CXO Firms Accelerate Overseas Investment & Expansion

In 2023, the overseas biopharmaceutical industry has experienced a gentle resurgence in investments and financing activities, with the total amount reaching an impressive $45.3 billion as of November 5. This figure surpasses the total of $41.7 billion recorded in 2023 and $44.2 billion in 2022. The increasing vibrancy in overseas investment activities indicates a notable recovery, particularly within the domestic CXO (Contract Research Organization) sector, where many companies noted an uptick in their overseas business during recent communications with investors. This renewed focus on international ventures reflects a strategic shift as companies aim to solidify their foothold in global markets.

Industry leaders have reported robust growth in their international revenue streams. For example, on November 26, Xiaozhi Hua, the chairman of Aopuhai, highlighted during the company’s third-quarter earnings presentation that overseas revenue soared by 196.48% compared to the previous year, underscoring both the quality of their products and the global clients’ confidence in their brand. Meanwhile, Medicy has indicated that nearly 36% of its revenue in the first three quarters of 2024 came from overseas clients, showing a significant year-on-year increase in international orders.

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An analysis of the leading enterprises’ third-quarter reports reveals a strong performance in overseas orders. For instance, as of September 2024, WuXi AppTec reported total orders of 43.82 billion RMB, reflecting a growth of 35.2% year-on-year. In particular, orders from the top 20 global pharmaceutical companies generated 11.22 billion RMB, representing a growth of 23.1% once specific commercial production projects were excluded. Revenues from U.S. clients hit 17.62 billion RMB, marking a 7.6% increase, while European clients contributed 3.53 billion RMB—up 14.8%. Conversely, revenues from Chinese clients saw a decrease of 3.9%, echoing pressures within the domestic market.

Similarly, Kanglonghua has noted strong demand from overseas pharmaceutical firms, indicating a pronounced recovery in the sector. Despite facing pressures domestically, primarily due to low service pricing, the growth in foreign orders can be attributed to the initiation of new small-molecule CDMO (Contract Development and Manufacturing Organization) projects and the maturation of previous projects now entering clinical phases II and III, thereby increasing production demand.

Industry analysts at CITIC Securities have noted that while domestic orders remain challenging due to various market pressures, overseas orders are showing a strong recovery. By the end of September 2024, WuXi AppTec noted an order backlog of 43.8 billion RMB, with a continuous increase in new orders for other firms like Kailaiying and Tigermed, both of which maintained double-digit growth rates.

With ambitions to expand their global presence, many CXO companies are actively exploring overseas markets. Medicy has committed to strategic acquisitions and enhancing laboratory capabilities across critical areas in the U.S., Europe, and Asia-Pacific. According to their recent earnings call, the company's business development (BD) team has expanded to nearly ten members in the U.S. alone. The focus now includes improving communication between overseas BD teams and domestic research teams, as well as establishing an effective client intelligence system to better manage customer relations.

In a similar vein, InnoSense emphasized its dedication to international expansion, marking a significant turning point by establishing its fully owned subsidiary, InnoAlliance Inc., in the U.S. in March 2024. This step illustrates the company’s commitment to building a robust global presence and intensifying competitiveness in the context of the global new drug market.

There is a growing emphasis on the European market, showcasing the industry’s strategic reorientation toward significant regions. Kailaiying, for instance, highlighted their recent findings from over a hundred institutional inquiries regarding their overseas operational capacity. They announced the completion of a UK-based research and development site aimed to bolster their international capabilities while exploring additional small-molecule commercialization opportunities.

Amidst these developments, market analysts are optimistic about the recovery trends within the CXO sector. Several market research firms project that with the easing of interest rates on the dollar, the biopharmaceutical industry is on a solid upward trajectory concerning investments. As of November 5, 2024, the total investment in overseas biopharmaceuticals surpassed $45.3 billion, indicating a more than favorable shift compared to both 2022 and 2023.

Haitong Securities has remarked on the general upward trend in overseas investments, while domestic activities seem to be stabilizing after encountering earlier turbulence. There is a consensus among analysts that the CXO sector is poised to enter a phase of renewed growth, potentially reestablishing its successful momentum by 2025. The continuation of supportive policies for innovative drug development within China is expected to breathe new life into the domestic biopharmaceutical landscape, with hopes that investment will rebound as the industry responds proactively to global demands.

With the overall recovery evident across most CXO firms—reflected in increasing order volumes and positive trends in contract liabilities—there seems to be ample reason for optimism regarding the future of the biopharmaceutical sector, both domestically and internationally. The combined effect of increased biopharmaceutical investments and the strategic internationalization of domestic firms clearly indicates that the industry is gearing up for not simply recovery but potentially a substantial growth spurt in the coming years. The commitment among leading players to invest in capabilities and resources to expand internationally may be the key to unlocking new avenues for growth and ensuring their positions in a competitive global environment.