In October 2018, we released Wuxi Apptec's in-depth report "the strongest innovative aircraft carrier, gallop the blue ocean of new drug services", introducing the advantages and potential scale, business segment and competitiveness of the pharmaceutical service outsourcing industry. In this report, we try to read Wuxi Apptec in 20 pages, focusing on the core issues of market concern: (1) how to understandWuxi ApptecThe "integrated, end-to-end enabling platform" (2) what are the advantages and potential of the company in the short, medium and long term

How to understand Wuxi Apptec's "integrated, end-to-end enabling platform" development space 1, very few industries, scarcity and versatility. The company's four main businesses include preclinical CRO, clinical CRO and CDMO, which run through the whole industry chain of drug discovery, preclinical development, clinical research and commercial production, from the beginning to the terminal, following the whole process of drug from molecular discovery in the laboratory stage to commercial production. If drug research and development is divided into four stages: drug discovery stage, preclinical stage, clinical research stage and listing stage, most outsourcing service companies cover only one or two of them. The company is one of the few open new drug R & D service platforms in the industry with service capabilities in the whole industry chain, and its business coverage level is on a par with that of the international first-class enterprise LabCorp. 2. The end-to-end enabling platform has obvious competitive advantages in the short, medium and long term. Improve the technical depth and breadth of service in the short term, improve customer retention rate and single project revenue, etc.; in the medium term, by participating in innovative drug research and development from the early stage, share the long life cycle value of innovative drug growth; in the long run, in line with the scientific law of drug research and development from the early stage to the later stage, a certain probability is expected to improve the success rate and efficiency of new drug research and development, increase the project conversion rate in the clinical stage, and share the gold market of outsourced services in the later stage.

From the detailed interpretation of the data, what are the advantages and potential of short -, medium-and long-term companies?

1. In the short term, the customer loyalty is high, the retention rate is high, and the "long tail customer" effect is gradually reflected. 2019H1 has more than 3600 active customers. 94.5% of the revenue comes from existing customers. Customers with a retention rate of 100% of the top 10 customers and 79.2% of revenue use services from multiple business units, and the proportion of revenue from long-tail customers and domestic customers increases to 70%.

2. In the medium term, through the integrated service model (DDSU department) from drug discovery to preclinical research, we can enjoy the long-term value and income share of innovative drugs on the market. By the end of 2019Q3, 71 new drug IND have been completed for domestic customers and 54 CTA projects have been obtained. At present, the company has more than 140 ongoing projects, and in the future, with the gradual promotion of pre-projects, the company is expected to share the long-term value of innovative drug market volume and stable sales revenue share.

3. In the medium and long term, the clinical CRO business, cell and gene therapy service business are still in the growth stage, and are expected to maintain rapid growth, and the future income volume and gross profit margin are expected to increase gradually. (1) the clinical CRO income in 2018 is 585 million yuan (64% +), accounting for 6% of the total income, and the gross profit margin is 29%. We believe that, with reference to the domestic clinical CRO leaderTigermedIncome level (2.3 billion yuan in 2018), gross profit margin (43% in 2018), and the company's strategic plan to expand international multi-center, Wuxi Apptec clinical CRO business income volume is expected to gradually increase in the future, and with the scale effect gross profit margin level is expected to rise to 30% or higher. (2) the US regional laboratory, which represents the cell and gene therapy service business, earned 1.204 billion yuan (6.1% +) in 2018, accounting for 12.5% of the total income, and the gross profit margin was 24%. With the gradual release of capacity and the increase of projects in Philadelphia, we believe that assuming that the number of global cell and gene therapy clinic increases by 10% a year, the company's market share increases to 15% in 2025, and the project unit price increases by 10% per year, the company's business revenue is expected to increase by about 7.1 billion yuan in 2025, 2018-2025E CAGR29%. Reference to Biopharmaceuticals CDMO BrothersWuxi BiologicsThe level of gross profit margin (40.20% in 2018), and considering that the company's factories are mainly located in the United States, the company's gross profit margin is expected to rise to about 30% 35%.

4. In the long run, with the continuous improvement of the enabling platform, the internal conversion rate in the clinical stage increases, the back-end orders increase, the long-term growth is strong, and there is a broad market for sharing outsourced services in the clinical phase. The cost of R & D in the clinical stage accounts for more than 75% of the total cost of new drug research and development, which is the golden market segment of pharmaceutical service outsourcing. At present, most of the company's projects are concentrated in the early stages, accounting for only 6% of clinical CRO revenue in 2018. With the gradual optimization of the enabling platform and the gradual strengthening of the clinical CRO service capability, the internal retention rate of the company's project has increased to the clinical stage, and the company will gradually develop from the early single project amount, low cost and short cycle to the back-end single project amount, high cycle and long cycle, and from the relatively small preclinical R & D market to the larger clinical research and production market. With the gradual increase of the internal conversion rate of the project in the clinical stage, the order amount of a single project has more than 3-5 times growth space, and there is a lot of room for long-term development.

In the long run, we expect Wuxi Apptec's income to reach 48 billion yuan in 2025, including 7.3 billion yuan (15%) from clinical CRO business and 7.1 billion yuan (14.8%) from cell and gene therapy outsourcing services in American laboratories. The compound annual growth rate of income from 2018 to 2025 is expected to remain at around 26%.

Profit forecast and investment advice: we expect operating income from 2019 to 2021 to be 12.326 billion yuan, 15.813 billion yuan and 20.119 billion yuan, an increase of 28.22%, 28.29% and 27.23% year-on-year, and net profit of 2.309 billion yuan, 2.995 billion yuan and 3.894 billion yuan, an increase of 2.16%, 29.67% and 30.02%. We believe that the pharmaceutical R & D outsourcing service industry will show a trend of rapid development in the next few years. The company is an innovative pharmaceutical outsourcing service chain enterprise with the strongest innovation ability, with a high prosperity in the industry and a stable position in the industry. The "integration, end-to-end" one-stop new drug R & D enabling platform strategy is expected to help the company achieve long-term and stable growth and maintain its "buy" rating.

Wuxi Apptec (603259) scarce enabling platform in the industry, the improvement of back-end conversion rate brings long-term space-20 pages to understand Wuxi Apptec