WuXi Pharma Tech

Jiawei Chen

Nov 4th 2009

WuXi Pharma TechNYSE: WX

Agenda

� I. CRO industry overview

� II. Company overview

� III. Thesis points

� IV. Risk

� V. VAR Summary

� VI. Valuation

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� Reasons for outsourcing to CROs

� Drug companies can convert fixed costs into variable

costs

� Increased complexity of clinical trials

� Knowledge of regulatory affairs in a particular country

of interest

Market� Valued at US$18bn in 2008

�Approximately 500 CROs globally

Global CRO Trend

�Grow at a CAGR of 14% to reach 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)

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.

II. Company overview

� The largest CRO in China with total revenue of US$253.5mn in 2008.

� Established in 2000, WuXi AppTec is a leading global CRO with operations in China and the United States. with operations in China and the United States.

� Provide integrated portfolio across the discovery-to-commercialization spectrum.

� A highly educated workforce

employees: 3,700

scientists: 2,900 (the majority with advanced degrees)

Company Structure

III. Thesis Points

1. Solid fundamental: High-Quality

Laboratory Services business

2. New promising business: Toxicology2. New promising business: Toxicology

3. Talented pool with cost advantage

1. Laboratory Services…

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

Revenue breakdown 2007-

2011E

High level of service

satisfaction

2006 2007 2008

Top 10 customer

concentration69% 74% 54%

Retention of

top 10

customers

100% 100% 100%

Average revenues

per top 10

customer (US$ mn)

4 .8 10.0 13.8

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

intensive requirements of developing new

Integrated Services for

Biologics

� intensive requirements of developing new

drugs

�A single-source provider allows for seamless

transition and increase efficiency

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 which are designed to rule out serious side-effects of a

drug

� Typically have high entry barriers in term of technology

and capital investment

Wuxi’s advantage

� Suzhou facility will mark Asia's largest toxicology facility with total 300,000 square feet.

� Advantage in China

Abundant resources and fewer regulatoryAbundant resources and fewer regulatoryconstraints on animal testing.

� Multiple pharmaceutical clients visited the facility and were impressed by the layout.

Key determinant of long-term return

trends

80

100

120 Strong revenue

growth will

ultimately lead to

0

20

40

60

80

2010E 2011E 2012E 2013E 2014E 2015E

系列1

ultimately lead to

margin expansion

and sustainable

growth in the long

term

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

China’s Cost Benefit

Breakdown of CRO costs in China relative to the US: 34.2%

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.

V. VAR summary

� Interview with Management over summer 2009

Cooperation with Merck Good team workManagement showed clients were Management showed clients were

impressed with customer-driven, high-quality integrated service

09 is the toughest year for the company, but still have new establishment

V. VAR summary

� Perspectives from employees� salary

Bachelor Degree: ~3000 RMB/month (US$ 500)

Master Degree: ~5000 RMB 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”

VI. Stock PerformancePrice in the past 2 years

Financial Data

� Price: US$13.45

� 52-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%

Valuation

� laboratory services: stable growth of 16%

CAGR

� Manufacturing revenue: pick up with an � Manufacturing revenue: pick up with an

growth CAGR of 32.4%

� Toxicology services: launch in 2H2010 to act

as a long-term growth driver

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%,

Valuation :undervalued

average of 13.6%,

2) Higher ROE of 16% in 2010E vs. its peer average of

13%, driven by margin expansion due to WuXi’s shift

towards more higher-margin services.

Question?