On the evening of June 30, 2021, Eli Lilly (688578.SH) and ArriVent Biopharma, Inc. (hereinafter referred to as "ArriVent") announced a deal regarding its core product, furmonertinib mesylate tablets (hereinafter referred to as "furmonertinib").

Eli Lilly granted ArriVent the exclusive development and commercialization rights of furmonertinib overseas (excluding the Chinese mainland, Hong Kong, Macau and Taiwan regions). Through this deal, Eli Lilly received an upfront payment of $40 million, with cumulative milestone payments for R & D and sales and sales royalties of no more than $765 million. More importantly, Eli Lilly acquired a certain percentage of ArriVent's shares, and ArriVent became an associated company of Eli Lilly.

At that time, Eli Lilly had just been listed on the Sci-Tech Innovation Board for half a year, and ArriVent was also a new company that had just completed its first round of financing, raising tens of millions of dollars.

In the following three years, the furmonertinib pipeline progressed rapidly, and both parties to the deal received substantial returns. In March 2023, ArriVent completed a Series B financing of $155 million, which was mainly used for the key Phase 3 clinical study and indication expansion of furmonertinib. In October of the same year, furmonertinib received the "Breakthrough Therapy Designation" from the US FDA. In January 2024, ArriVent was successfully listed on NASDAQ, and after the IPO, Eli Lilly still held approximately 4.2% of ArriVent's shares.

The deal reached by Eli Lilly and ArriVent at that time was exactly the "NewCo" deal model that was the hottest in the biopharmaceutical industry in 2024. The background of the rise of NewCo deals is the trend of Chinese innovative drugs going global.

Since 2024, many biopharmaceutical companies represented by Hengrui have gone global through the NewCo model. When the domestic biopharmaceutical financing has not yet emerged from the cold winter, this new way of going global other than BD deals has attracted the attention of the entire pharmaceutical industry. How long will the NewCo model remain popular? Are the high-quality innovative drug assets cultivated in China for many years being "sold cheaply"? These have become topics of repeated discussion.

It is a consensus that the value of Chinese innovative drugs is being more recognized globally, and the future deal structures will be more diverse. Ultimately, all roads lead to the realization of clinical value, getting these valuable innovative drugs to the market as soon as possible.

The NewCo model mainly refers to the establishment of a new company led by investment funds, which invests funds and forms a team. Meanwhile, local Chinese pharmaceutical companies license the overseas rights of their drugs to the new company. In addition to obtaining regular upfront payments, milestone payments, sales commissions and other financial returns, local pharmaceutical companies can also acquire some equity in the overseas new company and can exit in the future through the new company's listing or merger and acquisition.

Insiders believe that in the current capital environment, NewCo is an effective path to promote the R & D and clinical research of innovative drugs. However, at that time, it was still a very unfamiliar concept for domestic biotech companies.

In May 2024, a NewCo deal between Hengrui and Hercules, and later the successive overseas expansions of CanSino, Jiahe Biotech and Anmai Bio through the NewCo model completely detonated the entire market. A lawyer who has long been engaged in international biopharmaceutical M & A told reporters that "a large number of biotechs are looking for NewCo opportunities."

In May 2024, Hengrui Medicine announced that it would license the exclusive rights to develop, produce and commercialize its self-owned GLP-1 innovative drugs HRS-7535, HRS9531 and HRS-4729 worldwide except in the Greater China region to Hercules, a US company. Hengrui Medicine received nearly $6 billion in related payments and a 19.9% equity stake in Hercules.

CanSino has also reached four NewCo deals in nearly a year.

In July 2024, CanSino announced that it would license the global rights outside the Greater China region of two bispecific antibody drugs, CM512 and CM536, to Belenos Biosciences. In November 2024 and January 2025, CanSino used the NewCo model twice to promote the overseas expansion of three products, bispecific antibody CM336, monoclonal antibody CM313 and bispecific antibody CM355.

In August 2024, Jiahe Biotech licensed the global rights outside the Greater China region of its CD3/CD20 bispecific antibody GB261 to TRC 2004, a new company jointly established by Jiahe Biotech and two US dollar funds, Two River and Third Rock Ventures. On September 4, Anmai Bio and Vignette Bio, Inc. (hereinafter referred to as "Vignette") announced a strategic cooperation on the development of BCMA×CD3 bispecific antibody EMB-06. Vignette is a new company incubated by Foresite Labs and jointly invested by Foresite Capital, Qiming Venture Partners US, Samsara Biocapital and Mirae Capital Life Science.

The NewCo model of the new company Candid Therapeutics (hereinafter referred to as "Candid") is more "novel" and has shown more rapid momentum. This new company, which was established four months ago, has completed six deals.

In September 2024, when Candid announced its establishment, it also announced that it had acquired two bispecific antibody products by acquiring two NewCo companies, TRC 2004 and Vignette, and completed a Series A financing of $370 million, which was also the largest round of financing in the biopharmaceutical industry in 2024.

