Jianghu You and Me: A Review of China's CRO/CDMO Industry in 2018

Editor’s Note: This article is republished from PharmCube, authored by Hua Yiwen. VCBeat has republished it with authorization.

“Flying Snow, Connected Sky, Shooting White Deer; Smiling Book, Divine Knight, Leaning on Green Mandarin Ducks.” The great wuxia master Jin Yong, carrying the martial arts dreams of generations, has passed away with the wind.

But where there are people, there is a world of its own.

Martial artists traverse the Jianghu, driven by national righteousness, vendettas for country and family, or romantic entanglements. Some pursue supreme martial arts techniques, others seek the title of Martial Arts Supreme Leader, while some chase both fame and fortune. There are also those who, like Dugu Qiubai, seek defeat in solitude, eventually retiring from the Jianghu to transcend worldly affairs... These dramatic scenes echo in our minds.

The CRO/CDMO industry is also such a competitive arena.

Isn’t it a bit strange that everyone seems to find this peculiar? Figures in the martial arts world never appear to worry about making a living; they spend lavishly, casually parting with thousands or even tens of thousands of taels of silver. Tips for meals and lodging alone amount to ten or twenty taels—a sum equivalent to an ordinary household’s annual income. It seems that every chivalrous hero roaming the jianghu has their own lucrative ways.

In the current era, one can no longer make money through robbery and plunder; instead, companies take their prospectuses and business plans on roadshows across the board, attracting deep-pocketed investors and the general public to flock in droves with promises of attractive investment returns and bright growth prospects.

In the 2018 CRO/CDMO industry, the most notable event was undoubtedly WuXi AppTec’s listing on the Shanghai Stock Exchange. Since its debut on May 8, the stock hit the daily upper price limit for 16 consecutive days, opening higher each day. Its share price soared from the IPO price of RMB 21.6 to an intraday high of RMB 135.57, representing a cumulative gain of over 500%, before gradually stabilizing around RMB 80. At one point, its market capitalization exceeded RMB 130 billion, making it more valuable than most pharmaceutical companies in China. Each successful subscription for new shares yielded profits exceeding RMB 100,000, cementing its status as the most profitable new stock issue of the year.

Of course, WuXi AppTec’s ambitions extend far beyond this. On December 13, it successfully listed on the Hong Kong Stock Exchange, achieving the notable milestone of dual A-share and H-share listings. Coupled with its earlier listing on the New York Stock Exchange, the company has established itself as a seasoned player in the capital markets. According to its prospectus, the funds raised will be used to expand production capacity, acquire industry targets, and invest in the development of advanced technologies, including artificial intelligence.

The path to listing on the Hong Kong Stock Exchange is bustling with activity. Viva Biotech, which specializes in protein crystallography, released its post-hearing information package on December 17, signaling that its official listing is imminent. Meanwhile, Pharmaron Holdings, which has reaped substantial profits from the wave of consistency evaluations, has filed an application for listing on the Hong Kong Stock Exchange, and Asymchem’s board of directors has also decided to pursue a listing in Hong Kong.

In May, Quantum High-Tech’s acquisition of Wisdom Chemical received approval from the China Securities Regulatory Commission (CSRC). The company was subsequently renamed Quantum Biology, comprehensively upgrading its business model to focus on microbiome-based nutritional products, microbiome healthcare services, and pharmaceutical R&D outsourcing. In November, Pharmaron’s application for listing on the ChiNext board was approved by the listing committee. However, MediciBio unfortunately saw its review quietly terminated in late February, delaying its path to going public.

The path to an initial public offering is long and arduous, achieved through multiple rounds of financing that accumulate small steps into a thousand-mile journey.

In the biological CDMO sector, WuXi Biologics, which listed on the Hong Kong Stock Exchange last year, undoubtedly stands out. In 2018, Suqiao Bio rose prominently with capital support, announcing the completion of its $38 million Series A financing in January and its $34 million Series B financing in April. OPM, which started by developing culture media, completed a strategic investment of nearly RMB 100 million in April, further enhancing the company’s cell culture media production capacity, accelerating the construction of its CDMO platform, and intensifying talent acquisition.

