Wall Street Transcript Interview with Ingrid Yin, Managing Director and Senior Analyst for Oppenheimer & Company: Chinese Medical Research and Biotech Companies Set to Outpace Western Peers

Wall Street Transcript

67 WALL STREET, New York - August 24, 2012 - The Wall Street Transcript has just published its Medical Research, Diagnostic Substances and Life Science Tools Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Health Care Consolidation Activity - Cost Reduction and Improving Efficiencies - Chinese CRO Growth - NIH Budget Uncertainty

Companies include: WuXi PharmaTech (WX), Amgen Inc. (AMGN), 3SBio Inc. (SSRX) and many others.

In the following excerpt from the Medical Research, Diagnostic Substances and Life Science Tools Report, an expert in Chinese medical research and diagnostic equities discusses the outlook for the sector for investors:

TWST: Would you give us an overview of the medical research service and biotech industry in China? You've described other areas of health care as rapidly growing.

Dr. Yin: These areas are growing very rapidly as well. The players include both domestic and multinational companies. I would say depending on which subsector you're talking about, somewhere between 15% to 25% growth rates. It's very fast growth, similar to the medical device space.

TWST: How are the stocks in these sectors performed over the past six to 12 months, and what do you see driving that performance?

Dr. Yin: There are two Chinese domestic CRO companies listed in the U.S., operating in a contract research function - WuXi PharmaTech (WX) and ShangPharma (SHP). So far this year, WuXi shares are up 27%. ShangPharma is up a little bit less than 10%, but I would say it is a special case, because it in the process of privatization. At one point, the stock was at a much cheaper level, and the company felt that the market value can't reflect the real value of the company.

If you compare these two names with their U.S. peers, the Chinese firms are growing at a much higher rate, but the multiples are much lower. If you look on EV/EBITDA basis, WuXi is at around four times and ShangPharma, before this announcement of privatization a few weeks ago, was trading at 3.3 times EV/EBITDA for 2013. U.S. companies are trading at eight times. It's a significant discount.

TWST: How about biotech? Would you speak broadly to that sector?

Dr. Yin: Compared with the U.S. biotech industry, China biotech is in the early stage of development. There are some companies that are making things along the lines of biosimilars. For example, there are domestic manufacturers of products, like EPO, similar with what Amgen (AMGN) is selling. There are quite a few domestic players. 3SBio (SSRX) is a dominant leader in China's EPO market. China's EPO market is much smaller than the U.S., which is billions of dollars in sales. In China, it's still only hundreds of millions of dollars, though China has a much bigger population.

TWST: Forbes reported last year that the Chinese government is taking some of its reserves of cash and the spending $308 billion over the next five years on biomedicine. Is that accurate? And what impact is the government having on firms in these two subsectors?

For more from this interview and many others, visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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