Decrypting the

DNA of CRDMOs
VQ Deep Dive
January 2025

Authored by:
Sameer Shah • Darshan Engineer • Dhara Ganatra
Executive Summary
India's pharmaceutical industry has long been a global powerhouse in generic formulations,
meeting an impressive 25–40% of the generic drug requirements in regulated markets like
the US and UK. However, the story of Indian pharma is evolving, with a growing opportunity to
establish itself as a key player in Pharma R&D outsourcing through the burgeoning Contract
Research, Development, and Manufacturing Organization (CRDMO) industry.

A New Chapter in Indian CRDMO Growth

While India's current share in the global pharma R&D outsourcing market is less than 5%, the
trajectory ahead looks promising. A combination of global supply chain disruptions, the need
for diversification by innovators, increasing maturity of the Indian ecosystem, and regulatory
support are all creating tailwinds for exponential growth in this sector. However, success will
not be uniform across the entire R&D value chain. India has a clear "Right to Win" in select
areas:
• Contract Research Outsourcing (CRO): India is poised for robust growth in this space,
leveraging its cost-efficient scientific research capabilities and abundant talent pool.
• Small Molecule API Development and Manufacturing: With multinational innovators
actively diversifying away from China, India’s strong API manufacturing capabilities
position it as a reliable and cost-effective alternative for small molecules.
In other segments, such as biologics (large molecules) and clinical trial outsourcing, the
Indian industry lags global peers. Scaling these areas will require coordinated efforts from
the industry and robust government support.

Building an Ecosystem for Leadership

The Indian CRDMO ecosystem is already taking decisive steps to capitalize on the
opportunities ahead. Companies are expanding capacities through brownfield and
greenfield projects, acquiring niche players with biologics expertise, and improving quality
systems and compliance frameworks. At the same time, the Government of India’s
Production-Linked Incentive (PLI) schemes and other support initiatives are bolstering the
industry's growth potential.

A Differentiated Path to Global Leadership

India’s CRDMO growth story will be driven by a select group of companies with differentiated
capabilities and innovative approaches. These "winners" will not only outpace the broader
market but also position India as a trusted global partner in Pharma R&D.

The journey ahead is ambitious, but with the right mix of focus, investment, and strategic
intent, the Indian CRDMO industry is set to play a transformative role in shaping the future of
global pharma.

VQ Deep Dive: Decrypting the DNA of CRDMO 2

Outlay of the Newsletter
I. Pharma R&D is a Long and Risky Journey ……. 4
II. Drug Development Faces Complexity and Rising Costs ……. 5
III. Rising R&D Costs Create Challenges and Speed Bumps ...…. 9
IV. CRDMOs Streamline Costs and Accelerate Progress .…. 12
V. China’s Rise in CRDMO Has Shaped World Pharma .…. 18
VI. BioSecure Act To Reduce the China Dependency? .…. 22
VII. De-risking Dependence Requires New Alternatives .…. 25
VIII. Learnings from Global CRDMO Success Stories .…. 26
IX. India’s Opportunity To Lead in CRDMO .…. 29
X. Conclusion .…. 39

XI. Annexure .…. 41

VQ Deep Dive: Decrypting the DNA of CRDMO 3

Pharma R&D
is a Long and Risky Journey
The pharma R&D value chain starts with developing compounds (chemical or biologics) in
the laboratory and then testing their efficacy against a particular ailment at three levels—
laboratory, animal, and finally, human trials. A new drug needs to go through extensive
testing and regulatory review at each stage to examine and verify its safety and efficacy
before it is approved for market release.

Therefore, the entire process, from the discovery stage to commercialization, is time-
consuming and takes several years due to the vast amount of data that needs to be collected
and analyzed before moving to the next stage. On average, the process typically takes more
than 10 years.

Moreover, the success rate is low when progressing from one stage to the next, as compounds
can affect the human body in ways that are difficult to predict at the laboratory stage.

Chart 1: The Pharma R&D Value Chain

Drug Clinical Trials:

Preclinical Approval Phase IV
Discovery Phase I – Phase III

Phase I Phase II Phase III

Screening One
from 10,000+ ~250 compounds ~5 compounds
Marketed
compounds Drug

NDA

IND

1-2 years 2-4 years 6-7 years 0.5-2 years 8 years

US$400-450m US$200-250m US$70-80m US$180-200m US$400-500m

Sources: Wuxi AppTec, CLSA, Valuequest

The process is also costly, as each stage requires several hundred million dollars to
complete. On average, it costs USD 1.5–3 billion over the entire duration of 9–12 years.

Furthermore, the success rate for developing a new drug from discovery to approval is
extremely low at less than 0.01%. Only a small fraction of experimental drugs, ranging from
one in 10,000 to 15,000, successfully progress from preclinical trials to regulatory approval
and commercialization.

VQ Deep Dive: Decrypting the DNA of CRDMO 4

Drug Development Faces
Complexity and Rising Costs
Learn more about Chemicals Biologics

In Terms of Drugs Learn more about Chemicals & Biologics

In last 10 years, advances in technology, synthetic methodology, and new areas of biology
have opened more opportunities for innovative and creative biologics drugs. Modulating
RNA splicing, stimulating specific types of stem cells, and developing drugs with antibody or
peptide conjugates, are just a few examples. The below chart emphasizes the progression
of therapeutic technologies in terms of maturity, showcasing a shift from emerging concepts
to advanced and established treatments with a growing number of applications in the
pharmaceutical landscape.

Chart 2: Drug Development Trends

Low Technological Maturity High

Mature
Advancing
Emerging Expanding to cover different
Technology advancing to cover mechanisms of action and
Proof of concept to demonstrate different treatment areas and improve convenience
value for initial clinical applications address wider clinical profiles
Small
PROTACs CAR-T molecule
Microbiome
yδT TILs Biospecific ADC
therapies Recombinant
Oncolytic virus antibodies
mRNA protein Monoclonal
Gene RNAi and
TCR-T (therapeutics therapy antibodies
CAR-M And vaccines) Stem Cell oligos
mRNA
therapy
(prophylactic vaccine)
CAR-NK Gene editing

Stem
Other emerging Oncolytic Biospecific mRNA Gene RNAi/ Recombinant Small
cell CAR-T ADC mAb
modalities virus antibodies vaccine therapy oligos protein molecule
therapy

Marketed products 0 66 4 3 8 17 18 19 42 140+ 500+ 37,000+

Global pipeline
300+ 252 333 76 713 537 682 577 3,300+ 14,000+
(early-stage xx
(99%) (92%) (92%) (97%) (94%) (92%) (96%) (85%) (82%) (81%)
activities)

Sources: Evaluate Pharma, BCG

Hence, a majority of incremental R&D spend is towards Biologics using emerging

technologies such as Anti-Drug Conjugates (ADC), Cell and Gene Therapies (CGT),
Oligonucleotides, RNA/DNA, etc.

According to a recent Frost & Sullivan report on CRDMO industry, the biologics market (at
35% of total pharmaceutical market by revenue in 2023) is forecasted to reach USD 752.1
billion by 2028, from USD 480.0 billion in 2023, at a CAGR of 9.4%, faster than overall
pharmaceutical market. This change will be driven by increasing adoption of innovations
such as immunotherapies, antibody-drug conjugates, and gene and cell therapies.

VQ Deep Dive: Decrypting the DNA of CRDMO 5

Within small molecules, R&D spend is mainly happening in areas of High potency APIs. High
potency APIs use precision targeted medicine, needing a much lower dosage administration
and volume to treat the same diseases. This is against the existing usage of small molecules
with a one-size-fits-all approach.

In Terms of Therapies
4 major therapies dominate the R&D efforts of the pharma ecosystem – Oncology (cancer),
Neurology (central nervous system related ailments), Endocrinology and Metabolism
(Diabetes, Obesity, etc.), and Immunology (Immune system). Around 80% of the total
clinical trials happening in the space are related to drugs which attempt to solve for unmet
needs in these therapies. Oncology related R&D has seen strong growth in last 10 years, with
an increasing focus on innovative mechanisms of action. Neurology has seen significant
growth in trials (to 500+ over last 5 years) to treat neurodegenerative, neuromuscular, and
psychiatric disorders. The largest share of trials in neurology remains that of Alzheimer’s and
Parkinson’s diseases. Metabolic/endocrinology include diabetes, obesity and NASH have
had a near doubling of number of trial activities around weight loss drugs in last 5 years
(focused majorly on GIP/GLP glucagon receptor agonists).

In Terms of Geographies
Pharma R&D spending is mostly driven by USA and European companies. In absolute
terms, they account for >60% of total R&D spends and clinical trials. Prominent R&D
innovation hubs in USA include Boston, Cambridge, Massachusetts, New Jersey, New York,
and Chicago. Other prominent R&D hubs across the world include Manchester, London,
Cambridge, etc. in UK, Paris in France, top cities in Japan and Switzerland. Interestingly, post
reforms, China is also emerging as an innovation hub in recent years.

Chart 3: Number of Phase I to III trial starts based on company headquarters location, 2008-2023

Source: IQVIA Global Trends in R&D 2024

VQ Deep Dive: Decrypting the DNA of CRDMO 6

In Terms of Company Size (revenue)
In the last 15-20 years, emerging biopharma companies (small innovators) have seen a
meaningful growth in the overall R&D product pipeline. According to IQVIA, emerging
biopharma (EBP) companies accounted for 73% of late-stage research in 2018, compared
to 50% in 2003. Moreover, 84% of all early-phase research was conducted by emerging
biopharma in 2018. These firms conducted 65% of all clinical trials and have more trials
underway than large pharmaceutical companies across all phases. The number of
molecules being developed by EBP has also been increasing annually over the past few
years. In 2018, there were ~ 8,700 products or programmes in active development, ranging
from discovery to registration, of which EBPs developed 80%. Since these firms operate on a
lean cost structure and rely on external funding to run their R&D programs, they do not have
their own facilities and outsource practically most non-core functions to CROs and CDMOs.

