At the mid-point in 2026, how are small-molecule CDMOs faring? Larger CDMOs are faring well while CDMOs in early-stage capabilities face some headwinds with more challenging biotech financing.

By Patricia Van Arnum, Editorial Director, DCAT, pvanarnum@dcat.org 

Small-molecule CDMOs: a tale of two markets 
In evaluating the performance of CDMOs with small-molecule development and manufacturing capabilities, the market outlook is somewhat mixed. The larger small-molecule CDMOs with late-phase and/or commercial-scale capabilities are faring well while smaller and mid-sized CDMOs specializing in early-stage development and clinical-scale capabilities are facing some headwinds from more challenging trends in biotech financing.  

“There has been a fair amount of activity in later-phase pipelines, which are now providing opportunities for the larger CDMOs with large-scale capabilities to support late-phase and commercial projects,” says Brian Scanlan, Managing Partner, Freedom Bioscience Partners, a strategic advisory firm to CROs, CDMOs, and investors. He provided his analysis of the small-molecule CDMO market in the latest episode of the DCAT Value Chain Insights podcast, Production to Prescription. “The early-stage and the small and mid-size CDMOs are a different story.” 

He points to favorable recent financial performance of Lonza and Siegfried as two examples of larger CDMOs as proxies for other large CDMOs in the small-molecule space faring well. “The funding dynamic for later phase has been robust,” he says.  

Lonza is positioned as a pure-play CDMO in three main areas, with its Advanced Synthesis business, which includes development and manufacturing services for small molecules and bioconjugates, including antibody drug conjugates (ADCs), being a key contributor to recent revenue growth. 

On an overall basis in its three main business areas (Advanced Synthesis, Integrated Biologics, and Specialized Modalities), Lonza estimates an overall pipeline of approximately 1,000 molecules with approximately 70% of its revenue tied to Phase III and commercial products, based on a January 2026 investor presentation. In 2025, Lonza reported overall sales in its CDMO business of CHF 6.5 billion ($8.25 billion) with growth of +21.7% (at constant exchange rates [CER]).  

Its Advanced Synthesis business, which accounts for approximately one quarter of its overall sales, generated 2025 sales of CHF 1.6 billion ($2.03 billion), a 22.4% gain (at CER), year over year, supported by added growth projects in small molecules and bioconjugates, and a core EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 41.8% in 2025 (+5.2 points versus the prior year). For the first quarter of 2026, Lonza said its Advanced Synthesis business continued to benefit from growth projects added in 2025, favorable product mix, strong operational execution in small molecules and bioconjugates, and early batch releases (note: the company issued a qualitative earnings report for its first-quarter 2026 results; full financial results are reported on a half- and full-year basis).  

For Siegfried, a CDMO of drug substances and drug products, for the full year 2025, its drug-substance business, which accounted for approximately 69% of sales, had sales of CHF 916.3 million ($1.16 billion), an increase of 4.3% in local currencies (2.7% in CHF). Net sales in its drug products business increased by 4.3% in local currencies (2.2% in CHF) to CHF 411.6 million ($522.5 million). Across both clusters, more than 90% of revenues were derived from commercial-phase products with its top 10 products accounting for roughly one third of total revenues.  

Smaller CDMOs: specialization is key  
CDMOs with capabilities in early-stage/clinical development are more exposed to the funding dynamics of small pharma companies, which continues to be pressured. “It is really a continuation of what we’ve seen from 2025,” says Scanlan. ‘Smaller, earlier-stage players are seeing more muted demand profiles driven again by the funding dynamic,” he says.  “Despite a good uptick coming into the first quarter of this year (2026), the first quarter of 2026 did not impress in terms of early-stage venture capital (VC) funding. While early-stage biotech M&A [mergers and acquisitions] and licensing continues to be strong, the VC levels were suppressed in the first quarter. It is those early-stage funding activities that drive opportunities into the earlier stage CROs and CDMOs. Continuing in 2026, we are probably seeing a more muted demand profile,“ he says. 

