Frost & Sullivan: The NewCo model becomes a new frontier for innovative pharmaceutical companies to internationalize, with both opportunities and challenges

By licensing their products through the NewCo model, innovative pharmaceutical companies can obtain opportunities for capital recovery and risk diversification. At the same time, compared to transferring products to large multinational pharmaceutical companies, under the NewCo model, products are prioritized as core assets, attracting more high-quality development resources to focus on them, thereby maximizing product value. Compared to the License-out model where all overseas rights of a drug are transferred to the partner, under the NewCo model, innovative pharmaceutical companies can not only receive immediate upfront payments and milestone payments but also gain partial equity of the NewCo company. On one hand, innovative pharmaceutical companies can share in the profits from equity appreciation. On the other hand, by retaining a portion of equity, they also have certain say and participation rights, including the ability to participate in the decision-making process of the NewCo company during operations and subsequent drug development, locking in more long-term benefits and ensuring that they still hold a considerable proportion of overseas rights after the product enters the commercialization stage.

The popularity of the NewCo model has been on the rise. The level of innovation is the fulcrum for Chinese products to successfully go global. More and more Chinese innovative pharmaceutical companies are beginning to possess R&D capabilities and product pipelines that align with international standards. By leveraging innovative products recognized by overseas markets, they are deeply integrating into the capital operations of the global biopharmaceutical industry. At the same time, capital is also a key factor driving drug R&D and commercialization. As the domestic innovative pharmaceutical industry gradually moves into the 'deep water zone', the NewCo model has the attribute of 'financing'. By introducing overseas capital, companies obtain new sources of funding, which helps alleviate their financial pressure and also provides valuable experience and resources in terms of capital operations and overseas market expansion.

In the future, with the acceleration of internationalization efforts by domestic innovative pharmaceutical companies and the growing interest of overseas capital in the Chinese innovative pharmaceutical market, more and more practice cases of the NewCo model will emerge, and the scale of transaction amounts is expected to continue growing. In addition, the cooperation forms of the NewCo model may become more diversified, with various forms of cooperation reaching agreements with overseas capital, multinational pharmaceutical companies, biotechnology firms, etc.

Although the NewCo model has precedents in overseas applications, it is still an innovative exploration by pharmaceutical companies going global in China. The future implementation needs to be verified by results over time. Generally speaking, I believe the risk in project-driven models lies in the fact that the success of the NewCo model often highly depends on the progress of a single project. If the R&D progress is not smooth or the clinical trial results are not ideal, it may lead to a break in the capital chain and operational difficulties for the company. At the same time, the NewCo model also places high demands on team capabilities, including specialized skills, foresight, and an international perspective, which may affect the slow progress or failure of projects. For companies, they should establish a complete project management system and risk control mechanism, closely monitor the competitive situation in the international innovative drug market, as well as the dynamic changes in laws, regulations, and regulatory requirements.