WuXi Pharma Tech NYSE: WX. Jiawei Chen. Nov 4th 2009

Transcription

1 WuXi Pharma Tech NYSE: WX Jiawei Chen Nov 4th 2009

2 Agenda I. CRO industry overview II. Company overview III. Thesis points IV. Risk V. VAR Summary VI. Valuation

3 I. Industry Overview: CRO Contract Research Organization(CRO) is a service organization that provides support to the pharmaceutical/biotech industry Reasons for outsourcing to CROs Drug companies can convert fixed costsinto variable costs Increased complexityof clinical trials Knowledge of regulatoryaffairs in a particular country of interest

4 Global CRO Trend Market Valued at US$18bnin 2008 Approximately 500 CROs globally Grow at a CAGR of 14% toreach US$24bn in 2010 Demand for CRO: increase by 17% annually the next 3 to 5 years R&D outsourcing share as % of total global expenditure: double to 10% in 2013E (from 5% in 2008)

5 Chinese CRO Market Expect the sector to expand at an 18% CAGR till 2011 Foreign-based CROs started operating in China in the 1990s, focusing on pre-clinical laboratory functions.

6 II. Company overview The largest CRO in China with total revenue of US$253.5mn in Established in 2000, WuXi AppTec is a leading global CRO with operations in Chinaand the United States. Provide integrated portfolio across the discovery-tocommercializationspectrum. A highly educated workforce employees: 3,700 scientists: 2,900 (the majority with advanced degrees)

7 Company Structure

8 III. Thesis Points 1. Solid fundamental: High-Quality Laboratory Services business 2. New promising business: Toxicology 3. Talented pool with cost advantage

9 1. Laboratory Services

10 Remain the growth engine laboratory services revenue to grow at a 16% CAGR from 2009E- 2011E 100% customer retention rate provide fully integrated one-stop shopping service

11 Revenue breakdown E

12 High level of service satisfaction Top 10 customer concentration % 74% 54% Retention of top 10 customers Average revenues per top 10 customer (US$ mn) 100% 100% 100%

13 Integrated Services for Pharmaceuticals These integrated end-to-end capabilities allow customers to realize more R&D potential in a cost effective and rapid manner

14 Integrated Services for Biologics intensive requirements of developing new drugs A single-source provider allows for seamless transition and increase efficiency

15 2. Promising Toxicology What is toxicology?? Studies that typically involve testing on animals and which are designed to rule out serious side-effects of a drug Typically have high entry barriers in term of technology and capital investment

16 Wuxi s advantage Suzhou facility will mark Asia's largesttoxicology facility with total 300,000 square feet. Advantage in China Abundant resources and fewer regulatory constraints on animal testing. Multiple pharmaceutical clients visited the facility and were impressed by the layout.

17 Key determinant of long-term return trends 系列 1 Strong revenue growth will ultimately lead to margin expansion and sustainable growth in the long term E 2011E 2012E 2013E 2014E 2015E

18 3. High Quality intelligence Young, vibrant work force 78% Scientists with Master Degree Highly sought-after employer on college campuses in China Superior training program

19 China s Cost Benefit Breakdown of CRO costs in China relative to the US: 34.2%

20 IV. Key Risk Slower global pharmaceutical growth and cash conservation from small biotech clients Exchange risk leads to earnings uncertainty The emergence of many new CRO start-ups and expansion of large-scale CROs might lead to fierce pricing wars. WuXi could be pressured to lower its prices in the long run.

21 V. VAR summary Interview with Management over summer 2009 Cooperation with Merck Good team work Management showed clients were impressed with customer-driven, highquality integrated service 09 is the toughest year for the company, but still have new establishment

22 V. VAR summary Perspectives from employees salary Bachelor Degree: ~3000 RMB/month (US$ 500) Master Degree: ~5000 RMB Employee working for 3 years I have been working in the company for three years. It s development is like a train running at full speed, very amazing. Here, I met top people, work in the top environment and receive top-standard training

23 VI. Stock Performance Price in the past 2 years

24 Financial Data Price: US$ Week Range: US$3.67-US$14.04 Market Cap (million): US$978 / 72.7 ROE (2009E) 26.3% Net Dbt to Eqty (Dec-2008A) -5.3%

25 Valuation laboratory services: stable growth of 16% CAGR Manufacturing revenue: pick up with an growth CAGR of 32.4% Toxicology services: launch in 2H2010 to act as a long-term growth driver

26 Valuation :undervalued 1) Driven by its cost advantages and ongoing business expansion, the company s earnings growth CAGR will be at 28%over 2009E-2011E vs. its global peer average of 13.6%, 2) Higher ROEof 16%in 2010E vs. its peer average of 13%, driven by margin expansion due to WuXi s shift towards more higher-margin services.

27 Question?