With the performance up and the market value down, WuXi AppTec has entered a key node
Produced by | At the forefront of entrepreneurship
Author | Meng Xiangna
Edit | Hu Fangjie
American Editor | Wu Yizhong
Audit | Ode
After experiencing the turmoil of the U.S. Biosecurity Act, on the evening of March 18, WuXi AppTec released its 2023 financial report, with its performance reaching a new high - revenue of 40.3 billion yuan and net profit attributable to the parent company of 9.6 billion yuan.
In the financial report, WuXi AppTec also disclosed the profit distribution plan for 2023, which intends to distribute cash dividends of 9.8336 yuan to all shareholders for every 10 shares, with a total dividend of 2.88 billion yuan, accounting for 30% of the annual net profit attributable to the parent company.
After the release of the financial report, Huaxing Securities, Soochow Securities and others gave WuXi AppTec a "buy" rating. But that doesn't seem to have boosted investor confidence.
At the close of trading on March 19, A-share WuXi AppTec was quoted at 50.81 yuan per share, down 4.87%, and H-share WuXi AppTec was reported at HK$39.55 per share, down 7.5%. Since then, WuXi AppTec's share price has fallen further, and by the close of trading on March 22, WuXi AppTec's A-share price fell to 47.91 yuan per share.
As a leading pharmaceutical CXO (pharmaceutical outsourcing) company in China, WuXi AppTec's every move has attracted much attention in the industry. Since the proposal of the U.S. Biosecurity Act in late January, the market value of A-share WuXi AppTec has evaporated by more than 60 billion yuan.
At present, the timeline for the implementation of the draft of the US Biosecurity Act has not yet been clarified, and the turmoil has not yet subsided. What does the U.S. market mean for WuXi AppTec, and how will WuXi AppTec bail out under the influence of unfavorable factors?
1. The effect of "saving clothes and food" is obvious, and the net profit is 9.6 billion yuan
The rise of R&D outsourcing companies such as WuXi AppTec has its historical background.
The birth of new drug R&D and production outsourcing services can be traced back to the 70s and 80s of the last century, and the subsequent rise of biotech (usually small and medium-sized enterprises, focusing on biotechnology R&D) has really promoted the prosperity of the outsourcing industry. In the 21st century, the iteration of new molecules has accelerated, driving the growth of new drug R&D expenditure, and R&D outsourcing companies such as WuXi AppTec have begun to show their prominence.
As an integrated, end-to-end drug R&D and manufacturing service provider in the global pharmaceutical industry, WuXi AppTec has operations bases in Asia, Europe, and North America.
The company's services cover the fields of chemical drug R&D and production, biological research, preclinical testing and clinical trial R&D through the business models of "CRDMO" (end-to-end integrated small molecule drug outsourcing services) and "CTDMO" (integrated cell and gene therapy outsourcing services).
In the past five years, WuXi AppTec's performance has shown a year-on-year growth trend. Specifically, in 2023, WuXi AppTec's revenue will be 40.3 billion yuan, three times that of 2019, and its net profit attributable to the parent company will be 9.6 billion yuan, five times that of 2019.
However, in terms of growth rate, in 2023, WuXi AppTec's performance growth will slow down significantly, with revenue growth slowing down from 72% in 2022 to 2.5% in 2023, and net profit attributable to the parent company also decreasing from 73% in 2022 to 9% in 2023.
In 2023, the reason why WuXi AppTec's net profit growth rate attributable to the parent company is higher than the revenue growth rate is "cutting back on food and clothing". In 2023, its operating costs, R&D expenses, and sales expenses will be 23.73 billion yuan, 1.44 billion yuan, and 700 million yuan, respectively, a year-on-year decrease of 3.8%, 10.74%, and 4.18%.
In terms of the number of employees, it has also been greatly reduced. In 2023, WuXi AppTec will have a total of 41,116 employees, a decrease of 3,245 from 2022, and the number of employees will decrease by more than 7% year-on-year, and most of the reduction will be in R&D personnel. In 2023, WuXi AppTec will have 33,657 technicians, a decrease of 3,021 from 36,678 in 2022.
