Introduction: 

Valuation anchors, capital structure, exit pathways, BD and value realization mechanisms—this article examines the changing logic of China's biopharma investment and financing along these four variables.

Introduction
Two Seemingly Contradictory Facts

China's biopharma industry is undergoing a transformation that is difficult to summarize simply as "cold" or "hot": some capital market indicators are recovering, certain high-quality assets are gaining recognition from global industry partners, yet the financing and development circumstances among enterprises remain distinctly polarized.

According to an annual report by VCBeat (Dongmai Network), the primary market for China's healthcare sector completed 861 financing deals worth approximately $9.6 billion in 2025, with financing volume increasing by about 32% year-over-year. However, the financing amount for the biopharma sector specifically remains slightly lower than in 2024. [1] During the same period, out-licensing of Chinese innovative drugs remained active. [2] These two phenomena can coexist because equity financing, asset transactions, and public markets respectively undertake different functions in resource allocation.

[Figure 1: Primary Market Financing in China's Healthcare Sector: First Rebound Since 2022 in 2025]
2024: 811 deals, $7.3 billion*
*2025: 861 deals (Financing volume +32%), $9.6 billion
Data Source: VCBeat

From an investment perspective, the key lies in identifying how these changes affect those bearing innovation risks, the benchmarks for corporate value, and the methods of realizing investment returns. Our focus is on how scientific progress can obtain appropriate capital support, how industrial capabilities can be transformed into corporate value, and who creates value and how it is distributed.

Following this main thread, four variables must be observed simultaneously: changes in valuation anchors, the goals and constraints of capital contributors, the evolution of exit arrangements, and adjustments in value realization mechanisms. BD (Business Development, primarily licensing and co-development in this article) is a crucial component, and its significance should be understood within the entire industry and capital cycle.

PART 01
Migration of Valuation Anchors: From Growth Narratives to Value Realization

The pricing of biopharma assets requires answering two types of questions simultaneously: how much value the technology and products can create in the future, and how long and how much risk capital is willing to bear to realize that value. When the market environment changes, what often changes first is the weight of different evidence in valuation.

Growth narratives provide direction, while evidence determines credibility. Unmet clinical needs, new technologies, and potential markets constitute important starting points for early-stage investment. Early-stage projects lack stable revenue, so judgments inevitably contain assumptions; the task of professional investment is to break down these assumptions into testable research objectives and allocate funds to key milestones. Narratives need to be updated with data and cannot be sustained solely by bridging to the next financing round.

Comparable companies connect the primary and secondary markets and also transmit market volatility. Public markets provide financing and price discovery mechanisms for unprofitable enterprises, making the market caps of comparable companies an important reference for the primary market. However, interest rates, liquidity, and risk appetite affect the present value and market quotes of the same expected cash flows. When using comparable valuations, adjustments must be made for R&D stages, commercialization capabilities, cash reserves, and scope of rights; changes in public market prices do not all imply a proportional change in scientific value.

Risk-adjusted models bring key assumptions into the open. rNPV (risk-adjusted Net Present Value) presents project value through probability of success, future cash flows, and discounting. Its significance lies in allowing success probabilities, time to market, sales, and cost assumptions to be discussed, compared, and updated. The model is not a tool exclusively for sellers, and valuation results cannot be understood in isolation from clinical evidence and commercial competition. [3]

Transactions add external references for valuation. Licensing, M&A, and equity transactions can provide real consideration and terms. However, differences in regions, number of projects, subsequent investments, and buyer strategic synergies will change the meaning of the price. Transaction references and models should cross-validate each other and consider the macroeconomic environment at the time of the transaction. [3]

These four types of references have coexisted for a long time and cannot be mechanically divided into mutually replacing eras. We believe that, facing these changes, valuation judgments need to accept more specific evidentiary constraints: on what basis will the company grow, how much funding is still needed, what value has been verified, and what remains to be awaited. This requirement applies to early-stage R&D as well as to commercializing and pre-IPO companies.

PART 02
Player Restructuring: How Changes in Capital Structure Rewrite the Language of Pricing

The source, duration, and assessment methods of capital influence the risks it is willing to bear. Understanding the capital structure requires not only looking at how much money is entering but also whether the goals of these funds can match the R&D cycle. The classifications of financial capital, government investment funds, industrial capital, and cross-border capital can overlap; the proportion of the whole market cannot be inferred from a few transactions or monthly rankings.

