Recently, Biotheus, a Chinese bio-tech company, announced that it would be acquired by BioNTech SE (Nasdaq: BNTX, “BioNTech”), a globally renowned immunotherapy company, and that a share purchase agreement had been reached. According to the agreement, BioNTech will acquire 100% of Biotheus’ issued share capital with an upfront payment of USD 800 million in cash and a portion of American Depositary Shares (ADS), plus up to USD 150 million in milestone payments. This transaction is expected to be completed in the first quarter of 2025, marking another Chinese innovative bio-tech company’s move towards a broader development platform through a cross-border merger and acquisition. This article will use this as a starting point to explore the key legal issues in the process of acquiring Chinese bio-tech by foreign-listed companies.

I. Transaction Structure Design: Similarities and Differences of Share Swap Transactions under Red-Chip Structure and Domestic Structure

Considering the current tight financing cash flow of enterprises and the industry characteristics of bio-tech companies that require substantial capital investment for operations,research and development with high uncertainty, it is generally believed that compared to an all-cash acquisition, a share acquisition or a share + cash acquisition method, similar to the transaction between Biotheus and BioNTech, is more likely to become the preferred choice for mergers and acquisitions between foreign-listed companies and Chinese bio-tech companies.

In practice, Chinese bio-tech companies usually adopt a red-chip structure (i.e., a holding company registered outside of China, controlling domestic enterprises or assets through equity or contractual arrangements) or a domestic structure (i.e., a holding company registered within China). Biotheus adopted a red-chip structure, with its holding company established in the Cayman Islands, allowing the transaction to be designed as a direct share swap between Biotheus’ Cayman holding company and BioNTech. Shareholders of Biotheus can exchange their shares in the Cayman holding company for ADSs publicly issued by BioNTech.

However, for Chinese bio-tech companies adopting a domestic structure, due to the restrictions of the “Provisional Regulations on the Merger and Acquisition of Domestic Enterprises by Foreign Investors” (“Circular No. 10”) and related procedures for foreign investment and foreign exchange registration, direct cross-border share swaps are difficult to implement in practice under the current regulatory framework. Such companies usually need to establish an offshore structure to complete the final share swap transaction.

II. Regulatory Approvals: Compliance Challenges Under Multiple Approvals

Compared with enterprises in other industries, the particularity of the bio-tech industry means that such mergers and acquisitions (M&A) face more complex regulatory approvals. In the process of foreign-listed companies acquiring Chinese bio-tech enterprises, the following core approval requirements generally need to be focused on:

1. CSRC Filing

Article 15 of the “Interim Measures for the Administration of Overseas Securities Offering and Listing by Domestic Enterprises” (2023) (“Interim Measures”) stipulates that if an issuer meets the following two conditions simultaneously, it shall be deemed as an indirect overseas listing of a domestic enterprise, which requires filing with the China Securities Regulatory Commission (CSRC): (i) Among the operating revenue, total profits, total assets or net assets of the domestic enterprise in the most recent fiscal year, any index accounts for over 50% of the relevant data in the audited consolidated financial statements of the issuer for the same period.; (ii) The main parts of the business activities of the issuer are carried out in China, or the main business places are located in China, or most of the senior executives in charge of business operations are Chinese citizens, or their habitual residences are located in China. Article 17 provides that if a domestic enterprise achieves the direct or indirect overseas listing of its assets through single or multiple acquisitions, share swaps, transfers, or other transaction arrangements, the domestic enterprise shall submit a filing. The “Guidelines for the Application of Regulatory Rules—Overseas Offering and Listing No. 1 “specifies that the provisions of Article 17 of the Pilot Measures include the following scenarios: where a foreign-listed company is not within the scope of filing before the relevant transaction but falls within the scope of filing after the transaction.

Therefore, taking the Biotheus acquisition transaction as an example, if after the acquisition closing, the “revenue, total profit, total assets, or net assets” of Biotheus’ domestic entities account for more than 50% of the corresponding indicators of BioNTech, and BioNTech’s main business will also be carried out within the territory or Chinese citizens who are shareholders of Biotheus will become senior management personnel of BioNTech responsible for management and operations, Biotheus may need to file with the CSRC for this acquisition transaction. However, considering BioNTech’s business scale and its latest market value, it is understood that after the acquisition, Biotheus’ business will not account for more than 50% of BioNTech’s overall business. Hence, the possibility of triggering the CSRC filing is relatively low. Nevertheless, if other Chinese bio-tech enterprises are acquired by foreign-listed companies (for example, SPAC companies that have no substantial business content before listing) and the foreign-listed entity may meet the two conditions specified in Article 15 of the Pilot Measures, the need for timely submission of the CSRC filing should be closely monitored in the transaction.

