Lidi Biosciences CEO Wen Danyi on CRO Industry Strategies Amid Capital Winter

2022 was a pivotal year for China’s biopharmaceutical industry. As the sector entered a phase of deepened development, the year witnessed intense discussions on the global expansion of domestically developed innovative drugs, saw numerous biotech companies engage in struggles for survival and self-rescue, and also observed significant large-scale financing rounds by outstanding innovative pharmaceutical enterprises amidst the capital winter.

Unlike the volatile development trajectories of biotech companies, the CXO industry, which provides services and support for new drug R&D at innovative pharmaceutical enterprises, has maintained robust growth. Numerous CDMOs specializing in the CGT field have emerged rapidly, while some biotech firms have begun to pivot and establish a presence in the CDMO sector. Meanwhile, CMOs and CROs have also demonstrated sustained performance growth.

In 2022, in addition to the highly watched CDMO companies,What is the current state of development of China’s CRO industry? How significantly has it been impacted by the capital winter? At the 2023 New Year Gathering hosted by the New Drug Founders Club, Dr. Wen Danyi, CEO of LIDE, discussed this topic with VCBeat New Medicine.

After 11 years of dedicated efforts, LIDE has grown into a leading preclinical CRO enterprise in China.AtNowadaysin the capital “cold snap,”LIDE’s top priority is to actively pursue the strategic spin-off and planning of its core businesses.Currently, following a series of adjustments, LIDE has clarified and streamlined its previously intertwined business operations into two distinct segments: one is the B2B segment, providing preclinical CRO services for pharmacology and efficacy studies to support pharmaceutical companies in translational research and new drug development; the other is the B2C segment, focusing on personalized precision medicine, which supports biomarker testing for pharmaceutical companies as well as clinical personalized precision medicine and hospital-based scientific research. This latest round of restructuring has provided stronger momentum for LIDE’s development, carving out a differentiated growth path distinct from other domestic CRO companies.

In Wen Danyi’s view, amid the capital winter, every domestic CRO company has its own way of survival. In the future, the CRO industry will exhibit a trend of cross-sector integration with enterprises in various fields, such as biotech and CDMOs.

VCBeat New Medicine:2022How is LIDE's revenue performance?

Wen Danyi:First Half of the YearEveryone is likely facing significant challenges. Due to the pandemic, our B2C business has been impacted, as patients from other regions were unable to travel to Shanghai, creating substantial obstacles in our collaborations with hospitals. Consequently, we achieved only half of our original targets. However, our CRO business exceeded its planned targets, and the company’s overall performance remains robust.

VCBeat New Medicine: How do you think 2022 was for LIDE?

Wen Danyi:2022For LIDE, this marks a turning point—it is the first year we have completely spun off LIDE’s business operations.Previously, our focus on technology transfer meant that our B2B and B2C operations were not fully segregated. However, after Liwen Clinical Laboratory relocated to the Zhoupu Medical Park, we independently established an AAALAC-accredited animal facility and cell culture room, as well as a GMP-compliant manufacturing plant for IVD diagnostics. This move completely separated our diagnosis-related business from our CRO services, creating a self-contained operational entity. In effect, this constituted a partial divestiture of LIDE Bio, clarifying the boundaries of business segments that were previously intertwined.

VCBeat New Medicine: LIDELast yearWhat new businesses are still being developed?

Wen Danyi:Following the company’s spin-off, from the perspective of our ToB business, in addition to traditional CRO services, we nowPlacing greater emphasis on how to achieve original target innovation.. LIDE at2022A significant achievement is the development of numerous specialized drug-resistant PDX models and the establishment of paired cell lines. Currently, overcoming drug resistance is a critical need for pharmaceutical companies in new drug development. We have specifically built a technical platform for target identification and validation, utilizing RNAi and CRISPR screening to identify key genes responsible for tumor drug resistance.

Meanwhile, LIDE’s business model is also undergoing a transformation. As we have independently identified all drug-resistance targets and possess exclusive resources, we collaborate with biotech companies to share risks based on these targets. Should LIDE successfully license out the targets, it will receive additional financial support from its clients.

VCBeat New Medicine: Affected by the pandemic and the capital winter, has LIDE made any strategic adjustments?

