Yaopu Pharma: A Small CDMO's 'Tough Yet Fortunate' Path to Growth

“2022 was a challenging year, but fortunately, total revenue increased by 50% compared to the previous year, and we secured more than 50 new orders of varying sizes.” Dr. Liu Hui, the founder, summarized Yaopu’s 2022 as “challenging yet fortunate.”

“Luck” is merely a humble way of describing “success built on long-term accumulation.” As a small-molecule chemical drug CDMO, Yaopu has entered its seventh year and is about to relocate to a 4,000-square-meter standalone building in Lingang, likely marking a pivotal turning point for the company.

Dr. Liu Hui, the founder, is a female leader who is meticulous in craftsmanship and resilient in entrepreneurship. With over 20 years of experience in pharmaceutical process development, she has previously worked at FMC CTC, Basilea Pharmaceutica, and Medicilon, and has led Yaopu for six years.What Has a Small CDMO Gained and Lost Over Six Years of Growth? How Are They Exploring Paths to Survival Today?At the 2023 New Year Gathering hosted by the New Drug Founders Club, VCBeat New Medicine had a conversation with Dr. Liu Hui.

Yaopu’s current key partners include listed companies such as Fosun Pharma, Shanghai Pharmaceuticals, and Kaibao Pharmaceutical; biotech firms like OnQuality, Guangzhou Magpie, Guangzhou Jiayue, and Yehui; as well as research institutions such as the Shanghai Institute of Materia Medica, Chinese Academy of Sciences. More than half of this year’s orders have come from existing clients.

The reason for the continuous repeat orders from long-standing clients is simple. First, many clients flocked to Yaopu at its inception, drawn by the team’s rigorous approach to pharmaceutical manufacturing processes. Several colleagues launched this venture with the goal of “maximizing the value of process engineering.” The current team members each boast approximately ten years of experience in pharmaceutical process development. “Competence becomes evident as soon as we start talking; clients recognize us as pragmatic professionals during their first meeting, knowing our technical expertise is absolutely reliable.”

Secondly, every client at this small CDMO enjoys VIP-level service. Even when handling small orders or those with daunting terms, “to ensure project progress, some clients include penalty clauses; for instance, a late delivery incurs a daily fine of 1% of the total contract value. Given that the contract volume is not substantial, such penalties could quickly exhaust the entire payment within a short period,” explained Liu Hui. For each project, they meticulously plan the entire schedule, resulting in an on-time delivery rate of over 95%.

By taking every small order seriously, the Yaopu team has earned clients’ continued trust in subsequent projects over the years.Guangzhou Xique Pharmaceuticals, founded by Professor Wang Yuqiang, former Dean of the School of Pharmacy at Jinan University, is an innovative biotech company focused on the treatment of cardiovascular, cerebrovascular, and mitochondrial diseases. It is also one of the long-standing clients mentioned by Dr. Liu Hui. Established 12 years ago, Xique Pharmaceuticals places great emphasis on manufacturing processes. The Yaopu team participated in the research and development as well as pre-clinical production of three small-molecule active pharmaceutical ingredients (APIs) for Xique.

Meticulous attention to process is a defining trait of Liu Hui and a hallmark of Yaopu.

She observed that domestically produced antipyretic drugs, even when identical in formulation to their foreign counterparts, often failed to achieve comparable efficacy. Given the use of identical formulations, differences in excipient standards aside, variations in the manufacturing processes of active pharmaceutical ingredients (APIs) were likely the more significant source of disparity. Dr. Liu Hui began working on pharmaceutical processes in 2002. While employed in the synthesis department at FMC CTC, an agrochemical company, she noted that impurity control for agrochemicals was already strictly regulated abroad, whereas impurity control had not yet been prioritized within China’s pharmaceutical industry at that time.

In 2015, the Chinese pharmaceutical industry finally began to pay attention to drug manufacturing processes. At that time, Medicilon, where Liu Hui was working, received numerous orders with stringent process requirements. One notable example was providing CMC (Chemistry, Manufacturing, and Controls) services for a generic version of tedizolid developed by Yangtze River Pharmaceutical Group. By the end of last year, this drug was approved for market launch as the first generic version in China. Members of the Yaopu team involved in its development felt gratified. “The phrase most frequently repeated within the team at the time was, ‘We must do an excellent job on this drug, so that we can feel confident using it ourselves in the future.’”

