Analysis on the current situation and future development prospect of China's CDMO Market

CMO (contract manufacturing organization), i.e. contract manufacturing organization / contract customization production, originated in the late 1980s. As the global economy retreated at that time, many pharmaceutical enterprises began to outsource non core or non advantageous production and sales businesses under strong competitive pressure, so as to reduce their own operating costs and enhance their competitiveness. Up to now, CMO has provided comprehensive services for drug development by participating in drug manufacturing and production, including but not limited to: pre preparation, formula development, stability research, method development, pre clinical and phase I clinical trial materials, late clinical trial materials, registration batches and commercial production, etc. Because outsourcing production to low-cost pharmaceutical countries can significantly reduce the cost of original research and development, global pharmaceutical giants began to choose to cooperate with professional CMO enterprises, outsourcing non core links to CMO enterprises, in order to reduce the cost of research and development, shorten the cycle, and reduce the risk of research and development. Outsourcing the production process can reduce the production cost of the original research drug from 30% to 15%. Calculated by the investment of 2.5 billion US dollars in new drug R & D, the CMO model has greatly reduced the fixed cost of enterprises, accelerated the R & D cycle of enterprises and made them more competitive.

For a long time in the development process of CMO, the traditional CMO enterprises (represented by overseas mature CMO enterprises) basically follow the business model of "technology transfer + customized production": that is, when undertaking the relevant customized production business, they basically do not involve their own technological innovation, only rely on the mature process routes provided by customers, and use their own production facilities to carry out process implementation and provide expanded production Services. In recent years, some enterprises have been acutely aware of the upgrading of market demand, so they have been upgraded to "customized R & D + customized production" by strengthening their own technical capabilities. This kind of enhanced version of CMO company is called cdmo (contract development and manufacturing organization). Compared with the traditional CMO business model, cdmo business technology innovation, project management and other comprehensive barriers are higher, more in line with the future development trend of the industry.

The overall judgment of China's cdmo market is as follows:

1、 The market size is more than 10 billion US dollars, and the annual growth rate is expected to exceed 30%, far higher than the growth rate of global cdmo industry.

2、 In the future, the driving force of China's cdmo industry growth comes from: (1) the extension of domestic cdmo enterprises to high value-added business; (2) the transfer of global cdmo business to the Asia Pacific region, China's obvious benefits; (3) MAH system brings policy dividends to domestic cdmo enterprises.

3、 Business upgrade. The biggest driving force for the growth of domestic cdmo industry comes from business upgrading. Compared with overseas leading cdmo enterprises, domestic enterprises are currently engaged in low value-added business, while high value-added business (including API, preparations and new medical technology, etc.) is worth extending and developing. This is one of the important logics for long-term optimistic about domestic cdmo industry. We give the prediction of three stages for domestic cdmo enterprises to achieve business upgrading. It is predicted that the development direction of cdmo industry at home and abroad in the future may be: overseas excellent cdmo enterprises establish a leading position in technology through continuous development of new technologies; while domestic cdmo enterprises realize industrial chain upgrading by virtue of cost advantages and technology accumulation.

4、 Transfer to undertake. In 2019, only 26% of enterprises consider choosing Chinese / Indian enterprises as outsourcing partners. We believe that there is still a lot of room for improvement, especially in China. We judge that the future trend of China's undertaking European and American cdmo business will be further strengthened. The core factors depend on two points: (1) China has outstanding cost advantage. Including raw material cost and labor cost. Chinese enterprises' participation in the global cdmo market competition is based on their strong industrial chain supply capacity and relatively low-cost technical talents (so-called scientists' bonus). (2) The improvement of soft power of Chinese cdmo enterprises. Including project management ability and intellectual property protection.