Yi’an Jishi, which has both proprietary products and undertakes CDMO services, completed a $35 million Series B+ financing round in June, bringing its cumulative funding to RMB 800 million. Similarly, TopAlliance Biosciences, which also combines proprietary products with CDMO services, announced the completion of a $102 million (approximately RMB 680 million) Series B financing round in August. Haoyang Biologics, founded by a group of young entrepreneurs, secured RMB 50 million in Series A financing in August and became an affiliate of Lepu Biopharma. Lepu Biopharma serves as a key platform for Lepu Medical, a leading integrated enterprise in cardiovascular devices and pharmaceuticals, to make a strong entry into tumor immunotherapy, effectively aligning itself with a powerful financial backer. Overall, this highlights the significant cash-burn trend in this niche sector.

BioCyto, another beneficiary of the booming biopharmaceutical industry, completed a CNY 410 million Series C financing round in April. BioCyto’s core business involves the custom development of model animals using gene-editing technologies, along with related pharmacological and efficacy evaluation services. In plain terms, it sells laboratory mice. Why can a company selling mice secure such substantial funding? These are no ordinary mice; gene-edited animal models are currently one of the “three major challenges” in the development of tumor immunotherapies (see:The “Three Major Obstacles” in Tumor Immune Combination Therapy). Whether tumor immunotherapy can achieve further breakthroughs hinges on animal models, which remain a key bottleneck. Capitalizing on this favorable industry momentum, Biocytogen is accelerating its path toward an initial public offering.

Financing activities also occurred in the traditional small-molecule sector. Porton Pharma Solutions, an industry leader, completed a private placement refinancing of RMB 1.5 billion in July. Liuhe Ningyuan, which specializes in integrated chemical synthesis services for small-molecule new drug development, closed its Series C financing round worth hundreds of millions of RMB in September. Minxiang Pharmaceutical, a company listed on the National Equities Exchange and Quotations (NEEQ) that engages in CDMO business alongside its proprietary products, also completed its Series C financing round in September, raising RMB 64.98 million and achieving a post-money valuation of RMB 1.078 billion.

In addition, several investment deals warrant attention. In June, Haijinge Pharma, a National Equities Exchange and Quotations (NEEQ)-listed company providing clinical CRO services, secured tens of millions of RMB in Series A financing. In July, Caitai Capital, an active investor in the biopharmaceutical sector, completed a strategic investment of tens of millions of RMB in Yingke Rui, a CRO firm specializing in the research and development of traditional Chinese medicine and natural products. As December 2018 drew to a close, three investments were finalized: Saifu Medicine, which provides preclinical research services, announced the completion of its Series C round; KaiKa Biology, which conducts functional target protein research based on structure design, closed a Pre-A round of RMB 30 million; and Crystal Pharmatech, focused on drug polymorph research, completed a Series B round exceeding RMB 100 million.

Do CRO/CDMO companies look like they’re rolling in cash?

Amid the current surge in new drug development, CRO/CDMO companies have become key targets for numerous investment firms. Based on the timeline of the aforementioned investment events, most deals occurred or were largely finalized in the first half of the year, while activity declined noticeably in the second half, with only three transactions concentrated in December. This pattern may be linked to investment firms striving to meet their 2018 performance targets. Consequently, investment enthusiasm for CRO/CDMOs in 2018 appeared to present a stark contrast between the first and second halves of the year.

“The martial world is perilous.” This is a cautionary adage often offered by seasoned veterans to young novices just entering the fray, reflecting the hard-won wisdom gained after enduring bloody turmoil and cunning conspiracies.

After enduring various trials, some press on, while others choose to “wash their hands in a golden basin” or take Buddhist vows, retiring from the martial arts world and distancing themselves from worldly turmoil. In wuxia novels, such ceremonies of retirement or monastic ordination are rarely peaceful; they often descend into violence and bloodshed, triggering yet another catastrophe in the martial arts community. By contrast, when publicly listed companies delist from stock exchanges, the process is typically quiet and unobtrusive.

