It is undoubtedly an interesting time for the contract development and manufacturing organisation (CDMO) sector, and particularly, for companies like STA, with facilities that span China and the US. For those who don't know, we are a WuXi AppTec subsidiary that specialises in contract services for small molecule process development and manufacturing. Development costs in the US are comparatively high and are driving the main bulk of our business for patented API development work, but also, we are seeing pharma in Europe and increasingly Chinese biotechs emerging, that are bringing drug candidates to STA for development and commercialisation.
More broadly in the CDMO space, in the last few years we have seen the rise of biologic drugs (which has led to rapid expansion at our sister company, WuXi Biologics) and a number of acquisitions as the industry consolidates and we move towards more strategic partnerships. However, what remains without doubt is that outsourcing of pharmaceutical and small molecule API drug development will continue apace. The market forces, and the need for outside skills that are often the crucial difference in speeding a drug to market, are simply too hard to ignore. Perhaps more significant is that we are also seeing a change in the relationship for CMOs and CDMOs with their pharma customers. It is no longer a transactional relationship, pharma and biotech customers are instead seeking the best skills sets to help them develop a drug or meet technical process challenges. So, what you are now seeing in the CDMO sector is companies striving to invest in new technologies with specialised development teams that can help expedite the drug development process. Small CMO companies who are well managed, especially the ones with leading technology, are high-priority acquisition targets.
Another major trend is overseas investment driving life sciences innovation in the West. Chinese investors are looking beyond China, ahead to Western biotechs, as promising local biotechs are valued high due to supply and demand. Yet, at the same time, we see much of this biotech development work then turning to our R&D centres in China, which is really showing the globalisation of the industry. We have seen some US biotechs prefer to keep the very early stages of the development process closer to home, which is why last year we opened a San Diego site. This means we can offer the very early R&D stages out of the US close to the client, before transferring to China for later stage production to gain the cost benefits.
For bigger pharma customers, we have a different relationship. As we are often working on many projects simultaneously, we offer them dedicated R&D teams in China that can work flexibly with their teams - it is a special sort of strategic relationship we envisage increasing as the industry moves toward a more virtual R&D model.
I touched upon it earlier, but clearly the industry is also gearing up for new technologies and capacity through acquisition or conversion. Our approach has been a little different, in that we have invested heavily in our own facilities so we can deliver new capacity with the latest technology, rather than trying to adopt older sites from others. At the new 39-acre Changzhou facility, which became operational last February, we have a fully integrated site with both R&D and manufacturing. Once completed it will have over 500 scientists and well over 1000m3 total reactor volume. Unlike some of the other CDMOs, who sometimes try to pick up work at a later stage, our unique strategy is to maintain huge pipeline of early clinical stage clients with commercial potential. So rather than trying to back integrate, we are helping our customers from the inception of their product through to launch.
At the integrated Changzhou site, we have both pilot and commercial plants as well as R&D. We plan to eventually run nine large plants at this site. The plants will fulfil our customer's R&D pipeline needs, with many of the programmes now entering process validation stage, requiring us to add production capacity. In fact, since the Changzhou site opened less than a year ago, we already have over 40 active pharma customers running programmes at this site ...
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