WuXi PharmaTech Announces Second-Quarter 2015 Results

SHANGHAI, Aug. 13, 2015 /PRNewswire/ -- WuXi PharmaTech (Cayman) Inc.("WuXi") (NYSE: WX), a leading open-access R&D capability and technology platform company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its financial results for the second quarter of 2015. 

Second-Quarter 2015 Highlights

• Net Revenues Increased 18.8% Year Over Year to $194.1 Million
• Net Revenues for Laboratory Services Grew 17.9% Year Over Year to $123.5 Million
• Net Revenues for Small-Molecule Manufacturing Services Increased 10.0% Year Over Year to $45.9 Million
• Net Revenues for Biologics Services Grew 48.4% Year Over Year to $18.3 Million
• Net Revenues for New Businesses and Other Grew 42.8% Year Over Year to $6.4 Million
• GAAP Diluted Earnings Per ADS Declined 35.9% Year Over Year to $0.26
• Non-GAAP Diluted Earnings Per ADS Decreased 21.6% Year Over Year to $0.38
• Company Reconfirms Full-Year 2015 Revenue Guidance of $790-$800 Million, Withdraws Full-Year 2015 Diluted EPS Guidance Due to Uncertainties Regarding Currency Exchange-Rate Volatility and Costs Associated with Several Transactions Under Consideration

Management Comment

"WuXi had excellent year-over-year revenue growth of 18.8% in the second quarter, meeting the company's expectations," said Dr. Ge Li, Chairman and CEO.  "That revenue growth was again broad-based, with double-digit growth from each of the four segments of the business. Revenue growth in our small-molecule manufacturing businesses was slightly lower than expected due to the timing of product deliveries, but this is not expected to impact the full-year performance of this business. The revenue performance of our biologics business exceeded expectations. This overall performance gives us confidence to reconfirm our full-year 2015 revenue guidance of $790-$800 million.

"The quarter was also characterized by significant year-over-year declines in margins and diluted EPS because of sharply increased levels of investment in new businesses," Dr. Li continued.  "WuXi today is two groups of businesses -- strong core businesses, and promising, but very challenging, new businesses.  Our core businesses are performing well, generating solid revenue and operating income growth.  But we also see many compelling investment opportunities in new businesses, such as in genomics / bioinformatics, e-commerce, and China healthcare initiatives, opportunities that we are choosing to seize during this period of strength to drive longterm growth.  To date, these new businesses are developing more slowly than we had anticipated. 

"As many of you know, the RMB depreciated significantly versus the US dollar earlier this week, and this depreciation could result in significant mark-to-market losses and realized losses on foreign-exchange forward contracts in the third quarter and full year," Dr. Li concluded.  "In addition, WuXi is considering several transactions that in comparison to historical results could further reduce margins and diluted EPS in full-year 2015 and beyond.  Therefore, because of uncertainties regarding these circumstances, we are withdrawing our GAAP and non-GAAP diluted EPS financial guidance for full-year 2015."

Second-Quarter 2015 GAAP Results

Second-quarter 2015 net revenues increased 18.8% year over year to $194.1 million.  Laboratory Services revenue grew 17.9%, driven by our comprehensive and integrated drug discovery and development services.  Revenue growth of 10.0% in Small-Molecule Manufacturing Services resulted from strong demand in both research manufacturing and commercial manufacturing, slightly reduced by the timing of deliveries of specific projects.  Biologics Services revenue increased 48.4% from strong growth in both development and manufacturing.  Revenue growth of 42.8% in New Businesses and Other related mainly to the significant revenue increase of clinical site management services in China, offset by slower than expected growth in the genomics / bioinformatics business.

Second-quarter 2015 GAAP gross profit increased 8.4% year over year to $66.7 million due to 18.8% revenue growth, partially offset by increased labor costs in China and investments in new businesses.  Gross margin decreased year over year to 34.4% from 37.7%.  Gross margin in Laboratory Services decreased year over year to 37.0% from 40.9% due to increased labor costs in China and investments in new businesses.  Gross margin in Small-Molecule Manufacturing Services increased year over year to 36.6% from 31.8% because of changes in business mix and higher capacity utilization.  The decrease in gross margin in Biologics Services year over year to 25.0% from 34.5% was caused by investments in biomanufacturing, which is in an early stage of its revenue ramp-up.  Gross margin in New Businesses and Other decreased year over year to (5.8%) from 25.3% mainly as a result of investments in genomics and bioinformatics.  

Second-quarter 2015 GAAP operating income decreased 39.1% year over year to $17.1 million mainly due to investments in new businesses, including increased selling and marketing, general and administrative, and research and development expenses and transaction expenses related to the proposed privatization, partially offset by the 8.4% increase in gross profit.  Operating margin declined to 8.8% from 17.1% due to these increased operating expenses.

Second-quarter 2015 GAAP net income decreased 33.7% year over year to $19.4 million mainly due to the 39.1% year-over-year decrease in operating income, an adverse change in realized gains on settled foreign-exchange forward contracts (gains of $0.2 million in the second quarter of 2015 compared to gains of $1.6 million in the second quarter of 2014), larger equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, losses of $1.2 million from writing off an investment in a portfolio company by our venture fund and lower gains on the sale of investments by the corporate venture fund (gains of $1.1 million in the second quarter of 2015 compared to gains of $2.2 million in the second quarter of 2014), and higher interest expense due to higher loan balances needed to support increased investment, partially offset by a favorable change of $5.8 million in mark-to-market gains and losses on foreign-exchange forward contracts (gains of $3.3 million in the second quarter of 2015 compared to losses of $2.5 million in the second quarter of 2014).

Second-quarter 2015 GAAP net income attributable to WuXi shareholders decreased 35.7% year over year to $18.9 million mainly due to the 33.7% year-over-year decrease in net income and net income attributable to non-controlling interests of $0.6 million in 2015.

Second-quarter 2015 GAAP diluted earnings per ADS attributable to WuXi shareholders decreased 35.9% year over year to $0.26 due to the 35.7% decrease in net income attributable to WuXi shareholders and a higher number of outstanding ADSs as a result of share issuances relating to the XenoBiotic Laboratories acquisition and vesting of restricted stock units, partially offset by the impact of share purchases in 2014.

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