In December 2024, Candid again announced three TCE (T cell engager) R & D collaborations. The three collaborations were respectively reached with Novana Biosciences, a wholly-owned subsidiary of Harbour BioMed (02141.HK), Anmai Bio and Ab Studio, with a total known cooperation amount of $1.32 billion. On January 7, 2025, WuXi Biologics announced a research service cooperation agreement with Candid.

Velozbio, which is in the process of IPO, has also participated in NewCo deals. On November 7, 2024, Nanjing Velozbio announced the establishment of a new drug R & D company, Oblenio Bio (hereinafter referred to as "Oblenio"), with venture capital firm Aditum Bio (hereinafter referred to as "Aditum") and reached an exclusive option and license agreement. Aditum will provide funds for Oblenio, and the two sides will cooperate to quickly advance LBL-051 into clinical research. Velozbio will be entitled to an upfront payment and near-term payment of $35 million, a total transaction amount of up to $579 million, and sales commissions for future products. In addition, Velozbio will also be entitled to equity in Oblenio.

The Eve of the Popcorn Explosion

A overseas M & A case of GSK in early 2024 can be regarded as the origin event that triggered the industry's attention to NewCo.

In January 2024, pharmaceutical giant GSK announced that it would acquire Aiolos Bio for a $1 billion upfront payment and up to $400 million in milestone payments. Through the acquisition, GlaxoSmithKline obtained Aiolos' TSLP monoclonal antibody AIO-001. AIO-001 was SHR-1905, which was introduced from Hengrui Medicine in August 2023 and was also the only pipeline of Aiolos Bio. The cost for Aiolos to introduce SHR-1905 was a $25 million upfront payment, as well as R & D and sales milestone payments of $1.025 billion and sales royalties. At that time, SHR-1905 was only a molecule in the early stage of Phase 1 clinical trials. Through five months of rapid operation, Aiolos magnified the assets of SHR-1905, and it was this 40-fold difference in the upfront payment that put Hengrui in the spotlight.

Industry insiders have different evaluations of this deal. Some believe that Hengrui was made a profit by middlemen, while others believe that for Hengrui, which has "many products in the pipeline", this was just a trial. However, in any case, this way of using NewCo to realize the overseas expansion of innovative drugs occurred many times in 2024, which attracted the attention of many domestic biotech companies.

"Just like popcorn, these deals suddenly burst out, but in fact, there was a long incubation period before this." Li Jia, a partner of Lansheng Investment, told Yicai Global. This is related to the fact that around 2010, a large number of scientists in the biopharmaceutical field began to engage in entrepreneurship. "The early batch of companies have also grown to the stage where they have pipelines ready to go overseas, or they already have clinical trials. Coupled with the fact that many foreign companies are facing a large patent cliff recently and need to start looking for subsequent assets, this has led to the sudden boom we see now."

In the view of many industry insiders interviewed, behind the booming NewCo and overseas BD, the supply and demand sides in the international market are seeking a certain balance point.

On the one hand, the domestic biopharmaceutical industry has not yet emerged from the capital winter. On the other hand, there is the "patent cliff" of MNC giants approaching. "Almost all MNC giants are looking for opportunities in China, and they also need high-quality assets to supplement their pipelines." Li Jia told reporters. Since large companies have mature sales teams globally and their R & D progress is relatively slow, it is a more efficient development method to introduce the R & D pipelines of biotechs through BD. And NewCo, which is screened by capital, has become a very good target.

Who Is Dominating NewCo

As a more complex model of innovative drug asset transactions, the NewCo model combines asset transactions and equity transactions, that is, "BD + financing".

Since 2023, license - out transactions have exceeded license - in transactions for the first time, and Chinese innovative drugs have attracted global attention. A large number of innovative drugs have obtained upfront payments and milestone payments through overseas BD, enabling the further progress of R & D pipelines and achieving overseas expansion.

For most biotechs going overseas, being sold to MNCs is the ultimate destination. When the buyer's offer is relatively certain, there are advantages and disadvantages in directly conducting transactions with MNCs or going overseas through the NewCo model.

Counting the completed cases, compared with BD transactions, the NewCo stage is often earlier. And the early stage means greater uncertainty and a smaller upfront payment. Taking CanSino's four NewCo overseas transactions as an example, the total upfront payment received by CanSino is less than $80 million, which is less than the upfront payment of a large BD transaction. Li Jia said that analyzing past cases, the upfront payment is about 2% - 8% of the total transaction amount, and a few may reach about 10%.

For biotechs, this capital can prolong the life cycle of the pipeline. For investors, the cost of trial and error is relatively low. Once successfully sold to MNCs, rapid capital appreciation and exit can be achieved. "Generally, drug pipelines in the Pre - IND stage to Phase I and Phase IIa of clinical trials are most suitable for NewCo." Zhu Jielun, one of the partners of Button Capital, said at a closed - door meeting. During this period, the leveraging effect that capital can bring is the greatest.

According to Zhu Jielun, in NewCo, dollar fund investors generally hold more than 50% of the shares, and the pipeline licensor holds about 20% of the shares (some may even reach 30%), and the remaining equity is given to the management team to form a three - party structure. Dollar funds have prepared a large amount of funds and formed a management team responsible for clinical trials, BD and capital operations to search for innovative drug assets for licensing and development.

