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Wuxi Biologics (2269 HK) Summary Report

Core Content

Wuxi Biologics, a company in the pharmaceutical and healthcare sector, has shown strong financial performance and technological advancements in its bispecific antibody (BsAb) platform. The company has maintained a "BUY" recommendation, with an updated 12-month target price of HK$100.4, reflecting a potential 42% upside from the previous price of HK$70.5.

Financial Highlights

• Revenue Growth (RMB mn):

  • 2016: 989
  • 2017: 1,619
  • 2018E: 2,542 (+57% YoY)
  • 2019E: 4,019 (+58% YoY)
  • 2020E: 6,499 (+62% YoY)

• Adjusted Net Profit (RMB mn):

  • 2016: 221
  • 2017: 408
  • 2018E: 655 (+60% YoY)
  • 2019E: 1,196 (+83% YoY)
  • 2020E: 1,936 (+62% YoY)

• EPS (HKD):

  • 2016: 0.25
  • 2017: 0.42
  • 2018E: 0.59
  • 2019E: 1.01
  • 2020E: 1.62

• Valuation Metrics:

  • PER (adjusted): 118.8 (2017), 109.6 (2018E), 64.2 (2019E), 39.9 (2020E)
  • PBR: 13.2 (2017), 9.4 (2018E), 8.4 (2019E), 7.0 (2020E)
  • DCF-based Target Price (HKD): HK$100.4
  • Equity Value (HKD mn): 132,502
  • Value per Share (HKD): 100.4
  • Shares Outstanding (mn): 1,312

Key Viewpoints

• Strong Revenue Performance: In 1H, Wuxi Biologics reported a revenue growth of +61% (rev/adj) and +94% YoY, driven by the strong global R&D outsourcing trend, despite a 9% currency headwind. The company’s service backlog growth slowed to 27%, but late-stage projects continued to grow by 40%, ensuring sustainable revenue growth of 50%+ for 2018/19E.

• New BsAb Platform: The company unveiled a new proprietary bispecific antibody platform named WuxiBodyTM. This platform is expected to support 50 projects per year, enhancing its competitive position in the industry. WuxiBody is said to reduce mispairing, lower manufacturing costs, and improve the in vivo half-life and ease of engineering compared to other platforms.

• Technological Leadership: The WuxiBody platform is compared favorably to Roche's CrossMab and Knobs-into-holes technologies. It is expected to contribute significantly to future CMO revenue, as the company anticipates its first BsAb orders within 6-12 months and the first molecule to file an IND by the end of 2019.

• Valuation and Buy Recommendation: The company's DCF-based target price remains at HK$100.4, with unchanged estimates. The recommendation to "BUY" is based on the company's superb execution and strong technological leadership.

Key Information

• Market Cap (HKD mn): 86,333
• 52-week Range (HKD): 35.7–98.5
• Avg. Daily Volume (mn): 4.61
• BVPS (HKD): 3.63
• Dividend Yield (%): 0.0 for all years
• Shareholding Structure:
  • Wuxi Biologics: 59.6%
  • Management: 8.0%
  • Free float: 32.4%

Bispecific Antibody Overview

Bispecific antibodies are engineered proteins that combine the specificities of two antibodies into one molecule. They offer advantages such as retargeting immune cells to tumors and interfering with receptor signaling, with applications in cancer, chronic inflammatory diseases, autoimmunity, and more.

Main Formats of BsAbs

• IgG-like: These retain the traditional mAb structure with two Fab arms and an Fc region. Examples include Removab and Hemlibra. They are large in size, have long serum half-life, and high solubility and stability.
• Non-IgG-like: These lack an Fc region and include chemically linked Fabs and single-chain variable fragments (scFv). They are smaller and have enhanced tissue penetration, but lack effector functions like ADCC and ADCP.

Major BsAb Platforms

• Knobs-into-holes: Developed by Roche, this platform reduces side products to only 4 molecules.
• CrossMabs: Roche's next-generation platform that eliminates unwanted pairing of light chains.
• DutaMabs: Roche's latest platform that enables bispecific development on a single arm of an antibody.
• Asymmetric: Developed by Zymeworks, it retains the desirable features of mAbs and allows for correct assembly.
• DuoBody: Developed by Genmab, it uses two separate monoclonal antibodies and achieves high yield.
• DVD-IgG: Developed by AbbVie, this platform allows for simultaneous binding and longer dosing intervals.
• DART: Developed by MacroGenics, it minimizes unwanted antibody species and improves stability.
• Nanobodies: Developed by Ablynx (Sanofi), these have high affinity for specific targets and increased serum half-life.

Technical Challenges in BsAb Manufacturing

• Assembly of Heavy and Light Chains: Ensuring correct assembly is a significant challenge.
• Stability and Expression Yields: BsAbs often have lower stability and expression yields than conventional mAbs.
• Immunogenicity: BsAbs can be more immunogenic, which may affect patient compliance and adverse events.

Conclusion

Wuxi Biologics is well-positioned in the bispecific antibody market with its new WuxiBody platform, which offers advantages in development time, cost, and performance. The company's strong execution and technological leadership continue to support its growth and valuation. The DCF-based target price remains at HK$100.4, and the recommendation is to maintain a "BUY" position.