Morgan Stanley: Pharmaron orders advance toward commercialization, with a breakthrough expected in 2027

Why could 2027 be a breakthrough year for commercialization?

Morgan Stanley believes Pharmaron could achieve a breakthrough in its commercial business in 2027 as projects in customers’ pipelines advance to late-stage development or commercialization. New CDMO purchase orders rose 40% year on year in the third quarter of 2026, with European customers contributing significantly.
This growth is linked to the company’s “follow the molecule” model: more than 85% of CDMO revenue comes from laboratory services customers, and the advancement of early-stage R&D customers’ projects can generate subsequent development and manufacturing demand.
The company expects the share of CDMO revenue from late-stage and commercial projects to rise from less than 20% in 2025 to more than 20% in 2026, and then to more than 25% in 2027.

The 200 million dollars committed by Eli Lilly represents the cumulative order value for supplying orforglipron formulations to China and is expected to begin contributing revenue in 2028.
The company’s near-term gross margin target for its overall CDMO business is 35%, including 35%–40% for small-molecule CDMO. If more large orders are delivered over the next few years, the small-molecule business’s gross margin could reach 45%; the biologics CDMO gross margin is not expected to decline further.
Project delays, longer order confirmation and revenue recognition cycles, and further losses at overseas sites are among the downside risks listed by Morgan Stanley.

The company’s current capacity utilization is high, and its project schedule for 2027 is nearly full. To meet commercial production demand, it plans to double small-molecule API reactor capacity from 1200 cubic meters to 2400 cubic meters by 2028.
Capacity expansion also requires continued investment: the capital expenditure budget for 2026 is approximately 3 billion yuan, and is expected to rise further in 2027. According to API Intelligence, the company is also investing 590 million yuan at its Hangzhou site to add 54 tonnes of API and intermediate capacity.

Management maintained its guidance for 15%–20% year-on-year revenue growth in 2026, or 18%–23% at constant exchange rates. Laboratory services and clinical development are each expected to grow 10%–15%, while CDMO is expected to grow more than 30%.
Morgan Stanley rates Pharmaron’s Hong Kong shares Overweight, with a target price of 36.50 Hong Kong dollars; the closing price on 2 November 2026 cited in the report was 27.20 Hong Kong dollars.