China CRO & CDMO Report Interpretation

Overview

This China CRO/CDMO earnings wrap-up argues that the sector has moved from an initial earnings recovery toward a potentially more durable growth cycle. Goldman Sachs bases that view on stronger orders and backlogs, widespread guidance upgrades, improving utilization and margins, recovering early-stage R&D activity, and capacity investment aimed at peptides, ADCs, oligonucleotides and biologics.

Core views

Goldman Sachs argues that 2Q/1H26 results strengthened the case for a broadening and more durable recovery in China CRO/CDMOs. The sector outperformed Goldman Sachs healthcare coverage by a significant margin over both three months and year-to-date, rising 55% and 61%, respectively, versus 10% and 8% for healthcare coverage. Most companies delivered solid results despite foreign-exchange pressure, supported by order momentum, utilization improvement and operating leverage. WuXi AppTec reported 47.7% year-on-year revenue growth and 91.7% adjusted-earnings growth; WuXi Biologics and WuXi XDC also outperformed on utilization, operating leverage and a richer mix of late-stage and commercial projects. Demand was particularly strong in GLP-1, ADCs, peptides, bi-/multi-specific antibodies and related manufacturing services. Guidance revisions provide a central piece of the report's evidence. WuXi AppTec lifted FY26 continuing-operations revenue-growth guidance to 35-39% from 18-22%; WuXi Biologics raised its range to 15-18% from 13-17%; Pharmaron lifted its range to 15-20% from 12-18%; and Genscript raised Life Science Group revenue-growth guidance to 25-30% from 15-18%. Goldman Sachs interprets the breadth of upgrades as a sign of better sector fundamentals and greater scope for consensus earnings revisions into 2027. The report emphasizes that order and backlog trends provide increasing visibility into next year's growth. WuXi AppTec's backlog rose 25% year-on-year to Rmb66.4bn at 1H26; WuXi Biologics' total backlog rose 24%, while its three-year backlog rose about 30%; WuXi XDC's service backlog increased about 50% and total backlog about 62%; Asymchem reported 54% backlog growth and 55% new-order growth; and Pharmaron reported 30% total order growth and more than 50% CDMO order growth. Goldman Sachs sees these orders as being driven by GLP-1, ADC, peptide, oligonucleotide and biologics projects, as well as improving domestic biotech activity and funding. Crucially, the institution sees recovery spreading from commercial manufacturing toward the front end of the R&D cycle. WuXi AppTec recorded about 10% growth in small-molecule discovery revenue and added 167 preclinical and Phase I molecules in 2Q26, up from 80 in 1Q26 and close to the 2022-23 peak pace of roughly 180 per quarter. WuXi Testing grew 35% year-on-year in 2Q26. WuXi Biologics added a record 169 integrated projects in 1H26, with more than 70% in bi-/multi-specific antibodies and ADCs, while WuXi XDC signed a record 51 integrated projects. Pharmaron's Clinical Development Services new project orders rose 30% year-on-year. Goldman Sachs links this improvement to domestic business-development and licensing-out momentum, global M&A activity and gradually stabilizing biotech financing, arguing that these conditions can support both early-stage services and later commercial manufacturing over time. Higher capex plans reinforce management confidence in future demand and backlog conversion, in Goldman Sachs' view. WuXi AppTec raised FY26 capex guidance to Rmb7.5-8.5bn from Rmb6.5-7.5bn. Pharmaron increased FY26 capex to about Rmb3.6bn, roughly Rmb1bn above FY25 and above its prior plan for only modest growth. Asymchem lifted FY26 capex guidance to Rmb2.6-2.8bn from Rmb2.1bn and expects FY27 capex to exceed Rmb3bn. WuXi Biologics kept FY26 capex near Rmb7.1bn and indicated acceleration toward about Rmb8bn in 2027. Investment is focused on peptides, oligonucleotides, ADCs, biologics manufacturing and overseas capacity. AIDD is presented as an emerging current demand contributor rather than a distant concept. Genscript reported about US$40mn of AIDD-related revenue in 1H26 and expects more than US$100mn in 2H26, supporting its guidance upgrade and capacity expansion. Pharmaron estimated that AI-related customers account for roughly 7-8% of Laboratory Services revenue, including two of its top 20 clients and four of its top 50 clients. WuXi Biologics cited 30% growth in protein-related services. Goldman Sachs believes AIDD can add to sector demand because high-quality wet-lab data remain important for the iterative training and validation of drug-discovery models. The report acknowledges FX and geopolitical uncertainty but argues that these concerns have increasingly been absorbed by the market. RMB strength remained a headwind: WuXi AppTec faced an approximately 4% FY26 revenue-growth impact and about 300bp of 1H26 gross-margin pressure; WuXi Biologics estimated an approximately 5% FY26 revenue impact and about 300bp of 1H26 adjusted gross-margin pressure; WuXi XDC cited a 4.5% impact on 1H revenue growth; and Pharmaron incorporated a 3% FY26 revenue-growth impact. On Section 1260H, Goldman Sachs notes that WuXi AppTec obtained a preliminary injunction on August 7, 2026, preventing DoD enforcement during litigation. The forthcoming OMB list is identified as a near-term share-price catalyst, although Goldman Sachs considers fundamental impact limited so far given grandfather clauses and limited alternative capacity outside China. US biotech developments are treated as supportive read-across rather than the report's primary subject. Goldman Sachs points to US$143bn of year-to-date biotech M&A deal value, versus US$200bn for FY25, improving capital-market activity, Eli Lilly's ongoing GLP-1 momentum, and Moderna's positive Phase 3 melanoma data as signals of stronger innovation and project creation. The institution believes that healthier biotech financing, business development and M&A can lift both early-stage discovery/development demand and later-stage outsourcing demand for China CRO/CDMOs. On valuation, Goldman Sachs states that Chinese players still trade at a discount to regional peers despite similar expected growth profiles over the next two to three years. It raised target prices by about 10% on average, reflecting stronger earnings, order flow, margins and valuation mark-to-market in selected names. The report remains constructive on the industry but distinguishes among companies based on backlog conversion, commercial-project ramp-up, capacity utilization, margin trajectories, client concentration, funding exposure and regulatory risk.

