Over the past decade, the landscape of cross-border partnering in the life sciences sector has undergone a dramatic transformation, particularly in transactions between Chinese biotech companies and their US and European counterparts. Driven by regulatory improvements, increased innovation and evolving capital markets, the volume and value of these deals have surged. According to Locust Walk, the out-licensing deal value for China reached $47 billion in 2024, with a three-year compounded annual growth rate of 67%. This executive summary highlights the key trends, deal structures and legal considerations that are shaping this dynamic market.
Deal structures: Licensing and NewCo models
Traditionally, cross-border deals took the form of straightforward licensing arrangements, where multinational pharmaceutical companies would in-license assets from Chinese biotechs for worldwide or ex-China/ex-Asia rights. These deals typically feature an upfront payment, milestone payments and royalties. However, the market has evolved to include more complex structures – most notably the formation of NewCos, new companies established in the US or Europe that in-license assets from Chinese innovators. Investors inject capital into these NewCos to fund development, with the goal of either selling the company or partnering the asset after achieving key milestones.
While large pharma licensing deals remain prevalent, especially for de-risked, late-stage or best-in-class assets, the NewCo model has gained significant traction. This approach is particularly attractive for earlier-stage programs, allowing for focused development and capital efficiency. NewCo transactions also offer flexibility for investors and strategic partners that may choose to scale the company or exit after proof of concept is established.
Territorial scope and IP considerations
A critical negotiation point in these transactions is the territorial scope of the license. Chinese companies often retain rights for Greater China or Asia, while granting worldwide or ex-China rights to their partners. The choice between a worldwide license and a territory-split deal depends on the licensor’s strategic objectives, such as retaining a core asset for a potential initial public offering (IPO) or raising capital to fund pipeline development. Notably, as Chinese biotechs mature and diversify their pipelines, they are increasingly open to granting worldwide rights, which can simplify deal execution.
Intellectual property ownership and assignment are central to cross-border deals. Chinese biotech companies typically have complex corporate structures involving Cayman, Hong Kong and PRC entities, often with limited intercompany agreements governing IP. Before closing, it is essential to clarify and, if necessary, consolidate IP ownership in the appropriate entity to facilitate licensing and address tax, regulatory and bankruptcy risks. US investors and acquirers generally prefer IP to be held in a US entity, which can enhance fundraising and exit opportunities.
Tax and regulatory implications
Withholding tax is a headline issue for Chinese life sciences companies out-licensing assets. Depending on the jurisdictions involved, upfront payments may be subject to significant withholding, reducing the net proceeds. The characterization of payments and the location of IP can have material tax consequences, and parties should address these issues early in the structuring process. Additionally, deals involving profit-sharing or co-development may create partnership tax issues, particularly when non-US and US entities are involved.
Governance and operational challenges
Governance is often one of the most challenging aspects to negotiate, especially when both parties retain development or commercialization rights in their respective territories. Key considerations include decision-making authority for clinical development, participation in global trials, and the allocation of costs and responsibilities. Misaligned incentives can arise, for example, when regulatory requirements differ between regions or when one party’s actions could impact the global safety database. Well-drafted agreements should provide flexibility while protecting each party’s interests and the overall value of the asset.
Looking ahead
The cross-border life sciences deal market between China and the US/Europe is expected to remain robust, with increasing sophistication in deal structures and a growing focus on global development. Companies contemplating such transactions should engage experienced counsel early to navigate the complex legal, tax and operational issues involved. As the market continues to evolve, proactive structuring and clear documentation will be critical to successful outcomes.
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