However, a company’s delisting is not a complete withdrawal from the market or retirement from the industry; rather, it is a development strategy that can be viewed as a period of strategic retreat and internal strengthening in anticipation of a future return. WuXi AppTec serves as a typical example, which will not be elaborated on here.

Crown Bioscience had already embarked on its delisting journey when it announced its acquisition by Japan’s JSR Corporation last December, and formally delisted from the Taiwan stock exchange on May 31. As a significant move marking JSR’s aggressive entry into the pharmaceutical R&D outsourcing sector, this acquisition, combined with previous takeovers, has preliminarily established an integrated industrial chain spanning genetics, evaluation, and production in the biopharmaceutical field. As a key component of this ecosystem and backed by its substantial heritage, Crown Bioscience is poised to continue playing a vital role in the industry in the years to come.

The other three delisted companies were all listed on the National Equities Exchange and Quotations (NEEQ) board, with relatively small scales, including Haoyuan Medicine (chemical synthesis), Ozeda (medical devices), and Saidesheng (clinical services). Due to the limited influence of the NEEQ board, their delisting did not cause significant repercussions. Although the reasons for their delisting remain unclear, these companies may seek listings on other trading platforms while continuing to deepen their core operations.

Both the Shaolin and Wudang sects have established their own distinct schools, serving as the mainstays of righteousness in the martial arts world. While they typically operate independently, they join forces to uphold justice in times of national crisis. The Five Great Mountain Sword Sects, bound by shared origins, maintain a formal Five Mountains Alliance. Such alliances are a vital means of consolidating strength and enhancing overall power, while also improving risk resilience to ensure survival amidst crises.

In the CRO/CDMO industry, mergers and acquisitions (M&A) and strategic collaborations are also common business practices that can rapidly expand production capacity and enhance operational capabilities. In a rapidly evolving competitive landscape, the ability to secure a strategic market position in a short timeframe is particularly valuable.

In September, Pharmablock Sciences, a leading player in the niche field of molecular building blocks, acquired a total 72.5% stake in Zhejiang Porton, a joint venture between Porton Pharma Solutions and Menovo Pharmaceutical, for over RMB 160 million. All three companies are engaged in chemical synthesis, operating in distinct yet overlapping segments with certain competitive dynamics. For Pharmablock Sciences, this transaction directly expands production capacity through asset acquisition, while the sellers, who already have ample capacity, successfully divested a loss-making entity.

In September, Haitai Biopharmaceuticals announced its plan to acquire 100% equity of Hankang Pharmaceutical for RMB 450 million in cash. Hankang Pharmaceutical is a well-established brand in the development of generic chemical drugs, particularly during the era when companies raced to replicate drugs classified under the former Category III regulatory framework. The acquirer, Haitai Biopharmaceuticals, is a biopharmaceutical company specializing in biological products, including mouse nerve growth factor. This acquisition marks a direct and aggressive entry into the chemical pharmaceutical sector. Naturally, the RMB 450 million price tag does not come without conditions; performance commitments are mandatory, requiring that the net profit after deducting non-recurring items be no less than RMB 28 million, RMB 32.2 million, and RMB 37.03 million for the years 2018, 2019, and 2020, respectively.

However, acquisitions are not always smooth sailing; 2018 also witnessed two failed cases.

In April, Beilu Pharmaceutical, whose core business is contrast media, announced its intention to acquire Sunlight Nuohuo, a CRO specializing in generic drug development. However, the acquisition was terminated in May due to “failure to reach an agreement on the valuation corresponding to the target company’s latest operational performance.”

In May, 3SBio announced the termination of its acquisition of a Canadian biological CDMO company. Last September, 3SBio announced the establishment of a joint venture with CITIC Private Equity Funds Management and the acquisition of Therapure Biomanufacturing, based in Ontario, Canada, for $290 million (see:3SBio Acquires Therapure’s Biologic CDMO Business in Canada for $290 Million). Founded in 2008, the company primarily provides a range of services for the research, development, and manufacturing of therapeutic proteins, including technology transfer and process development, analytical development and testing, process scale-up and cGMP manufacturing, as well as sterile filling and lyophilization. The company’s pharmaceutical production lines hold cGMP certifications for biologics manufacturing in the United States, Canada, and the European Union.