Financial capital needs to match return targets with investment cycles. VC/PE faces return requirements from LPs, as well as constraints on fund duration and follow-on funding capabilities. For enterprises with long R&D cycles, looking only at entry valuations easily underestimates risk; it is also necessary to judge whether the project can reach the next key data milestone, who will provide follow-on funding, and whether the fund can accompany the enterprise through unfavorable windows.

Long-term support from state-owned capital requires appropriate institutional arrangements. Document No. 1 [2025] issued by the General Office of the State Council in January 2025 explicitly calls for developing long-term capital and patient capital, proposing differentiated management, full-lifecycle assessments, and not simply assessing based on a single project or single-year profit/loss, while encouraging the reduction or cancellation of return-investment ratios. [4] These requirements provide institutional direction for supporting long-term innovation; actual effects still depend on fund agreements, investment pacing, and assessment execution.

Industrial capital brings capabilities but also strategic boundaries. Pharmaceutical companies and other industrial entities can participate in innovation through equity investments, licensing, or co-development, bringing resources that may include R&D, registration, manufacturing, and commercialization. However, investment relationships and procurement/cooperation relationships need to be judged separately: the synergistic value, exclusivity demands, and strategic adjustments of industrial parties will also affect the enterprise's space for choice. One cannot assume that all interests are always aligned just because an industrial party possesses industrial capabilities.

Cross-border capital connects global resources, but projects must still meet specific conditions. International teams, overseas capital markets, and industrial cooperation can expand a company's development space; data applicability, intellectual property, governance arrangements, and cross-border execution requirements also need to be handled upfront. For a company, beyond the scale of funds, the more valuable questions are whether the partner can continuously invest and whether its resources match the enterprise's stage.

For capital, the role of professional managers is to establish executable arrangements among these different goals: clarifying scientific risks, staging capital needs, implementing governance and incentives, and preserving options for subsequent financing, operations, and exits. Only when capital duration, risk tolerance, and professional capabilities are aligned can long-term capital be more likely to translate into effective innovation support.

PART 03
Changes in Exit Pathways: From a Single Channel to Multi-path Arrangements

Exit arrangements affect both fund returns and how companies make trade-offs among R&D, commercialization, and financing. The coexistence of multiple pathways requires investment judgments to cover the complete development process; pathways may occur sequentially and are not simply independent options that can be added together.

IPO remains an important mechanism for financing and price discovery. HKEX disclosed that 16 biotech companies went public in 2025. [5] This fact shows that public markets are still accommodating relevant companies, but it cannot be inferred that financing at all stages has recovered, nor should IPO be understood merely as obtaining liquidity. Going public can help companies continue R&D and commercialization; actual shareholder exits still depend on lock-up arrangements, transaction prices, and market absorption capacity.

BD can monetize part of the asset value but does not necessarily directly result in equity exits. Licensing consideration is typically received first by the company and used for subsequent operations or other agreed purposes. It can reduce immediate financing needs and may support shareholder value by improving cash flow and risk structure; however, company cash receipts, fund realizations, and distributions to LPs (Limited Partners) are different steps. DPI (Distributions to Paid-In Capital) measures the ratio of a fund's cumulative distributions to LPs relative to paid-in capital and should be distinguished from company-level contract amounts. [6]

NewCo provides another method of organization and capital allocation. NewCo usually establishes a new company to hold asset rights and introduces capital and teams. In May 2024, Hengrui licensed the ex-Greater China rights for three GLP-1-related pipelines to Hercules (later renamed Kailera). In addition to cash licensing considerations and other rights, it obtained a 19.9% equity stake in the company at that time. [7] This structure allows the original developer to participate in the subsequent value of the overseas company while introducing variables such as governance, refinancing, and dilution. Whether it is superior to direct licensing or independent development depends on the company's capabilities, funding conditions, and contractual arrangements.