For WuXi AppTec, adopting the strategy of "cutting back on food and clothing" means that the company is paying more attention to cost control and efficiency improvement at this stage. This may have something to do with the company's not optimistic performance prospects.
In the financial report, WuXi AppTec expects revenue of 38.3-40.5 billion yuan in 2024, with an expected growth rate of 2.7%-8.6% after excluding specific commercial manufacturing projects (mainly referring to the business brought about by the new crown). This also means that compared with the revenue scale of 40.5 billion yuan in 2023, WuXi AppTec's revenue will decline in 2024.
WuXi AppTec also emphasized that the full-year 2024 operating performance outlook is based on the company's orders in hand, and is based on the premise of a stable development of the global pharmaceutical industry, a stable international trade environment and a stable regulatory environment in the countries where it operates.
2. The growth rate of traditional businesses has plummeted, and new businesses have increased in volume
From the perspective of revenue structure, WuXi AppTec's business includes chemical business, testing business, biology business, cell and gene therapy CTDMO business, and domestic new drug R&D service department.
In 2023, in addition to the revenue growth rate of the chemical business segment where the new crown business is located, which will decline significantly compared with 2022, the revenue growth rate of the other four segments will also decline.
Among them, the growth rate of the chemical segment will decrease from 105% in 2022 to 1% in 2023, the growth rate of the testing business will decrease from 26% to 14%, and the growth rate of the biology business will decrease from 25% to 3%. The revenue of the business segment of the domestic new drug R&D service department has declined for two consecutive years.
Specifically, the chemical business is the main revenue force of WuXi AppTec. In 2023, the revenue of chemical business will be 29.17 billion yuan, a year-on-year increase of 1.1%, accounting for 72% of revenue. Excluding specific commercial production projects (Corona business), revenue from the Chemicals segment increased by 36.1% year-on-year.
Specifically, the process R&D and manufacturing business in the chemical business, which is the foundation of WuXi AppTec, decreased by 0.1% from the same period last year to RMB21.62 billion. The growth in the chemicals business was mainly due to the volume increase in the TIDES business, which is mainly oligonucleotides and peptides. In 2023, TIDES business revenue reached 3.41 billion yuan, a year-on-year increase of 64.4%.
TIDES business corresponds to the development and production of two new types of molecules: oligonucleotides and peptides. As a leading CDMO service provider, WuXi AppTec is one of the world's leading suppliers of peptide drugs, benefiting from the high popularity of peptide weight loss drugs in 2023, which will drive the company's performance growth. As of the end of 2023, TIDES orders on hand increased by 226% year-on-year.
In fact, the popularity of the concept of "diet drugs" will continue to rise in 2023, driving the performance growth of many companies in this field. Novo Nordisk Semaglutide achieved sales of a staggering $21.201 billion, while Eli Lilly's tirpatide hypoglycemic Mounjaro sales reached $5.163 billion.
At the performance briefing, WuXi AppTec also said that most of TIDES' revenue comes from overseas, and the newly expanded production capacity in Singapore, Switzerland, and the United States all have TIDES layout.
Although the testing business slowed down from 2022, it was the only business segment among the five business segments to achieve double-digit growth. In 2023, WuXi AppTec's testing business revenue was RMB6.54 billion, up 14.4% year-on-year.
In terms of biology business, in 2023, WuXi AppTec achieved revenue of RMB2.55 billion, a year-on-year increase of 3.1%, and as an important "traffic portal" for the company's downstream business, it can continue to contribute more than 20% of new customers to the company.
(Photo / Photo Network, based on VRF protocol)
However, the two major sectors of high-end treatment CTDMO business and domestic new drug R&D service department still need to make efforts. In 2023, the high-end treatment CTDMO business will achieve revenue of 1.31 billion yuan, a slight increase of 0.1% year-on-year. The domestic new drug R&D service department achieved revenue of 730 million yuan, a year-on-year decrease of 25.1% due to the active iterative upgrading of the business.