Establishing joint ventures to leverage complementary strengths has long been a consistent strategy for WuXi AppTec. In 2018, the company made two significant moves: in January, it partnered with the Mayo Clinic to enter the clinical diagnostics sector, and in October, it collaborated with China Electronics Data to further develop the healthcare big data industry. Additionally, in July, WuXi Biologics formed a joint venture with Haili Biological to conduct CDMO services for human vaccines, including cancer vaccines.

Acquisitions and the establishment of joint ventures require capital; if financial resources are limited, forming alliances to pool resources and mitigate risks is a viable alternative.

Backed by the Shanghai Institute of Pharmaceutical Industry, InnoStar Bio has emerged as a pivotal player in the field of preclinical toxicology research. In 2018, the company actively pursued strategic collaborations to strengthen its capabilities: in January, it partnered with IcePharma, which specializes in ion channel assays, and Aidamo, which focuses on animal model development, thereby enhancing its preclinical new drug evaluation capacity; in April, it established a collaboration with Bowei Biology, a biological CDMO, to jointly provide Investigational New Drug (IND) services for innovative therapies.

Strategic collaborations that integrate preclinical research, CDMO services, and clinical trials represent a widely welcomed model. In addition to the partnership between InnoStar Bio and Bowei Biology, Asymchem signed strategic cooperation framework agreements with Joinn Laboratories and Covance in June to provide clients with one-stop new drug R&D services. This was followed by the strategic collaboration between Tigermed and Jiuzhou Pharmaceutical in July, as well as the October partnership between GenScript and Beijing Saifu Medicine to establish a high-quality, high-standard, one-stop biologics service platform spanning from target discovery to clinical trial application.

Cibioman is an influential player in the cell therapy sector. In September, it announced a strategic licensing and collaboration agreement with Novartis Pharmaceuticals, under which Cibioman will be responsible for the manufacturing and supply of Kymriah in China, while Novartis, as the marketing authorization holder, will handle distribution, regulatory affairs, and commercialization in the Chinese market. In short, Cibioman provides CMO services to Novartis. Incidentally, on December 20, Novartis announced its acquisition of Cell for Cure, a subsidiary of the LFB Group. Cell for Cure is one of Europe’s earliest and largest CDMOs, specializing in the production of cell and gene therapy products. Earlier this July, Novartis had already signed an agreement with Cell for Cure to develop CAR-T products, including Kymriah, at the latter’s manufacturing facilities. One can only speculate whether Novartis might eventually acquire Cibioman as well; however, unlike a pure-play CDMO, Cibioman maintains its own product pipeline.

Every sect and school in the martial arts world has its place of origin and headquarters; for instance, the main altar of the Sun Moon Holy Cult is located at Black Wood Cliff, while the central helm of the Ming Cult resides at Bright Peak. Furthermore, to accommodate organizational growth and operational needs, branches are established in various regions, such as the ten subsidiary lodges of the Heaven and Earth Society. The most formidable among them is undoubtedly the Beggar’s Sect, the premier faction under heaven. It is pervasive and omnipresent; although it lacks fixed premises, any dilapidated temple can serve as a gathering site, making it an organization that is both loosely structured and tightly knit.

Domestic CRO/CDMO companies are concentrated in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Pearl River Delta, a distribution pattern closely tied to that of the pharmaceutical industry. The economic prosperity and talent concentration in these regions are also significant contributing factors. Several major domestic CRO/CDMO companies have continuously expanded their presence in these areas, not only to increase production capacity and diversify business modules, but also to proximity themselves to clients for better service delivery.

When it comes to bold moves, WuXi Biologics is undoubtedly the leader. Backed by strong capital and performance, WuXi Biologics has taken significant strides by building new facilities in Ireland, Shijiazhuang, Singapore, Boston, and Shanghai, with all locations situated in major pharmaceutical hubs, showcasing its dominance. The production capacity is expected to reach 220,000 liters by 2021.

