NewCo Model: China’s Innovative Drug Companies’ New Transaction Mode in Capital Winter

NewCo is a new transaction model developed by Chinese innovative drug companies in response to capital winter and internationalization needs. It involves licensing overseas rights of early-stage R&D pipelines to newly established independent companies, bringing in overseas capital and management teams to accelerate development and share risks. This model combines “product licensing + equity” to secure funding while retaining equity for long-term gains.

Core Mechanisms and Benefits
The NewCo model offers four main advantages:

1. Risk Isolation: Spin off high-risk projects to avoid dragging down parent companies.
2. Leverage Capital: Attract overseas funds, with 2024’s NewCo upfront payments reaching $3.8 billion, surpassing IPO fundraising.
3. Efficiency Boost: For example, Keymed Biosciences advanced CM336 from Phase I to Phase II in 18 months via NewCo, nearly half the traditional time.
4. Ecosystem Restructuring: Traditional pharma (like Hengrui) focuses on core areas, while biotechs (like Allist Pharmaceuticals) diversify risks and monetize quickly.

Typical Cases
Several notable NewCo transactions have occurred:

1. Hengrui Pharmaceuticals × Hercules: Licensed GLP-1 assets with upfront $110 million and potential total $6 billion, retaining 19.9% equity.
2. Keymed Biosciences’ Transactions: Licensed CM336 to Platina Medicines, CM313 to Timberlyne Therapeutics, and co-licensed ICP-B02 with InnoCare Pharma.
3. Genor Biopharma × TRC 2004: Licensed GB261’s overseas rights with upfront tens of millions and potential $443 million.
4. EpimAb Biotherapeutics × Vignette Bio: Licensed EMB-06 with upfront $60 million and potential total $575 million.
5. Harbour BioMed/Kelun-Biotech × Windward Bio: Jointly licensed SKB378/HBM9378 with upfront $450 million and potential total $970 million.
6. Sciwind Bioscience × Verdiva Bio: Licensed GLP-1 oral delivery technology with upfront $70 million and potential total $2.4 billion.

Impact and Risks
NewCo has gained attention as a lifeline in the capital winter, driving tangible impacts:

• Global NewCo financing in pharma exceeded $6 billion in 2024, with China’s share rising from 15% to 35%.
• Upfront payments surpassed IPO fundraising, becoming a crucial funding channel.

However, risks exist:

• About 40% of projects fail to reach Phase III due to funding or management issues.
• Homogeneous competition, especially in ADC targets, risks bubbles.
• Some transactions face criticism for “selling seedlings” or undervaluing assets.

NewCo Model’s Three Fates
Globally, the NewCo model has three defined paths:

I. LIDLO (License In-Development-License Out)

• Definition: Introduce early-stage projects, develop, then license out for profit.
• Characteristics: Risk dispersion through early-stage projects and high capital efficiency via overseas premiums.

II. LIDMA (License In-Development-M&A)

• Definition: Exit via M&A after project development, common for startups.
• Characteristics: Rapid monetization, strategic synergy, and win-win mechanisms.

III. LIDIPO (License In-Development-IPO)

• Definition: Go public post-development to amplify value.
• Characteristics: Value amplification, long-term gains, and resource integration.-Fineline Info & Tech