CDMO Annual Review: Key Trends to Watch Amid the Industry's Hottest Year
Olipharma
CDMO Service Provider
Looking back at the CDMO industry, 2022 was undoubtedly the busiest year.
Why is this year the most eventful? We would like to start by telling the entrepreneurial story of a company.
Among the CDMO companies interviewed by VCBeat's New Medicine in 2022, one that has entered its 7th year, committed to being a small yet refined CDMO, caught our attention. The founder of this company is a highly resilient female entrepreneur. In 2017, after keenly recognizing the development opportunities within China’s innovative pharmaceuticals industry, she and like-minded colleagues decided to establish a small-molecule CDMO, aiming to maximize the value of their processes.
This enterprise treats every customer as a VIP. With its meticulous attention to craftsmanship and serious responsibility for each order, it has not only gained trust but also attracted a group of repeat customers. In 2022, the company signed dozens of orders, and its revenue saw significant growth compared to 2021. This also prompted the founder to make new plans to expand the team and increase production capacity. In her view, 2023 will be a pivotal year for the company's upgrade.
However, the six years of entrepreneurship have been very bumpy. Looking back at the past development process, the first three years after the establishment were the most difficult for the company. As a CDMO industry that heavily relies on customer stickiness, it takes time to accumulate and verify in order to grow from a small platform into a mature technical platform recognized by customers. In addition, the initial construction and operation of the platform faced issues such as the lack of business development (BD), which led to unsustainable customer orders. The company’s development once caused some colleagues to leave. Even after getting through the toughest times, they lost long-term customers due to their smaller scale and had to refer clients they had cooperated with for many years to other CDMO companies with more comprehensive process coverage.
The founder told us that it was a good timing to establish a CDMO in 2017. They seized the opportunity, but because the platform construction needs time, if they could have laid out earlier and gained customers' recognition of the platform sooner, it might have been better for the company's development.
This is the development history of a typical small CDMO company, but it also reflects the reality of the CDMO industry—an industry full of opportunities, yet brimming with challenges and critical decisions.
The two-sided nature of the CDMO industry was fully displayed this year. We witnessed the industry in a full sprint, with almost every company announcing its latest progress. Among the 77 IPO events in 2022, 11 CXOs successfully went public, including companies like Yuan Bio, Chengda Pharmaceuticals, Opudmed, and Hongbo Medicine, all successfully landing on the ChiNext board. Karrybio, a subsidiary of the small molecule CDMO leader Asymchem, raised up to 2.534 billion yuan in total, marking the largest financing event in China last year. Prominent companies such as Porton Biologics, GenScript Biotech, and Uming Cell also completed financing rounds exceeding hundreds of millions of RMB.
Besides, basically all CDMO companies cannot do without capacity expansion in order to obtain more orders.
Of course, behind the热闹, the landscape of old "strongholds" like antibody drugs remains uncertain, while new "strongholds" such as CGT have already emerged.
As细分tracks in the biopharmaceutical industry continue to emerge, fields such as CGT, ADC, and nucleic acid drugs have seen a group of specialized and sophisticated startup CDMOs. Biotech companies are also testing the waters, with enterprises beginning to transform and expand their self-built production capacities into CDMO services.
Some companies develop low-key, while others make a high-profile debut, all hoping to gain a share in the CDMO field. Those in the CDMO industry are well aware of the tough choices behind the opportunities. In a conversation with a senior industry figure, we learned that if CDMO companies before 2022 could still cover costs and even turn a profit by continuously fulfilling orders, then in 2022, CDMOs may sink back into the mire of losses due to constant capacity expansion and even price wars.
Although the industry is booming, survival of the fittest still exists. Some companies are still facing survival difficulties such as difficulty in obtaining orders. Deeper issues like talent acquisition, service quality, and intensifying competition have begun to surface.
In 2022, the CDMO industry experienced a concentrated explosive growth, which made the future of the industry full of uncertainties. The moves by leading enterprises, star companies in the track, and new forces in niche fields have added more layers to the industry structure, also giving more imagination and expectations to the momentum of industry innovation.
We have listed five events that took place in this industry in 2022. They either sparked widespread discussion as major incidents or represented innovative trends driven by industrial demand. When we look back several years from now, will they be the best footnote to the bustling CDMO industry of this year, or fleeting moments in the tide of industrial change? For now, no one has the answer.
