CHINA Trends and Developments Contributed by: Min Zhu, Ya-ling Gon, Yang Gu, Chai Lu, Ying Li and Shiye Yuan, Han Kun Law Offices
Newco model The newco model, which gained significant industry attention in 2024, has emerged as a novel pathway for innovative Chinese drug companies to expand globally. The newco model involves granting the overseas rights of a Chinese company’s core products to a newly established overseas entity (ie, a newco), while simultaneously introducing overseas funds and assembling an international management team, with the ultimate goal of exiting through the newco’s overseas listing, merger or acquisition. In May 2024, Hengrui Pharmaceuticals launched the first notable newco transaction in the Chi- nese market, by licensing the global rights of its GLP-1 product portfolio outside the Great- er China Region to Hercules CM, a company jointly funded by Bain Capital and other inves- tors. Beyond the approximately USD6 billion in upfront payments, milestone payments and sales milestone payments, Hengrui Pharmaceu- ticals also acquired a 19.9% stake in Hercules CM. From May to November 2024, six newco trans- actions took place, with a total transaction val- ue of USD8.23 billion and a combined upfront payment of about USD200 million. With market participants actively exploring the potential of the newco model, it is anticipated that this will become one of the predominant models for cross-border co-operation and transactions in the coming years. Mergers and acquisitions With the tightening of domestic IPOs and pol- icy support from Chinese authorities, mergers and acquisitions are gradually emerging as the preferred exit strategy in the Chinese market. In 2024, 35 domestic merger and acquisition (M&A) events occurred in the pharmaceutical
investments, aiming to reap higher returns when the market recovers. License-in/out In 2024, innovative Chinese drug companies continued to achieve remarkable milestones in license-out transactions, setting new records in both the number of deals and the total transac- tion value. A total of 76 license-out deals were concluded, which is three times the number of concurrent license-in deals (26 deals). In terms of transaction amounts, from January to October 2024, the upfront payments for license-out deals amounted to approximately USD3.16 billion, with the total transaction value reaching USD51.1 bil- lion. This figure surpassed the total amount of license-out deals for the whole of 2023. Half of the license-out transactions (38 deals) were related to antibodies and conjugated drugs, with a particular focus on bi-specific antibodies and ADC drugs. Meanwhile, the cell and gene therapy drug area witnessed a total of five license-out transactions, which is expected to emerge as another promising subsector for innovative Chinese drug development, with the potential to gain global market recognition in the future. Multinational corporations (MNCs) have become the primary purchasers in license-out transac- tions. The 24 deals involving MNCs accounted for 55.4% of the total license-out transaction value and 71.5% of the total upfront payments. This trend underscores the recognition by MNCs of the robust R&D capabilities of innovative Chinese drug companies. As a result, innova- tive Chinese drug assets have become a crucial source for MNCs to sustain and enhance their own innovative capabilities.
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