China’s biotech sector is transforming through the “NewCo” model, a strategic spin-off approach designed to accelerate innovation and secure international investment. This model involves creating independent companies (“NewCos”) that house promising drug development assets, effectively decoupling them from their parent Chinese biotech firms.
Why the NewCo Model?
The primary driver is access to global capital and expertise. By establishing “NewCos” in investor-friendly jurisdictions like Delaware or the Cayman Islands, Chinese companies attract venture capital and institutional investors, who value transparent governance and focused development. This influx of funding is crucial for the capital-intensive process of drug development.
Beyond funding, “NewCos” facilitate strategic partnerships. International experts bring invaluable knowledge in clinical trials, regulatory affairs, and commercialization, accelerating the path to market. This model also fosters agility, allowing “NewCos” to operate with the focused dynamism often lacking in larger, more complex organizations.
Impact on China’s Biotech Sector:
The “NewCo” model is particularly relevant given China’s rapid biotech innovation. Many companies boast groundbreaking therapies but lack the resources and expertise for global commercialization. “NewCos” bridge this gap, enabling them to leverage scientific advancements while mitigating developmental risks.
Challenges and Considerations:
Despite its advantages, the “NewCo” model faces challenges. Asset valuation can be complex, and success hinges on effective management. Market saturation and increased competition are potential risks. Furthermore, geopolitical tensions can impact investor confidence and cross-border collaborations.
Looking Ahead:
The “NewCo” model signifies a strategic evolution, highlighting the growing sophistication and global ambition of China’s biotech industry. As innovation continues to flourish, “NewCos” will play a pivotal role in propelling Chinese biotech onto the global stage, fostering collaboration and delivering transformative therapies.
The 2024 NewCo Example： Hercules CM NewCo Inc.
Hengrui Pharmaceutical, a major Chinese biopharma company, spun off its GLP-1 assets（HRS-7535, HRS-9531, and HRS-4729） into Hercules CM NewCo Inc., established in Delaware.
This “NewCo” secured significant Series A financing from global funds like Bain Capital Life Sciences, RTW Investments, Atlas Venture, and Lyra Capital. Hercules will receive an upfront payment and near-term milestone payments totaling $110 million, along with up to $200 million in clinical development and regulatory milestones and up to $5.725 billion in sales milestones. Hengrui will also receive tiered royalties on net sales ranging from low-single-digit to low-double-digit percentages. Additionally, Hengrui has acquired a 19.9% equity stake in Hercules.