M&A and equity succession require executable payment and transaction mechanisms. In May 2025, the CSRC revised the rules for major asset restructuring, establishing a mechanism for installment payments of share consideration and implementing a reverse linkage between the investment period of private equity funds and the lock-up period of shares obtained in restructuring. [8] Government investment fund policies also encourage the development of S-funds (secondary market funds for private equity) and M&A funds. [4] Institutional tools have broadened the space for arrangements, but whether a project can be completed still depends on valuation, buyer payment capacity, approvals, and integration conditions.

Therefore, "front-loading exits" should be understood as studying the conditions for value realization at the time of investment. For early-stage projects, the focus is on verifying pathways and funding continuity; for growth-stage companies, it is necessary to evaluate commercialization efficiency, profitability, and strategic buyers; for mature assets, shareholder value across independent operations, IPOs, and M&A should be compared. Multiple pathways can increase options, but returns still need to be tied to achievable amounts and timing, while avoiding double-counting the same rights.

PART 04
BD: From a Business Function to Strategic Coordination, and Its Boundaries

The position of BD within this macro framework can first be located using a set of data. According to PharmaCube, there were 158 out-licensing deals in China in 2025, with a disclosed total value of approximately $135.7 billion and upfront payments of approximately $7 billion [2]; Chinese innovative drugs contributed 49% of the total global BD transaction value and 37% of upfront payments [9]. The total transaction value was approximately 2.5 times that of 2024 and 3.2 times the amount of out-licensing by the US during the same period [10].

In 2021, this scale was only $13.4 billion with $500 million in upfront payments [11], representing an approximately 10-fold increase in total transaction value over four years. The importance of BD has thus shifted from a business function to a pricing hub: it connects R&D supply with industrial demand, reallocates development investment, regional rights, and commercialization responsibilities through cooperation, and its transaction prices have become an important reference for primary market valuations. It should be reiterated that total amounts include conditional future payments and cannot be directly compared with equity financing amounts or cash actually received for the year.

[Figure 2: China's Share in Global BD Transactions: 2019 vs 2025]
Share of Total Transaction Value · 2019: 1%
Share of Total Transaction Value · 2025: 49%
Share of Upfront Payments · 2025: 37%
Data Source: PharmaCube NextPharma; 2019 data cited from China Economic Net

Entering 2026, this momentum continues. The National Development and Reform Commission stated at a press conference that out-licensing of innovative drugs in the first three quarters of 2026 reached approximately $130 billion, close to the full-year level of 2025 [16].

The first structural change is asset elevation. Licensing targets have moved forward from post-Phase III clinical stages to preclinical and IND stages, with "early trading" becoming the norm: in January 2025, Innovent out-licensed its Phase I ADC drug IBI3009 to Roche, receiving an $80 million upfront payment [10]. The mechanism is that when buyers have sufficient information advantage in judging asset value, they are willing to bear earlier-stage risks to obtain a higher proportion of value.

The second structural change is structural complexity. Cooperation has evolved from single licensing deals to platform-level and portfolio arrangements. In July 2025, Hengrui's collaboration with GSK included the overseas license for HRS-9821 and exclusive options for up to 11 projects, with total upfront payments of $500 million and potential milestones of approximately $12 billion if all options are exercised and related milestones achieved [12]; in January 2026, CSPC reached a collaboration with AstraZeneca for eight weight management projects, agreeing to a $1.2 billion upfront payment and up to $18.5 billion in potential R&D and sales milestones [13]. The economic meaning of such transactions is different from single-product licensing: the buyer is purchasing not just a molecule, but the continuous output capability of an R&D platform.

The third structural change is buyer diversification. Demand parties have expanded from large pharmaceutical companies to overseas biotechs and pharmaceutical companies in Japan, South Korea, and the Middle East, but the main force remains multinational pharmaceutical companies, whose rigidity stems from the patent cliff: according to Evaluate, patent expirations will cause the global pharmaceutical industry to lose approximately $300 billion in revenue by 2030 [14]. This estimate is a forward-looking projection by an industry research institution, and conclusions depend on the pace of new drug launches and the actual distribution of patent expirations; it should be used as directional reference rather than a precise figure.

These changes suggest that BD can influence project selection, clinical development, and global resource allocation at an earlier stage. Professional capital accordingly needs to help companies evaluate: which capabilities are suitable for in-house development, which links should rely on cooperation, which rights should be retained, and how to balance current funding with long-term returns. Transaction scale is only part of the observed outcome; the shift from a business function to a pricing hub has several boundaries that must be explained.

