"Faster, more, cheaper, better" – these four words once vividly characterized the landscape of China's innovative drug R&D. But when shifting perspective from R&D to manufacturing, does this label still hold true?

 

On May 14, Cheng Zengjiang, founder of TONACEA, and Zhou Kaisong, General Manager of CBP (Innovent Biologics), engaged in an open and candid conversation about China's biologics CDMO industry on the "TONACEA Live" podcast.

 

 

China's biologics CDMO industry has been forged under pressure from the national reimbursement system. They have completed comprehensive upgrades across processes, supply chains, and quality systems under extreme cost pressure, and in the wave of globalization, they have learned to win international clients through quality and delivery. They do not seek the limelight but are content to be behind-the-scenes heroes. As Zhou Kaisong put it: "We are like the Sherpas – carrying luggage, guiding the way, helping others reach the summit."

 

TONACEA 01: Two Different Logics of Survival

 

From cost pressure, to the interplay of quality and delivery in the wave of globalization, to strategic positioning in the shadow of geopolitical uncertainty, Chinese CDMOs are simultaneously experiencing the "extreme cost tempering" of the domestic market and the "rigorous quality testing" of overseas markets, seeking a balance for survival and growth between two distinct demand logics.

 

Chinese CDMOs face a highly polarized market, and the core challenge lies in simultaneously meeting the vastly different demands of domestic and international clients.

The key word for the domestic market is "extreme cost." This pressure does not stem from clients' deliberate demands but from a top-down systemic force.

 

Due to the national reimbursement system's "volume-for-price" payment logic, drug prices have been compressed to extremely low levels. Zhou shared a case: a 150mg PCSK9 inhibitor with an autoinjector is priced at just over RMB 280. Using the industry's 15% cost-of-goods-sold (COGS) ratio as a guideline, this implies the manufacturing cost must be controlled at around RMB 20-30 – "not even enough to buy the packaging," he said.

 

Under this pressure, CDMOs have developed a "cost back-casting" instinct. Before a project even starts, they precisely define the upper limits for key parameters such as expression levels, yield, and material costs based on the expected selling price, then use process optimization and localization of the supply chain to turn these seemingly impossible targets into reality.

 

If the core demand of the domestic market is "cost saving," the focus of overseas clients is entirely different. "Cost is hardly a primary concern for international clients," Zhou noted. Because drug prices in overseas markets offer much more room, when the COGS ratio is already in the single digits, the marginal benefit of further compression is minimal.

 

What international clients truly value are two other factors: whether the quality system can pass rigorous regulatory audits, and whether delivery speed can meet clinical and commercial timelines. For early-stage clients, speed is everything – rapidly generating clinical data to demonstrate value to investors is paramount. For clients in the commercial stage, the quality system and reliable supply become critically important, as a single failed regulatory audit or supply disruption could cause a dramatic drop in the company's stock price.

 

The definition of "experience" is also more stringent. Zhou pointed out that a mature CDMO should not just be one that has "successfully completed 100 batches," but one that has "experienced countless problems and possesses mature solutions." This high level of risk management capability itself becomes the ultimate competitive moat.

 

TONACEA 02: The "Behind-the-Scenes Hero"

 

Caught between the demands of two different markets, Chinese CDMOs have instead undergone a unique tempering, completing a dual transformation from passive pressure to proactive evolution.

The relentless pursuit of cost has paradoxically sharpened technological prowess. "The demands for cost control in China have trained us," Zhou admitted. The extreme pursuit of higher expression levels, better yields, and localized alternatives has itself become a source of technological competitiveness. Moreover, this capability has fostered a unique "behind-the-scenes hero" culture within the industry.

 

He compared the role of a CDMO to that of the Sherpas – the people who carry luggage and act as guides for mountaineers on Everest but never stand on the summit themselves. "Developing a new molecule can make a stock price go up. Exceeding sales expectations can also boost a stock price. But doing CMC well has never made a stock price rise. What we can do is, when things aren't done well, prevent the stock price from falling." This "no news is good news" positioning demands a high level of professionalism and stability, making the CDMO a client's most reliable "foundation."