WuXi Biologics has reaped substantial profits, naturally attracting numerous industry leaders eager to capture a share of the market. GenScript, which has already entered the biological CDMO sector, announced in July a $75 million investment to build a production center in Zhenjiang for clinical sample and commercial manufacturing, with a designed total capacity of 5,700 liters. Asymchem, which has thrived in the chemical drug CDMO field, is also looking to venture into biologics and has already taken concrete steps by constructing a biomacromolecule drug R&D center and production base in Jinshan, Shanghai, with a total investment ranging from RMB 1.5 billion to RMB 1.8 billion.

As a key player in the field of preclinical safety evaluation, Joinn Laboratories announced in December the establishment of a research and development center in Wuzhou, Guangxi. As Guangxi is a major domestic breeding base for cynomolgus monkeys used in experiments, building an R&D center directly at the source helps address the substantial demand for innovative biopharmaceutical R&D and meet clients’ expectations for efficiency.

The year’s final headline news came from global CMO giant Lonza, which announced the establishment of a biological CDMO facility in Guangzhou, with production expected to commence in 2020. Previously, Lonza already operated a small-molecule API CDMO plant in Guangzhou; its presence in China’s biopharmaceutical sector was virtually negligible, but it has finally made its move. In contrast, Boehringer Ingelheim’s Shanghai Zhangjiang base, which enjoys comparable prestige in the global biological drug CDMO arena, began operations as early as 2014. While Lonza’s entry may be considered late, it arrives at an opportune time amid the industry’s current boom (see:Exclusive · Competitive Landscape of China's Biopharmaceutical CDMO Industry）。

Martial artists traverse the Jianghu for various reasons: some seek fame and fortune, others uphold the code of chivalry, while still others are driven solely by the pursuit of unparalleled martial arts mastery. Naturally, they flock to legendary manuals such as the Nine Yin Manual, the Bixie Sword Manual, and the Yi Jin Jing. Sparring is also a favored pastime among Jianghu denizens. Martial arts tournaments have always been grand events in the wulin, with the most talked-about spectacles being the Sword Discussion at Mount Hua or the Duel at the Summit of the Forbidden City.

For CRO companies providing technical services, it is also essential to continuously strengthen internal capabilities and enhance technical expertise. Although CRO firms do not engage in direct head-to-head competitions, every sponsor client compares multiple providers, thereby implicitly evaluating each company’s technical prowess and service quality.

WuXi AppTec Launches DNA-Encoded Compound Library Screening Platform. This technology enables the construction and screening of hundreds of millions of molecules in a short time with high efficiency, demonstrating significant advantages in both time and cost for new drug discovery, thereby attracting widespread interest and close attention from the pharmaceutical industry. Currently, HitGen (Chengdu) is undoubtedly the most successful enterprise in China engaged in new drug R&D using DNA-encoded library technology. The company has established strategic partnerships with numerous leading pharmaceutical companies both domestically and internationally, signed multiple technology transfer agreements, and achieved substantial returns. As the leading CRO in China, WuXi AppTec naturally would not miss this lucrative opportunity.

In addition, WuXi AppTec is planning to leverage artificial intelligence to facilitate drug discovery, having consecutively invested in Insilico Medicine and Verge Genomics in June and July of this year. These investments are believed to be merely the first step; WuXi AppTec intends to validate the preliminary results from these two companies on its existing testing platforms, ultimately integrating AI technologies to enhance the efficiency of drug discovery. In fact, its subsidiary, WuXi NextCODE, has already begun exploring the application of artificial intelligence in drug discovery and clinical research.

WuXi AppTec’s Suzhou Facility Officially Opens, Marking a Fresh Debut 10 Months After Its Acquisition by Japan’s JSR. The New Business Segment Synergizes with Existing Core Operations, Focusing on Clinical Testing and AI-Driven Healthcare Services.

Joinnew Laboratories previously focused exclusively on animal studies but has now expanded into human clinical trials, establishing separate subsidiaries to engage in pharmacovigilance and clinical services.

