The domestic CDMO industry has obvious volatility and is currently a moment before the arrival of the great waves.
In the mid-19th century, a "gold rush wind" blew in California.
Countless people with dreams of getting rich poured into California, the gold panning environment is hot and dry, the water source is scarce, and the people are thirsty.
After careful consideration, farmer Yamer decided to use the shovel for gold to dig the canal. There was no opponent, and the water source was quickly found. Then, by selling water, Yamer made a lot of money.
The essence of the theory of selling water is to meet the new needs of industries that have formed a scale in a way that serves others. As long as there is a pair of eyes that are good at discovery, all walks of life have a "water seller" role.
Biomedicine is a gold digging ground in the new era, and the CXO industry serving innovative drugs has become a "water seller". But the opportunities for the CXO industry itself are also rapidly diverging, especially in the past two years, as a key link in the CXO industry, the CDMO industry is running wild.
What is CDMO?
The essence of CXO is FOUNDC.
The pharmaceutical field is complex, from research and development to sales, different "X" means different links of foundry services. The earliest CXO developed was the upstream R&D foundry, that is, CRO. In the 1970s, some research institutions in the United States provided some preclinical and clinical research services to pharmaceutical companies, which was the early prototype of CRO.
In the following 20 years, CRO developed rapidly in Europe, the United States, Japan, and by the late 1990s, the US FDA promoted the listing of nearly 14 CRO companies, making the CRO industry gradually recognized by the market.
CDMO was first brought by the CMO to undertake the back-end of research and development and provide production services for pharmaceutical companies. Further, to provide pharmaceutical companies with process development and preparation, process optimization, commercial customization R & D and production and other services, become a more mature system.
Overall, China's CXO industry has developed late, but in a broad sense, THE CDMO business has always been carried out by institutions.
In 1996, China gave birth to the first truly CRO: Beijing Medison Pharmaceutical Research Co., Ltd., which is a subsidiary of Canadian Medison Inc. in China. A year later, China's first local CRO company, IGGS (Beijing) Medical Technology Co., Ltd., was established. Including the later WuXi AppTec, Kanglong Chemical, etc., mainly serving foreign pharmaceutical companies.
But Chinese API manufacturers have long been there, providing intermediates or pharmaceutical active ingredients to international pharmaceutical giants, and these companies are the prototypes of China's CDMO industry. Especially after 2005, many global blockbuster products began to expire patents, foreign giants urgently need to find cheaper production links, the proportion of outsourcing continues to increase, and domestic CMOs usher in opportunities.
In the case of Gloria Young, a pharmaceutical company founded in 1998, has long provided CMO services to companies such as Pfizer. It is the production transfer demand of international pharmaceutical enterprises, which promotes the accumulation of production and development experience of domestic CMOs and gradually transforms to CDMO.
Objectively speaking, China's low-cost production conditions, cheap human capital, and early relatively relaxed environmental protection policies have given early CDMO enterprises the opportunity to develop.
Domestic CDMO: 20 years to take shape
If China's pharmaceutical industry continues to develop according to the model before 2010, the CDMO industry will not grow.
From the perspective of international experience, since about 1998, pharmaceutical innovation has shown a very obvious trend: small and medium-sized enterprises and academia have become the mainstream of innovation, and famous large enterprises have lost their leading position in innovation. In 2008, the Pharmaceutical Economic News reported that about 50% of the world's new compounds were discovered by small research and development companies.
This is the second round of opportunities for the CDMO industry. Pharmaceutical production is a heavy asset investment, heavy manpower investment link, which is very fatal for some start-up enterprises. Especially with the exploration of known targets tends to be exhausted, the policy supervision continues to tighten, and the success rate of new drug research and development continues to decline, research and development costs are not enough, not to mention the drug production required for clinical research, the best solution to the dilemma at this time is: outsourcing.
Large enterprises want to reduce costs, small enterprises need to compress costs, and the global CDMO pattern is hot.
But at that time, the wave of pharmaceutical innovation of "small businesses singing the protagonist" did not sweep into China. It was not until the outbreak of the financial crisis in 2008 that global pharmaceutical innovation gradually "moved east" that domestic CDMO ushered in opportunities. From the traditional processing of intermediates for foreign companies, to the provision of full-process services for drug development and production for domestic innovative pharmaceutical companies.
In 2015, the domestic CDMO industry ushered in the second node. In November of that year, ten provinces and cities across the country will pilot the implementation of the drug marketing authorization holder system (MAH), separating the drug marketing license and the drug production license. You know, before that, a drug wants to be approved for listing, provided that the pharmaceutical company has its own production line. The MAH system makes it possible for innovative pharmaceutical companies to commission CDMO companies to produce pharmaceutical products.
In October 2017, MAH became a nationwide implementation, which fundamentally accelerated the development of the domestic CDMO industry. CDMO thus became an important part of CXO, going hand in hand with CROs.
