China's pharmaceutical industry is witnessing a notable surge in "pipeline spin-off projects", a model commonly referred to as the "Spin-off-NewCo" or "SON" model. Within the past two months, we've been advising on nearly ten SON projects. Leading pharmaceutical companies in China are more frequently adopting the SON model to separate parts of their pipelines into new, independent companies. These spin-off projects have garnered considerable interest from multinational industry leaders and international investment institutions, underscoring substantial opportunities for global collaboration.

The SON model is a response of the market to changes in the financing environment and cross-border investment regulatory environment. In the current China and international capital market environment, traditional exit paths for investment in China biopharmaceutical industry have become less clear. Some biopharmaceutical companies, particularly those that achieved high valuations through financings before 2022, are now facing increased financing challenges. Certain sectors, like AI pharmaceuticals and gene therapy, find it difficult to place China and foreign businesses under the same group entity for overseas financing due to risks associated with changes in cross-border investment regulations, foreign investment, and regulatory restrictions. These factors prompt Chinese pharmaceutical companies and investors to seek alternative ways to achieve financing or investment exit, with the SON model offering a solution.

This article tackles key industry concerns by offering an in-depth analysis of the SON model from a practical standpoint. It aims to support pharmaceutical companies and investors in exploring new strategies for global expansion and to serve as a reference point for industry discussions and collaboration.