The first boundary is scientific evidence. Transactions reflect the buyer's willingness to bear risk under specific terms and cannot replace clinical efficacy and safety evidence. Even with investment from industrial partners, early-stage drugs must still undergo subsequent research and regulatory review; Phase I studies primarily explore human safety, dosage, and pharmacological characteristics, and benefit-risk evidence still needs to be accumulated continuously [15].

The second boundary is supply homogenization. The R&D project concentration for the top 20 hot targets in China reaches 41%, compared with 28% in the US during the same period [10]. Target concentration means that similar assets have high substitutability and buyers have strong bargaining power. In 2025, total transaction value grew by about 161% while the number of deals grew by only about 67%, and the growth rate of upfront payments (about 71%) was significantly lower than that of total amounts, indicating that a considerable portion of the growth came from conditional milestones rather than more certain upfront payments—the explosion in total transaction value does not equate to an increase in unit asset prices.

The third boundary is exogenous variables of geopolitics and compliance. Stricter clinical data reviews, the politicization of transaction security reviews, and restrictions by some countries on cross-border transfer of specific technology platforms may all change the enforceability of transactions [9]. Such risks are non-diversifiable and should be treated with scenario analysis rather than point estimates in valuation.

The fourth boundary is the position in the value chain. Over 90% of out-licensing remains one-way licensing, with domestic companies long positioned in the division of labor where "China does early-stage, overseas takes profits" [9]. Judging a company's BD capability should not rely solely on transaction amounts but on the proportion of rights retained after the transaction, the degree of development participation, and profit-sharing arrangements—this is the watershed between "selling assets" and "participating in the global value chain." Global cooperation should expand corporate options and also needs to align with domestic patient needs, payment conditions, and industrial capacity building.

PART 05
Paradigm Shift: From Narrative Verification to Multi-Evidence Verification

Regarding the value realization mechanism for the next stage, capital's proposition is: let innovation narratives undergo continuous testing by science, industry, and capital returns. Transactions provide one type of evidence, while public markets, operating results, and clinical progress each provide different information.

This change imposes more specific requirements on investment discipline than merely changing valuation terminology. Early-stage projects need valuable scientific questions and rigorous validation designs; entering the clinical and commercialization stages requires translating research results into clear patient populations, control standards, payment scenarios, and operational capabilities; after forming partnerships or going public, subsequent investment and actual returns should also be tracked.

Analytical Framework: The above dimensions are interrelated, and no single indicator is sufficient to replace a complete judgment.

For enterprises. Financing, R&D, and operations should be placed in the same development plan. Domestic commercialization and overseas cooperation can have different divisions of labor, but both must answer whether capital investment can be transformed into products accessible to patients and whether the enterprise retains the capacity for continuous innovation.

For GPs (Fund Managers). It is necessary to integrate scientific judgment, corporate governance, capital arrangements, and exit execution. Identifying good projects is only the starting point; how to support them through key milestones, control the pace of investment, and preserve value is also part of professional capability. The project portfolio should also match the fund's duration and follow-on funding capabilities to avoid being forced to make major choices at unfavorable times.

For LPs. Evaluating managers requires observing portfolio risk, valuation basis, capital efficiency, and distribution results simultaneously. Long-term capital should match the innovation cycle and also requires transparent, verifiable intermediate progress. Whether adopting IPOs, M&A, or other monetization arrangements, IRR still follows the same cash flow timing principle; what differs is the pace of capital recovery and the sources of risk. [6]

Macro judgments should also retain testable conditions. If the recovery in public financing fails to extend to a broader range of R&D entities, if clinical progress and operating cash flow after cooperation continue to fall short of expectations, or if institutional tools do not translate into actual transactions, the degree of improvement in the capital cycle needs to be reassessed. Confidence in industry trends should be adjusted as evidence accumulates.

PART 06
Conclusion: The Coming of Age of an Industry

The development of China's biopharma industry is bringing more scientific assets into global comparison and is also requiring capital to understand enterprises in a more complete way. From valuation to financing, from commercialization to exit, every link needs to answer how value is created and how risk is shared.

