WCM Stock in Focus | Wuxi Biologics: a ‘Picks and Shovels’ Play on the Chinese bio-tech Market

A key focus of the WCM Quality Global Growth portfolio is to find quality global companies with durable, strengthening economic moats and corporate cultures aligned to this growth. An example of a company that demonstrates these characteristics is WuXi Biologics (WuXi).

Founded in 2015 in China, WuXi is a contract development and manufacturing organisation that provides a global open-access biologics technology platform within the healthcare industry.

In this update, Ryan Quinn of WCM Investment Management (WCM) explains how WuXi’s business model and culture is driven by a nationalistic vision, which helps China to be at the forefront of the bio-technology industry globally.

Tom Hickey (TH): Hello and welcome to this ‘Stock in Focus’ update with WCM Investment Management. Joining me from WCM is Ryan Quinn. Thanks for joining us, Ryan.

Ryan Quinn (RQ): Good to be here, Tom. Thanks.

TH: Today we’re talking about a company called WuXi Biologics. Can you give us an understanding about what they do?

RQ: Sure. WuXi Biologics is a what’s called a contract development and manufacturing organisation (CDMO). The CDMO is based in China. The company basically runs a business that acts as an outsource developer for biologics in the healthcare industry. WuXi has the experience, the ability and technology to assist at any stage in the drug development process and has put itself in a strong competitive position.

TH: That sounds like a picks-and-shovel healthcare play.

RQ: That’s right. It’s really a picks and shovels play on the bio-tech market in China. As you know, WCM, doesn’t want to necessarily make a bet on the individual molecule – but if we can be with a CDMO that is involved with the production of that molecule and bring the drugs to market that are widely used, then that’s a great way to play the healthcare space.

In China, WuXi has a unique exposure given that the Chinese government is really supportive and nurturing internally developed drugs and therapies, as well as the fact that within the healthcare space, the outsourcing to CDMOs has been much more accepted in recent years and has become kind of standard of practice as well.

TH: Talk to us about the competitive advantage or economic moat of WuXi, and more specifically the trajectory of that economic moat.

RQ: Sure. The most impressive thing about WuXi is that it controls 80% of the CDMO market in China, which is a huge opportunity. As I mentioned prior, the Chinese government is supportive of the CDMO market. With WuXi being not only the market share owner in the country, they have a stellar reputation of business performance which continues to give them a backlog of business. That backlog of business gives us visibility into their long-term top line growth. A fringe benefit of that reputation is that they are attracting all the best scientific minds that are coming out of universities in China.

TH: What about the corporate culture within the organisation? How does that support that economic moat?

RQ: WuXi’s culture is really driven by a nationalistic vision, driving China to be in the forefront of the bio-technology industry globally. The country’s growth plans are very much aligned with WuXi’s culture and has brought forth a significant amount of organisational pride. Lastly, the culture is really supported by the promotion of a very charismatic CEO named Chris Chen, who tends to keep the ethos of the company alive and well and out the front.

TH: Thanks for the update Ryan.

RQ: Cheers.