The Yaopu team strives to ensure robust and reliable manufacturing processes.“Impurities and crystal forms have always been key focuses in our production processes. During synthesis, beyond routine specifications, the most critical aspect is control based on the intrinsic properties of the compound itself, including the control of related degradation impurities. Our company has implemented internationally recognized genotoxicity prediction software, which helps clients identify and resolve issues at an earlier stage.” Discussing pharmaceutical manufacturing processes, Liu Hui noted that employee training on impurity control alone requires several days.

There was a biotech project in which the active pharmaceutical ingredient (API) was an oily substance with limited purification options. Many intermediates in the manufacturing process were genotoxic impurities, necessitating highly precise purification at each reaction step. The Yaopu team performed meticulous work at every stage, ultimately delivering a drug product of reliable quality.

For orders involving innovative drugs, the Yaopu team conducts comprehensive analysis, assessment, and testing of compound specificity during the early R&D stage when providing small-scale samples. Consequently, when customers later require toxicology-batch production and return to them, larger quantities of product can be delivered promptly. For generic drugs, which are subject to stricter quality requirements, Liu Hui stated, “In our generic drug development, we perform full validation for up to 40–50 analytical methods at peak, all to ensure that the entire process is controllable and the quality is reliable.”

The team’s commitment to excellence has enabled Yaopu to continuously acquire new customers through referrals from its extensive base of long-standing clients.

Year Six of Yaopu: A Necessary Path for Many Small CDMOs.

“At first, I was chosen by everyone to take the lead; there were many passive factors involved.” Recalling the story of his entrepreneurial journey, Liu Hui spoke calmly and engagingly.

In late 2016, Liu Hui sat down with several colleagues for a chat. The group included experts in pharmaceutical process development, specialists in chemical drugs, and seasoned operations professionals, offering complementary skills and diverse strengths, as well as extensive industry connections accumulated over many years in the pharmaceutical sector. Capitalizing on the rapid momentum of China’s innovative drug industry, they immediately decided to launch a joint venture in the new year. Consequently, Yaopu was officially registered and established in January 2017.

A startup team of seven or eight people, with Liu Hui’s certain influence in the industry, was elected as the “helmsman.”

Acute industry insight and a sense of control were the initial sources of courage for the founding team.

While still at Medicilon, Liu Hui decisively shifted her work focus from generic drugs to innovative therapeutics in 2015. At that time, she and her team perceived a shifting tide in China’s pharmaceutical industry: an increasing number of innovative drug companies were approaching Medicilon for price quotations, whereas demand for generic drugs was dwindling due to the high costs associated with bioequivalence (BE) studies and unclear regulatory policies.

At the outset of his entrepreneurial journey, Yaopu discussed his business philosophy with investors at a teahouse: to maximize the economic and social value of pharmaceutical manufacturing processes, and to influence enterprises across the upstream and downstream of the industry chain to jointly produce the most affordable and reliable medications for the benefit of patients. His pragmatic approach earned the investors’ approval, and the seed funding was fully secured after just this single meeting over tea.

On the other hand, driven by trust in the Yaopu team, a pursuit of excellence in drug manufacturing processes, or the need for project continuity, some clients who had previously collaborated with Medicilon have successively visited. Guangzhou Xique has signed numerous orders with Yaopu. “In the early stages of our startup, we did not have our own manufacturing facilities and relied on partner factories. For later-stage projects, such as Phase II clinical trials and validation batches, we could only assist clients in transferring these projects to other large CDMOs that possess their own GMP-compliant manufacturing facilities.”This is a growing pain for Yaopu, and it has also been one of Liu Hui’s persistent aspirations: to own its own compliant manufacturing facility.

Those who embark on the path of entrepreneurship are all “bold gamblers.” Yet entrepreneurship is not achieved overnight; “gambling” marks the critical junctures, while “endurance” is the norm.

The first three years after establishment are the most challenging, a reality personally experienced by CDMO entrepreneurs.Building a small platform into one recognized by clients requires time and accumulation. It relies not only on personal networks but also on comprehensive development of the platform itself, along with the gradual accumulation of client trust. “Relying solely on customer referrals through word-of-mouth may sustain company operations in the short term, but not all clients provide continuous orders.” As the company team expanded and operational costs increased, Liu Hui and his partners gradually recognized the gap between their initial expectations and reality.

Under intense pressure, some members of the founding team began to depart, while two or three have remained steadfast to this day. Facing and accepting reality was Liu Hui’s choice.

