Sequoia Capital China's bet: The first deal of Chinese-style NewCo in innovative drugs

"In large pharmaceutical companies, some drugs are shelved due to strategic adjustments or bureaucracy. Small pharmaceutical companies have to concentrate all their resources on one or two drugs, even if other alternative drugs are excellent," a 30-year-old Indian-American commented on the state of European and American pharmaceutical companies 10 years ago.

This young man named Vivek Ramaswamy wanted to excavate value from those neglected drugs. He bought these in - development drugs at a low price, then established new companies for further R & D investment. After obtaining good trial data, he sold the drugs or companies to large pharmaceutical companies to get substantial returns.

Ramaswamy thus became a billionaire. His money - making method is widely known as "NewCo" in China, which is the abbreviation of New Company. Since 2024, in the cold winter of capital, there have been 14 similar transactions in the Chinese innovative drug industry.

In these NewCo transactions, sellers include large companies like Hengrui Medicine (600276.SH/01276.HK) and small innovative pharmaceutical companies like Quanxin Biotech (02509.HK). Initially, the buyers were mainly American funds, but now, the industry is quietly changing.

In early August, Lepu Biotech (02157.HK) completed a transaction with a down payment of $10 million, and its stock price rose for three consecutive trading days. Few people noticed that this was the first NewCo transaction with Chinese investment institutions such as Sequoia China as the buyer.

Gu Cuiping, the managing director of Sequoia China, said in an interview with Economic Observer that the value of this transaction is not only about going global but also about using China's clinical efficiency, cost advantages, etc. to enhance the value of the target drug in the global market.

What impact will the entry of Chinese funds into NewCo transactions have on the market?

The First NewCo Led by Chinese Funds

Before August 2025, the buyers in NewCo transactions of Chinese innovative pharmaceutical companies were all overseas funds, including well - known funds such as Atlas Venture, Orbimed, and RA Capital.

A partner of Atlas Venture listed "China" as the second - most important keyword in the global biopharmaceutical industry in 2024 and publicly stated that it is crucial for Western companies to obtain innovation from China.

Sequoia China created a new paradigm in early August by jointly becoming the buyer in a NewCo transaction with six other Chinese funds for the first time.

Sequoia China started contacting Lepu Biotech about this transaction in 2024. At that time, Sequoia China was very interested in the popular field of TCE (T - cell engager). After research, two TCE pipelines targeting solid tumors of Lepu Biotech caught Sequoia China's attention because most TCE pipelines in the market mainly target hematological tumors, and there are actually not many projects advancing to the clinical stage in the field of solid tumors.

The person leading the investment in this transaction is Gu Cuiping. Gu joined Sequoia in 2012 and focuses on investing in cutting - edge medical fields such as gene editing and cell therapy. Before joining Sequoia, she served as an investment manager in the Asia - Pacific region of Orbimed and a project manager in the global R & D department of multinational pharmaceutical company Eli Lilly. Gu Cuiping said that her team's investment preference is not to follow the trend but to look for differentiated assets. They believe that Lepu Biotech's pipelines have some technological innovations and breakthroughs.

2024 was a memorable year for Lepu Biotech and the entire pharmaceutical industry. Innovative pharmaceutical companies experienced a cold winter of capital together, and industry confidence hit rock bottom.

Lepu also faced financial pressure. On the one hand, the marketed PD - 1 drug needed money for promotion. On the other hand, the ADC drug in the late - stage clinical trials also needed more funds for advancement. Divesting early - stage assets like TCE was a practical choice for it and a common choice for innovative pharmaceutical companies.

The transaction plan between the two parties is as follows: Lepu Biotech will receive a $10 - million down payment and hold a 10% equity stake in the new company Excalipoint. In the future, it is more likely to receive a total of $848 million in R & D and commercial milestone payments and sales royalties, leaving room for upside.

Selecting assets is only the first step in a NewCo transaction. A successful NewCo must also have two elements: sufficient funds and professional operators. In terms of funds, Sequoia China, Yuansheng Venture Capital, and Xingze Capital will lead four other institutional investors to inject $41 million in Series A investment into Excalipoint.

Regarding the founding team, two executives who have been disclosed so far are Fang Lei and Zhu Jielun.

