WuXi PharmaTech Co., Ltd. Announces Third-Quarter 2009 Results

SHANGHAI, Nov. 16 /PRNewswire-Asia/ -- WuXi PharmaTech (Cayman) Inc. , a leading research and development outsourcing company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its financial results for third-quarter 2009.

Management Comment

"WuXi PharmaTech continued to achieve strong financial and operational performance in the third quarter of 2009, while making the investments necessary to sustain our growth in 2010 and beyond," said Dr. Ge Li, Chairman and Chief Executive Officer. "We achieved double-digit year-over-year revenue and EPS growth in the quarter, driven by a strong performance in our China-based Laboratory Services business. We achieved our target of 3-5% sequential growth in net revenues in the quarter, coming in at the upper end of that range. Profit margins were strong in the quarter, and as a result our earnings performance exceeded our expectation.

"This strong performance gives us confidence that we will achieve our guidance for full-year 2009 revenue of $265-$275 million. Our China-based Laboratory Services business is performing better than previously expected, and we are increasing our full-year 2009 revenue guidance for that business to 23-26% from our previous guidance of 20-23% growth. We continue to expect that full-year 2009 Manufacturing Services net revenues will be $20-$30 million, depending on delivery schedules. As a result of better than expected profitability in the third quarter, we are increasing our full-year 2009 guidance for adjusted EBITDA to $86-90 million from our previous guidance of $80-85 million.

"Our confidence in the continued success of our business model leads us to continue to make investments to build our capabilities and capacities. We increased our total company headcount by about 400 people in the third quarter from college recruiting, mainly in Laboratory Services, as demand for our broad range of laboratory services continues to grow. Our total company headcount was 4,135, including 3,230 scientists, at the end of September 2009. We continued to make strong capital investment, which we expect to be about $55-60 million for full-year 2009, with capital investment through September 30 totaling $33.4 million.

"We continue to make progress in building our capabilities in two new businesses -- toxicology and large-scale manufacturing. In toxicology, we have initiated non-GLP studies as well as client-sponsored GLP validation studies, both of which are intended to develop our capability to conduct GLP studies. We remain on target with our previous timetable to offer GLP toxicology services by mid-2010. In our recently completed large-scale manufacturing facility, we are undertaking test runs in the fourth quarter. The timing of initial revenue in large-scale manufacturing depends on the progress of our customers' products in clinical trials. As a result of these investments, we expect Laboratory Services, toxicology, and large-scale manufacturing each to be major contributors to the company's growth in revenues and earnings over the next several years," Dr. Li concluded.

GAAP Results

Third-quarter 2009 net revenues increased 10% year over year to $70.0 million due to 20% growth in Laboratory Services net revenues, partially offset by a 44% decline in Manufacturing Services net revenues. Laboratory Services net revenues in third-quarter 2009 benefited from stronger demand for our integrated drug discovery and development services. Manufacturing Services net revenues are inherently variable due to fluctuating demand and customer delivery schedules and are also being impacted by lower demand.

Third-quarter 2009 GAAP gross profit increased 18% year over year to $28.8 million, mainly due to an increased contribution from Laboratory Services, driven by both revenue growth and gross-margin improvement, offset by a decline in the gross-profit contribution of Manufacturing Services from lower revenues. Third-quarter 2009 GAAP gross margin improved year over year to 41.1% from 38.4%, mainly due to lower amortization expenses for acquired intangible assets as a result of a lower balance for these assets following impairment charges taken in fourth-quarter 2008. In addition, GAAP gross margin benefited from a larger contribution from our higher-margin Laboratory Services business and improved profitability of newer downstream laboratory services, offset by higher expenses related to the start-up of the Suzhou toxicology facility. Gross margin from Laboratory Services improved year over year to 42.9% from 40.6% for the same reasons. Partially offsetting this benefit, gross margin declined year over year in Manufacturing Services to 21.1% from 26.8% due primarily to unfavorable project mix and lower demand.