Over the past few decades, internal R&D efficiency and returns at numerous pharmaceutical companies have declined, while demands for human health have continued to rise. Meanwhile, new technologies have been continuously refined, and regulatory requirements for safety and efficacy have become increasingly stringent. In response, the CRO/CDMO industry has emerged and flourished—a natural outcome aligned with industry trends and adaptive development. Today, the CRO/CDMO sector should continue advancing along its path of supporting new drug development, growing in tandem with the overall advancement of the pharmaceutical industry. Whether companies can capitalize on policy dividends will depend on their ability to gauge industry dynamics, their accumulated expertise, and a touch of luck.

Across the entire CRO/CDMO industry, operating revenue, net profit, and headcount all demonstrated a robust upward trend over the past three years (2015–2017). Notably, in 2017, a representative sample of 44 listed companies reported a 24% increase in operating revenue, a 17% rise in net profit, and a 20% growth in workforce size. Overall, the CRO/CDMO industry is characterized by stable profitability and steady scale expansion (see:CRO Sector Remains Red-Hot: A Comparison of Business and Financial Data Across 44 Listed Companies). Precisely because the industry has demonstrated strong social and economic benefits, the state has introduced numerous policies to encourage its development, including direct financial subsidies to key enterprises.

In June, the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology (MIIT), the National Health Commission (NHC), and the National Medical Products Administration (NMPA) jointly issued the "Notice on Organizing the Implementation of Special Projects for the Construction of Contract Research and Manufacturing Service Platforms in the Biopharmaceutical Sector." The notice provides support to CROs with contract values exceeding RMB 200 million and CDMOs with contract values exceeding RMB 300 million in 2017. Specifically, the total investment in a single new production capacity project must be no less than RMB 100 million, with national subsidy funds generally covering around 30% of the total project investment, capped at RMB 100 million. While the subsidies are substantial, the eligibility thresholds are high; few companies meet the contract value requirements of RMB 200 million or RMB 300 million, let alone have concurrent large-scale investment projects. In this context, only a handful of companies building new factories happened to align with these criteria. As the final results have not yet been announced, it is estimated that only a very small number of firms—primarily industry leaders—will secure this funding.

Since 2015, pharmaceutical regulatory reforms have significantly accelerated the R&D of new drugs and the development of generics, driving the steady growth of the CRO/CDMO industry. Notably, the Marketing Authorization Holder (MAH) system, which has been piloted for three years across ten provinces and municipalities in China and extended for an additional year, is highly anticipated and has begun to yield tangible results.

In June, Ascletis Pharma’s new anti-hepatitis C drug, danoprevir, received marketing approval in Hangzhou. The active pharmaceutical ingredient (API) was contracted to WuXi STA for production. This marks the first approved innovative chemical drug under the Marketing Authorization Holder (MAH) system. Its broader significance lies in the fact that Ascletis is a research-driven innovative pharmaceutical company, and the two collaborating parties are not affiliated entities.

In August, BeiGene’s marketing application for its novel anti-tumor drug tislelizumab (a PD-1 inhibitor) was accepted. The entire production of the drug has been outsourced to Boehringer Ingelheim Biopharmaceuticals’ Zhangjiang plant, making it highly likely to become the first innovative biologic approved for market under the Marketing Authorization Holder (MAH) system—a milestone event. The complexity of manufacturing and quality control for biologics far exceeds that of chemical drugs, and the cost of building a biologics facility is exceptionally high. The implementation of the MAH system enables innovative drug R&D companies to allocate their capital to more value-driven activities. It is also worth noting that construction and production at Boehringer Ingelheim Biopharmaceuticals’ Zhangjiang plant commenced prior to the launch of the MAH pilot program. Moreover, with support from the Zhangjiang Biopharmaceutical Base, Boehringer Ingelheim submitted numerous recommendations to regulatory authorities regarding the MAH pilot initiative. Thus, the company has acted both as a promoter and a beneficiary of the policy, making valuable contributions to industry development.

