WuXi Pharma Tech (NYSE: WX) is a pharmaceutical R&D service company based in Shanghai, and they do work for the pharma giants like Pfizer, Merck, etc. They are the No. 1 player in China and growing fast.
I’m not in the pharma business but from my observation, pharma R&D outsourcing is a sweet area because of the following trend.
1) Labor cost in China: you can get good research scientists, technicians in China for a fraction of the rate in the developed countries.
2) Regulatory advantage: the Chinese laws are more forgiving for animal testing, drug trial on human (for good or bad), this again lowers the overall cost.
3) Drug giants are in cost cutting mode: as you may know, big pharma like Pifzer are not doing well lately due to “patent for blockbuster drug to expire soon”, and “no replacement/new drug in the pipeline”. With revenue declining, one thing to make the income statement looking good is to cut the cost: cut the staff in the developed countries, and outsourcing non-core development.
Considering all these facts, I’m adding WX to my watch list. Just for fun, another WuXi company Suntech Power is the first Chinese solar company came to NYSE, and its stock has done well.
On the down side, I noticed JP Morgan is one of the underwriter. I remember JP Morgan’s names shown up both at NINE and XFML’s IPO. Note NINE and XFML never traded above their first day price…
Disclosure: at this writing I own a few shares of Pfizer (PFE).