I: Wuxi Biologics embroiled in public opinion vortex at the start of the year, leading position not easily shaken
In February 2022, two subsidiaries of WuXi Biologics were added to the "Unverified List (UVL)" by the U.S. Department of Commerce. This unexpected event not only led to various interpretations and questions from industry media but also directly triggered a decline in the CXO sector. The stock prices of WuXi Biologics and WuXi AppTec plummeted, while leading companies such as Porton Advanced Solutions, ChemPartner, JOINN Laboratories, Tigermed, and Asymchem were also affected, with their stock prices falling at the close of trading.
This is a year in which anxieties over the geopolitical tensions between China and the U.S. have been infinitely amplified, and the CDMO industry is no exception. Especially when such incidents occur to leading companies like WuXi Biologics that are under heavy scrutiny, it can easily lead to misinterpretation of events, amplify the sense of crisis, cause public opinion to lose focus, and overshadow truly important information.
In fact, Wuxi Biologics' financial report for 2022 was still impressive. CEO Chris Chen stated that the company's inclusion on the UVL did not have a substantial impact on its supply chain or business operations. Wuxi Biologics continues to receive global customer service requests, with particularly strong demand from the European and American markets.
The pharmaceutical outsourcing industry has always been characterized by the strong getting stronger, and the CDMO sector is no exception. Taking antibody drug CDMOs as an example, after a decade of development in the antibody industry, leading CDMOs like Wuxi Biologics have accumulated customer loyalty over time. They possess the full-process service experience that upstream pharmaceutical companies require, which can help clients shorten the R&D cycle and reduce R&D risks.
Moreover, innovative pharmaceutical companies such as BeiGene, Junshi Biosciences, and Innovent Biologics have long since built their own production capacities. Even in the event of a price war, the landscape of the antibody drug CDMO sector is already difficult to reshape, and the position of leading enterprises remains unshakable.
However, even leading companies face decision-making challenges. Most of WuXi Biologics' orders come from overseas. As the growth of foreign markets slows down, it will face pressure to shift back to the domestic market. How to maintain growth is a question WuXi Biologics needs to address.
II: Biotech Expands CDMO Business, Urgently Needs to Prove Itself Amid Skepticism
One of the most closely watched topics in 2022 was the transformation of Biotech companies into CDMOs.
This year, some innovative pharmaceutical companies began to expand into the CDMO business. Innovent Biologics spun off its CMC team of over a thousand people to establish Sherpa Biologics; Yimmi Zhongguo set up its subsidiary Xiji Biologics at the beginning of 2022, targeting the CGT CDMO field; similarly, Henlius, Junshi Biosciences, and Beta Pharma also successively established CDMO companies.
In May 2022, Sherpa Biologics was officially established in Suzhou, and gradually released some information to the industry after its establishment.
The industry has been debating Biotech's transition to CDMO, with skepticism consistently outweighing support."Concerns about CXO companies losing their jobs," "overcapacity in the industry," and "whether Biotech's strategy will work" are all hot topics of discussion.
In response to these questions, in an exclusive interview with VCBeat New Medicine, Zhou Kaisong, General Manager of Sherpa Biologics, revealed that Innovent's management made a significant decision to spin off from the Biotech sector to establish a CDMO. Initially, Sherpa Biologics only planned to bring in a few senior experts from Innovent Bio as the founding team. However, after multiple rounds of strategic discussions, the senior leadership reached a consensus: half-hearted efforts were meaningless. If they were going to do it, they had to be the best. Consequently, they decided to spin off Innovent Bio's CMC team of over a thousand people to establish Sherpa Biologics.
Biotech's exploration of expanding into the CDMO business has just begun, and there are many issues that need to be carefully considered.Sherpa Biologics is no exception. For instance, clients are concerned about issues such as product IP entanglements, how to establish a robust firewall management mechanism, how to avoid risk transfer and conflicts of interest between companies, and so on. These seemingly internal positioning issues can also externalize as trust problems clients have towards Sherpa Biologics, which is also the core issue for Biotech expanding into CDMO business.
Has Sherpa Biologics thought clearly about the transformation path from Biotech to CDMO? Has the entire industry figured it out? These questions can only be verified over time. But Sherpa Biologics has told us that not only have many antibody drug customers approached them, but also numerous CGT companies, and even CDMO firms have reached out.
One month after our interview with Sherpa Biologics, on November 18, they officially announced their first strategic cooperation since their establishment, jointly accelerating the industrialization process of complement innovative drugs with Kangjing Pharmaceuticals.