Chart 4: Number of New Active Substances by company type 2014-23 & Past and Future CAGR of R&D, Pharma

14%
2017-22 CAGR 2022-27E CAGR
12.1%
11.8%
12%

10%
7.9%
8% 6.8% 7.1% 6.9%
6.4%
6% 4.9%

4%

2%

0%
Global R&D Large Pharma Mid-sized Small pharma/
Spend Pharma biotechs/
Non-EBP Originated EBP Originated virtual pharma

Source: IQVIA Global Trends in R&D 2024 Source: Frost & Sullivan

Other Areas of R&D

A rise in complexity of design and development of drugs also implies more steps in
manufacturing which in turn necessitates more innovation in manufacturing processes.
The aim of process R&D is to improve unit productivity, enhance product quality, reduce lead
times and lower capital and operating costs.

Several new technologies have emerged in recent years to improve the quality, consistency,
and efficiency of products while reducing the need for labour. Some of the prominent new
technologies used in manufacturing of pharma products include – continuous flow
manufacturing, single use manufacturing, automation, particle engineering, newer
alternative materials, innovations in capsule design and packaging, electroporation /
nucleofector technology, etc.

VQ Deep Dive: Decrypting the DNA of CRDMO 7

These technologies introduce modularity in manufacturing to provide batch size flexibility
(scale up / down capability through different stages of testing & commercial production.

Use of Information Technology

All of this is backed by the increasing use of software and tools such as data analytics,
Artificial Intelligence (AI), Machine Learning (ML), etc. for drug discovery and patient cohort
identification. 2021 saw 100+ drug and biologic application submissions using AI
technologies. Recognising its importance, USFDA released a paper in May 2023 for
stakeholders to discuss the use of AI/ML in drugs and biological product development. The
proof of the pudding is in the fact that the last few years have seen several large multi-billion
dollar deals occurring in this space with large pharma companies acquiring AI-based pharma
innovator companies.

Chart 5: AI/ML Contribution to the Pharma Industry

Source: IQVIA

Source: IQVIA

VQ Deep Dive: Decrypting the DNA of CRDMO 8

Rising R&D Costs Create
Challenges and Speed Bumps
Pharma R&D spend is being driven by emerging biotech innovators in USA and Europe to
solve unmet clinical ailments with the use of latest generation drug modalities and
manufacturing technologies.

Most of these innovators are start-ups founded by small scientific teams who have novel
concepts in mind but not the financial resources to carry out the expensive drug
development activities. Thus, they are dependent on external funding to take them from
concept to commercialisation. A lack of budget and funding has been one key reason for
the slowdown in R&D activities in the past. Regulatory hurdles or lack of scientific activities
are not the detractors here. In the past, 3,000+ compounds have been shelved because of
lack of funding.

Angel investors and Venture Capital are most critical to early-stage start-ups whereas PE
and listed M&A investments are mostly directed towards late-stage companies who have
a few molecules in phase 3 trials. This is where the macro interest rate environment plays a
key role. Lower and stable interest rate environment is most conducive to biotech
funding.

Recent quarterly trend reflects the challenges as well as volatility in the funding
environment, driven in part by higher interest rates across the world leading to higher cost of
funding. However, when looked on longer time frames, funding has started to pick-up
again which should augur well for improvement in R&D spend.

Chart 6: Funding has started to pick-up again which should augur well for R&D spend improvement

Biotech Funding (US$ mn)

30000 6
25000 5 200000 100.0%
20000 4
15,420 150000 50.0%
15000 3
10000 2 100000 0.0%

5000 1
50000 -50.0%
0 0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 0 -100.0%
2014
2005
2006
2007
2008
2009
2010
2011
2012
2013

2015
2016
2017
2018
2019
2020
2021
2022
2023
2024

2018 2019 2020 2021 2022 2023 2024

Biotech Funding (US$ mn) (LHS) Average Funding (LHS)

Interest Rates IPO FO VC

PIPES USD Mn (LHS) Growth YoY % (RHS)

Source: VQ, Jefferies

However, more importantly, capital providers are being increasingly choosy about which
projects they fund.

VQ Deep Dive: Decrypting the DNA of CRDMO 9

The environment is characterized by haves and have-nots. New molecule identification has
taken a backseat with slow movement in early stages of the life cycle. Timelines have
increased from RFP stage to the project awarded stage. Innovators are taking time between
and within stages to evaluate the risk-reward at various points.

The ones who have a clear inexpensive path to the next milestone (those in late-stage Phase
2 and 3 trials, with good clinical data and outcomes from previous rounds, having high-
conviction molecules) are able to raise oversized capital rounds.

This is leading to fewer but larger deals in the space. Even then, deployment is slower than
before. Innovators are quick to forego further stages if data or outcomes do not show the
requisite positive signals. This has lead to higher drop-out rates and moderation in clinical
trial starts. This is most evident in the M&A environment where large pharma companies are
acquiring promising innovator companies having a few molecules with good P2/P3 clinical
trial outcomes for billions of dollars (with most of them in areas of Oncology and Neurology).

Innovators Incur Higher R&D Costs

Pharma R&D pipelines have grown at ~8% CAGR over the past 5 years, reaching ~20,000
molecules by CY23. However, new commercial launches have remained flat at ~55 annually,
reflecting a poor success rate. Success rates have declined from 0.5% in 2018 to ~0.3% in
CY23, with drops seen across therapies, drug types, company sizes, and discovery phases
(source – Frost and Sullivan).

Key reasons for the poor success rate include -

1. Rising Increasing complexity of drugs being developed and therapies
2. Increasing complexity of trials which must take into account multiple factors
(number of subjects, eligibility, countries, sites, age group, availability, etc.), and
3. Increasing duration of trials at various stages

Chart 7: R&D composite success rate and average phase success rates Phase I to filing, 2010–2023

87% 88% 88% 94% 92% 87% 92% 90% 90% 87%
85%
81%
74% 81% 76% 2019-2023 regulatory
70% 70% 71%
65% 64% 66% 66% submission
62%
57% 63% 58% 55% Phase III - avg 56%
58% 61% 54%
57% 56% 57% 49% 48%
54% 52% 52% 53% 48% 46% Phase II - avg - 36%
38% 38% 41% 45% 40%
37% 37% 37% 39% 35%
29% 24.5% 33% 34% 39%
39% Phase I - avg 45%
10.5% 12.2% 12.0%
15.0% 13.5% 16.1% 11.5% 10.8%
7.5% 8.8% 6.4% 6.0% 5.9%
Composite success -
avg 7.6%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: IQVIA

VQ Deep Dive: Decrypting the DNA of CRDMO 10

Thus, the R&D process is time-consuming, capital-intensive and risky. The success rate of
developing a new drug from drug discovery to approval is extremely low, and if failure risk is
taken into account, average R&D costs of a marketed innovative drug may reach USD 3-4
billion, according to Frost & Sullivan.

The cost of developing a new drug has doubled every 9 years since 1950. The average cost
to develop and commercialize a new drug today (R&D to marketplace) is nearly USD 3-4
billion, a 10x increase since 1970s. Money spent developing just one successful drug
today is equivalent to the cost of developing 90 drugs in 1950s, even after adjusting for
inflation. Timelines from drug discovery to commercialization have more than doubled from
an average of 6 years in the 1970s to 13-14 years in the 2010s.

The last 2-3 years saw a modest reduction in R&D cycle times and a decline in average cost
of developing a drug as industry adopted some novel trial designs and made improvements
in efficiency through digitization of drug discovery and development. Overall, returns on R&D
investment have been on a decline for innovators.

Chart 7: R&D cost per approved drug

3.0 Pre-human Clinical US$ 1.5-3bn

2.5
2.0
57%
US$ bn

1.5 US$ 1-1.2bn

1.0
US$ 400-450mn 58%
US$ 150-200mn 43%
0.5 33%
39% 42%
61% 67%
0.0
70s - early 80s 80s - early 90s 90s - mid 00s 00s - early 20s

Source: Goldman Sachs

Apart from the extended timelines and complexity, the cost of manufacturing and complying
with regulations has also risen in innovation hubs and nearby regions. The cost of scientists
and production workers in these geographies has become increasingly prohibitive.

VQ Deep Dive: Decrypting the DNA of CRDMO 11

CRDMOs Streamline Costs
and Accelerate Progress
Investing in creating their own capacity for every stage of R&D is a risky move as innovators
may have only 2-3 molecules at the commercial stage. This leads to significant cash burn in
initial years and eventually creates sub-optimal IRRs and ROCEs over the entire lifecycle.
With a surge in R&D costs, long cycles, and low success rates, there is increasing pressure
from investors on pharma companies to generate returns on their R&D investments.
Innovators are increasingly focused on cost control and efficiency improvement.

Contract Research Development and Manufacturing Organisations (CRDMOs) are

organizations that offers contractual services to innovators to help develop and manufacture
drugs. They take up some of the innovators’ non-core work relating to the initial R&D stages,
late-stage clinical trials and manufacturing activities. They can do the same faster and with
more efficiency.