In the interviews, many investors said that at present, NewCo transactions are still dominated by dollar funds or the Chinese teams of dollar funds. For example, the early investors of ArriVent include Hillhouse Capital, Lilly Asia Ventures, OrbiMed, etc.; Hercules was jointly established by Bain Capital Life Sciences in cooperation with Atlas Ventures, RTW and Lyra Capital.

The operation of NewCo is the key for biotechs to quickly conclude transactions with MNCs and achieve value appreciation. An executive of a company that has just completed a NewCo deal said that when choosing NewCo partners, the first thing to focus on is the partner's strength, whether it has the ability to promote the subsequent development of the pipeline and help bring the drug to market.

A dollar fund investor said that in the NewCo stage dominated by investors, the most important thing is to quickly advance the pipeline, which requires the team to have considerable resources and channels. "Some are familiar with the US regulatory authorities, and some understand the BD preferences of MNCs. Most of them have a deep medical background."

"The most important thing is the process of putting together this structure." Li Jia said that in the NewCo stage, being dominated by investors means that it is very crucial whether the leading fund has sufficient resources, and the success of the final BD places high demands on the capabilities of institutions.

Yuan An'gen, the founder of Tianhui Capital, believes that the transactions of innovative drugs also have a certain cycle. As a large number of high - quality assets successively conclude transactions, it may be more difficult for biotech pipelines to be sold at a good price in the future. He told Yicai Global that under this trend, biotechs will also screen venture capital institutions, and institutions without professional accumulation will gradually be eliminated, while professional institutions will get more opportunities.

How Long Can NewCo Remain Popular

A lawyer who has participated in many M & A transactions said that there are two situations in which NewCo is a more appropriate choice. One is when there are many pipelines and one or two non - core assets are taken out for a test, and the other is when there is really no better way out.

Wang Jinsong, the chairman of Harbour BioMed, used "distressed" to express his feelings about the current rise of such transactions. Wang Jinsong told Yicai Global that in fact, a large number of innovative drug assets are being traded at prices far below the normal range. "Looking at the international market, the assets are not worth such prices at all. But for domestic biotechs, if they don't sell the assets in their hands, it will be a matter of survival." The founder of a biotech company that is seeking financing also frankly told reporters that they do not want to consider the NewCo model of transactions unless it is a last resort.

Some investors told reporters that on the premise that the potential transaction prices of MNC giants are relatively fixed, directly concluding transactions is of course the most ideal choice for biotechs. However, due to various objective constraints, NewCo has become a more ideal buffer method.

How long can NewCo remain popular? In the view of many investors, this trading model is not new. It has only received more attention in the past two years due to changes in the industry's financing side. In addition to BD transactions and NewCo, being acquired and restructured by listed companies or going public on NASDAQ are all possible paths in the future, and the future deal structures will be more diversified.

Yuan An'gen believes that the current NewCo transactions need to screen targets and conduct deal operations with the innovative standard of "global innovation" and the vision of "globalization", while grasping the differential advantages at home and abroad. We should not only focus on the foreign market but also see the domestic market and domestic advantages. "For example, we are recently preparing to set up a new fund. In addition to selecting some good targets in China, we will also consider introducing good early - stage targets from Europe and the United States, and use the advantages of China's innovative drug industry chain and pre - clinical and clinical capabilities to accelerate transformation, so as to promote the global R & D process of these drugs and achieve good returns."

The Most Important Thing Is to Develop the Drug Successfully
Behind the continuous growth trend of license - out, the innovation capabilities in the domestic biopharmaceutical field are being recognized globally, and domestic innovative drug companies are also actively going global.

From January 13 to 16, one of the most influential annual events in the global healthcare field, the 43rd J.P. Morgan Healthcare Conference (JPM), was held in San Francisco, USA. Nearly 30 Chinese companies participated this year, and the international cooperation intention of Chinese biotechs is still very strong.

Investors have pointed out that after nearly a decade of accumulation, China's clinical data is being increasingly recognized in the international market.

At the 2017 Annual Meeting of the American Society of Clinical Oncology (ASCO), Legend Biotech first announced the clinical data of cilta - cel. 35 patients achieved a 100% overall response rate (ORR). The excellent clinical data not only shocked the industry but also gave the international market a new understanding of the quality of China's clinical data.

The above - mentioned dollar fund investor said that before Legend Biotech's data was released, many MNCs actually had no experience in evaluating Chinese assets. "After missing out on Legend Biotech, they began to attach more and more importance to China's clinical data."

In the process of screening assets, the quality of the drug itself is the key to the success of NewCo, which has become a consensus among investors. "Large companies tend to focus on some major targets, and the fate of a molecule is determined on the day it takes shape." Li Jia told reporters that Lansheng Investment's initial principle was to only invest in innovative drugs based on the global market. Pipelines that have no international layout and are only slightly better than existing drugs are not under consideration.

Behind the seemingly two - way transactions, there is the homogeneous competition in China's biopharmaceutical industry. This not only means a waste of resources but also leads to the current unequal situation in the negotiation power between biotechs and MNC giants.

Source: https://so.eastmoney.com/