III: New Entry of Seasoned Players: API and Formulation Companies Transitioning to CDMO
In 2022, a group of veteran players, in pursuit of transformation and upgrading, began to go public intensively and entered the CDMO track.
Their predecessors were active pharmaceutical ingredient (API) or high-end formulation companies.The API or preparation enterprises we interviewed and reported on generally have a development history of more than 10 years. In the development course of China's pharmaceuticals industry, they started with generic drugs. Amid the wave of innovative drugs sweeping the entire pharmaceuticals industry, they have hardly received much attention from capital, yet have quietly accumulated considerable revenue.
These companies have a keen sense of smell.Before the introduction of the generic drug consistency evaluation policy in 2017, they seldom focused on the domestic market but instead continuously expanded overseas markets. After the implementation of the MAH system, they recognized the development potential of China's pharmaceutical industry and chose to return to the domestic market while pursuing internationalization. As innovation in formulations became a hot topic and the need for corporate transformation and upgrading started to emerge, they leveraged their years of accumulated experience and advantages to target the CDMO industry.
The transformation of API or formulation companies into CDMOs is not the same as the transformation situation of innovative drug Biotech companies.From the underlying logic, since the upstream industry of the chemical active pharmaceutical ingredients (API) sector is the basic chemical industry, the API industry heavily relies on upstream raw materials. Consequently, price fluctuations of upstream products directly affect the sales prices and profits of the API industry. Moreover, as the API industry has already become a fiercely competitive red ocean market, the path to transformation is urgently needed.
The CDMO industry has shown a promising growth prospect, allowing cyclical companies like API manufacturers to transform into innovative growth enterprises. This transformation not only attracts capital but also doubles their valuation.
Amid such an era of opportunities, we have witnessed a flurry of listings by these companies: In August 2022, Xuantai Pharmaceutical went public on the STAR Market. Relying on its proprietary or self-developed formulation technology platforms, it focuses on the R&D, production, and sales of generic drugs while providing CRO/CDMO services. In October, Bide Pharmaceutical, a branded supplier of drug molecular building blocks, listed on the STAR Market. Based on intensifying R&D of molecular building blocks and aiming to expand market share, the CDMO business has become one of the key directions for its future transformation. In November, Hongbo Pharmaceutical debuted on the ChiNext Board. As a typical small-to-medium-sized domestic CXO enterprise originating from API manufacturing, it has already established a presence in CDMO services related to COVID-19.
4: OliBio Successfully Listed,
CGT CDMO May Tell a Completely Different Story
On April 1, 2022, GeneCreate officially went public on the STAR Market, becoming the first CGT CDMO stock in China. Since then, we have witnessed an explosive growth of CGT CDMO companies in 2022, with both investment and financing events and capacity expansion reaching a peak in this field.
China's leading CXO companies such as WuXi AppTec, Pharmaron, Porton Advanced, and Asymchem have all entered the CGT track. In addition to established players, emerging CGT CDMOs are on the rise. Top domestic biotech firms are beginning to enter the CGT CDMO sector. Companies like GenScript Probio, Purin Bio (under Prigen), and Xiji Bio (under Yimiao Zhongguo) hold a first-mover advantage in this field due to their years of experience in new drug development.
The continuous emergence of CGT CDMO companies has driven the expansion of capacity in the cell and gene therapy field, but this move has also started to attract skepticism from industry insiders. As more companies enter the market and expanded capacities continue to increase, the crisis of overcapacity is lurking.
The reason is that,Unlike large molecule CDMOs and small molecule CDMOs, cell and gene therapies have a smaller audience and are more inclined towards personalized customization. This results in excessive production batches, making large-scale mass production impossible, which does not align with the platform-oriented nature required by CDMOs. Whether platformization can be achieved has become an urgent industry bottleneck to address.
The development of China's CDMO industry has benefited from the high maturity of process technology in the antibody drug industry. Platformization is the fundamental path for CDMO development, and only by reusing production capacity on a large scale can revenue be realized. This has also driven antibody drug CDMOs to quickly enter a mature phase, with the leading players' distribution almost settled.