Chart 8: CRDMOs Vital for Innovators at Various Stages

Drug Preclinical Clinical API Drug Product Packaging and Commercial Post-Marketing
Stage
Discovery Development Development Manufacturing Manufacturing Supply Chain Manufacturing Surveillance

Conduct Oversee Ensure Oversee

Sponsor & Develop Monitor drug
Discover and preclinical process compliance technology
design Phase I- proprietary drug safety and
design novel studies for development with regulatory transfer and
III clinical formulations for efficacy in the
molecules safety & for proprietary packaging and production
trials delivery market
Innovator efficacy APIs labeling scalability
Roles
Invest in R&D Ensure high Ensure Develop Iife
Design drug Ensure
technologies quality and Oversee quality Manage supply adherence to cycle extensions
candidates for regulatory
and early-stage regulatory & consistency chain logistics global for existing
clinical trials compliance
research. compliance regulations products

Manufacture Provide
Assist with early- Produce Support new
preclinical trial Manufacture Provide packaging Scale-up for
stage synthesis clinical trial formulations or
material (small APIs at various formulation (primary & Iarge volume
and biologics materials delivery
quantities: APIs/ scales development secondary) and production
screening. (APIs/formulations) methods
biologics) serialization
CRDMO
Roles
Provide Support Manufacture Handle global Offer lifecycle Continue
Offer
specialized process finished drug logistics and management manufacturing
specialized tech
platforms for development (e.g., continuous
products (oral, cold chain support (e.g., of mature
manufacturing) solids, injectables, biosimilars, new
discovery and scale-up biologics)
management formulations)
products

CRDMO (Contract Research Development and Manufacturing Organization)

CRO (Contract Research Organization)

Type of
CRDMO
CMC (Chemistry Manufacturing and Control) or CDMO (Contract Development and Manufacturing Organization)

CMO (Contract Manufacturing Organization)

Sources: CLSA, Jefferies, ValueQuest Internal Research, Industry Sources

As is evident from the above pictures, CRDMO help innovators at various stages of the value
chain in a variety of ways.

CRDMO companies are mainly classified into 3 types:

1. Clinical Research Organisation (CRO)
2. Chemistry Manufacturing and Control (CMC) / Contract Development and
Manufacturing Organisation (CDMO)
3. Contract Manufacturing Organisations (CMO)

VQ Deep Dive: Decrypting the DNA of CRDMO 12

CRDMOs are one-stop service providers who can provide full value chain services ranging
from drug discovery to commercial manufacturing. They are the most integrated of the 3
types.

Outsourcing to CRDMO helps innovators in several ways:

1. Converts a portion of their R&D budgets from an upfront fixed cost to a variable cost
Outsourcing reduces R&D intensity for innovators and allows them to operate more
efficiently, thereby reducing the financial burden for innovators. With outsourcing, innovators
can invest their limited capital into core R&D while outsourcing capital intensive non-core
ancillary and supplementary work to CRDMOs. Thus, a share of their R&D budget (upfront
fixed asset investments and non-core operations) is reduced considerably and converted to
a variable cost. This gives them the flexibility to shift strategic and development priorities in
response to market conditions.

2. Reduced R&D timelines

CRDMOs help reduce overall timeline by 0.5-1 year which is a significant number in the
context of overall R&D costs and success rates.

Chart 9: R&D timelines (in weeks) reduced significantly with CROs

160
139 140
140 129
120
97 98
100 89
81
80 66
60
40
20
0
Phase I Phase II Phase III NDA

In-House CROs

Source: Jefferies

3. Access to fungible capacities of CRDMO players provides flexibility, scalability and

risk mitigation
CRDMO companies can put up larger capacities which are fungible across different clients,
products and services. They can aggregate production and research needs from several
innovators and in the process, spread their own invested capital and operational costs over
multiple projects and products.

VQ Deep Dive: Decrypting the DNA of CRDMO 13

Thus, they can improve their own utilization of invested assets (human, financial, physical)
and take the risk of low utilization away from innovators, thereby creating a win-win situation
for everyone. CRDMOs can quickly scale up or down a certain business, accommodate
varying demands, at various stages, in response to outcomes and demand from innovators.

4. Access to low-cost but equally skilled manpower located in emerging economies

Non-developed market economies provide equally skilled and high-quality manpower at
various stages of the R&D chain at a much lower cost compared to their home geographies.

Chart 10: Annual salary of an average mid level scientist in country (in US$)

70,000
66,000 65,000

45,000
40,000

25,000

USA Japan Europe Average South Korea China India

Source: ValueQuest Internal Research, Bloomberg

5. Access to innovation and specialized knowledge and technology know-how

As CRDMOs work with multiple clients and do a lot of repetitive work, they have developed
specialised expertise of their own on several areas relating to manufacturing and R&D. In the
process, they have created innovative systems which are now being sold to clients for better
efficiency and throughput.

In recent years, large CRDMO companies have become even more advanced than the
innovators themselves in areas of advanced manufacturing technologies. Today, they own
specialized and technically complex equipment and expertise in certain areas of drug
development and manufacturing to produce stable drug formulations that are appropriately
filled and packaged.

Hence, there has been a shift in the perception of CRDMOs from just a service provider to
that of a development partner. Revenue models are also evolving from ‘time and material’
based to ‘milestone and revenue/profit share’ based.

VQ Deep Dive: Decrypting the DNA of CRDMO 14

CRDMOs now take on responsibility for development and production, invest in innovation
and advanced technologies and bring their unique competencies, knowledge, and
capabilities to the table.

6. Reduced regulatory challenges

The pharma industry is subject to stringent regulatory oversight and compliance, which
necessitates extensive expertise, resources, and various costs. Hence, outsourcing
manufacturing to compliant CRDMO companies helps reduce regulatory costs and risks.

CRDMO Size and Growth Trends

As evident from the previous section, the trend of outsourcing has been increasing across all
stages of the R&D value chain. Some stages such as clinical trials are easier to outsource
and hence see higher outsourcing trends whereas others like discovery and biologics see
relatively lower outsourcing due to concerns relating to intellectual property rights and
secrecy.

Chart 11: Outsourcing trends across key areas in Pharma R&D (% of projects outsourced)

50%

45%
43%
42% 42%

36% 36%
35%

30%
28% 28% 28%
25%

20%
17%

Non-Clinical Non-Clinical Clinical Small Molecule Biologics and Large

(Discovery) (Pre-Clinical) Molecules

2018 2019 2020 2021 2022 2023 2024 2025F 2026F 2027F 2028F

Source: ValueQuest Internal Research, Frost and Sullivan

Size and Growth of Industry

Because of the higher outsourcing trends across phases and across geographies, the
CRDMO industry will continue to grow faster than the overall pharma market and R&D
spends.

VQ Deep Dive: Decrypting the DNA of CRDMO 15

Chart 12: Pharma Market Shares and Historical and Expected CAGRs

CAGR CAGR CAGR

2018 2023 2028F
CY18-23 CY23-28F CY18-28F

Global Pharma Sales US$ bn 1136 1451 1956 5.0% 6.2% 5.6%
R&D Spend US$ bn 214 277 325 5.3% 3.2% 4.3%
As % of Global Sales % 19% 19% 17%
Global CRDMO US$ bn 127 197 302 9.2% 8.9% 9.0%
As % of Global Sales % 11% 14% 15%
Small Molecules US$ bn 85 113 159 5.9% 7.1% 6.5%
As % of Global CRDMO % 67% 57% 53%
Biologics and Large Molecules US$ bn 41 83 143 15.1% 11.5% 13.3%
As % of Global CRDMO % 32% 42% 47%

Source: ValueQuest Internal Research, Frost and Sullivan

Segmental Trends – Size and Growth Rates

Based on the nature of services provided and the absolute value of those services, CRO is
smaller than CDMO as the latter involves actual manufacturing of API and formulations. Both
are set to grow at healthy rates in the future, but, CDMO will continue to grow faster than
CRO despite being on a higher base.

Drug discovery will grow faster within CRO while emerging modalities in Biologics will drive
the growth in CDMO.

Chart 13: Global CRO TAM stood at ~US$78bn in 2022, with Chart 14: Global CDMO TAM stood at ~US$124bn, with
Clinical CRO the largest segment small molecules dominating the majority state

Drug discovery Pre-Clinical Clinical Small Molecules Large Molecules Packaging

250
140
124 212
113
120 190
103 200 22
169
94 21
100 85 146 47
78 20
150 132 41
71 82
USD $bn

80
USD $bn

115 17
76 35
59 61 17
70 100
54 91 30
60 50 65 82 16 26
60 100 77
55 71 15 21
50 14
13 18 143
40 41 42 12
12 16 128
38 12 13
35 19 10 114
17 50 89 99
16 78
20 14 67
12 13 56 61
9 10 11 49 53
8 8 20 23
12 15 17
7 8 9 9 10 11
0 0
2023
2017

2018

2019

2020

2021

2022

2024

2025

2026

2027
2026
2017

2018

2019

2020

2021

2022

2023

2024

2025

2027

Source: Frost and Sullivan, Compiled by Goldman Sachs Global Source: Statista, PWC Compiled by Goldman Sachs Global
Investment Research Investment Research

VQ Deep Dive: Decrypting the DNA of CRDMO 16

Chart 15: Drug discovery is expected to be the Chart 16: In the CDMO market, peptides/ oligonucleotides/
fastest-growing CRO segment CGT are expected to be the fastest-growing sub-segments
followed by biologics

16% 2017-2022 CAGR 2022-2027 CAGR 2017-2022 CAGR 2022-2027 CAGR

30%
15.2% 28.7%
25%
12% 24.6%

20%
10.8%
9.6% 9.6% 9.6% 9.7%
8% 15%
8.7% 8.4% 16.4% 16.9%
14.2%
12.8%
10%
11.1%
4% 10.0%

5% 6.6%
6.2%

0% 0%
Drug Discovery Pre-Clinical Clinical CRO Total Small Molecules Peptides, Oligo… Large Molecules Packaging CDMO Total

Source: Company data, Compiled by Goldman Sachs Global Source: Company data, Compiled by Goldman Sachs Global
Investment Research Investment Research

VQ Deep Dive: Decrypting the DNA of CRDMO 17

China’s Rise in CRDMO
Has Shaped World Pharma

China’s playbook for most industries has been to imitate advanced economies in terms of
industrialisation and become better than them in terms of costs and quality over time
through economies of scale and resultant efficiencies. However, in the case of Pharma, the
Chinese government realised that it needed to incentivize innovation to truly move up the
value chain. It named biotech as a strategic emerging industry in early 2010s.

