Goldman Sachs: Asian CDMOs Enter a Structural Growth Cycle; Peptides, ADCs, Oligonucleotides, and AIDD Become New Engines

From September 23 to 25, Goldman Sachs hosted its second Asia Healthcare CDMO (Contract Development and Manufacturing Organization) Day in Singapore. The three-day event attracted over 100 institutional investors and 11 companies, including WuXi AppTec (02359.HK), WUXI BIO (02269.HK), WUXI XDC (02268.HK), Pharmaron Beijing (03759.HK), Asymchem Laboratories (06821.HK), and Hangzhou Tigermed Consulting (03347.HK) from mainland China; and Piramal Pharma, Neuland Labs, and Laurus Labs from India, among others. In a report published on September 29, Goldman Sachs noted that industry discussions have shifted from "speed of recovery" to "sustainability of the next growth cycle." Improving demand for preclinical and safety assessment services, sustained order momentum, and increased exposure to commercial manufacturing all point to a more durable demand environment. Emerging growth drivers such as peptides, ADCs (antibody-drug conjugates), oligonucleotides, biosimilars, and AIDD (AI-driven drug discovery) are collectively broadening outsourcing opportunities. More importantly, management teams are no longer preparing for a recoverythey are investing for the next structural growth cycle. Global Demand Visibility Improves, Overshadowing Geopolitical Concerns Goldman Sachs noted that one of the clearest takeaways from the Asia CDMO Day was the broad-based recovery in outsourcing demand across regions, modalities, and development stages. Management teams widely cited accelerating order wins, strong backlog growth, and improving commercial visibility. Q2 results from global CRO/CDMO peers also showed encouraging recovery in discovery, preclinical, and safety assessment activities. Goldman Sachs views these improvements in front-end services as particularly important, as they are leading indicators of future development and manufacturing demand. Combined with continued pharma M&A, licensing, and business development (BD) activity, the recovery appears increasingly broad-based and sustainable, helping to enhance visibility for the coming quarters. In addition, regional companies' geopolitical views diverged. CDMOs in India, Taiwan, and South Korea continued to attribute some near-term orders to supply chain diversification; mainland Chinese companies generally reported limited impact from geopolitical developments on customer demand. Instead, supplier selection is increasingly driven by capability, quality, speed, and capacity availability. Several companies emphasized that capacity constraints and extended lead times in Europeparticularly for small-molecule API productsare driving incremental outsourcing to Asian manufacturers. Biologics customers continue to pursue dual-sourcing strategies to enhance supply chain resilience, while DP (drug product and fill-finish) activities continue to favor nearshoring due to regulatory, logistics, and customer proximity considerations. Fed Rate Hikes Have Limited Near-Term Impact; Innovation Activity Drives Demand Recent Fed rate hikes are widely viewed as having little impact on near-term demand trends. Most management teams said it is still too early to observe meaningful changes in customer behavior. More importantly, current demand is driven less by incremental biotech IPOs and more by underlying innovation activity, including pharma M&A, licensing deals, business development transactions, and accelerated pipeline advancement. AIDD is gradually becoming an important driver of growth, especially among Chinese CRO/CDMO companies. Although the direct contribution of AIDD remains limited for most companies currently, management teams increasingly expect AIDD to expand future outsourcing opportunities by accelerating molecule creation and development activities. By contrast, regional peers such as those in India and Samsung Biologics continue to view AIDD as a long-term opportunity, with greater focus on leveraging AI to improve operational efficiency. Capex Reaccelerates, Focused on Peptides, ADCs, Oligonucleotides, and Overseas Expansion Goldman Sachs noted that capex has changed significantly compared to a year ago. Management teams in China and India are notably more positive on investment plans, reflecting growing confidence in backlog conversion and the medium-term demand outlook. Incremental investment is primarily concentrated in peptides, ADCs, oligonucleotides, and overseas expansion. Notably, several companies acknowledged that previous capital discipline may have constrained growth opportunities and are now accelerating investment to capture the next outsourcing cycle. Samsung Biologics is expected to