Goldman Sachs: Asian CDMOs enter a structural growth cycle, peptides, ADC, oligonucleotides, and AIDD become new engines

The Zhitong Finance App learned that Goldman Sachs will host the 2nd Asian Healthcare CDMO (Contract Development and Production Organization) Day in Singapore from September 23 to 25. The three-day event attracted more than 100 institutional investors and 11 companies, including Pharma Pharma (02359.HK), Pharma Biotech (02269.HK), Kanglong Chemical (03759.HK), Gloria Ying (06821.HK), Tiger Pharmaceuticals (03347.HK); Piramal Pharma, Neuland Labs, and Laurus Labs from mainland China.

Goldman Sachs pointed out in a report released on September 29 that industry discussions have moved from “speed of recovery” to “sustainability for the next growth cycle.” Improved pre-clinical and safety assessment requirements, continued order momentum, and increased commercial production exposure all point to a more durable demand environment. Emerging growth drivers such as peptides, ADCs (antibody-conjugated drugs), oligonucleotides, biosimilars, and AIDD (Artificial Intelligence Driven Drug Discovery) are jointly broadening outsourcing business opportunities. More importantly, management is no longer preparing for a recovery, but is investing in the next round of structural growth.

Improved visibility of global demand outweighs geopolitical concerns

Goldman Sachs pointed out that one of the clearest observations of the Asian CDMO Day event was that outsourcing demand across regions, models, and development stages all showed a broad recovery. Management generally mentioned accelerated order acquisition, strong growth in backlog orders, and improved commercial visibility. Global CRO/CDMO peer Q2 results also showed an encouraging recovery in discovery, pre-clinical, and safety assessment activities.

Goldman Sachs believes these front-end service improvements are particularly important because they are a leading indicator of future development and production needs. Coupled with ongoing M&A, licensing, and business development (BD) activities in the pharmaceutical industry, the recovery appears to be more widespread and sustainable, helping to increase visibility over the next few quarters.

Furthermore, the geopolitical views of regional companies are divided. CDMOs in India, Taiwan, and South Korea continue to attribute some recent orders to supply chain diversification; mainland Chinese companies generally report limited impact of geopolitical developments on customer demand.

Instead, supplier selection is increasingly driven by capacity, quality, speed, and capacity availability. Several companies emphasized that limited European production capacity and extended delivery cycles, particularly for small molecule API products, are driving incremental outsourcing to Asian manufacturers. Biologics customers continue to pursue dual-source strategies to enhance supply chain resilience, and DP (formulation and filling) activities continue to lean towards nearshore outsourcing due to regulatory, logistics, and customer proximity considerations.

The short-term impact of the Fed's rate hike is limited, and innovative activity drives demand

The recent interest rate hike by the Federal Reserve is generally regarded as having little impact on short-term demand trends. Most management said it's still too early to see if customer behavior has changed meaningfully. More importantly, current demand is less driven by incremental biotechnology IPOs, and more from underlying innovation activities, including pharmaceutical mergers and acquisitions, licensing deals, business development deals, and accelerated R&D pipelines.

AIDD is gradually becoming an important driver of growth, especially among CRO/CDMO companies in China. Although AIDD's direct contribution to most companies is currently limited, management is increasingly expecting AIDD to expand future outsourcing opportunities by accelerating molecular creation and development activities. In contrast, regional peers such as India and Samsung Biotech continue to view AIDD as a long-term opportunity and pay more attention to using AI to improve operational efficiency.

Capital expenditure accelerated again, focusing on peptides, ADCs, oligonucleotides, and overseas expansion

Goldman Sachs pointed out that compared to a year ago, capital expenditure has changed significantly. Chinese and Indian management are clearly more active in investment plans, reflecting growing confidence in the transformation of the project backlog and medium-term demand prospects. Incremental investments are mainly focused on peptides, ADCs, oligonucleotides, and overseas expansion.