Early 2000s 2010–2015 2016–2020 2021–2025

Generics Dominance Early Innovation Acceleration of Global Expansion and
and Regulatory and Policy Support Innovation First-in-Class Innovations
Reforms
Heavily reliant on generics Local companies began investing NMPA (Chinese FDA) accelerated First-in-Class (FIC) and Best-in-Class
in biotechnology and biosimilars. approval processes (BIC) Drugs with treatments for
Limited R&D capabilities.
Development of new drugs and Allowed clinical trials in China to run oncology, autoimmune and rare
Introdued Good Manufacturing diseases.
Practices (GMP) biologics. concurrently with global trials.
Creation of national biotech parks More flexibility for drug developers. Global leader in clinical trial activity,
Aligned with global standards government support and
and innovation hubs to boost Increased spending on R&D by both
research. collaborations with MNC pharma
domestic and MNCs
Cross-Border Partnerships through
Chinese companies like BeiGene and out-licensing deals with global
Junshi Biosciences launched novel companies
treatments
IPO Boom through Shanghai STAR
Market and relaxed listing rules on
HKSE

Source: ValueQuest Internal Research, WuXi Group, CLSA

China’s National Natural Science Foundation (NSFC), its largest public science funding
organization and a major funding source for basic research and frontier exploration
increased its research funding to encourage exploration and innovation, awarding 51,600
grants for a total of USD 4.5 billion in 2023. China’s share of global biotechnology VC raised
grew from a mere 3.5% in 2010 to 19% in 2023. Biotechnology VC raised by China – as
determined by the VC financing raised by Chinese-headquartered firms – has surged.

Because of these initiatives, China’s share in global pharma R&D has risen to significantly
higher levels. Chinese New Active Substance (NAS) launches have increased significantly
with 30+ launches for a 6th consecutive year, making the 5-year total 2nd after United States
in global launches and surpassing European countries. Chinese institutions are also
producing an increasing number of top-cited publications.

VQ Deep Dive: Decrypting the DNA of CRDMO 18

Chart 17: China domestic pharma + biotech R&D has seen Chart 18: …leading to a sharp pick-up in clinical trial
exponential growth over the past decade… activity over the same period
Global share of Phase I and III starts based on company
headquarters location

Source: Goldman Sachs Source: Goldman Sachs

Chinese innovators entered into a number of out-licensing deals with EU and USA innovators
and large pharma companies in the past 5 years.

Because of these initiatives, revenues and profits of Chinese CRDMO companies have also
grown multi-fold over the past 10 years.

Chart 19: China listed CRDMO Revenue (US$ mn) Chart 20: China listed CRDMO Earnings (US$ mn)

Source: ValueQuest Internal Research, Bloomberg Source: ValueQuest Internal Research, Bloomberg

VQ Deep Dive: Decrypting the DNA of CRDMO 19

Case Study of WuXi Group
WuXi Apptec was founded by Dr Ge Li in 2008 as a CRO service provider. Over the next 15
years, it has evolved to become one of the largest CRDMO companies in the world.

Date Acquisition Focus/Business Purpose Headquarters & Operations

AppTec Laboratory Biologics manufacturing and Expanding U.S. footprint and Philadelphia, USA; U.S. – based
2008
Services services biologics expertise operations

Clinical trial and regulatory

2011 Medkey Clinical Trials China
capabilities

XenoBiotic
2014 Preclinical research services
Laboratories

2015 – Delisted from NYSE

Drug delivery and protein Supporting structure-based drug Munich, Germany; Europe –
Apr - 16 CRELUX Gmbh
crystallography services discovery efforts focussed operations

Small molecule
Strengthening drug manufacturing Couvet, Switzerland; U.S., Europe
Jul-17 STA Pharmaceutical development and
capabilities with Couvet facility and China
manufacturing

Preclinical drug discovery Boosting preclinical discovery Shanghai, China; Focus on Asia
Jan-17 HD Biosciences
and biology services capabilities and global clients

ResearchPoint Contract research Enhancing global clinical trial Austin, Texas, USA; Worldwide
Oct-17
Global organization (CRO) capabilities CRO services

2018 – Relisted on SSE and HKSE

Biostatistics and clinical trial Expanding clinical trial services for San Diego, USA; U.S. and global
May - 19 Pharmapace, Inc.
consulting pharma and biotech clients clinical trials

Gene therapy and CRISPR Strengthening capabilities in cell and

Mar - 21 OXGENE Oxford, UK; Global operations
solutions gene therapy development

Source: ValueQuest Internal Research, WuXi Group

WuXi AppTec initially founded WuXi Biologics as a biologics-focused division. In 2017, WuXi
Biologics was spun off and went public on the Hong Kong Stock Exchange (HKSE) as an
independent entity. Since the spin-off, it operates independently. However, both companies
maintain complementary businesses and share the brand.

Year Acquisition/Investment Impact

2019 CMAB Biopharma Increased biologics capacity and capabilities in China.

2020 Bayer’s Wuppertal Plant (Germany) Entry into European biologics manufacturing.

2020 Massachusetts (U.S.) site lease Strengthened U.S. manufacturing footprint.

2021 Facilities in Singapore and Ireland Global diversification of biologics manufacturing sites.

Source: ValueQuest Internal Research, WuXi Group

VQ Deep Dive: Decrypting the DNA of CRDMO 20

Over the years, the group has

• Built up capabilities across emerging technologies through organic and inorganic

means
• Expanded in capacities globally, across key geographies like USA, Europe, Singapore,
and China
• Built up a world class scientific talent base by recruiting Chinese and global expats
from global innovator companies who have brought in business and helped improve the
quality of their R&D efforts
• Ensured strong regulatory and compliance track record including IP protection
• Access to capital whenever needed by being listed on prominent global stock
exchanges.
• Created its own fund to invest in emerging innovative companies in the biotech space
globally.

Together, the WuXi group has a robust pipeline, with approximately 16% share in global
clinical-stage drugs, a strong presence across all emerging modalities in small molecules
and biologics, and end-to-end testing platforms. It caters to most leading global
pharmaceutical companies in the USA and Europe. These initiatives have helped WuXi grow
its asset base, revenue, profits, and cash flows multi-fold over CY2018–23, while maintaining
a prudent net-cash balance sheet.

Thus, China has become critical to the global pharmaceutical ecosystem. A strong
chemical supply chain, based on large integrated facilities, advanced research and
development capabilities, cheaper and skilled labor, a large pool of scientific talent, lower
operating costs (power, logistics) compared to developed markets, and strong government
support and funding, have combined to make China the largest supplier of pharmaceutical
chemicals and biologics to the world. The USA's imports of Chinese pharmaceutical and
related products grew from USD 2.1 billion in 2020 to USD 10.3 billion in 2023 (a 485%
increase). Chinese CRDMO companies are now involved in approximately 50% of drugs in
clinical-stage development and around 33% in early-stage discovery and preclinical trials.
Chinese CRDMO companies also support 66% of the drugs being developed by public
companies in the USA, of which 60% have either been already marketed or are in late clinical
stages.

WuXi group is the dominant player with its Biologics division being one of the largest
manufacturing companies in the world, with numerous manufacturing partnerships.
WuXi AppTec is among the largest research service providers globally and is widely used by
cell and gene therapy (CGT) companies worldwide. Together, they manufacture 19 biosimilar
and innovator drugs approved in the US, including several blockbuster drugs like Revlimid,
Vertex’s Trikafta/Kaftrio, BeiGene’s Brukinsa, and Tirzepatide (the API in Eli Lilly’s blockbuster
weight-loss drug Zepbound). US companies accounted for 46% and 66% of WuXi Biologics’
and WuXi AppTec’s revenue, respectively, in 2023.
Source: GlobalData’s Pharma Intelligence Center Drugs by Manufacturer Database

VQ Deep Dive: Decrypting the DNA of CRDMO 21

BioSecure Act To Reduce the
China Dependency?
Prelude to the bill
Over the past 20 years, China has become critical to various industrial supply chains. Along
with its economic rise, China also became militarily stronger and used its institutions to
strengthen various facets of defence including biotechnology and pharma. Certain laws
passed in the past decade have allowed the Chinese government to control and access data
generated and used by Chinese companies including those in the pharma sector.

In general, under successive USA presidents starting from Mr. Donald Trump in 2016, China
is increasingly being seen as a strategic threat to USA in various industries, leading to a rise
in geopolitical tensions. As a result, the US government, through its agencies and
government arms, has initiated a series of steps, such as the Unverified List (UVL) and the
Inflation Reduction Act (IRA), to reduce dependence on China for various products and
services. Companies falling on such lists face higher tariffs or a partial/complete ban on their
products and services. Covid-19 led to a significant supply chain disruption in various areas
and further drove the need to diversify away from China.

