The envy comes as WuXi is projecting modest growth over the next two years and as recently as Wednesday announced that it has formed a special committee of independent directors to look into the push to go private. WuXi is valued at about $3bn, while Tigermed is valued at $400m more, despite Tigermed’s revenue and profits being one-fifth the size of WuXi’s, Neal McCarthy, managing director of the investment bank Fairmount Partners, told Outsourcing-Pharma.com.
“Why is Dr Ge Li taking WuXi private? The simple reason is the oft given reason for other maneuvers involving privates – because he can,” McCarthy said, noting the company’s stock, which is listed on the New York Stock Exchange and valued at 27X earnings means it “isn’t exactly cheap.”
The $3bn market value for WuXi also means the company has, what McCarthy calls, “a strong valuation, and at the top of the range for CROs, despite WuXi’s weak growth anticipated for this year.” And also by being on the NYSE, WuXi has to compete with the likes of even larger, more global CROs, such as Quintiles.
If WuXi is able to get onto the Shenzhen exchange, however, the company’s valuation would likely rise higher and potentially earn lots of new money for the owners.
“For the optimists, China is the land of endless growth, and why shouldn’t we give a company like Tigermed a value of 120X EBITDA – or an incremental 100 multiple more than WuXi,” McCarthy said.
“Some observers believe that a short stint as a private company, and a subsequent IPO on the Shenzhen could make billions for the shareholders of WuXi,” McCarthy added. “By untethering from the reality of a global stock market, and relisting on the Chinese exchange, WuXi could, in theory, trade at a similar multiple as Tigermed. Even if they only got a 100X EBITDA multiple, that would value the business at $15bn. So even if you pay a premium price of over $3bn, there is plenty of room to make money.”
The company declined to comment on how going private might change their future.
McCarthy also said the move to go private could be a sign that WuXi is looking to develop its own drugs, or at least make investments in developing drugs.
“If you are public service business and you decide to invest in drugs, you have to disclose that investment…Quintiles and PPD did that, and took lots of grief but didn’t get any ‘credit’ for the value of the drugs…But if WuXi is private, they don’t have the SEC [Securities and Exchange Commission] level disclosure requirements,” he added.