The NewCo model biopharma strategy has rapidly become one of the most consequential dealmaking trends in the life sciences industry. Rather than shelving deprioritised pipeline assets or selling them outright through traditional licensing agreements, major pharmaceutical companies are now spinning out drug candidates into newly created, independently financed companies. The approach allows originators to retain meaningful equity stakes and future upside, while dedicated management teams and specialist investors take on the cost and risk of clinical development and commercialisation. From Bristol Myers Squibb’s recent $300 million immunology spinout to a wave of Chinese biotech NewCos reshaping cross-border dealmaking, the model is gaining traction on both sides of the Atlantic and Pacific.
Why the NewCo Model Has Gained Momentum
Several structural forces are converging to make the NewCo model biopharma’s preferred vehicle for extracting value from non-core assets. The pharmaceutical industry’s well-documented productivity challenge is central. Research and development spending continues to climb, with large pharma companies spending an average of $2.23 billion per compound from discovery to launch, according to Deloitte’s analysis of the top 20 global biopharma companies, yet the probability of clinical success remains stubbornly low, with the latest Citeline data showing an overall likelihood of approval from Phase 1 of just 6.7 per cent.
At the same time, the approaching patent cliff is forcing Big Pharma to make difficult portfolio decisions. With more than $236 billion in branded drug revenues at risk from patent expirations between 2025 and 2030, according to industry analyses, companies are under pressure to focus resources on their most commercially promising programmes. Assets that sit outside a company’s strategic priorities, even those with genuine clinical potential, risk languishing without adequate funding.
The NewCo structure offers an elegant solution. The originating company contributes pipeline assets to a newly formed entity, typically through an exclusive licensing agreement. External investors, usually venture capital firms or private equity, provide development capital in exchange for majority equity. The originator retains a minority stake, commonly between 20 and 30 per cent, alongside milestone payments and royalty rights. This hybrid arrangement gives the originator continued financial exposure to an asset’s success while transferring the operational burden and capital requirements to a focused, well-resourced new entity.
Daniel Estes, General Partner at Frazier Life Sciences, whose firm raised a record $1.3 billion venture fund in July 2025, has articulated the rationale clearly. “Spinning off underutilised assets provides a pathway to capture value from programmes that may otherwise remain under-resourced,” Estes said. Frazier has indicated it plans to allocate 40 to 50 per cent of its new fund towards launching three to five NewCos annually, a signal of the model’s growing institutional backing.
The NewCo Model Biopharma Playbook: Landmark Deals
The most prominent recent example of the model in action came from Bristol Myers Squibb. On 28 July 2025, BMS announced it would spin out five immunology assets into a newly created company backed by $300 million in financing led by Bain Capital. The portfolio includes afimetoran, a TLR7/8 inhibitor in Phase 2 development for systemic lupus erythematosus; BMS-986322, an oral TYK2 inhibitor that has completed Phase 2 for plaque psoriasis; and three earlier-stage candidates targeting IL-2, IL-18, and IL-10 pathways across autoimmune indications.
BMS retained approximately 20 per cent equity in the new entity alongside eligibility for royalties and milestone payments. Chris Boerner, BMS’s Board Chair and CEO, described the logic succinctly. “NewCos are a nice way to continue to progress those assets while retaining the ability to benefit from any upside,” Boerner said. The deal was widely interpreted as part of BMS’s broader $2 billion cost-cutting initiative announced in February 2025, which has required the company to focus its pipeline more tightly.
The model’s track record already includes several landmark exits. In 2018, Pfizer spun out its neurology pipeline into Cerevel Therapeutics, taking an initial 25 per cent ownership stake. Cerevel subsequently advanced programmes in schizophrenia and neurodegenerative disease, attracting significant investor interest. In December 2023, AbbVie acquired Cerevel for $8.7 billion, yielding Pfizer a $1.2 billion payout from its equity position. The deal demonstrated that a well-executed NewCo could generate returns far exceeding those available through a conventional licensing arrangement.
Another instructive case is Telavant. Roivant Sciences created this subsidiary after licensing a TL1A-directed antibody, RVT-3101, from Pfizer for inflammatory bowel disease. Pfizer retained 25 per cent ownership and rights to commercialise the drug outside the United States and Japan. In October 2023, Roche acquired Telavant for $7.1 billion, with an additional $150 million milestone payment, after mid-stage trial data showed the drug cleared disease signs in roughly 30 per cent of ulcerative colitis patients at 14 weeks of treatment. Roche CEO Thomas Schinecker called the antibody a treatment with “transformational potential.”
China’s NewCo Wave and Cross-Border Dealmaking
While Western pharma pioneered the concept through corporate spinouts, Chinese biotechnology companies have adopted and refined the NewCo model biopharma structure with remarkable speed. China’s version typically involves establishing a new company in an offshore jurisdiction, most commonly Delaware or the Cayman Islands, to hold exclusive licensing rights for development and commercialisation outside China.