“Although we were initially in a rather passive position, women may possess greater resilience. Once I set my mind on something, I will spare no effort to see it through,” Liu Huiping said calmly.

The Pandemic Severely Disrupted the Productivity of Most CDMOs, but a Resilient Team and “Helmsman” Guided Yaopu’s Small Vessel Safely Through the Storm—During the lockdown in Shanghai, Liu Hui insisted on paying full salaries to all colleagues. Sincerity begets sincerity; many Yaopu employees lived and worked at the office, while others remained stationed at factories in other regions, sustaining productivity with a commitment to stand or fall with the company. By the end of 2022, Yaopu’s revenue had increased by 50% compared to the previous year.

For the past six years, Yaopu has maintained a clear strategic direction: to become a “small but beautiful” CDMO specializing in active pharmaceutical ingredient (API) process development. “A small shop on a street in Japan may well have a history spanning over a century, and the handmade products sold there can last for more than a decade without failing.” Liu Hui has always aspired to build a CDMO that, like Japan’s long-established heritage brands, emphasizes “specialization” and “heritage,” even though this is no easy feat in today’s pharmaceutical industry, where “speed is paramount.”

From shouldering the “heavy burden” at the outset, through the arduous three years of laying the foundation during the startup phase, to Yaopu’s subsequent period of accumulating strength for a breakthrough, 2023 marked the seventh year that Liu Hui and the Yaopu team had “shouldered” their responsibilities, while also resolving to “bet” on a pivotal year of transformation.

In mid-2023, Yaopu will relocate from its current 1,500 m² R&D facility to a 4,000 m² standalone building in Lingang, Fengxian. At the new R&D center, Liu Hui plans to expand the team from the current 30 members to approximately 200 within two to three years.

Adapting to a new environment is a challenge that Yaopu will soon face. Fortunately, Liu Hui previously managed a process development team of over 100 people at Medicilon, bringing solid managerial expertise and having formulated risk-mitigation strategies for Yaopu. It is precisely because the founder is both “bold enough to take risks” and “resilient enough to endure pressures” that colleagues continue to join Yaopu, some after circuitous career paths.

In 2022, the chill of the capital winter had not yet reached the CXO sector. Although CXO companies appeared to maintain strong performance with limited impact, this was primarily due to a substantial backlog of orders carried over from 2021.

Yaopu is no exception. Liu Hui estimates that the CXO sector will be most significantly impacted in the first half of 2023, or even throughout the entire year. For Yaopu, its planned move to a new standalone building in mid-year presents a considerable challenge.

Yet risks and opportunities coexist. Recently, Liu Hui has observed a growing number of biotech companies securing substantial financing rounds on their WeChat Moments, signaling that the trough is gradually receding and opportunities are beginning to emerge.

The Trough Period Is the Optimal Time to “Build High Walls and Accumulate Abundant Reserves”During this period, we will focus on building a robust R&D center, providing comprehensive team training, and solidifying our foundational capabilities, so that we can respond swiftly and seize opportunities when the broader market environment recovers. Liu Hui hopes that, in retrospect, 2023 will be remembered as a turning point in Yaopu’s development history. Starting from this year, the company will no longer have to relinquish high-margin orders—on the verge of generating substantial profits—to others due to limitations in scale, as was the case with previous collaborations.

Maintain the best mindset while preparing for the worst-case scenario. To buffer against impending risks, Yaopu has made some adjustments to its service orientation. In the past, innovative drug companies were its primary partners,Last year, Yaopu began seeking collaborations with large generic drug manufacturers and publicly listed companies.The team started with generic drugs and has previously served large pharmaceutical manufacturers such as Yangtze River Pharmaceutical Group and Shanghai Pharmaceuticals Holding, earning a strong reputation in the industry.

Meanwhile, Yaopu began to develop its own proprietary generic drug products and promote them in the market.To safeguard the intellectual property (IP) rights of its clients, Yaopu ensures that IP-related contractual terms are clearly defined with every generic and innovative drug client, firmly committing to non-involvement in clients’ product portfolios and interests. Both new and existing clients have expressed strong trust in the Yaopu team.

“Small CDMO companies like ours are akin to grass by the roadside; as long as there is soil beneath our feet and sunlight and rain above, we can easily survive.” We simply bend with the strong winds and let them pass, without needing to engage in fierce competition, as our niche for survival inherently exists. Liu Hui remains confident about the year ahead.