Bill gets introduced in US legislative branches

Certain Republican and Democratic members of the U.S. House of Representatives
introduced the BioSecure bill on 25 January 2024. The bill alleged that five Chinese CRDMO
companies (BGI, MGI, Complete Genomics, WuXi AppTec, and their subsidiaries and
affiliates) were closely linked to the Chinese military and government arms in several ways,
including financial transactions and academic collaborations. Further, it alleged that these
companies collected private, confidential data, including genetic information of U.S. and
other non-Chinese citizens, from U.S. pharma clients and shared it with the Chinese
government, which, in turn, used it to advance its AI and biotech capabilities.

The bill aims to ban key Chinese companies involved in pharma R&D and hinder their
emergence as strong global biotech players amid China’s dubious national security laws.
Indirectly, it seeks to incentivize pharma innovators to reduce dependence on China by
diversifying their supply chains to other friendly geographies, avoiding the transfer of
technology, and boosting local manufacturing. It prohibits U.S. federal agencies or
companies that receive federal funds from contracting with or procuring services and
equipment from “companies of concern” (defined as those headquartered in or subject to
the jurisdiction of a foreign adversary’s government and posing a threat to national security).
Anyone collaborating with these companies is disqualified from receiving grants, loans, or
contracts from executive agencies.

Once enacted, companies stated in the bill could face restrictions within 6 to 18 months
after the bill’s conversion into an Act.

VQ Deep Dive: Decrypting the DNA of CRDMO 22

 Jan 2024 Mar 2024 May 2024 Sep 2024 What next?

Senate committee on House Committee on House of Representatives Bill needs to pass in

Introduced in House Homeland Security and Oversight and Representatives voted Senate and then go to
on 25 Jan Governmental Affairs Accountability voted 40-1 306-81 president to be signed
voted 11-1 for draft 40-1 signed into a law

In the last 11 months, the bill progressively passed through several committees with
overwhelming majorities. However, it also underwent several amendments that diluted and
delayed its passage, largely due to strong lobbying by the pharma industry and the
impending presidential elections in November 2024. The bill was reviewed in the Senate
(Upper Chamber) and had a chance to pass easily if it had been included in the National
Defense Authorization Act (NDAA 2025), an annual defense bill. However, the bill was not
included as part of the 93 newly filed amendments, leaving its passage in the previous
Congress highly unlikely.

That said, considering that the U.S. government is now controlled by Republicans in both
branches of the legislature (the House and the Senate), along with the executive branch
under President Trump (a Republican with strong anti-China leanings), the chances of the bill
being passed in 2025 have risen significantly in some form or another.

As it stands today, the bill softens the blow on pharma innovators reliant on China by
allowing sufficient time—until 2032—to bring their exposure to the five Chinese companies
down to zero. It also includes waivers and exceptions in cases of medical exigencies (e.g., a
repeat of Covid). Since the likelihood of the bill passing remains slim, it will likely need to go
through the normal legislative process again.

In any case, due to geopolitical tensions, the need to reduce reliance on China, and potential
supply chain disruptions, innovators remain hesitant to rely solely on the Chinese CRDMO
industry, even if the bill is shelved.

Response of the Pharma Ecosystem To the Bill

Chinese CRDMO companies reacted negatively to the bill. They have collectively opposed
the bill and the allegations stated within it, viewing it as a geopolitical tool against China.
Interestingly, most of them initially faced no major challenges to their business. WuXi
Biologics reported strong H1CY24 results, adding 61 new projects (50% of which were from
U.S. clients) compared to 46 in H1CY23. However, in recent months, new business has dried
up for the WuXi group, and they are now in the market to sell manufacturing assets in the
U.S. and Europe.

VQ Deep Dive: Decrypting the DNA of CRDMO 23

US Pharma innovator companies have acknowledged the low-cost good quality services of
the Chinese CRDMO industry and pointed out that the bill will further push up the cost of
drug development if they are forced to move their projects to European and US CRDMOs. But
they also accept the fact that they are overly reliant on Chinese CRDMOs and would work to
reduce dependency on the same.

Rival CRDMO companies located in Japan, Europe, Korea, America, India, etc. expect no
immediate benefits from this bill but do see increased inquiries and RFQs.

VQ Deep Dive: Decrypting the DNA of CRDMO 24

De-risking Dependency
Requires New Alternatives
The Biotechnology Innovation Organization (BIO) is one of the largest trade associations
globally, representing biotechnology companies, state biology centers, related organizations,
and academic institutions located in the U.S. and 30 other countries.

Surveys conducted by BIO and other prominent independent pharma research organizations,
such as CPHI, as well as leading global sell-side financial research houses like Jefferies and
Goldman Sachs, have all indicated that global innovators are willing to reduce their
dependency on Chinese CRDMOs by switching to alternative large global CRDMO
companies with capabilities in different areas. The majority believe that the time frame
provided in the bill is sufficient for a smooth transition. Additionally, it would be easier and
faster to move CRO work compared to CDMO work.

Preferred CDMO in case of switch needed (n=25)

40%
36%

35%
Share of Respondents (%) Rank 1

30%

25%

20%

15%
12% 12%

10% 8% 8% 8%

4% 4% 4% 4%
5%

0%
Lonza Patheon Samsung Fujifilm Boehringer Recipham Merck KG aA Miltenyi Catalent Other
Biologics Diosynth Ingelheim Biotech

Small Molecules mAbs CGT

Peptides ADC mRNA

Source: Jefferies

Companies like Lonza AG, Samsung Biologics, and Fujifilm Diosynth have capacities and
capabilities similar to those of WuXi. Hence, the initial benefit is most likely to accrue to
them. However, over time, the benefits should percolate and spread to the wider CRDMO
ecosystem based in lower-cost countries like India.

VQ Deep Dive: Decrypting the DNA of CRDMO 25

Learnings From
Global CRDMO Success Stories
The industry has high entry barriers as innovators choose a partner not based on cost alone,
but on several factors, including:
• Compliance track record – Regulatory, Environmental, Health & Safety (EHS).
• Strong operational capabilities – Scientific, technical, manufacturing, quality,
innovation, AI, etc.
• Reliability and consistency – Strong delivery track record, consistent outcomes, and
extensive experience.
• Risk management – Robust IP protection, data safety, integrity, and management.
• Investments in capabilities – Continuous and ahead-of-the-curve investments in
capacities, infrastructure, and expertise.
• Geographical diversity – Flexibility to move operations from one site to another.
• Integrated full-service operations – Expertise across various stages of the value chain.
• Competitive pricing – Cost savings associated with building out technical and
manufacturing capabilities.

The CRDMO business is highly capital-intensive and long-gestation in nature. It requires

significant upfront investments and capital expenditure (capex) in capacities and capabilities
(scientific talent, research labs, manufacturing facilities, etc.) ahead of time to attract clients
and secure potential business. Achieving an initial breakthrough to win a meaningful
contract can take several years. Consequently, revenues follow with a lag of a few years.
Invested assets can remain underutilized for extended periods if no sizeable contract
materializes. Thus, the initial years often face negative profit margins and depressed ROICs
(Return on Invested Capital).

Source: Lonza, ValueQuest Internal Research

VQ Deep Dive: Decrypting the DNA of CRDMO 26

There are several risks associated with such a significant initial investment, and navigating
them is a challenge. Excess capacity comes with its associated unabsorbed costs, while
insufficient capacity can lead to a loss of future business if a sudden surge in demand
cannot be met by the vendor. Sourcing skilled and experienced talent is a perennial
challenge, especially in developed markets. Additionally, regulatory compliance is becoming
increasingly costly, even for CRDMOs. Maintaining financial discipline amidst these diverse
challenges is a task in itself.

The switching cost for an innovator is high, as it must go through the entire regulatory
process of validating a new partner. Consequently, savings of 10–15% usually do not justify a
switch to a competitor.

As a result, it is not easy for a new player to establish operations in this industry. The sector
remains highly fragmented, consisting of thousands of small, limited-service providers,
hundreds of medium-sized, moderately integrated providers, and a small number of fully
integrated large CROs with global operations and deep capabilities.

According to Jefferies, only 1% of global CRDMO companies generate annual revenues

exceeding USD 500 million, but these companies account for 31% of the CRDMO market by
revenue.

No of CDMO % by revenue Market Share by revenue

Source: PharmSource Trends, Jefferies

Areas of growth for the industry

Once a CRDMO establishes itself and navigates through the initial challenging years, it
becomes a highly rewarding investment. The business tends to become sticky, with
predictable long-term revenue streams characterized by steady and healthy operating
margins and return ratios. It evolves into a self-sustaining virtuous cycle, where companies
can leverage strong cash flows from existing operations to invest in new capabilities and
expand capacities. Typically, large integrated CRDMOs have benefited from the flywheel
effect of capability and business growth over time.

VQ Deep Dive: Decrypting the DNA of CRDMO 27

 Accumulate
Follow the science Build new
Grow in experience Expertise and
and track early capability with
and capacity (Scale) Anticipate next
adopters (Early) speed (Fast)
wave (Expand)

Thereafter, multiple avenues for growth become visible for a CRDMO company. Clients
become more confident in its ability to provide services and often ask it to expand along
multiple dimensions – more services in the same phase, entering other phases of R&D value
chain, different drug types, different dosage forms, geographies, etc.