The watershed transaction came in May 2024, when Jiangsu Hengrui Pharmaceuticals granted exclusive rights for a portfolio of GLP-1 receptor agonist programmes to a newly created entity called Hercules, which later rebranded as Kailera Therapeutics. The deal included $110 million in upfront payments, up to $200 million in clinical and regulatory milestones, and up to $5.725 billion in sales milestones. Hengrui retained a 19.9 per cent equity stake. By October 2024, Kailera had raised $400 million in Series A funding from investors including Bain Capital, RTW Investments, and Atlas Venture.
Hengrui has since replicated the approach. In September 2025, the company spun out its cardiomyopathy candidate HRS-1893 into Braveheart Bio through a deal valued at up to $1.1 billion, backed by Forbion and OrbiMed. Other Chinese firms have followed suit, including Mabwell Bioscience, which in September 2025 licensed a dual-target siRNA candidate to Kalexo Bio, a NewCo formed by Aditum Bio, in a deal worth up to $1 billion.
David Chen of law firm Goodwin Procter has noted that the structure allows Chinese licensors to “profit from their candidates’ appreciation globally while the NewCo shoulders the costs.” The model also helps Chinese companies navigate geopolitical complexity, providing Western investors with a familiar corporate governance framework while enabling Chinese originators to access international capital markets.
Beyond China: Japan and the Expanding NewCo Footprint
The trend is no longer confined to the US and China. In early 2026, Japan-based Nxera Pharma announced it had licensed a preclinical GPCR-targeted programme to a newly created entity, retaining a significant minority equity stake. The deal includes up to $275 million in development and commercial milestones plus tiered royalties. Christopher Cargill, Nxera’s President and CEO, described the transaction as validation of a spinout model the company first deployed with Orexia Therapeutics, which was subsequently acquired by Eli Lilly through its purchase of Centessa Pharmaceuticals for approximately $7.8 billion. Korean drugmakers have also begun exploring the NewCo approach to manage research and development risk more efficiently.
Risks, Limitations, and Industry Implications
The NewCo model is not without significant risks. Success depends heavily on the quality of the spun-out assets and the competence of the new management team. Alex Zhavoronkov, CEO of Insilico Medicine, has cautioned that “you actually need someone to run it,” emphasising that NewCos require experienced operational leadership, not merely financial backing, to succeed. The BMS spinout addressed this directly by appointing Daniel Lynch, a veteran biotech executive, as Executive Chairman and Interim CEO, while BMS Chief Research Officer Robert Plenge joined the new company’s board.
There is also the question of asset suitability. The model works best for non-core pipeline programmes with genuine clinical differentiation. David Chen of Goodwin Procter has noted that ideal NewCo candidates are assets “unvalidated by mid-to-late-stage trials” but possessing “clear global differentiation and compelling clinical advantages.” Spinning out a company’s most strategically important assets can dilute the originator’s value proposition and weaken investor confidence in the parent entity. Investors in NewCos also face binary risk, as failed clinical trials can render the entire structure worthless, and the pathway to exit, whether through acquisition or initial public offering, is never guaranteed.
The governance and legal complexities should not be underestimated either. NewCo transactions involve multilayered structures combining licensing agreements, equity investments, milestone payments, and royalty arrangements. Termination rights become particularly complex given the intertwined interests of originators, investors, and management teams. Corporate governance must also be carefully designed to accommodate future financing rounds and potential public offerings without creating conflicts between the originating company’s dual role as both licensor and shareholder.
For the broader industry, the NewCo model biopharma trend carries several implications. It is creating a more dynamic marketplace for pipeline assets, with deprioritised compounds finding new life under focused development teams. It is also channelling significant venture capital into drug development; Frazier’s $1.3 billion fund is just one example of the growing capital pools directed at NewCo formation. Anna Chen, an investor at Frazier Life Sciences, has said the firm sees “more opportunities to build new companies around drug candidates that have already been vetted,” underscoring the shift towards asset curation rather than pure discovery.
The model is reshaping how companies think about portfolio management, shifting from a binary choice between developing an asset internally or licensing it away, towards a more nuanced approach that preserves optionality. It is also providing a template for smaller biotechnology companies and early-stage firms that face similar questions about how best to advance promising but capital-intensive programmes.
The wave of successful exits, from Cerevel’s $8.7 billion acquisition to Telavant’s $7.1 billion deal, is reinforcing the model’s appeal. As the biopharmaceutical industry continues to grapple with patent cliffs, pipeline productivity challenges, and an increasingly competitive landscape for innovation, the NewCo approach appears firmly established as a strategic tool for unlocking value from the assets that might otherwise never reach patients.
For further context on the dealmaking dynamics shaping the sector, readers may find Biopharma M&A 2026: Every $1B+ Deal and the Drivers a useful companion piece.
