CDMO Development Enters the Fast Lane

The primary source of CDMO demand is the outsourcing part of process development and experimental drug production of large and small pharmaceutical companies (R&D investment * CDMO outsourcing penetration rate);

The second is the outsourcing part of commercial order production (production cost * CDMO outsourcing penetration rate). Therefore, the core factors affecting the growth space of CDMOs include the following:

     ❖The sales revenue growth of large pharmaceutical companies and the willingness to invest in R&D. 

     ❖The financing of innovative small and medium-sized pharmaceutical companies (most of which are invested in R&D). 

     ❖CDMO Outsourcing penetration.

01

The R&D investment intensity of large pharmaceutical companies remains high.

Statistics from Evaluate Pharma show that the average annual number of FDA-approved drugs has increased significantly in the past few years, from 35 in 2010-2013 to 47 in 2014-2017. According to data from the FDA's official website, 59 and 48 new drugs were approved in 2018 and 2019, respectively, maintaining a high level.

The increased number of new drugs approved by the drug regulatory department has also driven the sustainable growth of recent drug sales. According to the forecast of Evaluate Pharma, the new drugs approved by the FDA in 2017 are expected to bring in sales of 33.2 billion in five years after their launch. Dollar.

The potential expectation of super blockbuster drugs also attracts pharmaceutical companies to continue to invest in innovation. Drugs.com and Medicine Rubik's Cube statistics show that the threshold for the top 100 global pharmaceutical sales has increased from 370 million US dollars in 2009 to 2018. 1.33 billion US dollars, while the No. 1 drug sales increased from 5.36 billion US dollars to 19.94 billion US dollars. In terms of the number of R&D projects, large pharmaceutical companies remain high, while innovative small and medium-sized pharmaceutical companies are showing faster growth: According to statistics and forecasts from Pharmprojects, the number of drugs in different R&D stages around the world continued to increase steadily from 2015 to 2018; combined with Syneos data, further analysis of the nature of the companies to which the R&D projects belong shows that the number of R&D projects of TOP20 pharmaceutical companies maintained a high level (2000+) after rapid growth in 2015-2016, while the number of R&D projects of innovative small and medium-sized pharmaceutical companies remained at 7% average annual growth rate.

IgeaHub's statistical data on the ratio of R&D investment to revenue of TOP10 pharmaceutical companies further confirms the willingness of large pharmaceutical companies to invest in R&D: While revenue is growing, the percentage of R&D investment to the income of TOP10 pharmaceutical companies has increased from From 12% in 1997-2000 to around 17% in 2015-2018.

To sum up, although the increase in the average launch cost of innovative drugs and the decrease in sales peaks have led to a reduction in the overall return on investment of large pharmaceutical companies, the incremental value of new products and the potential expectation of super blockbuster drugs have attracted large pharmaceutical companies to continue to Invest in innovation and maintain a high proportion of R&D investment. At the same time, due to the lower overall return on investment, large pharmaceutical companies will choose to outsource more R&D and production content in pursuit of efficiency improvement and cost control instead of internal implementation; It can be seen.

02

Small pharma boosts the outsourcing industry.

Small pharmaceutical companies have gradually become an important driving force for pharmaceutical innovation. In addition to being more suitable for creation in terms of organizational form, in terms of results, the data from WuXi AppTec's prospectus shows that among the new FDA-approved products each year, small pharmaceutical/biotech companies / The proportion of products developed by virtual pharmaceutical companies increased from 7% in 2013 to 39% in 2017. This proportion is expected to grow to 47% in the next few years.

The more innovative small pharmaceutical companies have therefore been favored by capital in recent years. According to the historical data of China Venture and EvaluatePharma, we assume that the growth rate has remained unchanged in the past two years. Since 2013, the scale of global and Chinese pharmaceutical VCs has increased, and the financing amount of global start-up pharmaceutical companies has also shown the same growth trend.

Frost&Sullivan statistics and forecasts on the R&D expenditures of globally subdivided pharmaceutical companies also show that since 2014, innovation-driven With the help of capital and capital, the R&D investment of small and medium-sized pharmaceutical companies has increased significantly faster than the overall level of global pharmaceutical companies.

Innovative small and medium-sized pharmaceutical companies often do not have a complete R&D and production system. They will rely more on R&D and production outsourcing service providers in the drug R&D process, which will promote the overall penetration rate of the outsourcing industry.

Small pharmaceutical companies are more inclined to outsource process development and production outsourcing than large pharmaceutical companies. According to Informa's survey of more than 200 pharmaceutical companies, in the clinical research stage, 40% of the companies outsource more than 50% of the production tasks to CMO/CDMO companies. In contrast, in the commercial production stage, 50% and 19% of production tasks were outsourced to small and large pharmaceutical companies. Innovative small and medium-sized pharmaceutical companies that rely more on CDMO outsourcing services for R&D and production activities will continue to promote the increase in the penetration rate of CDMO outsourcing.

03

The penetration rate of pharmaceutical R&D and production outsourcing continues to increase.

According to statistics and forecasts from Frost & Sullivan and EvaluatePharma, the global CDMO industry will maintain double-digit growth, significantly faster than the single-digit growth rate of drug sales. This is also in line with the previous judgment on the increasing penetration rate of CDMO outsourcing based on the demand characteristics of pharmaceutical companies of different sizes.

According to the data of Parexel, the global leader in clinical CRO, the trend of the increasing penetration rate of R&D outsourcing (CRO) is also apparent: compared with 2011, the penetration rate of CRO has increased significantly regardless of the sales scale of pharmaceutical companies, and small and medium-sized The increase in the penetration rate of pharmaceutical companies is more obvious; in terms of regions, the penetration rate of CRO has increased significantly in North America, Europe, and Asia.

According to different types and stages of work links, the outsourcing penetration rate will have distinct differences. These differences are generally caused by the importance of work content and potential economies of scale requirements: for example, in the commercial production stage (innovative drug API production and preparation Production) compared with the R&D stage (API development and formulation development), there are more non-core components, so the outsourcing penetration rate of commercial production is significantly higher than that of R&D.

Currently, the global CDMO market size is about 50 billion-60 billion US dollars, and it is estimated that CDMO in the commercialization stage will account for more than 76%. In contrast, the penetration rate of CDMO services in the R&D phase of global pharmaceutical companies is about 4%-9%. It is estimated that the worldwide CDMO industry market size in 2019 will be US$58.2 billion, and the compound annual growth rate will increase from 8.2% in 2014-2018 to 10.4% in 2019-2023.