Since 2015, the regulatory reforms in drug review and approval have introduced numerous incentives for the pharmaceutical industry. However, we must also clearly recognize the challenges posed by these policies, which have even precipitated a certain degree of crisis.

In recent years, the regulatory authorities’ vigorous promotion of quality and efficacy consistency evaluations for generic drugs has injected strong vitality into the CRO sector, with this sudden surge in demand bringing a flood of orders to many CROs. Pharmaceutical companies, bracing themselves, have spent substantial amounts of real money, originally expecting that premium quality would command premium prices and that these investments could be quickly recouped after passing the consistency evaluations. However, reality has not been so kind. With the launch of the “4+7” volume-based procurement program in the depths of winter, companies found that they still faced low prices, with the winner taking all. At such low price points, competitors could only wait until the following year. The industry has been filled with lamentations.

With such a pessimistic outlook among generic drug manufacturers, how many companies will still enthusiastically pursue bioequivalence evaluations as they did in the past? CROs may face a scenario of reduced orders and lower fees. After all, the return on investment for generic drug consistency evaluations is not particularly high; it merely ensures survival rather than offering significant profit opportunities. Given this reality for older products, companies should carefully reconsider the initiation of new product projects. Therefore, CROs engaged in pharmaceutical development and bioequivalence studies need to consider how to respond.

Generics are in dire straits, and innovative drugs do not appear to have a bright future either. Capital, once active in providing a much-needed boost to new drug R&D, has retreated; biotech stocks on the Hong Kong Stock Exchange are frequently breaking their issue prices, mainland pharmaceutical stocks continue their relentless decline, and venture capital firms are tightening their purse strings. In this climate, how can the CRO/CDMO industry, which relies on pharmaceutical companies and biopharmaceutical startups, remain unscathed?

In the martial arts world, there are always indescribable storms of blood and violence. Traps, ambushes, killings, and the annihilation of entire clans are common literary devices used by authors to launch a wuxia legend. Love turning into hatred, and lovers becoming enemies, intertwines grievances among martial arts factions, creating a complex, confusing, and thought-provoking narrative.

"The business world is like the Jianghu. There are no eternal friends, nor eternal enemies—only eternal interests."

Although Legend Biotech itself is not a CRO company, its parent company, GenScript, primarily operates in the CRO business. Following Legend Biotech’s signing of a substantial CAR-T technology transfer and licensing agreement with Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson, Legend Biotech has significantly driven GenScript’s operations and stock performance. In terms of revenue, the 2018 semi-annual report disclosed first-half revenues of $112.2 million, of which $30.4 million, accounting for 27.1%, came from the collaboration with Janssen, whereas this figure was zero in the same period of 2017. Regarding stock performance, GenScript’s shares surged by 27% immediately after the partnership with Janssen was announced. Such achievements are difficult to attain through traditional CRO businesses alone.

In late September, a time when people in mainland China typically look forward to reuniting with family or traveling during the National Day holiday, a mysterious faction stirred up trouble. This was “Yanhuo Research,” an independent research organization founded by a group of seasoned stock investors, dedicated to “exposing fraudulent companies and safeguarding the interests of individual investors.” Its rhetoric cast it as a chivalrous outlaw righting wrongs on behalf of heaven. The “evil force” it confronted this time was GenScript, a prominent and well-established player in the industry. The two sides engaged in a remote showdown on the stage of the Hong Kong stock market, with retail investors serving as spectators. For a time, written polemics and verbal sparring flew back and forth like the glint of swords and the force of hidden weapons, making for quite a spectacle.

On September 27, “Yanhuo Research” released a report questioning the integrity of Nanjing Legend Biotech’s CAR-T therapy, a subsidiary of GenScript, alleging data fabrication and outlining seven major accusations. The report strongly recommended selling the stock and significantly downgraded GenScript’s valuation. The seven allegations included: ambiguous origins of the technology, slow progress due to complex manufacturing processes, suspected fabrication of clinical data, concealment of the truth behind patient deaths, exaggeration of the collaboration with Janssen, insider cashing out at high valuations to siphon off profits, and limited intrinsic value coupled with an inflated valuation. The publication of this report, reminiscent of Luo Binwang’s famous “Denunciation of Wu Zetian,” had a widespread impact, triggering immediate market backlash. GenScript’s share price plummeted by as much as 40% during intraday trading, marking a severe downturn. By the end of the day, the company’s stock had fallen 26.79%, wiping out nearly HK$7.96 billion in market capitalization.

