Wuxi Pharmatech’s antibody CMO !!

Wuxi Pharmatech (WX): Biologics Business Taking OffSeptember 23, 2012 10:56 PM(By Mani) The biologics business of WuXi PharmaTech Inc. (NYSE:WX : 14.71, 0.32) is accelerating, giving a new revenue stream for the contract research organization (CRO). Shangai-baesd WuXi PharmaTech is a leading CRO company with operations both in China and the US. Its core lab services business offers R&D, discovery chemistry, service biology, and pharmaceutical development services. Its manufacturing operations produce advanced, intermediate drugs and active drug ingredients. The JV with MedImmune, the global biologics arm of AstraZeneca (NYSE:AZN), to fastrack development of MEDI5117 in China, a novel biologic for treatment of rheumatoid arthritis by 4-5 years bodes well for the company as this partnership will enable it to establish a leadership presence in developing novel biologics in China."Its 50:50 JV with MedImmune kick-started a new revenue model for WX to participate in the upside of drug candidates," Oppenheimer analyst Ingrid Yin said in a note to clients.Although still in Phase I, WuXi believes MEDI5117's risk/reward profile looks attractive, while Collaboration with Open Monoclonal Technology allows it to develop human therapeutic antibodies fully for customers.Besides domestic customers, the company is talking to multiple MNCs for biologics service; the recent manufacturing contract with TaiMed is just a start."Although not yet profitable, the biologics business, with little competition in China, should see higher margins than chemistry in the long run," Yin noted. Meanwhile, the partnership with MedImmune enables WuXi to earn not only a service fee but also share potential upside of a therapeutic candidate. WuXi will generate revenue by providing local regulatory, manufacturing, pre-clinical and clinical trial support. MedImmune has the option to acquire the full China right to commercialize MEDI5117. In addition, WuXi will manufacture ibalizumab (TMB-355) for its global Phase 2/3 trials for TaiMed, a Taiwan biotech company. Pricing pressure, higher labor costs and investment in new businesses have caused margin erosion in recent years for WuXi. "We see both headwinds and tailwinds for margins going forward. However, we expect margins to stabilize in 2013, with biologics and toxicology ramping up and labor cost pressure easing," Yin said.The Chinese government's focus on healthcare reform is expected to continue to drive growth and demand for quality medicines over the long term, along with its investment in improving healthcare infrastructure and expanding medical insurance coverage.China also continues to increase its biomedical R&D investment, fuelled by sustained GDP growth. The Chinese pharmaceutical market grew from $10 billion in 2004 to $41 billion in 2010 and, according to IMS Health, is projected to grow to over $100 billion by 2014.Meanwhile, WuXi is attractively valued as it trades at 11 times 2012 estimated EPS, a 47% discount to its US CRO peers and well-below its 16 times 5-year average forward P/E multiple."For a high-quality leading global CRO, we see current valuation as attractive," Yin added.