A recent analysis by JP Morgan supports that position. “Capital deployment remains focused on established portfolio companies with advanced pipelines and upcoming clinical catalysts, reflecting a market that continues to reward later-stage conviction over broad-based early-stage exploration,” according to a recent JP Morgan analysis in evaluating bio/pharma financing in the first quarter of 2026. “Bio/pharma financing and transaction activity in the first quarter 2026 continued to reflect a selective capital environment, with investors and acquirers concentrating around later-stage assets, differentiated science and programs with clearer clinical and commercial pathways,” the analysis said. “Venture fundraising remained uneven, reinforcing the importance of licensing, structured partnerships and M&A as primary sources of capital and strategic execution.”  

Bio/pharma venture funding totaled $6.9 billion in the first quarter 2026, below the $8.6 billion raised in the first quarter of 2025, with deal count also trending lower, according to the analysis  Bio/pharma licensing reached $82.7 billion in announced value in the first quarter of 2026, with upfront cash representing 6% of total deal value. Bio/pharma M&A totaled $40.9 billion across 32 deals in Q1 2026, following a strong 2025. For initial public offerings (IPOs), six biopharma IPOs raised $1.8 billion in the first quarter of 2026, which already passed the full-year 2025, according to the JP Morgan analysis.  

Given the uncertainties in overall biotech financing in supporting clinical and early-stage CDMO capabilities, Scanlan emphasized the importance for smaller, clinical, or early-phase CDMOs to realize opportunities through specialized technologies, including those supporting new modalities, where they are able to differentiate themselves. “It is of utmost importance for them to pick their swim lanes and really own them in terms of specialization” says Scanlan. “How you can you bring differentiation, specialization, and speed to those to those smaller bio/pharma companies is key. Although the number of opportunities is less, the molecules are more complex, pointing to specialized capabilities in ADCs,  antisense oligonucleotide, RNA-targeting small-molecule drugs, or macrocyclic-based pharmaceuticals some example, and where growth rates for these compound types are good.  

Another dynamic: China-based bio/pharma innovation  
Although China has long factored into the calculus of small-molecule CDMOs as a competitor for lower cost active pharmaceutical ingredient (API) production, another aspect to the China equation is emerging: China-based bio/pharmaceutical innovation.  

An important trend to watch is the rise of China-based innovator companies as shown in recent licensing deals. In the first quarter of 2026, global large-cap bio/pharma companies continued to source assets from Chinese bio/pharma companies, with seven deals carrying upfront payments of at least $50 million and total upfront cash and equity of $2.6 billion, according to the JP Morgan analysis. In the first quarter of 2026, China-origin biopharma assets represented 50% of global large-cap pharma deals with upfront payments in those licensing deals above $50 million and 75% of total upfront dollars in that group, highlighting China’s growing role as a source of competitive licensing opportunities. 

“As we have all seen, if that continues and that momentum continues and extrapolating it out, within a matter of just a few years, China may be poised to eclipse US innovators in the not too distant future in terms of licensing, M&A, and total number of compounds in development, both small and large molecules and advanced therapies,” observes Scanlan. 

US-based pharmaceutical manufacturing investment 
Another dynamic potentially impacting CDMOs is the role of increased US-based investment by the bio/pharmaceutical majors and whether or not that will have an effect or not on insourced/outsourced decision-making and potentially a preference for CDMOs that can offer manufacturing and supply-chain localization in the US. Scanlan points out that the impact of those announced US-based investments from the bio/pharma majors overall has yet to be seen, but one consideration for CDMOs is whether US-based assets will become a greater strategic priority. 

“Historically, valuations of US-based CDMOs [or CDMOs with US-based manufacturing assets] have been higher than their EU counterpart or rest-of-world counterparts in part been due to the proximity  of US biopharma sector to the North American CDMO and CRO base,” says Scanlan. “But add now the geopolitical factors and US-based assets, particularly those that are reasonably well constructed and well run, come at a higher and certainly a premium valuation over other regions, all else being equal, to be US-based.”