Advanced Therapies, e.g. cell and gene

Large Molecule

Small Molecule Extension to

CDMO Services
different drug types
CRO Services

Research Development API Manufacturing Drug Product Packaging

Manufacturing
Phase
Drug Discovery Phases I-III Commercial

Studies Medical Sourcing Process Extraction Formulation Packaging (primary,

Activities
Writing Patient Transfer Drug Synthesis Commercialisation secondary, tertiary)
G eo g rap hic Exp ansio n
recruitment Product Manufacture Fermentation Test runs Labelling
lo w co st lab o ur, sp ecific
Solids (e.g. tablets, capsules) cap ab ilities and m arket

Dosage Form To be determined Semi-Solids (e.g. creams, gels)

Liquids (e.g. vials, ampules, pre-filled syrings)

Growth across Dosage Forms
Expansion along the Value Chain Fo rm s requires investment,
new expertise and capabilities
CDMOs can build on existing knowledge and sell new services to existing customers

Source: Piramal Pharma

VQ Deep Dive: Decrypting the DNA of CRDMO 28

India’s Opportunity To Lead
in CRDMO
It is now evident that supply chain diversification efforts have gained momentum post-Covid-
19, and the BioSecure Bill has further accelerated this trend. The focus is no longer solely on
cost and efficiency but has shifted to resilience, reliability, and partnerships with companies
based in countries that maintain friendly and favorable bilateral ties. Innovators are
increasingly seeking alternate suppliers located in Europe, Southeast Asia (Korea), India, and
other regions.

Large global beneficiaries such as Lonza, Samsung Biologics, and others are expected to
benefit initially, as they possess advanced technological capabilities. Large molecule and
biologics innovators prefer U.S., European, and Korean CDMOs (China+1) for their capacity
and expertise. Meanwhile, small molecule innovators aim to diversify away from China while
also reducing production costs (China+1, Europe/USA+1).

India is known as the Pharmacy of the World

India’s Share

~25% ~40% 50%+ 60%+

UK Medicines US Gx Drugs Africa Gx Drugs Global Vaccines

Source: Avendus

India supplies 25-60% of generic drugs and vaccines to the world. It has 3000+ drug
companies and 10,500+ manufacturing units spread across key pharma hubs. India's
unparalleled expertise in process chemistry has enabled the production of high-quality,
reverse-engineered generic products at some of the lowest costs globally.

Indian CRDMO industry not a big player on world stage currently

However, when it comes to Pharma R&D, the Indian CRDMO industry's share is a minuscule
3.6% of the global CRDMO industry. The Indian CRO industry's market share stands at only
2.7% of the global CRO industry, compared to 16% for the Chinese CRO industry. The Indian
CDMO industry's market share is even lower, at 1.6% of the global CDMO industry, compared
to 8% for the Chinese CDMO industry.

VQ Deep Dive: Decrypting the DNA of CRDMO 29

 India
Global Pharma CRDMO
$1.451 tn $7 bn

R&D Costs Commercial

Manufacturing
$277 bn
$4 bn

CRO
Global CRDMO
$197 bn $2.8 bn

India
CRDMO Discovery
$7 bn $0.5 bn

3.6%

Source: Frost and Sullivan (December 2023)

The Indian CRDMO industry’s capabilities and capacities have primarily been developed
through bottom-up efforts and opportunistic plays by promoters and management teams of
certain companies. Select Indian CRO and CDMO players have expanded their product
offerings through both organic and inorganic routes.

India remains dependent on China for sourcing Key Starting Materials (KSMs) and
intermediates. Chinese CDMO companies operate at a much larger scale, giving them the
advantage of negotiating higher discounts in exchange for larger offtake requirements. In
many cases, KSMs are supplied by Chinese producers, further reducing lead times, logistics
costs, and working capital needs across the supply chain. Additionally, government funding
and incentives, such as tax breaks and large integrated common infrastructure facilities,
lower operational costs for Chinese players in areas like environmental compliance and
power.

As a result, the Indian CDMO and CMO industries are structurally disadvantaged compared
to the Chinese CDMO industry, which operates at a significantly larger scale, valued at
approximately USD 30 billion. Consequently, India’s CDMO market share remains low, at just
2-3% of the global CDMO market. However, India is more competitive in the manpower-
intensive, early-stage CRO industry, where dependence on China is minimal.

VQ Deep Dive: Decrypting the DNA of CRDMO 30

Chart 21: India’s dependance on Chinese API has increased over the years

Source: Goldman Sachs Source: Goldman Sachs

Indian CRDMO industry dominated by the small molecule CDMO industry

CAGR CAGR CAGR
2018 2023 2028F
CY18-23 CY23-28F CY18-28F

Indian CRDMO USD bn 4.0 7.0 14.0 11.8% 15.0% 13.4%

As % of Global CRDMO % 3.1% 3.6% 4.7%

Small molecules USD bn 3.8 6.7 12.8 12% 13.8% 12.9%

As % of Total India CRDMO % 95% 92% 91%

As % of Global CRDMO - Small % 4.5% 5.9% 8.1%

Biologics and large molecules USD bn 0.2 0.6 1.3 24.6% 16.7% 21.2%

As % of Total India CRDMO % 5% 8.2% 9.2%

As % of Global CRDMO - Large % 0.5% 0.7% 0.9%

Source: Frost and Sullivan

Global pharma companies had already begun diversification efforts due to supply chain
disruptions originating from China. Environmental crackdowns in China between 2013 and
2017 prompted many smaller API/pharma companies to wind down operations. This led to a
rise in API prices in China, forcing manufacturers to explore China+1 options for API
sourcing. The COVID-19 pandemic further accelerated this trend. During the January-March
2020 period, China’s API supplies were severely impacted by pandemic-related disruptions,
creating opportunities for Indian API companies to step in and meet the demand.
Additionally, widespread shortages of drugs and medicines led to stockpiling of both APIs
and formulations, further benefiting Indian players.

The BioSecure Bill is expected to expedite the shift of API manufacturing away from China.
Moreover, regulations like the Inflation Reduction Act are pressuring pharma companies to
reduce the prices of both innovator and off-patent drugs. High operational costs in the USA,
Europe, and Japan add to the challenges. Meanwhile, the increased focus of large Western
and Chinese CRDMO companies is towards higher-value higher-margin Biologics
outsourcing.

VQ Deep Dive: Decrypting the DNA of CRDMO 31

Hence, they will have no option but to look at Indian CDMO partners to meet their demands
of small molecule API and FDF manufacturing outsourcing.

Thus, the Indian CRDMO market is largely dominated by CDMO (commercial manufacturing
of both API and FDF). As of now, it is mainly led by generic (off-patent) molecules. The Indian
CDMO industry enjoys a relatively higher share of ~ 6% of the global small molecule CDMO
industry, because of its strong track record and developed capabilities in chemistry and
process engineering of small molecules.

Indian CDMO industry is making efforts to improve its positioning in the

Global Small Molecules CDMO Market
The high-value, high-margin and patented innovator focused API and FDF CDMO industry
along with the high-margin CRO industry form a very small portion of the industry.
Historically, India has lacked the environment for a thriving high-value high-margin CRDMO
industry due to a host of factors –

• Lower priority from a management strategy standpoint.

• Lack of sufficient funding, limited capital and lack of strong steady cash flows for the
purpose of upfront investment
• Smaller scale of operations and capacities
• Limited collaboration between industry, academic institutions, and government
• Stringent and cumbersome clinical trial regulations in India
• Lack of incentives from the government to invest in R&D
• IP rights/patent system not strong enough for MNCs to invest in local R&D or collaborate
with local companies

For India to establish itself as a significant player in the global CRDMO market, it must
emulate China's approach in key areas such as scaling up capacities, enhancing quality and
compliance standards, securing adequate funding, fostering government support, and
driving extensive collaboration between academia and industry. India has made strides in
many of these areas in recent years, signaling a positive trajectory for the industry's growth.

1. Large capex programs in recent years

Indian pharma companies are adding meaningful large capacities through large and
sustained capex programs. The below charts showcase a group of 7 select pharma
companies having CDMO operations undertaking increasingly larger capex programs over
successive time periods.

VQ Deep Dive: Decrypting the DNA of CRDMO 32

Source: ValueQuest Internal Research, Bloomberg

As we have seen previously, upfront capex drags asset turns and return ratios in initial
periods. Industry’s Gross Asset Turns and ROCE have declined during this time period.

Source: ValueQuest Internal Research, Bloomberg

2. Large capex programs in recent years

From a manufacturing standpoint, India has highest number of US FDA-approved facilities
after US. Thus, Indian CRO/CDMOs are a natural choice of partner for Big Pharma for small
molecules and synthetics. The Indian industry has improved its quality and compliance track
record over the past few years which is reflected in the declining trend in adverse compliance
outcomes in recent years.

VQ Deep Dive: Decrypting the DNA of CRDMO 33

 USA FDA reviewed sites Compliance actions (OAI %)
India China United States
2018 2022 Change (%) (RHS)
2,500 20%
40%

2,000 15%
30%
1,500 10%

20%
1,000 5%

500 0% 10%

0 -5%
0%

2020
2014
2010

2017
2012

2015

2018

2019
2013

2016

2022
2021

2023
2011
Source: Goldman Sachs

A recent survey of global pharma professionals conducted by CPHI, a leading global event
platform for the pharmaceutical industry, highlighted that India has improved its rankings in
small molecule manufacturing, especially in FDF and knowledge of professionals.