2. Data and Privacy Protection

In recent years, China has increasingly tightened its requirements for data security and personal privacy protection. bio-tech companies, in the course of research and development as well as clinical trials, often generate, collect, or process a large amount of sensitive data. Therefore, in cross-border M&A transactions involving such companies, particular attention needs to be paid to the following aspects:

(1)    Cybersecurity Review

The “Cybersecurity Review Measures”(2022) stipulate that data processors handling the personal information of more than one million users must undergo a cybersecurity review when going public overseas. bio-tech companies, in their day-to-day operations, produce or involve a large amount of sensitive data, including but not limited to personal information of patients/clinical trial subjects and data generated in clinical trials. This makes bio-tech companies more likely to fall into the category of “data processors handling personal information of more than one million users” during overseas listings or acquisitions by foreign-listed companies. As mentioned in SectionSection (1) of Chapter II above, if the acquisition of a Chinese bio-tech company by a foreign-listed company is deemed as an “overseas listing,” the Chinese company will also need to report the acquisition to the Cybersecurity Review Office.

(2) Data Export Security Assessment

The “Provisions on Promoting and Regulating Cross-border Data Flow”(2024) provide that data processors exporting data to foreign countries must report to the national cyberspace administration for a data export security assessment if they meet any of the following conditions: (1) critical information infrastructure operators exporting personal information or important data overseas; (2) data processors other than critical information infrastructure operators exporting important data overseas, or transmitting personal information of more than one million people overseas since January 1 of the current year. Important data refers to data that has been notified or publicly designated as important by relevant departments or regions. The “Regulation on Protecting the Security of Critical Information Infrastructure” (2021) stipulates that the competent authorities and regulatory departments of important industries and fields will identify “critical information infrastructure operators” in their respective fields and promptly notify the identified enterprises.

When foreign companies acquire Chinese bio-tech companies, they may provide data on domestic enterprises during due diligence and in preparation for materials required by foreign securities regulatory authorities. If any of the above criteria are met, timely reporting and completion of the relevant data export security assessment are required.

3. Management of Human Genetic Resources

According to the “Regulation of the People’s Republic of China on the Administration of Human Genetic Resources” (2024 Revision), human genetic resources in China shall not be provided to foreign entities. Foreign organizations or individuals, as well as institutions they establish or control, are prohibited from collecting or preserving human genetic resources within China or providing such resources to entities outside China. If foreign entities need to utilize China’s human genetic resources for scientific research activities, they must collaborate with Chinese research institutions, universities, medical institutions, or enterprises (hereinafter referred to as “Chinese entities”).

Furthermore, when providing or making information related to China’s human genetic resources available to foreign organizations or individuals, Chinese entities must file with the national health authority and submit a copy of the information. If such actions may impact public health, national security, or social public interests in China, they must pass a security review organized by the national health authority.

Given the strict regulatory environment surrounding human genetic resources in China, whether in license-out transactions or cross-border M&A deals, Chinese bio-tech companies must pay close attention to whether clinical trial data provided to or developed for use by foreign counterparties in transactions involve human genetic resources. They must also comply with the requirements of relevant laws and regulations in a timely manner by submitting filings or applying for security reviews with the national health authority when applicable.

4. Notification of Concentration of Undertakings

Given the high barriers to entry in the bio-tech industry, companies in this sector typically need to invest substantial funds and meet very high technical standards. Mergers and acquisitions (M&A) in this industry often involve large-scale multinational pharmaceutical enterprises. Therefore, M&A activities in the bio-tech industry frequently require notification of concentration of undertakings.

The “Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings” (2024 Revision) stipulate that if a concentration of undertakings meets either of the following criteria, prior notification to the State Council’s antimonopoly enforcement agency is required; otherwise, the concentration shall not be implemented:

(1) The combined aggregate worldwide revenue of all the undertakings concerned for the last fiscal year is more than 12 billion yuan, and the China-wide revenue of each of at least two of the undertakings concerned for the last fiscal year is more than 800 million yuan.

(2) The combined aggregate China-wide revenue of all the undertakings concerned for the last fiscal year is more than 4 billion yuan, and the China-wide revenue of each of at least two of the undertakings concerned for the last fiscal year is more than 800 million yuan.

Even if the concentration of undertakings does not meet the above criteria, the State Council’s antimonopoly enforcement agency may still require notification if there is evidence that the concentration has or may have the effect of eliminating or restricting competition.

III. Conclusion

With the continuous enhancement of the innovation capabilities of Chinese bio-tech enterprises, cross-border M&A has become an important means for them to seek global financial support, market expansion, and technological cooperation, and it will also be an important way for Chinese bio-tech enterprises to achieve leapfrog development. In the future, such cross-border M&A cases are expected to continue to increase. Enterprises and legal practitioners should fully recognize the particularities of M&A in the bio-tech industry, not only making full preparations in terms of transaction structure design, approval procedures, and time arrangements, but also comprehensively considering the legal and compliance requirements during the M&A process to ensure the smooth progress of the M&A transaction. M&T will also continue closely monitoring the latest developments in this area and provide professional legal support for Chinese bio-tech enterprises going global, including services for License and M&A transactions.