Wen Danyi:We have grown primarily through self-funded operations, meaning we rely on our own revenue to cover expenses. The more we earn, the more we can invest in developing new offerings and increasing our R&D expenditure. In the current climate of a capital winter, LIDE is practicing strict financial discipline, adjusting its focus in line with customer projects and demands, and steadily reducing purely cost-intensive initiatives that lack immediate returns. Of course, when embarking on first-of-their-kind developments, we are willing to engage in co-development with customers and share the associated risks.

VCBeat New Medicine: LIDE2022Has it been affected by the capital winter?

Wen Danyi:The capital winter has impacted us, as well as many of our clients. For some orders we signed with clients, certain customers later stated that they had cut their internal budgets, making it impossible to proceed with the projects.

However, amid the current capital winter, we can observe that both the government and investors are encouraging pharmaceutical companies to pursue source innovation. Recently, LIDE has been applying for certain projects funded by the Science and Technology Commission. We have clearly noticed that, in contrast to previous years when securing clinical trial approval was sufficient to obtain grant funding, the requirements have now become more stringent.NowNew policies have been introduced to encourage target discovery at the source.

VBInsight: Amid the capital winter, have you observed any shifts in LIDE’s customer demands?

Wen Danyi:During the early period of substantial capital support, various sectors were established within the industry, but the preclinical stage was not regarded as a critical phase. At that time, pharmaceutical companies set milestones beginning with the administration of the first dose to a patient in Phase I clinical trials, viewing this as an indication that the enterprise had reached another significant watershed. Consequently, in an environment of abundant capital, many projects rapidly advanced into clinical trials. HoweverMany pharmaceutical companies place insufficient emphasis on preclinical studies, including the selection and confirmation of product indications.In our collaborations with certain experts, we have received their feedback indicating that, in practice, some oncology projects they have undertakenOf those in the early-stage R&D phases, specifically Phase I or Phase IIa, 90% fail to advance. Compounding this is the current capital winter, during which many clinical trials are halted after enrolling just two or three patients.

In such cases, many pharmaceutical companies will reassess whether they have robust evidence and whether additional preclinical data are needed.Thus, the capital winter has made these companies more willing to conduct new drug R&D in a down-to-earth manner, rather than blindly advancing clinical trials. I believe this is the scientific approach to new drug development.

Artery New Medicine: LIDE is a leading preclinical CRO. Have you been following the development of companies in other sectors, such as clinical CROs or CDMOs?

Wen Danyi:The CDMO sector has experienced rapid growth in recent years, and we have engaged in collaborations with various CDMO companies. For instance, when pharmacological and efficacy testing falls outside their core competencies, these companies become our partners. This is particularly evident in the field of cell therapy, where novel therapeutic approaches diverge from traditional drug development models, fostering extensive collaboration and intersection among industry players.

This also involves innovation in business models. Biotech companies are now licensing their proprietary technologies to CDMOs.Each time a CDMO utilizes this technology to perform production for a client, the biotech company earns revenue from the transaction, effectively serving as an alternative form of financing. This illustrates the intersection and integration of different fields. Consequently, the CXO industry will inevitably become interdisciplinary in its mature stage, thereby fostering innovation in business models.

Artery New Medicine: You mentioned that biotech companies licensing their proprietary technologies to CDMOs is a new approach recently being explored in the industry. Is that correct?

Wen Danyi:Everyone is exploring new approaches: some are commercializing their product pipelines overseas, while others are licensing their proprietary technologies through collaborative partnerships. Each company has its own survival strategy. If a company holds original innovations, it naturally seeks to monetize them—a fundamental instinct for survival.

VBHealth:2022Although the biopharmaceutical industry is in a downturn, the CRO sector remains highly prosperous. How long do you think this trend will continue?

Wen Danyi:After the capital winter, only companies with substantial strength will ultimately survive. The CRO industry is inextricably linked to innovative pharmaceutical companies; as long as their projects move forward, there will be room for CROs to thrive. In the end, this industry will undoubtedly feature deep mutual integration. As long as our offerings do not conflict with our business model, there will be growth opportunities for all parties involved.

Artery New Medicine: What challenges will the CRO industry continue to face in its development?

Wen Danyi:The entire CRO industry is undergoing transformation, with its boundaries increasingly overlapping with those of biotech companies. In this context, firms that stick solely to traditional CRO services will find their growth potential diminishing, as their offerings become easily replicable by competitors. Clients will inevitably compare multiple providers and squeeze margins dry, making it difficult to sustain high profitability. Therefore, it is essential to develop high-value-added services.