 

Meeting the high demands of overseas markets has catalyzed a qualitative leap in capabilities. This transformation is evident not only in the internationalization of quality management systems but also in the proactive anticipation of industry trends.

 

Zhou observed a notable technological shift: with the formation of a "two-wheel drive" pattern of oncology and non-oncology drugs, formulation innovation is replacing bulk drug substance production as the next core battleground. Chronic disease drugs for weight loss, lipid control, and other conditions require patients to self-inject at home, presenting unprecedented challenges for drug delivery devices (such as prefilled syringes, autoinjectors, and pens) and high-concentration formulation technologies.

 

Simultaneously, proven technologies from the small molecule field, such as sustained-release and long-acting formulations, are beginning to migrate to the large molecule field to address medication adherence challenges. This "technological high ground" waiting to be explored is attracting leading CDMOs to transform from a "capable of producing" to a "capable of innovating" mindset, thereby capturing higher value positions in the global competitive landscape.

 

TONACEA 03: A New Equilibrium

 

Although Chinese CDMOs have achieved global competitiveness in cost, speed, and quality, geopolitics remains the biggest variable on the path to globalization.

 

Zhou candidly stated that the "uncertainty" in Sino-U.S. relations itself constitutes a risk. For projects in the commercial stage, clients are extremely sensitive to supply chain security, asking, "What if Sino-U.S. relations break down and we face a supply interruption?" This concern has not completely halted the internationalization of Chinese CDMOs, but it has indeed affected the structure of orders.

 

Early-stage projects are less influenced by geopolitics, as clients prioritize efficiency and cost-effectiveness. However, once a project enters the commercial stage, clients often demand backup suppliers or overseas manufacturing capacity. "You are the primary supplier, but I need to find another backup, or you need to establish a presence in another country." Zhou believes that for leading Chinese CDMOs to truly go global, they must seriously consider establishing overseas manufacturing facilities to alleviate client concerns about political risk.

 

Regarding the issue of overcapacity, Zhou offered a dynamic perspective. Using the PCSK9 product as an example, he noted that when it first launched, annual sales were only a few hundred thousand units, and indeed equipment capacity was excessive. However, later, due to a competitor's exit and a surge in market demand, annual sales suddenly jumped to tens of millions of units, and capacity became tight.

 

"It depends on the product. If you can capture a significant share of the market, volume will naturally increase." He believes the path forward for domestic CDMOs is not blind capacity expansion or low-price competition, but whether they can help clients grow the market for their products. This returns to the core value of a CDMO – through meticulous process development and reliable commercial manufacturing, supporting clients to survive in the high-volume, low-price domestic market while also earning trust in the higher-margin overseas market.

 

Conclusion

 

At the conclusion of the dialogue, Zhou summarized CBP's three major strategic directions:

 

1. Holding the cost line in the domestic market: Through process optimization and localization of the supply chain, ensure clients can still generate profit under reimbursement pricing.

2. Strengthening quality systems and rapid response for international clients: Especially in early clinical stages, winning collaboration through speed and deep experience.

3. Gradual overseas capacity build-out for global commercial needs: To hedge against geopolitical risks.

 

China's biologics CDMO industry has been forged under pressure from the national reimbursement system. They have completed comprehensive upgrades across processes, supply chains, and quality systems under extreme cost pressure, and in the wave of globalization, they have learned to win international clients through quality and delivery. They do not seek the limelight but are content to be behind-the-scenes heroes. As Zhou Kaisong put it: "We are like the Sherpas – carrying luggage, guiding the way, helping others reach the summit."

As Chinese innovative drugs step onto the global center stage, these CDMOs, which silently support every step "from molecule to medicine," are becoming an indispensable force in the entire ecosystem. Amid multiple waves of formulation innovation, two-wheel drive growth, and global expansion, their story has only just begun.