CPHI Annual survey – small molecule rankings CPHI Annual Overall Knowledge of
API FDF Growth Average
Survey competitiveness professionals
8.5
USA, 8.1 USA 7.6 9.0 7.4 9.1 7.5 8.1
8.0
Germany, 7.9 Germany 7.8 8.9 6.7 9.1 6.9 7.9
India, 7.5
7.5 India 6.7 7.6 7.3 7.9 7.8 7.5
UK, 7.4
China, 7.1
UK 7.3 8.4 6.7 8.4 6.4 7.4
7.0
Switzerland 7.5 7.8 6.7 8.1 6.7 7.4
6.5 Japan 7.5 7.7 6.6 8.3 6.6 7.3
China 6.6 7.4 7.1 7.2 7.2 7.1
6.0
France 6.8 7.7 6.2 7.6 5.9 6.8
5.5 Italy 6.9 7.6 6.3 7.3 6.0 6.8
2019

2021

2023
2017

Singapore 6.3 7.2 6.3 7.6 6.5 6.8

Korea 6.8 6.7 6.7 6.1 6.5 6.6
Spain 6.9 6.5 6.5 6.1 6.7 6.5

Source: CPHI (Convention on Pharmaceutical Ingredients)

3. The Indian government is also playing its part by providing incentives and
support in various forms
In last 10-15 years, India has gradually improved its ‘ease of doing business’ ranking by 4 to
reach 10th among the 7 major economies of Asia in the 2023-27 forecast period. It is
expediting regulatory processes to speed up approvals for new projects.

Through initiatives like Biotechnology Industry Research Assistance Council (BIRAC), Bio
NEST, and Biotech Science Clusters, it is attracting local and global companies to set up
R&D and manufacturing facilities in certain earmarked clusters for pharma companies.

It is incentivizing pharma manufacturing and giving tax incentives through Production Linked
Incentive (PLI) scheme. PLI 1.0 aimed to reduce imports of critical Key Starting Materials
(KSMs), Drug Intermediates (DIs) and APIs in India to spur local formulation and API
manufacturing by giving Rs 20-400 Cr (depending on the product) for bulk drug park
development. Financial incentives worth Rs 6900 Cr (USD 800 mn) were approved for
manufacturers of 41 eligible products covering 53 APIs. PLI 2.0 was introduced to

VQ Deep Dive: Decrypting the DNA of CRDMO 34

enhance India’s manufacturing capabilities by increasing investment, production and
diversification to high-value goods. Many prominent Indian companies such as Aurobindo
Pharma have participated in the scheme by investing in KSM facilities for products like
Penicillin G.

Finally, under successive governments, India has also strengthened IP protection laws. Post
the 1995 GATT accession and its 2005 compliance with TRIPS regulations, focus has shifted
from process to product patents. MNC pharma companies are now less worried about
patent infringement.

Thus, despite not being the cheapest on small molecule manufacturing, India will see more
outsourcing of small molecule CDMO and should gain share in future.

CAGR CAGR
India’s CRDMO Industry 2018 2023 2028F
2018-23 2023-28F

Total CRDMO Industry USD bn 4.0 7.0 14.1 12% 15.0%

As % of Global CRDMO % 3.1% 3.6% 4.7%

India Small Molecule CRDMO (includes both API and FDF) USD bn 3.8 6.7 12.8 12% 13.8%

As % of Total India CRDMO % 95% 92% 91%

As % of Global CRDMO - Small % 4.5% 5.9% 8.1%

India Small Molecule Innovator API USD bn 1.4 2.3 5.2 10.4% 17.7%

As % of Global Small Molecule Innovator API CDMO % 5.1% 6.2% 10.1%

As % of Global Small Molecule API CDMO % 2.5% 3.2% 5.1%

As % of Global Small Molecule CDMO % 1.8% 2.3% 3.8%

As % of Global CDMO Industry % 1.6% 1.9% 3.0%

Source: Frost and Sullivan, ValueQuest Internal Research

India is relatively weak in Biologics, but things are improving here as well
Spurred by pre-WTO era when India declined to agree to certain treaties, Indian law evolved
to respect only process patents and not product patents. As a result, Indian pharma and
chemical industry became good in chemistry R&D and manufacturing talent also evolved
accordingly. Based on the limited capital and cash flows available with Indian promoters,
their focus was entirely on scaling up their fledgling but attractive domestic and exports
generic API and FDF manufacturing and marketing businesses.

Hence, they had limited capital and management bandwidth to focus their efforts on
Biologics which was anyways a complex, long-gestation difficult-to-scale business. Their
P&L and balance sheets didn’t support the substantial upfront large investments needed in
biological capabilities and capacities. Talent in the areas of biologics was also scarce.

VQ Deep Dive: Decrypting the DNA of CRDMO 35

As Indian pharma companies grew, they chose to move further up the value chain within
small molecules such as HP APIs, complex generics, and specialty APIs. Some companies
took the route of being the lowest cost producer globally in their molecules of strength by
backward integrating into KSMs and intermediates.

However, things are changing here as well. The Indian CRDMO industry recognizes the high
value high-margin growth potential of Biologics and has taken steps to be present in this
area. Certain Indian CRDMOs like Piramal Pharma, Laurus, Syngene and select private
companies have developed capabilities through organic and inorganic routes. Recently,
Suven Pharma acquired NJ Bio, a US based company with expertise in this area. Laurus Labs
invested substantial capital & brought in external investors for its Biologics wing, Laurus Bio.

Gradual market share gain in the high-value segment of discovery and pre
clinical parts of CRO industry

1. India can gain share in Discovery CRO relatively easier and faster
Post the BioSecure bill, innovators are apprehensive of outsourcing the entire R&D process
to Chinese firms, especially for early stage phases. Consequently, nearshoring has gathered
pace as latter steps of the discovery stage are being completed in home countries. But USA
and EU face a shortage of capacities and talent (which is only getting costlier). Thus, there is
a need for a reliable alternate supplier in this part of the industry as well.

CRO is manpower intensive but not capital intensive. It requires a smaller set-up with certain
special equipment for testing and laboratory work. Hence, CROs can be set up faster, take
lesser time to scale up and have shorter timelines to start, if relevant manpower is available.
CRO contracts are relatively shorter duration which allows innovators to switch relatively
easily from one CRO to another.

India has always had a strong base of STEM graduates. Coupled with skills in chemistry and
pharmaceuticals, these graduates are crucial for science-intensive drug discovery work.
With a strong and growing supply of skilled manpower in areas of biology and chemistry,
India is ideally placed to attract a larger pie of the CRO outsourcing. In addition, India already
has an obvious cost arbitrage and is cost competitive against other major geographies
including China. The cost of scientific talent in India is 60-70% cheaper than the cost in
developed countries and 30-40% cheaper than the cost in China.

In recent years, many pure play R&D organizations or CROs have been set up in India by
overseas Indian citizens and strong local talent. These firms have the intellectual vigour and
niche capabilities, making them appealing to a broad clientele of innovators with very
specific requirements relating to different stages of the process. Acquiring more customers
is not going to be difficult once they prove their capabilities in execution and delivery.

VQ Deep Dive: Decrypting the DNA of CRDMO 36

As of now, a volatile and weak funding environment has slowed down CRO outsourcing
growth. With improvement in funding, CRO outsourcing should improve. This improvement
coupled with diversification and cost reduction initiatives, should benefit Indian companies
in the coming years. This is reflected in the higher RFP/RFQ (Request For
Proposals/Quotations) intensity in last few quarters for most Indian CRDMO companies.

2. India’s track record in clinical trial services is weak, but it can improve
with changes in regulations
India’s large population provides the perfect diversity needed for any pharma drug clinical
trial in terms of age, ethnicity, size, ailment, geography, climate, etc. Indeed, from 2000-2010,
India saw a sharp rise in number of trials conducted by global pharma companies. However,
many of them were conducted without following safety protocols and consent from trial
participants. As a result, there were a series of high-profile mishaps including loss of human
life. This led to a huge hue and cry, with the Supreme Court finally intervening in the matter
and forcing the government to tighten regulations in 2013.

Guidelines made clinical trial agencies and the innovator companies liable for injuries
caused to participants in the trials. Requisite regulatory permission to proceed with trials
itself became very complex and was only given after a rigorous process. Hence, the approval
process became lengthy and unpredictable. The overall cost of doing trials in India jumped
10-20x.

According to the Indian Society for Clinical Research, global clinical trial application
approvals plunged from a high of 529 in 2010 to a low of 17 in 2013. Subsequently, India
conducted only 70 global trials in 2014, 54 in 2015 and 44 in 2016. During 2013-19, less than
2% of global clinical trials took place in India. As a result, many research institutions and
investigators discontinued clinical trials in India. Many Indian companies (such as Biocon,
Piramal Enterprises, and Lupin) were also forced to go abroad to conduct clinical trials.
Countries such as Malaysia, Singapore and Philippines emerged as major destinations.

Clinical trials form one of the largest segments by value, at around ~ 40-45% of the global
CRDMO industry and have several 2nd and 3rd order benefits for the pharma ecosystem
wherever executed. Hence, the Indian government crafted the New Drug and Clinical Trial
(NDCT) rules in 2019, after studying best practices prevalent in USA, EU, and other
prominent trial geographies. More comprehensive regulations were put in place to align with
global norms, protect trial participants, improve data quality, and expedite the approval
process. According to the senior management of a leading India-based CRO, the new rules
have contributed to more trials coming back to India. Since 2019, global pharmaceutical
companies have been optimistic on the regulatory support for conducting clinical trials in
the country. This has resulted in the Indian clinical trial CRO market share improving slightly
from 2.4% in CY18 to 2.8% in CY23. (Source: Frost and Sullivan)

VQ Deep Dive: Decrypting the DNA of CRDMO 37

3. Thus, India is expected to see faster growth in outsourcing of discovery
and clinical trials going forward
Outsourcing early-stage discovery and clinical projects is an important decision for many
large and small pharma innovators and they take time to evaluate options. In many cases,
they have given small exploratory projects to Indian CRO companies with a view to scale up
relationships depending on delivery, execution, quality, and other factors. Conversion to the
order book remains gradual for Indian CRDMO companies.