On the whole, based on the rapid growth of WuXi AppTec in 2022 with the help of the new crown drug commercialization project, it is not easy for the company to still exceed 40 billion yuan in revenue in 2023 under the background of the successive clearing of new crown-related orders. The continuous expansion of TIDES business has also brought new performance growth points to WuXi AppTec.
However, geopolitical risks remain a major issue for WuXi AppTec and a key uncertainty in the company's future development.
3. What is the impact of the U.S. market on WuXi AppTec?
From a regional perspective, the U.S. market is the main revenue driver of WuXi AppTec, with its revenue increasing from RMB 12.1 billion in 2021 to RMB 26.1 billion in 2023, and its revenue share increasing from 53% in 2021 to 65% in 2023.
Compared with the U.S. market, the Chinese market accounts for a relatively small proportion of the revenue brought by WuXi AppTec, and in 2023, the revenue of the Chinese market will be 7.4 billion yuan, accounting for only 18%.
However, in January this year, the introduction of the draft of the U.S. Biosecurity Act became a sword of Damocles hanging over WuXi AppTec's head.
On January 25, the U.S. Senate and House of Representatives proposed a "biosafety bill" against Chinese biotechnology companies such as WuXi AppTec, BGI, and MGI on the grounds of "protecting genetic data and national security" (currently in the draft stage).
On March 7, the U.S. Senate Homeland Security Committee held a hearing on the proposal and passed the U.S. Senate version of the Biosecurity Act. The bill aims to prohibit the U.S. federal government from contracting with certain biotech providers with ties to foreign competitors, including BGI and WuXi AppTec.
On March 13, BIO, the world's largest biotechnology trade association, announced its support for the Biosafety Act in a press release on its website, and subsequently terminated its membership in the BIO organization.
(Photo / Interface News Gallery)
On March 19, WuXi AppTec responded to its previous voluntary application for termination of BIO membership in its 2023 earnings call. WuXi AppTec said that the company's voluntary letter of withdrawal from BIO on March 12 was to enable BIO to focus more on effectively communicating with policymakers from an industry perspective, improve understanding of the industry, and raise public awareness of the pharmaceutical industry.
WuXi AppTec has also issued several clarification announcements, reiterating that the company "has not posed a national security risk to the United States in the past, is and will not pose a national security risk to the United States in the future, and will come to the same conclusion even if the U.S. government reviews the company again." ”
However, due to this, since the beginning of this year, the share price of A-share WuXi AppTec has fallen by 31%, and its market value has evaporated by more than 60 billion yuan. To this end, WuXi AppTec announced a repurchase cancellation plan of more than 3 billion yuan (A+H), and at present, the repurchase has completed 2.2 billion yuan (1.2 billion Hong Kong shares + 1 billion A shares), and another 1 billion is in progress.
At the earnings briefing, WuXi AppTec said it was actively engaged in frequent communication with U.S. policymakers and those involved in the legislation to explain the facts about the company and call for changes to the bill.
It is worth mentioning that the grandfathering clause was added in the latest Senate version, and contracts related to the U.S. government will only be restricted after the bill goes into effect.
WuXi AppTec said, "For projects that are already at an advanced stage, the client is negotiating very long contracts (more than 5 years) with us to better leverage grandfathering clauses to ensure that the project is executed. We have a large number of long-tail clients who are not affected by the bill as long as they don't take government money. "
In any case, under the influence of "black swan" events such as the U.S. Biosecurity Act and the cold financing of the industry, WuXi AppTec is at a critical juncture. Whether WuXi AppTec can stabilize its fundamentals and find new incremental markets to shift its dependence on U.S. customers is still an important issue for WuXi AppTec.
Despite WuXi AppTec's record 2023 results, its stock price is at a nearly three-year low. In the future, whether WuXi AppTec can achieve a turnaround against the wind, "Jiemian News, Entrepreneurship Frontline" will pay long-term attention.
*Note: The title image in the article is from the interface news gallery.