WuXi PharmaTech (603259): The transformation of the industry’s scarce empowerment platform to increase the conversion rate brings long-term space

WuXi PharmaTech (603259): The transformation of the industry’s scarce empowerment platform to increase the conversion rate brings long-term space
In October 2018, we published the in-depth report of WuXi AppTec, “The Strongest Innovative Aircraft Carriers, Flying the Blue Ocean of New Drug Services”, which introduced the advantages and potential scale of the pharmaceutical service outsourcing industry, the company’s business sector and its competitiveness.In this report, we try to read WuXi AppTec in 20 pages, focusing on the core issues of market concern: (1) how to understand WuXi AppTec’s “integrated, end-to-end empowerment platform” (2) short, medium,Looking at the advantages and potentials of the 南宁桑拿 company for a long time, how to understand the development space of WuXi 深圳桑拿网 PharmaTech’s “integrated, end-to-end empowerment platform” 1. There are very few industries, scarcity and versatility.The company’s four main businesses include preclinical CRO, clinical CRO, CDMO, transferring the entire industrial chain of drug discovery, preclinical development, clinical research, and commercial production, from the beginning to the end, following the discovery of drugs from the laboratory stage to the molecular stage.The whole process of production in the commercialization stage.If the drug research and development is divided into four phases: pre-clinical phase, pre-clinical phase, clinical research phase, and market launch phase, only one or two of the advantages of multiple extended service companies are covered.  The company is one of the very few open new drug research and development service platforms in the industry that has service capabilities in the entire new drug research and development industry chain, and its business coverage level is on par with that of the world-class company LabCorp.2. End-to-end empowerment platform has short, medium and long-term competitive advantages.Improving the technical depth and breadth of services in the short term, increasing customer retention, and individual revenue; participating in innovative drug research and development from the early stage to share the longevity value of innovative drug growth; in the long term, conforming to the scientific laws of drug research from early to follow-up,A certain probability is expected to improve the success rate and efficiency of new drug research and development, increase the conversion rate of clinical stage projects, and share the gold market for extended clinical services. 1. In the short term, customer loyalty is high, retention rate is high, and the “long-tail customer” effect is transformed.In 2019H1, there are more than 3,600 active customers.94.5% of revenue comes from previous customers, and the top ten customer retention rates are 100%, 79.2% of customers with revenue share use services from multiple business units, and the proportion of long-tail customers and domestic customers increased to 70%. 2. In the medium term, through the integrated service model (DDSU department) from drug discovery to preclinical research, enjoy the long-term value and income distribution of innovative drug launches.As of the third quarter of 2019, the company has gradually completed 71 new drug INDs for domestic customers and obtained 54 project CTAs.At present, the company has more than 140 projects in progress, and the gradual advancement of future pre-transition projects will gradually promote the company to gradually share the long-term value and stable sales income distribution of innovative drugs on the market. 3. In the medium and long term, the clinical CRO business, the cell and gene therapy service business are still in the growth stage, and strive to maintain high-speed growth. In the future, the amount of income and gross profit rate are expected to gradually increase.(1) 2018 clinical CRO income5.8.5 billion (64% +), accounting for 6% of overall revenue and 29% of gross profit.In our opinion, referring to the domestic clinical CRO leader Tiger Pharmaceuticals’ income level (US $ 2.3 billion in 2018), gross margin level (43% in 2018), and the company’s strategic plan to expand international multi-centers, the future revenue of Wuxi’s clinical CRO businessThe volume is expected to gradually increase, and the gross margin level to 30% or even higher through scale effects.(2) U.S.-based laboratories representing cell and gene therapy services business revenue in 201812.0.4 billion (6.1% +), accounting for 12% of overall income.5%, gross margin 24%.With the gradual release of Philadelphia’s productivity and the increase of projects, we believe that if the global clinical number of cells and gene therapy increases by 10% each year, the company’s market share will increase to 15% in 2025 and the unit price of the project will increase by 10% each year.The business revenue increase is expected to reach around 7.1 billion, with a CAGR of 29% in 2018-2025E.Refer to the gross margin level of WuXiBiology of CDMO Brothers Biopharmaceutical Company (2018 40.20%), and considering that the company’s factories are mainly established in the United States, the corresponding gross margin level of the company has increased to about 30% -35%. 4. In the long run, after enabling the platform to continuously improve the clinical stage, the internal conversion rate will increase, the order of orders will increase, the long-term growth will be strong, and the clinical stage will expand to serve a broad market.The clinical stage research and development expenses account for more than 75% of the total cost of new drug research and development, and it is the gold market segment for medical service outsourcing.At present, most of the company’s projects are concentrated in the early stages. In 2018, clinical CRO revenue accounted for only 6%.With the gradual optimization of the empowerment platform and the gradual strengthening of clinical CRO service capabilities, the company’s internal retention rate of the project’s advancement to the clinical stage will increase, and the company will gradually develop from an early project amount with a low period and a short period to a gradually decreasing project amount with a high period and a long period.From the relatively small preclinical R & D market to the shrinking clinical research and production market.With the gradual improvement of the internal conversion rate of clinical stage projects, there is room for growth of more than 3-5 times the amount of single orders, and there is great room for long-term development. In the long run, we estimate that WuXi AppTec’s revenue volume is expected to reach 48 billion in 2025, of which clinical CRO business income is 73% (15%), and US laboratory corresponding cell and gene therapy expansion service business income is US $ 7.1 billion (accounting forThan 14.8%).The compound annual growth rate of revenue for 2018-2025 is expected to remain at about 26%. Earnings forecast and investment advice: We expect operating income for 2019-2021 to be 123.2.6 billion, 158.13 ppm and 201.19 ppm, an increase of 28 in ten years.22%, 28.29%, 27.23%, net profit attributable to mother is 23.09 million yuan, 29.9.5 billion and 38.94 ppm, a 10-year increase2.16%, 29 after adjustment.67% and 30.02%.We believe that some pharmaceutical R & D outsourcing service industries will develop rapidly in the future. The company is the most innovative drug outsourcing service industry chain enterprise with the strongest innovation ability. The industry is in a high prosperity, and the company’s industry leader is stable.”End-to-end” one-stop new drug development and empowerment platform strategic prospects help the company achieve long-term stable growth and maintain a “buy” rating. Risk reminders: risks of changes in industry regulatory policies, risks of intensified competition in the pharmaceutical R & D service industry, risks of changes in overseas operations and international policies, risks of changes in exchange rates.