HoweverCell therapy is too personalized, and it differs significantly from antibody drugs in core technologies and production processes.The technical characteristics of antibody drugs allow for large-scale production, whereas in cell therapy, a single workshop can only produce medicine for one patient. Additionally, the current R&D difficulties faced by universal CAR-T have led to high costs for cell therapy drugs and posed challenges to the platformization of CGT CDMOs. Turning to gene therapy, while its platform nature is better compared to cell therapy, safety concerns remain, and the current technology platform is not yet mature. Issues such as random integration into the genome and various off-target effects present significant challenges to gene therapy.
CDMO is inherently a capital-intensive and investment-heavy industry. Through exchanges with industry insiders, we learned that, in terms of funding, taking large-molecule drugs as an example, a CDMO production line requires an investment of around 200 million yuan for construction, equipment acquisition, and site renovation. In terms of time, it takes at least one and a half to two years for a company from the initial planning and construction of a GMP facility to being ready to officially accept orders.
The exploration of CGT CDMO represents how the future personalized technology pathway seeks upstream solutions, which will be a completely different story from antibody drug CDMO.
5: ADC CDMO MabPlex Advances Towards IPO, Industry Demand Drives the Rise of Niche CDMOs
In September 2022, MabPlex's IPO application submitted to the ChiNext Board of the Shenzhen Stock Exchange was accepted.
The listing of this company has drawn significant attention. First, MabPlex is backed by RemeGen. Second, the listing of MabPlex may signify that the风口of China's ADC CDMO industry has truly arrived.
VCBeat discovered that, whether it’s the submission of an IPO application by MabPlex or the successful listing of OliBio, it proves that,With the breakthrough in the commercialization process of more innovative therapies, one of the biggest trends in China's CDMO industry is the development towards niche and vertical fields.
In 2022, we observed that increasing demand for drug development is giving rise to the emergence of niche CDMO companies. Taking the nucleic acid drug sector, which has garnered significant attention from many investors, as an example—while such drugs are still in the clinical stage in China, there are already cases of them being marketed abroad. As research and development progresses, nucleic acid drug CDMOs will become a crucial component in their commercialization process. Companies like Cat's Rock Biotech and Olipharma are representative startups in this field.
Similarly,Radiopharmaceuticals, as an emerging field, received significant attention in 2022.In the upstream and downstream processes, due to high barriers, CRO/CDMO resources in China's nuclear medicine field, as well as CMO resources compliant with EMA and FDA standards, are particularly scarce.We have learned that foreign pharmaceutical companies such as Novartis and Bayer want to introduce some of their nuclear medicine products into China, saving costs related to production, transportation, and distribution through localized manufacturing. However, finding a CRO/CDMO/CMO company in China that meets their requirements is a significant challenge.
However, as new modalities continue to emerge, downstream CDMO companies have become essential.When the industry is in its very early stages of development, some companies may even build their own CDMOs to meet R&D and production needs.For example, nuclear medicine company Xtong Pharmaceuticals has reached a cooperation with JOINN Laboratories to jointly build a CRO/CDMO platform.
Market changes have also spurred new growth in some established sectors. The development of peptide drug CDMOs in China has a long history, resulting in a fragmented competitive landscape. However, the launch of the blockbuster drug "semaglutide" and the advancement of research in peptide conjugate drugs have...A startup CDMO dedicated to the R&D and production of innovative peptide drugs has begun to enter the market.Olipharma, which effectively utilizes synthetic biology technology, has its R&D pipeline fully occupied by orders; Zhongsheng Quanpeptide, which builds peptide libraries based on proprietary technology, has contract orders amounting to nearly 300 million yuan.
Conclusion
In 2022, VCBeat interviewed more than 10 CDMO companies. Some of them have transitioned from Biotech, some were born out of the transformation of university technologies, some are innovating anew in the time-honored pharmaceuticals sector, and others are embarking on new R&D processes and production explorations based on industry needs.
In the CDMO industry in 2022, we witnessed prosperity, but the overall industry landscape is just beginning to emerge. What is clear is that leading companies maintain their strength, and emerging companies must specialize and refine to rise.
Amid the industry's buzz, how many are focused on innovation and breakthroughs, and how many will face reshuffling and elimination? Everything is still up in the air, but this is all part of the industry's forward progress.
Welcome to the CDMO Special Live Broadcast. We will capture the industry signals of 2022 and look forward to the specific highlights of 2023 together with entrepreneurs and investors.
Time: February 9th (Thursday) 20:00
Live Platform: VCBeat New Medicine Video Channel, Long press the image to scan and make an appointment
VCBeat 2022 "CDMO Special Topic" Industry Insights and Interview Reports