Fang Lei, 42 years old, was the original R & D leader of these two TCE pipelines of Lepu Biotech. Gu Cuiping has known him for a long time. Gu Cuiping commented that Fang Lei showed excellent innovation ability when he served as the R & D leader at I-Mab. He is very motivated at work. In addition, having the original R & D leader operate the new company ensures the seamless connection of core technologies and R & D ideas.

Zhu Jielun focuses on financing and business development (BD).

This transaction is different from traditional financing. Gu Cuiping explained its complexity: "In traditional equity financing, the company already exists, and only two parties, the company and the investor, need to reach an agreement. However, this time, it involves the interests of three parties: the founders of the new company (such as Fang Lei), the new investors (such as Sequoia), and the listed company (Lepu Biotech). Any incoordination in any link may prevent the transaction from being completed."

Zhu Jielun has long worked in investment banks. His expertise in financing and complex transaction structures is the key to connecting the three parties and facilitating the transaction. Moreover, Zhu Jielun once served as the CFO of I - Mab and worked with Fang Lei.

Gu Cuiping revealed that Sequoia China will continue to recruit executives for Excalipoint. "When building the early - stage team, we will provide more support. In addition, we have been paying attention to TCE for a long time, and our team has accumulated a lot of experience in targets, which can provide valuable references for Fang Lei."

The Local Evolution of NewCo

In the past, NewCo was widely associated with going global, but the nature of Sequoia China's transaction is significantly different - "Chinese innovative drug assets + Chinese capital + Chinese professional managers."

"Previously, in many cases, the drugs were expected to be developed overseas, teams were set up overseas, and more emphasis was placed on clinical trial verification overseas, and then the exit was achieved by selling to multinational pharmaceutical companies," Gu Cuiping said. "We value the overall value of the assets, not just their value in the overseas market. Instead, we believe that these assets can create value more quickly by leveraging China's clinical efficiency, cost advantages, PI resources, and patient resources."

Different from the previous practice of American funds buying Chinese assets and immediately conducting clinical trials in the United States, after this transaction, Excalipoint will conduct Phase I clinical trials of two TCE drug molecules in China.

"The plan after the Phase I clinical trial is not very clear yet. Previously, people thought that when a multinational pharmaceutical company (MNC) buys a Chinese asset, it must have some US (clinical) data. But now, it seems that it is not necessarily the case. Recently, many overseas transactions only have Chinese clinical data, and MNCs also recognize them," Gu Cuiping said. Whether Excalipoint will conduct clinical trials in the United States in the future depends on whether there are suitable indications at that time.

Zhu Jielun also highly recommends NewCo transactions led by domestic investment institutions and local founding teams. He publicly stated that in the early stage of NewCo, if led by a Chinese - speaking team and the pre - clinical and Phase I research are carried out in China, the initial investment only needs $20 - 30 million, while in the United States, it is expected to cost at least $100 million to do a NewCo.

As he understands, the total cost per subject for a Phase I clinical trial in China is about 300,000 - 400,000 RMB, while in the United States, it is $200,000 - 300,000, a difference of five to seven times, and the progress speed also differs by five times.

What a Successful NewCo Needs

Different from traditional BD (business development) transactions, the ultimate destination of a NewCo is to sell the value - added in - development innovative drug assets to the next buyer, rather than commercializing and marketing the drug.

Therefore, whether a next - in - line buyer can be found is the key to the success or failure of a NewCo.

An executive working in a well - known American NewCo investor told Economic Observer that NewCo assets ultimately flow into large companies. It is crucial for the deal - maker to have close personal connections with multinational pharmaceutical companies and be familiar with the pipeline needs of potential buyers.

Sheng Da, the founder of Pilot Capital, is helping many overseas funds and professional managers find high - quality Chinese innovative drug assets. In his view, a successful NewCo must have an experienced professional manager team. There are many professional managers in Europe and the United States who have achieved consecutive entrepreneurial successes. He gave an example. In early 2025, multinational pharmaceutical company AbbVie wrote down the value of a NewCo it acquired by $3.5 billion because the Phase II clinical trial of the key drug of this NewCo failed. However, from the perspective of the professional manager who sold the NewCo, this is also a kind of success in a sense - selling the assets at an ideal price at the right time.

The professional manager who made the transaction with AbbVie is named Tony Coles. In 2013, Onyx Pharmaceuticals, led by him, was acquired by Amgen at a high price of $10.4 billion. He has also served as an executive of multinational pharmaceutical companies such as Merck and Bristol - Myers Squibb.