In the face of such provocation, GenScript responded with composure, clarifying the doubts from perspectives including clinical data disclosure, manufacturing process progress, foundational technical development pathways, patent protection layout, disclosures regarding patient hopes, changes in shareholding, and market potential. This approach stabilized the situation, while pointing out that Yanhuo Research’s “ultimate aim was to drive down the share price and tarnish the Company’s reputation.” The stock price subsequently rebounded by 20%.

However, good and evil have been irreconcilable since ancient times; how could a struggle be resolved in a single round? On October 1, Yanhuo Research released its second report, refuting GenScript’s responses point by point and pointing out that GenScript selectively addressed the questions without providing detailed factual evidence.

Facing the second wave of attacks, GenScript issued a statement on October 3, demanding that Yanhuo Research reveal its true identity and condemning its “conduct of damaging the Company’s reputation under the guise of a research institution while operating under an anonymous identity.”

However, as GenScript’s stock price rode a rollercoaster, Yanhuo Research had already completed its short-selling campaign and reaped substantial profits. Since then, Yanhuo Research has remained silent, leaving it unclear whether it is backed by an individual, a group, or an institution. Perhaps this will become another unsolved mystery in the financial world.

Baihuacun, located in the far northwestern frontier of Xinjiang, primarily engages in coal mining and had little to do with the pharmaceutical industry, except for supplying coal to the boiler rooms of pharmaceutical factories. However, after consecutive losses in 2014 and 2015, the company faced potential delisting if it incurred another loss in 2016. Confronted with this predicament, Baihuacun set its sights on Huawei Medicine, a highly sought-after enterprise in the CRO (Contract Research Organization) sector. At the same time, Huawei Medicine also sought to enhance its valuation through the capital market, as it appeared that generating revenue this way was much easier than the labor-intensive tasks of shaking flasks, running liquid chromatography, and compressing tablets. Thus, the two parties quickly reached an agreement and joined forces.

Initially, the relationship was, of course, deeply affectionate, with the honeymoon period proceeding quite joyfully. On one hand, it protected the listing entity; on the other, becoming a publicly listed company allowed both parties to reap benefits.

Nevertheless, even the most routine business operations inevitably encounter friction. Promises must be honored, and accounts must be settled with clarity. A dispute arose within the accounting firm: one party vetoed the findings, while the other claimed to lack the authority to do so. The conflict escalated to the point of criminal proceedings, seemingly involving cross-provincial arrests. As the saying goes, “Even an upright official finds it hard to settle family disputes.” Before long, the parties reached a settlement. Moreover, they received strong support from the Nanjing Municipal Government and were awarded the title of “Outstanding Private Entrepreneur in Reform and Opening-up.”Another year has passed, and it is once again time to assess whether performance targets have met the promised expectations. Let us hope that this time, both sides can sit down and engage in constructive dialogue. After all, life and business must go on, day by day.

When two factions merge, questions of leadership arise. Established rules are overturned, and new ideologies, processes, and institutional frameworks are put in place. It is inevitable that some individuals will struggle to adapt, particularly as their vested interests are compromised. Yet, for the sake of the broader strategic vision, balancing the interests of all parties tests the wisdom and capability of the leadership. Everyone understands this principle: cooperation yields mutual benefits.

We were originally strangers, brought together by a series of coincidences that led us to choose this industry and cross paths. Today, the CRO/CDMO sector is deeply embedded in every stage of new drug development. We support and uplift one another, yet we also compete and strive against each other—whether for the noble cause of advancing healthcare, for both fame and fortune, for poetic ideals and distant horizons, or simply for survival. Be that as it may, 2018 has come to a lively close.

As we bid farewell to the old and welcome the new, let us declare with great fervor: Until we meet again in the world of healthcare!