On May 26, 2021, the 2021 China Pharmaceutical CXO Conference opened in Guangzhou. With the theme of 'Promoting Circulation, Opening up a New Situation, and CXOs Sharing Empowering New Business Opportunities for the Pharmaceutical Industry', the conference comprehensively explored the new opportunities brought about by the new pharmaceutical environment from four dimensions: R&D innovation, production cooperation, process optimization, and CRO full-chain services. It also sought to explore the path for pharmaceutical companies to upgrade and progress under the normalization of centralized procurement within the context of the dual circulation model.
Mr. Mao Hua, Partner and Managing Director of Frost & Sullivan Greater China, was invited to attend this conference and officially released the 'White Paper on the Development of China's Pharmaceutical CXO Industry' (hereinafter referred to as the 'White Paper') at the main forum.
Mr. Mao Hua, Partner and Managing Director of Frost & Sullivan Greater China, introduced the white paper to the participants.
The white paper aims to analyze the current development status, industry characteristics, driving factors, and development trends of China's pharmaceutical CXO industry. It focuses on the competitive landscape of the market within China's pharmaceutical CXO sector, reflecting the differentiated competitive advantages of the leading enterprises in this niche market. The analysis provided for the pharmaceutical CXO industry also reflects the overall trend of China's pharmaceutical industry.
Table of Contents of China's Pharmaceutical CXO Industry Development White Paper
01The high R&D costs and risks in the pharmaceutical industry boost the growth of the CXO industry.
CXOs cover all aspects of pharmaceutical R&D from drug discovery to final large-scale production, including CRO (Contract Research Organization), CMO/CDMO (Contract Manufacturing Organization), etc.
The white paper points out that pharmaceutical companies face risks in R&D such as high costs, low success rates, and long R&D cycles. It takes at least 10 years from drug discovery to final commercial production for a new drug on the market, with investments exceeding $1 billion. In addition, developing a new drug requires screening from over 10,000 compounds in the early stages, and only one drug is successful in going to market, resulting in a low success rate of drug R&D. These factors have increased the demand for pharmaceutical outsourcing services by pharmaceutical companies, driving the development of the CXO industry. At the same time, the rise of small pharmaceutical companies has increased their willingness to outsource, which will directly stimulate the vigorous development of the CRO industry. After the successful development of new drugs, it will also sequentially drive the overall development of the CDMO industry.
Affected by policy dividends, substantial R&D investment, demographic dividends, and other factors, it is expected that China's pharmaceutical market share in the global pharmaceutical market will continue to rise in the future. The rapid expansion of the pharmaceutical market has increased the demand for outsourcing services from pharmaceutical companies, which is expected to bring sufficient market space for the development of the CXO industry.
02Multiple favorable factors resonate, and the future of China's CRO industry is promising
According to Frost & Sullivan data, in 2020, the market size of CROs in China was $7.6 billion, accounting for 11.6% of the global CRO market. Affected by supportive policies, growth in R&D expenditure, and other factors, it is expected that the Chinese CRO market will continue to expand, reaching $22.9 billion by 2025, accounting for 21.0% of the global CRO market during the same period. The overall market share will be about three times that of 2020.
Driven by factors such as technological progress, favorable government policies, R&D investment support, and the demand for new biotech companies, China's CRO market will further develop:
- The advancement of science and technology enhances the strength of CROs;
- The government encourages research and development, with increasing R&D expenditures stimulating drug innovation;
- The complexity of the new drug research and development process makes pharmaceutical companies more inclined to seek CROs with rich experience and advanced technology;
- Due to considerations of cost reduction and risk management, pharmaceutical companies tend to cooperate with CROs;
- New biotech companies, constrained by the size and development stage of their internal R&D teams, tend to leverage CRO services to advance their research and development;
- The government's reform of the regulatory approval system for the pharmaceutical industry and supportive policies have brought more business opportunities to CROs.
The pharmaceutical market continues to demand drug R&D services, and with the emergence of a large number of small biotech companies and the impetus from capital market investment and financing booms, the future CRO market in China will show trends such as continuous expansion of business scope, accelerated domestic CRO mergers and acquisitions and global expansion, innovation in business models, and emerging partnership models.
03Unbinding of MAH System & "R&D + Production" Drives Growth in China's CDMO Industry
After the implementation of the MAH system, pharmaceutical R&D enterprises can become drug marketing authorization holders and outsource drug production to CDMO enterprises. The MAH system has unbound the original 'R&D + production' system, reduced the costs required for pharmaceutical R&D institutions or individuals in drug production, promoted the enthusiasm for drug R&D, and driven a new growth point in CDMO services.
Benefiting from the pilot implementation of the MAH system, the market scale of China's CDMO industry has been steadily growing since 2015. In the future, with the full liberalization of the MAH system, it is expected that its market scale and share in the global market will continue to grow steadily.
04One-stop CXOs have stronger capabilities in acquiring and retaining customers
In recent years, Chinese CXOs have expanded their influence at home and abroad by acquiring companies in the domestic and international pharmaceutical biotech sectors through mergers and acquisitions. They absorb advanced technologies and experiences from target companies and diversify their services. Ranked by market value at present, the top companies in China's CXO sector include WuXi AppTec, Tigermed, Kanglun Chemical, and Cailaiying, among which WuXi AppTec holds an absolute leading position in the Chinese CXO industry.
CXO services provide pharmaceutical companies with a new option to focus on their own advantageous projects. The diverse and personalized service needs of pharmaceutical companies will drive continuous innovation and improvement in the CXO service model. Among them, one-stop CXO has better capabilities to meet the customized services of pharmaceutical companies. It can provide necessary R&D facilities, GMP manufacturing plants, and relevant talents for small pharmaceuticals, biotech startups, and virtual pharmaceutical companies, helping small companies bring products to market; some large pharmaceutical companies also cooperate with small ones to expand their business, which is expected to stimulate their cooperation with CXO to make up for technical or capacity shortages. On the other hand, the close connection between one-stop CXO and customers throughout the entire lifecycle and its ability to control various costs enable it to strengthen customer loyalty.