announce the commissioning of its sixth plant before year-end, further reinforcing industry confidence in biologics demand fundamentals. Emerging Therapies Remain Key Growth Engines; Momentum Expands from GLP-1 to More Modalities Peptides were the most discussed topic, but company positioning is increasingly diverging into leaders and followers. Large established players such as WuXi AppTec and Asymchem Laboratories remain focused on large commercial opportunities, particularly obesity-related programs; second-wave entrants such as Neuland, Laurus, and Pharmaron Beijing are building early-stage pipelines and exposure to indications beyond GLP-1. Samsung Biologics' acquisition of PolyPeptide further validates the attractiveness of this model. Beyond peptides, ADC remains one of the highest-conviction growth themes, with discussions shifting from platform building to commercial translation and manufacturing scale-up. WUXI XDC is one of the biggest beneficiaries of accelerating ADC outsourcing demand, while Samsung Biologics continues to expand toward end-to-end ADC solutions. Oligonucleotides are emerging as the next major investment area, particularly favored by Chinese CDMOs, with DP/drug product capabilities increasingly viewed as strategic assets for deepening customer relationships and enhancing commercial value. Biosimilars also gained more attention this year, especially among biologics-focused CDMOs, driven by growing technology transfer and commercial manufacturing opportunities. Overseas Expansion and M&A Remain Key Agenda Items, with the U.S. as the Focus Goldman Sachs noted that overseas expansion and M&A remain key agenda items, particularly in the U.S. Organic investment remains the dominant strategy, but several regional companies are still evaluating acquisition opportunities to strengthen drug product, fill-finish, and customer service capabilities. Beyond market access, companies are increasingly focused on strategic factors such as talent acquisition, technology access, and proximity to innovative customers. Several companies discussed exploring greenfield development and M&A opportunities in the U.S., with a focus on capability expansion rather than large-scale manufacturing. Bora Pharmaceuticals continues to seek overseas expansion to enhance dosage form development and customer service capabilities. Samsung Biologics' recent acquisition of the Rockville facility also reflects the industry's growing focus on expanding geographic coverage and customer proximity while complementing existing Asian manufacturing networks. The broader industry trend is increasingly tilting toward combining Asian manufacturing scale with selective Western footprints to achieve synergies in customer engagement, drug product services, and specialized technical expertise. Stock Selection Preferences: Focus on Early-Stage R&D and Emerging Therapies From a stock selection perspective, Goldman Sachs increasingly prefers companies with greater exposure to early-stage R&D activity and emerging therapies, rather than just beneficiaries of traditional commercial manufacturing. The recent recovery in discovery, preclinical, and safety assessment demand is particularly encouraging, as these activities are typically leading indicators of future development and manufacturing revenue. Against this backdrop, Goldman Sachs views WUXI XDC, Pharmaron Beijing, and Hangzhou Tigermed Consulting as favorably positioned, given their greater exposure to early-stage innovation activity, improving order momentum, and involvement in emerging growth themes such as AIDD, ADCs, and next-generation biologics. Goldman Sachs also continues to watch catalyst-driven investment opportunities. Samsung Biologics remains one of the key companies to watch, with potential catalysts including large order announcements and the formal announcement of its sixth production line; Asymchem Laboratories is a key beneficiary of accelerating peptide outsourcing demand; WuXi AppTec remains one of the most leveraged plays on global GLP-1 commercialization ramp-up and broader TIDES (peptides and oligonucleotides) demand elasticity; and GenScript is poised to benefit from growing AIDD demand in gene and protein synthesis. Meanwhile, Goldman Sachs remains constructive on Lonza, primarily due to its solid commercial operations track record and strong earnings resilience. Divi's Laboratories is poised to benefit from continued growth in peptide outsourcing demand. At the same time, Thermo Fisher's Patheon platform remains well-positioned to benefit from U.S. manufacturing reshoring trends, particularly among small and mid-sized biopharma companies that lack the ability to build dedicated production facilities themselves.