Analysis framework

Goldman Sachs reviews 2Q/1H26 earnings delivery, guidance, orders, backlogs, utilization, project additions and capex across covered China CRO/CDMO companies. It then connects company data to broader drivers including biotech funding, licensing, M&A, GLP-1 demand, ADC activity, AIDD adoption, FX and geopolitical developments, before updating earnings estimates, target prices and company-specific valuation frameworks.

Methodology notes

• Industry AnalysisSupply-demand framework

  Order, backlog, project-intake, capacity and utilization analysis

  The report uses orders and backlog growth, early- and late-stage project additions, capacity plans and utilization to assess demand strength and the likely conversion of demand into future revenue.

• Valuation methodsP/E and PEG Valuation

  Forward P/E and PEG comparisons

  Goldman Sachs values several covered companies using 12-month forward P/E multiples and compares Chinese players' valuation discounts and PEGs with regional peers.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation for Genscript and Tigermed

  The report values separate operating businesses and investment assets individually, then combines them to derive target prices for these companies.

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash flow valuation

  The report uses DCF for Tigermed core operations and for Genscript's Legend Biotech, ProBio and Bestzyme components, discounting forecast cash flows using stated discount rates and terminal-growth assumptions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• WuXi AppTec (603259.SH / 02359.HK)

  Core beneficiary of broad CRO/CDMO recovery, late-stage and commercial project expansion, and GLP-1/TIDES demand.

  Strengths

  25% y/y backlog growth to Rmb66.4bn, raised FY26 guidance, accelerating late-stage projects and broad strength across small molecule, TIDES and testing.

  Weaknesses

  Exposure to GLP-1 concentration and uncertainty in its success-based discovery model.

  Comparison

  Goldman Sachs states the WuXi entities trade at a discount to peers despite similar expected growth profiles.

  Risks

  Pricing pressure, geopolitical uncertainty and slower ramp-up of new businesses.

• Pharmaron (300759.SZ / 03759.HK)

  Beneficiary of recovery in early-stage discovery, clinical development and CDMO conversion under its CRDMO model.

  Strengths

  30% total new-project order growth, more than 50% CDMO order growth, increased guidance and oral GLP-1 manufacturing opportunity.

  Weaknesses

  Commercial conversion and AIDD customer traction require further disclosure and validation.

  Comparison

  Goldman Sachs is Buy on H shares and Neutral on A shares.

  Risks

  US-China trade tensions, labor and talent costs, and weaker pharma R&D or biotech financing.

• WuXi XDC (02268.HK)

  ADC and bioconjugate outsourcing beneficiary with strong early-stage order intake and expanding commercial visibility.

  Strengths

  Service backlog up about 50% y/y, total backlog up about 62% y/y, and record integrated-project additions.

  Weaknesses

  Visibility on commercial conversion and Singapore facility margin effects remains a debate.

  Comparison

  Goldman Sachs considers current valuation to reflect much of the Singapore-related margin-dilution concern.

  Risks

  Weak biotech funding, competition, geopolitical uncertainty, client or late-stage-project loss, delayed expansion and ADC clinical-development risk.

• WuXi Biologics (02269.HK)

  Biologics and development outsourcing beneficiary of stronger order momentum and manufacturing conversion.

  Strengths

  Total backlog up 24% y/y, three-year backlog up about 30% y/y, and strong development-project demand.

