The benefits from reorganizing supply chains away from China under the U.S. BIOSECURE Act have so far been discussed mainly around biopharmaceutical contract development and manufacturing organizations (CDMOs) such as Samsung Biologics and Celltrion. That is because China-based biotech corporations including WuXi Biologics had taken on a large share of global big pharma's antibody drug production.
Recently, however, the effects of the supply chain reorganization have been spreading into the contract manufacturing space for small-molecule active pharmaceutical ingredients (APIs). Among domestic players, Yuhan's wholly owned subsidiary Yuhan Chemical Inc. and ST Pharm of the Dong-A Socio Group are drawing attention.
Under the BIOSECURE Act, existing contracts are grandfathered until 2032, but participation by Chinese corporations in new projects and contract renewals is effectively expected to be restricted starting in 2028. An industry official said, "Inquiries from global drugmakers have been coming in steadily," and noted, "After the second quarter, Korean companies may announce a series of order wins."
◇ The key to decoupling from China is "APIs for new drugs"… lock-in effect in focus
Because biopharmaceuticals are produced by culturing living cells, the expense of process transfer is enormous and changing production facilities also takes a long time. In contrast, small-molecule APIs are based on chemical synthesis, making it relatively easier to switch suppliers, and there are many global manufacturers.
The market for "APIs for new drugs" is different. APIs for new drugs involve not only raw material supply but also process development and the accumulation of quality data. Since manufacturing data are built from early clinical stages and reflected in submissions for approvals by the U.S. Food and Drug Administration (FDA) or the European Medicines Agency (EMA), changing suppliers requires revalidating the manufacturing site and going through regulatory approval procedures again.
For this reason, the same company typically handles everything from producing clinical trial samples to supplying commercial volumes. Once a supplier enters the supply chain, the structure makes it likely to lead to long-term transactions.
◇ Yuhan Chemical Inc. enters the global supply chain on the strength of "fermentation-based" production
Yuhan Chemical Inc. is a company with strengths in fermentation-based production of small-molecule APIs. When Yuhan secures global orders, Yuhan Chemical Inc. takes charge of manufacturing.
It had grown around "low-margin mass production" items such as immunosuppressants and antivirals, but more recently, there is an assessment that its participation in global new drug supply chains is expanding.
Measured by value, Yuhan Chemical Inc.'s production scale rose from 164.7 billion won in 2023 to 323.9 billion won last year. Yuhan's overseas business sales, which are overwhelmingly weighted to APIs, also increased over the same period from 241.1 billion won to 386.5 billion won.
The increase reflects expanded commercial volumes related to Gilead Sciences' human immunodeficiency virus (HIV) treatments. As supply shifted from clinical to commercial quantities, both production scale and unit prices increased.
In fact, Yuhan Chemical Inc.'s operating profit last year was 22.9 billion won, up about 90% from the previous year. Its operating margin also improved to 7.9%.
Its order base is also growing. As of the end of last year, Yuhan Chemical Inc.'s order backlog stood at $217 million (about 300 billion won). It has secured a substantial portion of volumes to run from this year through 2027. On the 6th, it also signed a supply contract worth about 56 billion won with U.S.-based Bridge Biopharma for API for a cardiomyopathy treatment.
Production capacity is being expanded as well. Yuhan Chemical Inc. currently has production facilities (HB building) with a capacity of about 995,000 liters and is pursuing an additional expansion (HC building) of 290,000 liters. The target completion is in the second half of next year.
◇ ST Pharm increases commercial share… knocking on the obesity market
ST Pharm is focusing on oligonucleotide (oligo) CDMO, a high value-added area. Oligos are substances used as raw materials for RNA-based therapies. Compared with general small-molecule APIs, they are harder to manufacture, and few companies can produce them reliably.
The company posted first-quarter sales of 67 billion won and operating profit of 11.5 billion won. Operating profit exceeded the market consensus by more than 30%. Oligo sales were 40.4 billion won. Of that, commercial volumes accounted for 27.1 billion won, or 67%.
ST Pharm's commercial volume share, which was 34–64% in 2023–2024, is estimated to rise to 77% this year. As of the end of the first quarter, the oligo order backlog was about 340 billion won, with commercial volumes accounting for more than 80%. Total order backlog was 460 billion won.
Sales of small-molecule APIs are also continuing to grow. At 4.6 billion won, they increased more than 300% from 1.1 billion won a year earlier. The growth reflects the start of revenue from two projects that entered the commercial stage last year.
Last year, ST Pharm completed its second oligo building, increasing oligo production capacity from an annual 6.4 mol to about 14 mol. It plans to decide within the year whether to add further capacity. A leading option is to install equipment in the reserved space inside the second oligo building.
ST Pharm is also preparing to enter the market for raw materials for GLP-1 class obesity treatments. It is reviewing the development of raw materials that combine oligos with GLP-1 peptides. With no commercialized cases yet, this approach aims to address the existing drugs' muscle loss side effects through an RNA-based mechanism.
◇ Order expectations are rising, but… debt burden and customer concentration remain
The market is watching the pace at which the two companies are expanding their production capacity. Kyobo Securities analyst Jeong Hee-ryeong said, "Yuhan Chemical Inc. is currently operating its roughly 1 million-liter production capacity at the maximum level," and added, "Since the HC building expansion began in March, we judge that commercial production will be possible in the first half of 2028."
Heungkuk Securities analyst Lee Ji-won said, "For ST Pharm's second oligo building, the utilization rate is expected to be 60% this year and 'full operation' next year," and analyzed, "With the expansion of the global RNA therapeutics market, growth in oligo orders and a mix improvement driven by a higher commercial share will continue."
However, some say it remains to be seen whether large-scale capacity additions will immediately lead to improved profitability.
Last year, Yuhan Chemical Inc.'s cost of sales ratio was about 90%, which is high. It is also facing a continuing borrowing burden during the HC building expansion. As of the end of last year, borrowings stood at about 260 billion won, and in February this year, it also added borrowing from the Korea Development Bank.
ST Pharm likewise faces a growing working capital burden during the expansion. At the end of last year, cash and cash equivalents had fallen to about half of a year earlier, while inventories increased by more than 40 billion won.
Dependence on a small number of global customers is also cited as a risk. As of last year, the top five customers accounted for about 70% of sales. This means that clinical delays or commercial failures in key pipelines could increase earnings volatility.