The NewCo (Newly Created Company) model has seen explosive growth in China's cross-border pharmaceutical transactions in 2024. Examples include Hengrui Medicine establishing Hercules Pharmaceuticals to advance FDA clinical trials, Connan establishing Belenos, and Genor Biopharma setting up TRC 2024 and Vignette followed by swift sales. As this model enters its third year, observers note that the entities profiting most significantly appear to be foreign venture capital firms (like Orbimed, ARCH Venture) or multinational pharmaceutical corporations. Factors such as geopolitics and compliance have limited the participation of domestic Chinese VCs, raising the question of how local investors can secure a share of the returns. Facing the normalization of the NewCo model, leading venture capital firms like Sequoia China and Qiming Venture Partners have identified strategies to navigate these challenges.

The Rationale Behind the NewCo Model's Rise

Traditionally, the primary route for Chinese pharmaceutical companies to go global was through the License-out model, where they sell or license assets or overseas sales rights. In this scenario, the Chinese firm is the licensor, and the multinational is the licensee. This model offers high financial certainty and quicker cash returns but sacrifices potential excess overseas profits; once sold, subsequent price increases have limited benefit for the original developer. However, multinationals typically prefer mature, late-stage (Phase II/III) pipelines and are highly susceptible to their own strategic shifts. Amid geopolitical risks and a capital downturn, these companies have become more selective in acquiring pipelines and are more prone to terminating agreements due to internal strategy changes, as seen with Novartis returning BeiGene's TIGIT antibody, MSD returning two ADCs from Kelun-Bota, and AbbVie returning I-Mab's CD47 antibody.

Conversely, overseas VCs have capital but lack high-quality projects, compelling domestic Chinese pharmaceutical companies to adopt the NewCo model. The essence of this model is a joint venture between asset and capital. A Chinese pharma company injects an asset into a newly established, independent overseas company and brings in investment from overseas funds or pharmaceutical corporations (often taking a controlling stake). The NewCo then assembles an overseas executive team to advance clinical trials. Typically, a NewCo is dedicated to a single pipeline or platform, with all raised funds exclusively used for that drug's development, eliminating the risk of strategic abandonment by the parent company. This provides maximum certainty for the Biotech's pipeline progression.

Under the NewCo model, the Chinese pharmaceutical company holds equity in the new entity. If this NewCo achieves an IPO overseas (e.g., on NASDAQ) or is acquired at a premium by a larger player, the Chinese company, as a shareholder, reaps substantial rewards. The model's proliferation is driven by several factors. Firstly, there's a mismatch with Renminbi capital. Overseas NewCos require significant U.S. dollar investment, while domestic capital is predominantly in Renminbi funds. The approval process for outward foreign direct investment (ODI) cannot keep pace with the agile transaction speed overseas. Additionally, the overseas NewCo sphere has entry barriers beyond capital; it demands strong capabilities in overseas clinical advancement, FDA regulatory communication, and executive recruitment networks in Europe and America. Renminbi funds often lack these requirements, leading to dominance by established U.S. and European biopharma VCs like ARCH, Orbimed, and F-Prime.

Secondly, operational misalignment exists for domestic Renminbi funds. The typical fund lifecycle in China is "5+2" (7 years) or "3+2" (5 years), with exit paths through local state-owned capital takeovers or listings on the STAR Market after Phase I or II trials, enabling faster capital return. In contrast, pursuing overseas clinical trials and FDA approval through a NewCo represents a long-cycle, high-risk investment, diminishing the willingness and capacity of Renminbi VCs. Regarding exit strategies, domestic capital is accustomed to A-share/STAR Market IPOs or Hong Kong's Chapter 18A listings. NewCos typically target NASDAQ IPOs or acquisition by multinational corporations, which falls outside the experience of many traditional domestic investors.

Finally, compliance poses a significant hurdle. Systematic reviews by the U.S. Committee on Foreign Investment (CFIUS) present substantial risks. To ensure projects proceed smoothly in the U.S., established overseas VCs often proactively and decisively exclude Chinese VCs from the compliance roster.