  Weaknesses

  FY26 guidance increase was slightly below some investors' expectations given strong order intake.

  Comparison

  Goldman Sachs is Neutral-rated despite a constructive view on backlog and 2027 visibility.

  Risks

  Adverse US legislation, biotech-funding cooling, commercial projects transferring out, competition and geopolitical uncertainty.

• Asymchem (002821.SZ / 06821.HK)

  Beneficiary of peptide, oligonucleotide, ADC and biologics demand, supported by elevated order and backlog growth.

  Strengths

  More than 54% order and backlog growth and materially higher capex indicate management confidence in medium-term demand.

  Weaknesses

  Near-term margins face mix-shift and capacity-build-out pressure.

  Comparison

  Goldman Sachs is Buy on H shares and Neutral on A shares.

  Risks

  Key-client loss, pricing competition, regulation or biotech-financing downturn, labor costs and geopolitical uncertainty.

• Tigermed (300347.SZ / 03347.HK)

  CRO recovery beneficiary through accelerating domestic orders, improving MNC activity and pricing stabilization.

  Strengths

  Net new orders grew more than 30% y/y and improving utilization and AI-driven efficiency could support margins.

  Weaknesses

  Revenue and earnings conversion may be gradual because of legacy contracts and AI investment spending.

  Comparison

  Goldman Sachs retains Buy ratings and made no estimate or target-price changes.

  Risks

  CSRC investigation outcome, geopolitical risks, order impairment, weak front-end demand and slower global expansion.

• Genscript Biotech (01548.HK)

  AIDD-related DNA-to-protein services beneficiary.

  Strengths

  AIDD-driven Life Science Group growth, data-quality and high-throughput capabilities, and increased guidance.

  Weaknesses

  Sustainability and global addressable-market size of AIDD demand remain under investor debate.

  Comparison

  Goldman Sachs is Buy-rated and raised its target price.

  Risks

  Regulation and biotech-funding downturn, labor costs, ex-China revenue exposure and slower-than-expected AIDD ramp-up.

Key data

• China CRO/CDMO performance+55% in 3M and +61% YTDVersus +10% and +8% for Goldman Sachs healthcare coverage.
• WuXi AppTec 2Q/1H26 performanceRevenue +47.7% y/y; adjusted earnings +91.7% y/ySupported by strong order momentum, utilization and operating leverage.
• WuXi AppTec FY26 guidance35-39% revenue growthRaised from 18-22% for continuing operations.
• WuXi AppTec backlogRmb66.4bn; +25% y/yAt 1H26, supporting FY27 visibility.
• WuXi Biologics backlogTotal backlog +24% y/y; three-year backlog about +30% y/yReflects stronger development and manufacturing pipeline demand.
• WuXi XDC backlogService backlog about +50% y/y; total backlog about +62% y/yTotal backlog includes potential milestone fees.
• Asymchem orders and backlogNew orders +55% y/y; backlog +54% y/ySupports medium-term visibility despite near-term margin noise.
• Genscript AIDD revenueAbout US$40mn in 1H26; more than US$100mn expected in 2H26AIDD demand drove Life Science Group guidance and capacity expansion.
• US biotech M&A deal valueUS$143bn YTDCompared with US$200bn in FY25; cited as a positive read-across for project formation.

Impact & implications

Goldman Sachs believes the sector's stronger backlogs, guidance, early-stage activity and capex shift the debate toward the durability of FY27 growth rather than whether recovery is occurring. It sees commercial manufacturing conversion, demand diversification beyond GLP-1, funding conditions and additional fund flows as important for further re-rating, while noting that Chinese CRO/CDMOs continue to trade at discounts to regional peers.

Risks

• FX headwinds from RMB strength can reduce reported revenue growth and margins.
• Geopolitical and regulatory uncertainty, including Section 1260H-related developments, can create volatility and affect operations or customer decisions.
• A deterioration in global or China biotech funding, venture capital or IPO conditions could weaken new project creation and outsourcing demand.
• Pricing competition, client concentration, labor-cost pressure and talent-retention challenges could weigh on profitability for covered companies.
• Commercial-project conversion, new-capacity ramp-up and late-stage clinical progression may fall short of expectations.

What to watch

• FY27 backlog conversion and revenue visibility, particularly the translation of late-stage and commercial projects into manufacturing revenue.
• The durability and mix contribution of GLP-1, peptides, TIDES, ADCs and oligonucleotide demand.
• Early-stage discovery and clinical project intake, including new molecule additions, RFP conversion and domestic biotech activity.
• Capacity utilization and margin performance as new facilities, including Singapore capacity for WuXi XDC, ramp up.
• AIDD customer exposure, order monetization, pricing and margin development.
• The OMB list release and final progress in Section 1260H litigation.
• Biotech funding, licensing-out activity, global M&A and broader US-China regulatory developments.