CDMO stocks in focus as US House votes on Biosecure Act next week; Divi’s Lab, among others to benefit, says expert
- The Biosecure Act may favour Indian CDMOs by limiting US partnerships with specific Chinese firms. Analysts predict a market surge driven by manufacturing cost advantages and increased demand for Indian contracts, marking a pivotal shift in the global CDMO landscape.
Indian CDMO stocks are likely to be in focus next week as the US House plans to vote on the Biosecure Act during the week of September 9. Analysts believe that as the Biosecure Act aims to limit global pharmaceutical companies from outsourcing their work to China, India's Contract Development and Manufacturing Organisation (CDMO) companies are bound to have an advantage.
In its study, brokerage InCred Equities said that low manufacturing prices, foreign direct investments, and government incentives such as the Production-Linked Incentive (PLI) plan have turned India into an appealing CDMO destination for businesses looking for alternatives that are cheaper than China.
“We anticipate that the US Biosecure Act will significantly benefit Indian CDMOs and are very optimistic about this development. Although the Act allows US companies until 2032 to phase out their collaborations with the five Chinese CDMOs listed, it is likely that clients will increasingly turn to non-Chinese CDMOs for newer projects. This shift is expected to positively impact CDMOs in the US, EU, as well as Korea (where major facilities like Samsung and Celltrion are located),” said Praful Bohra, Director - Research, InCred Capital to livemint.
Here's all you need to know about the ‘Biosecure Act’
In the US Senate and the House of Representatives, a bipartisan group has introduced the Biosecurity Act. The Bill seeks to lessen technological transfer to China and the reliance of the US biopharmaceutical sector on that country. The Act mentions five Chinese businesses in particular: Complete Genomics, BGI, MGI, WuXi Apptec, and Wuxi Biologics. A company that works together with any of the aforementioned businesses will not be eligible for any grants, loans, or contracts from executive agencies. A grandfather provision has been included, allowing the corporations to keep their current contracts with Chinese players in place for an additional eight years, explained InCred Equities in its study.
How would it impact Indian CDMO companies?
The Indian CDMO market is anticipated to expand at a CAGR of 14.67%, reaching a value of US$44.69 billion in 2029F from US$19.63 billion in 2023. Opportunities for contract research and API are anticipated to drive the expansion. China's declining market share is one of the main drivers of India's CDMO industry expansion, highlighted the brokerage report.
China became the world's top CDMO player by providing generous government support and labor that is 25–30% less expensive. But after trade restrictions were imposed by the former US President Donald Trump and the Covid-19 pandemic caused supply chain disruptions, China began to lose market share. For India's CDMO businesses, this was a huge benefit and a game-changer as big businesses began to derisk by awarding contracts to Indian firms.
Further Bohra explained that Indian companies have traditionally excelled in the small molecule sector, with less emphasis on large molecules. We expect a strong initial inflow of orders for small molecules to India. Companies like Piramal Pharma and Suven Pharma have advanced in the antibody-drug conjugate space, likely leading to increased opportunities.
Recent investments by major players—such as Aurobindo's in biologics facility, Alkem’s in an US CDMO facility, and Gland Pharma's acquisition of Cenexi—highlight the growing importance of the CDMO sector. Proximity to key markets, such as the US and EU, enhances client coordination and will be an added advantage.
Which Indian CDMO companies are likely to benefit?
“Divi's Laboratories, Suven Pharma, Neuland Labs, Piramal Pharma, One source (to be demerged from Strides Pharma sciences) have the largest exposure to CDMO business, though other companies like Glenmark Life sciences, Laurus Labs, Gland Pharma, Jubilant Pharma etc also have some exposure here. All these companies are likely to benefit depending on their capacities and capabilities,” added Praful Bohra.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.
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