Share the fruits of innovative medicine
Like the general trend of the CXO industry, domestic CDMO has undergone a shift from simply serving foreign pharmaceutical companies to developing domestic demand, and has shown obvious volatility.
Since the reform of the pharmaceutical circle in 2015, the collection of drugs in 2018 has become a boom, and this process has been perfectly captured by capital: the collection of 2018 marks the peak of the profit margin of generic drugs, and the money invested in innovative drugs has also reached the peak in recent years in this year.
Source: Arterial network
According to the data of arterial network, from 2015 to 2018, the scale of domestic investment and financing continued to rise. Especially in 2018, the scale of investment and financing in the domestic medical industry reached 82.5 billion yuan, up 78.57% over 2017.
In terms of financing stages, the financing in 2018 is generally concentrated in the earlier series A and B. Driven by capital, many emerging biomedical enterprise projects have accelerated their incubation.
The development of new drugs must go through multiple links such as drug discovery, animal experimental verification, and phase I to PHASE III clinical trials. After the big wave of capital came, the peak of these drug discovery stages also came one by one.
According to publicly disclosed data, animal testing enterprises have achieved rapid revenue development in 2019 and 2020. The financial data clearly tells investors that the money invested and funded research during the peak period of pharmaceutical investment in 2018 began to enter the stage of animal experimentation in large numbers.
These projects will continue to move forward, and after the peak of animal experiments, it will be the turn of the CDMO service to fully participate in the Phase I to III clinical trials. The early investment in innovative drugs is gradually coming to fruition, and the CDMO business will usher in a period of growth explosion as the late clinical and commercialization projects enter the accelerated cashing period under the funnel effect.
This is the main reason why CDMO is currently optimistic about the CXO industry. WuXi AppTec has been increasing investment in cdMO business and expanding production capacity in the past three years. From 2018 to 2020, the revenue growth of the company's CDMO business increased from 28% to 41%, which was much higher than that of the CRO business.
The industry landscape may usher in changes
The domestic CDMO industry has begun to enter the harvest season, and all people in the biomedical circle are looking at it. In contrast, the current domestic innovative drug industry seems to have reached a difficult place. The target homogenization is serious, the clinical efficacy of overseas drugs has been questioned by the FDA, and IPO companies have frequently broken...
On the one hand, the business of CDMO companies is becoming more and more prosperous; on the other hand, the new round of innovative drug research and development momentum continues to be insufficient. But no one wants to go hungry.
Many companies intend to adjust their strategies and unite all the forces that can be united to transform into the CDMO industry. The transformation of APIs such as Jiuzhou Pharmaceutical and Puluo Pharmaceutical to CDMO is already the trend of the times. Some pharmaceutical companies that started with new drug research and development have also begun to use their production capacity advantages to lay out CDMO business.
On December 10, 2021, 3SBio announced that its CDMO platform Shanghai Shengguo was officially completed, stepping into the CDMO field. 3SBio is one of the earliest biopharmaceutical companies in China, mainly in the field of immunity and tumor research and development of new drugs. It is the earliest enterprise in China to have a monoclonal antibody production line, and it has undertaken some CDMO business on a small scale more than a decade ago. Today, Sunshine officially uses its production capacity advantages to open up new plates.
There are also some enterprises that are gradually crossing from chemical drug CDMO to biological drug CDMO. Such as Boteng shares, Gloria Ying, etc., have begun to improve their CDMO service scope in the past two years, covering the current major market demand.
The intertwining of forces from many parties has made the domestic CDMO industry extremely lively, waiting for innovative pharmaceutical companies to make more drugs.
In fact, in addition to the above-mentioned investment and drug development cycles that have led to a significant increase in demand for CDMO, there are also some emerging drug technology platforms that are also in urgent need of CDMO services.
Take gene therapy, for example. As of February 2020, China has carried out 1,041 gene therapy projects, ranking second in the world. However, the current CXO service for AAV technology in China only stays in pre-clinical or a few early clinical trials, and there is still a distance from the subsequent large-scale commercialization of CDMO.
Some companies focusing on gene therapy are suffering from the current domestic CDMO can not meet the demand, and have begun to do their own food and clothing. For example, Faith Pharmaceutical has built its own production base in the Lingang area.
At present, the domestic CDMO giants have chemical drug production capacity of 100 tons and biological drug production capacity of more than 100,000 liters. However, in some more cutting-edge fields, such as cell therapy and gene therapy, the support of CDMO business is not enough.
This is the current situation of the domestic CDMO industry.
However, it should be noted that the current innovative drug industry has been difficult to find a new way out, the number of financing cases in the pharmaceutical industry, the scale of financing has declined rapidly since 2018, and the intensity of follow-up new drug development will be greatly reduced. The current CDMO industry, just like in the moment before the huge wave shoots, there is no wave behind it, in fact, it can be predicted.
In the context of the unpredictable era, CDMO is hot and easy to provoke. All entrants need to think clearly about the cost of chasing the wind.
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