence, licensing exposure, and, at minimum, a registration step, in-house target identification in exactly those two modalities becomes comparatively more valuable than it was in September. That is a capability planning question with a far longer lead time than the Nov. 15 deadline.

With the comment window closing soon, for anyone who has not already filed, the most useful work to do this week is classification. Inventory your CGT and siRNA collaborations involving Chinese entities and sort each by what the joint work actually produces: a candidate, or a method for finding and validating targets. Flag anything in the second category, along with anything where novel, undisclosed targets are an output rather than an input. Two questions that may be important to consider:

• Does interim registration reach any transaction currently in progress?
• Where would ownership of jointly developed methodology sit at the end of the arrangement as drafted?

The Discovery Question

If your next novel target comes out of a Chinese collaboration, who owns the method that found it?

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About The Editor

Morgan Kohler is the executive editor of guest expert articles for Drug Discovery Online, working with industry experts to develop insightful and informative pieces about drug discovery and preclinical drug development science, regulatory strategy, trends, analyses, and commentary.

Morgan holds a master’s degree in professional writing and web content development and has worked in the publishing industry since 2018. Before working for Drug Discovery Online, she guided and edited industry-expert-bylined content on topics related to radiology and economics.