20220216-招银国际-China_CRO_CDMO_sector_China_CDMO_players_to_play_a_vital_role_in_global_market_18页_1mb

China CRO/CDMO Sector Summary

Core Content

The China CRO/CDMO sector is positioned as a key growth driver within the broader CXO industry, with a focus on CDMO (Contract Development and Manufacturing Organization) due to its high barriers to entry, strong customer royalty, Matthew Effect, and favorable policy support from the Chinese government.

Key Characteristics of the CDMO Subsector

• High Investment and Technology Barriers: CDMO requires significant capital and technology investment, which creates high entry barriers for new players.
• High Customer Royalty: Building client trust takes years, resulting in high customer loyalty and long-term revenue potential.
• Matthew Effect: Larger CDMO companies tend to outperform smaller peers due to economies of scale and established reputation.
• Policy Support: The Chinese government's introduction of the Marketing Authorization Holder (MAH) system in 2019 has boosted CDMO demand by enabling pharmaceutical companies to outsource production.

Biologics CDMO Market

• Rising Global Demand: The increasing R&D investment in biologics and the impact of the COVID-19 pandemic have led to a surge in demand for biologics CDMO services.
• Market Growth: The global biologics CDMO market is expected to grow at a CAGR of 20.6% from 2020 to 2025E, outperforming the chemical CDMO market (10.1% CAGR).
• Capacity Expansion: Leading CDMO players are expanding their capacities to meet rising demand. WuXi Bio, a top China-based biologics CDMO company, plans to increase its total capacity from 150kL (2021) to ~430kL by 2024.
• Business Model Advantage: WuXi Bio's "follow the molecule" model allows income generation from both early-stage and commercial projects, offering higher growth potential compared to Samsung Bio, which focuses primarily on commercial projects.

Chemical CDMO Market

• Market Consolidation Potential: The chemical CDMO industry is fragmented, with a CR5 of 15% in 2020, offering opportunities for consolidation.
• WuXi AppTec's Leadership: WuXi AppTec, through its subsidiary STA, is the largest chemical CDMO company in China with a 23.4% market share in 2020. STA has a large pipeline of 1,314 projects, with a higher proportion in early-stage development than domestic peers.
• Growth Momentum: WuXi AppTec's integrated one-stop CRO/CDMO service platform allows it to maintain low client acquisition costs and strong growth potential.

Key Players and Market Position

• WuXi Bio: A leading biologics CDMO company with a strong presence in the global market. It has a large early-stage project pipeline and is expanding its manufacturing capacity globally.
• WuXi AppTec: A dominant player in the chemical CDMO sector, with a strong one-stop service model and a growing number of early-stage projects.
• Tigermed: Also rated as a top pick, showing strong backlog growth and enhancing global capabilities.

Valuation Highlights

Main Views

• The CDMO subsector is expected to outperform other CXO subsectors due to its high barriers to entry and long-term revenue visibility.
• WuXi Bio is well-positioned to benefit from the growing demand in biologics CDMO, supported by its robust business model and capacity expansion plans.
• WuXi AppTec is gaining momentum in the chemical CDMO market, leveraging its integrated service platform and extensive project pipeline.
• The global market for biologics CDMO is fragmented, allowing Chinese companies like WuXi Bio to capture market share.
• The MAH system in China is expected to drive further demand for CDMO services, particularly from domestic pharmaceutical companies.
• WuXi Bio's global manufacturing network and diversification of supply chain sources help mitigate geopolitical risks.

Conclusion

The China CRO/CDMO sector is a promising area for investment, with WuXi Bio and WuXi AppTec as the top picks due to their strong market positions, growth potential, and competitive advantages. The sector is expected to benefit from global demand trends, policy support, and the ongoing consolidation in the chemical CDMO market.