Improving products around validated targets can bring important clinical value; exploring new targets and new mechanisms also requires capital capable of bearing failure. If short-term financing performance or current transaction probability is used as the sole criterion, it may instead narrow the space for long-term innovation.

From the perspective of capital, the responsibility of professional investment is to let capital bear appropriate risks at different stages of development, support enterprises in developing the ability to continuously create value, and establish executable return pathways for investors. The formation of pricing power ultimately relies on verifiable research results, sustainable operational capabilities, and options that can still be retained under different market environments. This is also our starting point for observing industry cycles and allocating long-term capital.

As an institution investing in biopharma for the long term, Efung Capital and its portfolio companies have experienced this round of BD changes together. The cumulative disclosed BD transactions involving Efung's portfolio companies cover bispecific antibodies, ADCs, small nucleic acids, cell therapies, and other directions, with buyers including multinational pharmaceutical companies such as AstraZeneca, GSK, BMS, Roche, Pfizer, Takeda, and Novo Nordisk. The cumulative disclosed total transaction value has reached $28.438 billion, as detailed in the table below.

References
[1] VCBeat: Over $60 Billion Influx, 2,000+ Deals: 2025 Global Healthcare Investment and Financing Report Released. 2026-01-28, originally published on 36Kr.
[2] PharmaCube: Volume, Price, Flow: Core Interpretation of 2025 Global Pharmaceutical Transactions and M&A Data. 2026-01-31.
[3] WIPO: Intellectual Property Valuation in Biotechnology and Pharmaceuticals 2025. 2025, mainly referencing the market approach and income approach chapters.
[4] General Office of the State Council: Guiding Opinions on Promoting the High-Quality Development of Government Investment Funds (Guo Ban Fa [2025] No. 1). Drafted on January 2, 2025, publicly released on January 7.
[5] HKEX: HKEX Publishes 2025 Listing Committee Report. 2026-03-16.
[6] ILPA: Definitions of DPI and IRR in the Private Equity Glossary. Accessed 2026-11-04.
[7] Kailera Therapeutics: Corporate information and Hengrui licensing agreement disclosure in the IPO Prospectus Form 424B4. 2026-04-17, SEC prospectus.
[8] CSRC: Amending the Administrative Measures for Major Asset Restructuring of Listed Companies to Deepen Market Reform in M&A and Restructuring of Listed Companies. 2025-05-16.
[9] PharmaCube: "Heavy Release | The 'New Game' of Chinese Innovative Drug Out-Licensing Transactions: Trends, Challenges, and Global Transaction Landscape". 2026.
[10] Securities Times / "21st Century Business Herald": "Chinese Innovative Drugs 'Accelerating': Annual BD Transactions Exceed $130 Billion". 2026-01-05.
[11] People's Daily National Party Media Information Public Platform: "Looking Back at the '14th Five-Year Plan' | Chinese Innovative Drugs Forging Ahead". January 2026.
[12] GSK: GSK and Hengrui Pharma enter agreements to develop up to 12 innovative medicines. 2025-07-28, company announcement / SEC disclosure.
[13] CSPC Pharmaceutical Group: Strategic Collaboration and Licensing Agreement with AstraZeneca to Develop Innovative Long-Acting Peptide Drugs. 2026-01-30, HKEX announcement.
[14] Evaluate Pharma: World Preview (2030 patent expiration impact estimate, cited from public industry reports). 2026.
[15] FDA: Drug Development and Review Definitions. Accessed 2026-11-04.
[16] Shanghai Securities News·CS.com.cn: Out-Licensing of Innovative Drugs in the First Three Quarters Approaches Full-Year Level of Last Year, Becoming the Main Channel for Going Global (citing NDRC press conference). 2026-10-26.

In your opinion, regarding current primary market pricing,
which type of evidence is overvalued, and which is undervalued?
Welcome to share your views in the comments section.

【Disclaimer】
This article represents the Company's views based on currently available public information and materials provided by portfolio companies. It does not constitute any investment advice, medical advice, or guarantee of the performance of specific enterprises. Investing involves risks, and caution is required when entering the market. Readers should make independent judgments based on public information. Unauthorized reproduction or commercial use is prohibited.