Alternative Strategies for Chinese VCs

The difficulties in participating directly in overseas NewCos do not mean Chinese VCs are entirely locked out. In recent years, market pressures have spurred the evolution of several highly localized and flexible alternative strategies.

The first is the localized NewCo model within China. This approach offers distinct cost advantages. John Zhao, Chairman of Hony Capital, notes, "The reshaping of global industrial chain value distribution is driven by unique technological endowments." The cost per patient for a Phase I clinical trial in China is approximately 300,000 to 400,000 RMB, compared to $200,000 to $300,000 in the U.S., a difference of five to seven times. Furthermore, clinical trial progression in China can be up to five times faster. The core of a NewCo transaction lies in asset value appreciation for resale, not necessarily final commercialization. Simultaneously, registering the new company overseas facilitates a potential U.S. listing and global operations. With many multinationals now accepting Chinese clinical data, not mandating U.S. trial data, this creates feasibility for subsequent bridge transactions.

A典型案例 is the transaction between Sequoia China and Lepu Biopharma. Last year, Sequoia China, along with six other Chinese funds including YuanBio Venture Capital, Xingze Capital, and Hony Capital, completed China's first major domestic NewCo deal, taking over two T-cell engager (TCE) pipelines for solid tumors from Lepu Biopharma. The new company's founding team is led by Fang Lei, former head of Lepu's TCE pipeline R&D, and Zhu Jielun, who has experience in investment banking and at I-Mab. Sequoia China and other institutions will lead a $41 million Series A investment into the new company, Excalipoint Biotherapeutics, to support Phase I clinical trials in China. Lepu Biopharma retains a 10% stake in Excalipoint and stands to receive future sales royalties.

The second strategy is co-investment, where domestic capital participates as a co-investor in NewCo projects led by top-tier overseas funds. For instance, LongRiver Investments co-invested with Orbimed in a NewCo project for Connan. This path carries lower risk by leveraging the resources and experience of the foreign fund, though it offers limited stake and influence. As an early investor in Ouro Medicines, LongRiver achieved a significant "home run" return when the project was acquired within a year. Partner Li Jia'an stated, "Since 2022 and 2023, our requirement for almost all investments is a clear internationalization strategy. To be acquired by a global pharmaceutical giant or compete globally, a product must be globally innovative."

The third strategy is rapid asset-team matching, which tests an investor's capabilities more intensely. This involves deep collaboration between Chinese and foreign venture capital to efficiently integrate assets and assemble teams, leveraging mature teams and assets to capitalize on timing advantages. A prime example is the operation by Dr. Kan Chen, a partner at Qiming Venture Partners, regarding Candid. From its formal launch in 2024 to its acquisition in May 2026, the company completed asset sourcing, licensing, merger financing, clinical advancement, and a multi-billion dollar exit in under two years. Based on a scientific hypothesis, Dr. Chen identified assets from Anwita Biosciences and introduced them to serial entrepreneur Ken Song, who had just successfully sold his previous company. After joining Foresite Capital, Ken Song facilitated the merger with another CD20 TCE asset, ultimately forming Candid, a new company with a comprehensive TCE portfolio. Formed through a rapid match of Chinese assets, a U.S. team, and Sino-U.S. venture capital, Candid demonstrated immense value in autoimmune diseases in under two years. In May 2026, Belgian pharmaceutical giant UCB acquired it for up to $2.2 billion, with $2 billion upfront, delivering unprecedented efficiency and rich returns for all participants. Dr. Chen described Qiming's role: "Mainly, we found the ASSET at the company's inception and brought the management team, especially founder Ken Song, to the company."

The Future Trajectory of the NewCo Model

Since 2026, the NewCo model in the innovative drug sector is undergoing positive evolution. The model is shifting from being investor-driven to licensor-proactively-led. Shareholding structures are becoming more diverse, with controlling stakes, minority stakes, and parallel structures emerging. Models like domestic NewCos and dual NewCos are continuously innovating, presenting higher demands for Chinese investors. Challenges persist, but the key lies in which investors, through continuous learning and observation, can identify opportunities within a complex and volatile market.