CAGR CAGR
India’s CRDMO Industry 2018 2023 2028F
2018-23 2023-28F

Total CRDMO Industry USD bn 4.0 7.0 14.1 12% 15.0%

As % of Global CRDMO % 3.1% 3.6% 4.7%

Discovery USD bn 0.3 0.5 0.8 11% 9.9%

As % of Total India CRDMO % 8% 7% 6%

As % of Global CRDMO - Discovery % 3.3% 3.8% 4.0%

Preclinical USD bn 0.2 0.3 0.6 8% 14.9%

As % of Total India CRDMO % 5% 4% 4%

As % of Global CRDMO – Pre-Clinical % 3.3% 3.0% 3.3%

Clinical USD bn 1.3 2.5 5.0 14% 14.9%

As % of Total India CRDMO % 33% 36% 35%

As % of Global CRDMO – Pre-Clinical % 2.5% 2.8% 3.5%

VQ Deep Dive: Decrypting the DNA of CRDMO 38

Conclusion
We summarise various facets of our extensive discussion in this simple-to-understand
flowchart

Funding environment
Driven by growth of
remains weak as of now,
complex therapies; Innovation mainly driven by R&D becoming more
CRO impacted more;
Biologics growing faster small innovator companies expensive by the day
Funding should improve with
than Small molecules
time

CRO relatively easier to outsource

Outsourcing the key to Innovators trust global CDMOs
Biosecure Act and other at a faster pace to other locations
controlling costs and like Lonza, WuXi, and Samsung
factors to drive diversification
reducing risks for innovators Biologics for their capabilities
beyond China CDMO/CMO will take longer
and large capacities
time to move

India expected to grow Indian ecosystem developing

Korean and European CRDMOs Currently, India is strong in
faster because of China + 1 capabilities across multiple
to benefit in high end small molecule
and US/Europe + 1 areas along with support from
outsourcing and biologics manufacturing
diversification needs the Indian government

The Indian CRDMO industry is set to grow at a much faster rate in the future
compared to the past, driven by multiple growth drivers as explained in these
sections.

Industry Size ($ bn) 2018 2023 2028F CAGR 2018-23 CAGR 2023-28F

Global CRDMO Industry 127 197 302 9.2% 8.9%

North America 54 83 116 9.0% 6.9%

As % of Global 43% 42% 38%

Europe 38 49 78 5.2% 9.7%

As % of Global 30% 25% 26%

China 10 25 42 20.1% 10.9%

As % of Global 7.9% 12.7% 13.9%

India 4 7 14 11.8% 14.9%

As % of Global 3% 4% 5%

APAC (ex – India, China) 13 20 32 9.0% 9.9%

As % of Global 10% 10% 11%

RoW 8 13 20 10.2% 9.0%

As % of Global 6% 7% 7%

Source: ValueQuest Internal Research, Frost and Sullivan

VQ Deep Dive: Decrypting the DNA of CRDMO 39

However, it is not going to be widespread across segments as expected, but selective based
on certain strengths and weaknesses of the Indian ecosystem. We highlight and debunk
certain myths and narratives in the process.

Narrative Reality

BioSecure Bill has already passed BioSecure Act not yet enacted into law, already diluted

India will replace China soon China is too big and difficult to replace easily or fast enough

Indian companies are innovative and can

India is behind in the innovation curve, has a lot to catch up to
get business easily

India has ‘Right to Win’ only in certain segments

India to benefit the most from Small molecule API manufacturing – both in innovation and generic APIs –
diversification driven by diversification requirements

CRO – more on the discovery side – driven by conducive regulation, cost

competitiveness & ease of switch

Risks
CRDMOs require substantial initial investments in the form of upfront capital expenditure in
fixed assets and investments in a skilled workforce which are not easy to obtain. Winning
business from innovator clients is a long-drawn process and takes several months to years.
In the meantime, CRDMO companies have to make do with lower utilization of their
operating assets leading to sub-optimal returns on investments for the first few years. This
requires a fine balancing act between aggressive business acquisition practices and
maintaining financial discipline (in areas such as profitability, working capital, capex, and
funding the balance sheet via a judicious mix of debt and equity).

In addition, CRDMO companies need to comply with all the regulatory requirements of
different countries in various areas relating to manufacturing, IP Protection, data integrity,
environmental norms, health and safety, risk management, etc. Failure to do so can lead to
significant negative impact on existing and future business.

While external tailwinds are in place, it is also upon Indian CRDMO companies to ensure that
they deliver on the expectations of the clients in the form of consistent, reliable, and timely
delivery of services and products at reasonable costs. Failure to achieve these multiple
goals can affect future business.

Regulatory tailwinds form one of the cornerstones of a strong growth outlook for Indian
CRDMO industry. If there is any dilution or cancellation of these tailwinds (such as not
reducing sourcing from China), it can significantly impair the growth prospects of the Indian
CRDMO industry.

VQ Deep Dive: Decrypting the DNA of CRDMO 40

Annexure

Pharmaceutical drugs primarily come in two forms:

Chemicals and Biologics.

Chemicals (Small molecules) have been around the longest and are low molecular weight
compounds, typically less than 1 kDa (containing 20–100 atoms). They can be chemically
synthesized through a relatively small number of steps and have high reproducibility.
These include lipids, sugars, phenolic compounds, alkaloids & other classes of compounds.

Biologics, on the other hand, are classified as proteins that have a therapeutic effect. They
have a high molecular weight, with more than 1,000 amino acids, typically ranging from a
few kDa to 1,000 kDa. They are engineered to be identical to human proteins. These drugs
are developed through complex processes—synthesized, extracted, and purified from
live cells of living organisms—and sometimes require more than 1,000 steps. They often
incorporate certain synthetic chemistry processes. Because of the intricate development
process, they have low reproducibility. Biologics include vaccines, insulins, blood, blood
components, gene therapy, tissues, and other protein-based treatments.

As seen in the picture below, based on their size and weight, chemicals are also called
‘small molecules’ whereas biologics are also called ‘large molecules’.

Snake venom
Aspirin Immunoglobulin G
peptide, 61mer

(180 Da) (6000 Da) (150,000 Da)

Chemical Molecule Peptide / Protein Antibody

VQ Deep Dive: Decrypting the DNA of CRDMO 41

Small molecule drugs have been the mainstay of the pharmaceutical industry for over a
century and known for their ease of manufacturing, cost effectiveness and affordability, ease
of administration (largely oral), and broad therapeutic coverage. The current marketed
portfolio of small molecules globally stands at 37000+ having a wide range of mechanisms to
act against a broad array of ailments.

They account for ~65% of the total global pharmaceutical market by revenue in 2023.

In contrast, large molecule drugs are costly to manufacture and, at this time, in most cases,
can only be administered by injection or infusion. However, because of their targeted actions,
they are more amenable to treating some of the prominent unsolved ailments like cancer,
neurology related ailments, and complex rare diseases which affect a smaller population but
are of much higher value as an effective treatment can help prolong life or the quality of life
itself.

VQ Deep Dive: Decrypting the DNA of CRDMO 42

CRDMOs take up some of the innovators’ non-core work relating to the initial R&D
stages, late-stage clinical trials and manufacturing activities.

Research Discovery Preclinical Clinical Registration Manufacturing

Drug discovery • Drug metabolism and • APIs

pharmacokinetics (DMPK) Permission to • Formulation
Phase I, II, III
• Pharmacological studies market by authorities development
Target lead Lead generation clinical trials
• Safety studies (eg, US FDA) • Packaging
identification & optimisation • Biological analysis • Bulk production

Contract research organisations (CRO)

Focus on the drug development, patient recruitment, data management,
clinical trial management and select analytical services

Contract manufacturing organisations (CMO)

Contract development and manufacturing organisations (CDMO)
Focus on manufacturing and/or packaging services

One stop services solution

One stop services solution is a business model of pharmaceutical contract organisations that provides services
covering entire value chain, from drug discovery to commercial manufacturing

VQ Deep Dive: Decrypting the DNA of CRDMO 43

CRDMO companies are mainly classified into 3 types:

1. Clinical Research Organisation (CRO) provide a wide range of services (scientific

and non-scientific) in the discovery, preclinical and clinical stages of drug development.
Those services include new drug discovery, R&D, clinical data management and NDA
(New Drug Application) registration. Some CRO players focus on offering services at the
preclinical and clinical stages. Preclinical services providers are mainly engaged in
compound research and preclinical research support, including new drug discovery,
synthesis and development of lead compounds and active drug intermediates, safety
evaluation research services, pharmacokinetics, pharmacology and toxicology, and
animal model construction. Clinical services cover phase I-IV clinical trial technical
support, clinical data management, statistical analysis and assistance in NDA
registration.

2. Chemistry Manufacturing and Control (CMC) / Contract Development and

Manufacturing Organisation (CDMO) generally provide services relating to the drug
substance (API which forms the core or active medicinal component of a drug) after it
has been discovered. They normally come in at clinical stages to produce small batches
of chemicals or biologics material ((both simple and complex) as required by innovators
and are involved in multiple stages of synthesis. They may overlap with preclinical and
clinical stages of CROs but are generally not involved in clinical trials which is generally
done by CROs.

3. Contract Manufacturing Organisations (CMO) primarily cover the manufacturing

aspect to support the preclinical, clinical and commercial stages of testing and
developing the API compound. They are generally also involved in Drug Products
services (formulations) which relate to fill-finish, containment, of API with other
chemicals to give it a finished usable consumption form, sterilisation, temperature and
environmental controls, packaging, serialization, labelling, shipments, etc.

VQ Deep Dive: Decrypting the DNA of CRDMO 44

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VQ Deep Dive: Decrypting the DNA of CRDMO 45