Notably, several companies acknowledge that capital discipline may have limited growth opportunities before, and are now stepping up the pace of investment to seize the next outsourcing cycle. Samsung Biotech is expected to announce the opening of the sixth plant before the end of the year, further strengthening the industry's confidence in the fundamentals of demand for biological products.

Emerging therapies are still a key growth engine, and growth momentum is spreading from GLP-1 to more racetracks

Peptides are the most discussed topic, yet the corporate positioning is increasingly divided between leaders and followers. Large established companies such as Pharmaceuticals Kangde and Gloria Ying are still focusing on large-scale commercialization opportunities, particularly obesity-related projects; second-wave entrants such as Neuland, Laurus, and Kanglong Chemical are establishing early pipelines and exposure to indications other than GLP-1. Samsung Biotech has further validated the appeal of this model with the acquisition of polyPeptide.

In addition to peptides, ADC is still one of the most confident growth topics, and related discussions are shifting from platform construction to commercialization and expansion of production scale. Pharmaceutical Alliance is one of the biggest beneficiaries of the acceleration in ADC outsourcing demand, while Samsung Biotech continues to expand to end-to-end ADC solutions. Oligonucleotides are becoming the next major investment area, particularly favored by China's CDMO, and DP/formulation capabilities are increasingly seen as a strategic asset for deepening customer relationships and increasing commercial value. Biosimilars are also receiving more attention this year, especially among CDMO companies focusing on biologics, due to increasing technology transfer and commercial production opportunities.

Overseas expansion and mergers and acquisitions are still important agendas; the US is the focus

Goldman Sachs pointed out that overseas expansion and mergers and acquisitions are still important agendas, especially in the US. Organic investment is still the dominant strategy, but several regional companies are still evaluating acquisition opportunities to strengthen formulation, filling and customer service capabilities. In addition to market entry, companies are paying more and more attention to strategic factors such as talent introduction, technology acquisition, and proximity to innovative customers.

Several companies discussed exploring greenfield development and merger and acquisition opportunities in the US, focusing on capacity expansion rather than large-scale production. Borui Pharmaceutical continues to seek overseas expansion to enhance dosage form development and customer service capabilities. Samsung Biotech's recent acquisition of the Rockville plant also reflects the industry's growing interest in expanding geographical coverage and customer proximity while complementing the existing Asian manufacturing network. The overall industry trend is gradually favoring the combination of Asian manufacturing scale and selective Western layout to achieve collaborative development in the fields of customer interaction, pharmaceutical product services, and professional technology.

Stock selection preferences: focus on early R&D and emerging therapies

From a stock selection perspective, Goldman Sachs is increasingly favoring companies with greater exposure to early R&D activities and emerging therapies, rather than just companies benefiting from traditional commercial manufacturing. The recent resurgence in discovery, preclinical, and safety assessment requirements is particularly encouraging, as these activities are generally leading indicators of future development and production revenue.

In this context, Goldman Sachs believes that Pharmaceutical Syndicate, Kanglong Chemical, and Tiger Pharmaceuticals are in an advantageous position because they invest more in early innovation activities, improve order growth momentum, and involve emerging growth themes such as AIDD, ADC, and next-generation biological products.

Goldman Sachs also continues to focus on catalyst-driven investment opportunities. Samsung Biotech is still one of the key companies worth paying attention to. Potential catalysts include large order announcements and the official announcement of the sixth production line; Gloria Ying is a key beneficiary of accelerated demand for polypeptide outsourcing; Pharmacoming Kangde is still one of the targets with the greatest elasticity in the global commercial volume of GLP-1 and demand for TIDD (peptides and oligonucleotides); and Kingsley is expected to benefit from increased demand for AIDD in the field of gene and protein synthesis.

At the same time, Goldman Sachs still has a constructive view of Lonza, mainly because of its solid commercial operation record and strong profit resilience. Divi's Laboratories is expected to benefit from continued growth in demand for peptide outsourcing. Meanwhile, Thermo Fisher's Patheon platform is still in an advantageous position and is expected to benefit from the return trend of the US manufacturing industry, especially small and medium-sized biopharmaceutical companies that are unable to build their own dedicated production facilities.