In the past two years, both the above - mentioned executive of the well - known American NewCo investor and Sheng Da have contacted many Chinese innovative pharmaceutical companies. Their common feeling is that many innovative pharmaceutical companies attach the most importance to the down payment in the transaction. Compared with the traditional BD of directly selling to large pharmaceutical companies, the down payment of NewCo is generally lower.

In the view of some executives of innovative pharmaceutical companies, the down payment that can be guaranteed to be received most shows the buyer's sincerity. Therefore, some people think that NewCo is "cutting young seedlings" by overseas capital. Some executives of innovative pharmaceutical companies have also publicly stated that they don't want anyone to mention NewCo in front of them and will feel annoyed when they hear it.

However, for innovative pharmaceutical companies facing financial pressure, NewCo is undoubtedly still an important way to obtain funds. Many primary - market investors told Economic Observer that the recovery of the innovative drug stock market since the beginning of the year has only improved the financial situation of listed companies. Many unlisted pharmaceutical companies still face difficulties in raising funds. They expect that there will still be many NewCo transactions in the future.

Sheng Da believes that currently, many domestic innovative pharmaceutical companies have a relatively one - sided understanding of NewCo transactions. "NewCo does not dilute the value of other pipelines of the company (seller), does not require the company (seller) to continue investing funds and manpower, and at the same time, the seller can participate in the equity premium income when the pipeline is acquired by the pharmaceutical company. It is a choice with more long - term value."

Different Keywords at Home and Abroad: Going Global and Risk Stripping

The term NewCo is no longer new to many investors and pharmaceutical company executives. In fact, this term has been well - known in the Chinese innovative drug industry for only a little over a year.

In May 2024, Hengrui Medicine licensed three in - development drugs to a new American company established by four American investment institutions. In addition to receiving cash payments, Hengrui Medicine also obtained a 19.9% equity stake in the new company.

In Hengrui Medicine's statement, the keyword of this transaction is going global - expanding overseas markets.

After that, this cooperation model of "Chinese pharmaceutical company assets + overseas capital + overseas professional managers" became the popular definition of NewCo in China, associated with the beautiful vision of the vast overseas market.

In Sheng Da's view, NewCo means maximizing the benefits of China's cost - effective assets overseas. "Conducting clinical trials overseas not only requires an experienced team but also a lot of R & D expenditures. Overseas funds and professional managers can make up for the deficiencies of domestic enterprises." Recently, Sheng Da is helping American professional manager teams in multiple sub - fields such as ophthalmic small nucleic acids find Chinese assets, hoping to reach NewCo cooperation.

Compared with the BD model of license - out, the down payments of currently completed NewCo transactions are usually lower. However, during the upsurge of innovative drugs in the stock market in 2025, the stock prices of companies that completed license - out transactions and NewCo transactions both increased. For example, the stock price of CanSino Biologics (02162.HK), which completed multiple NewCo transactions, rose from HK$27 per share at the beginning of the year to HK$71 per share currently. The stock price of Quanxin Biotech (02509.HK) has more than doubled since it completed a NewCo transaction. In the view of many investors, completing a transaction means receiving a down payment and also means that the company's innovation ability is recognized by the overseas market.

However, globally, the original definition of NewCo has nothing to do with going global. For the seller, NewCo is essentially the stripping of assets and risks; for the buyer, it is to increase the value of low - value assets through fundraising, investment, management, and exit. For example:

In December 2022, a company under Ramaswamy obtained the rights to a Pfizer drug for inflammatory bowel disease for $45 million and simultaneously established a NewCo named Telavant to invest in developing this drug. Pfizer holds a 25% equity stake in Telavant. Just one year later, this drug showed excellent data in the Phase II clinical trial, and Telavant was acquired by Roche for more than $7.1 billion.

In 2019, Blackstone introduced a pre - clinical drug from Novartis and established a new company to be responsible for developing this drug. Blackstone injected $250 million into the new company, and Novartis holds a small equity stake in the new company. In 2025, based on the clinical trial data of this drug, Novartis repurchased the new company with a total transaction value of more than $3 billion.

Of course, this model also has risks.

In 2015, a company under Ramaswamy spent $500,000 to buy an in - development drug for Alzheimer's disease. Two years later, the clinical trial failed, which means that the $500,000 and the subsequent R & D funds were all wasted.

This article is from the WeChat public account "Economic Observer", author: Zhang Ying, published by 36Kr with authorization.