Third-quarter 2009 GAAP operating income increased 35% year over year to $14.6 million due to the 18% increase in gross margin and only a 4% increase in operating expenses. Operating expenses consisted of an 8% increase in general and administrative expenses mainly due to increased staffing, partially offset by a 21% decrease in selling and marketing expenses, mainly due to reduced staffing and cost-control efforts.

Third-quarter 2009 GAAP net income from continuing operations increased 72% year over year to $14.5 million due to the 35% increase in operating income, a favorable change in other income (expenses) net, and lower taxes. Other income (expenses) net in third-quarter 2009 included losses from foreign-exchange forward contracts of $0.5 million, compared to losses of $2.3 million on such contracts in third-quarter 2008. Taxes in third-quarter 2009 were $0.9 million, compared to $1.5 million in third-quarter 2008.

Third-quarter 2009 GAAP net income grew 97% year over year due to the 72% increase in net income from continuing operations and lower losses from discontinued operations. Third-quarter 2008 GAAP net income included a loss from discontinued operations of $1.2 million related to the biologics manufacturing business. The loss from discontinued operations in third-quarter 2009 of $0.2 million resulted from a write-off of certain obsolete assets. Third-quarter 2009 GAAP diluted earnings per ADS grew 96% year over year to 19 cents, compared to 10 cents in third-quarter 2008, due primarily to the 97% increase in net income.

Non-GAAP Results

Non-GAAP financial results excluded the impact of share-based compensation expenses, amortization and the deferred tax impact of acquired intangible assets, and losses from discontinued operations.

Third-quarter 2009 non-GAAP gross profit increased 8% year over year to $30.2 million, mainly due to the favorable impact of higher gross profit in the Laboratory Services business driven by 20% higher revenues, partially offset by a decrease in Laboratory Services gross margins from 46.9% to 45.0% and a decline in the gross-profit contribution from Manufacturing Services due to lower revenues and lower gross margins. Third-quarter 2009 non-GAAP gross margin declined year over year to 43.2% from 43.7% due to higher expenses from the Suzhou toxicology facility, which more than offset the favorable impact of the larger contribution of our higher-margin Laboratory Services business and improved profitability of services downstream from discovery chemistry.

Third-quarter 2009 non-GAAP operating income increased 8% year over year to $18.0 million primarily due to the 8% increase in non-GAAP gross profit, offset by a 10% increase in operating expenses mainly due to increased staffing in general and administrative functions.

Third-quarter 2009 non-GAAP net income grew 33% year over year to $17.6 million due to an 8% increase in non-GAAP operating income, a favorable change in other income (expenses) net, and lower taxes. Changes in other income (expenses) net and taxes are discussed above for GAAP results. Diluted non-GAAP earnings per ADS from continuing operations grew 32% year over year to 24 cents compared to 18 cents in third-quarter 2008, mainly due to the 33% increase in non-GAAP net income.

Conference Call

WuXi PharmaTech senior management will host a conference call at 8:00 am (U.S. Eastern) / 5:00 am (U.S. Pacific) / 9:00 pm (Beijing/Shanghai/Hong Kong) on Tuesday, November 17, 2009, to discuss its third-quarter 2009 financial results and future prospects. The conference call may be accessed by calling:

A telephone replay will be available two hours after the call's completion at:

A live webcast of the conference call and replay will be available on the investor relations page of WuXi PharmaTech's website at http://www.wuxiapptec.com .

About WuXi PharmaTech

WuXi PharmaTech is a leading pharmaceutical, biotechnology, and medical device R&D outsourcing company, with operations in China and the United States. As a research-driven and customer-focused company, WuXi PharmaTech provides broad and integrated portfolio of laboratory and manufacturing services throughout the drug and medical device R&D process. WuXi PharmaTech's services are designed to assist its global partners in shortening the cycle and lowering the cost of drug and medical device R&D. WuXi PharmaTech's operating subsidiaries are known as WuXi AppTec. For more information, please visit: http://www.wuxiapptec.com .

Use of Non-GAAP Financial Measures

We have provided three-month and nine-month 2008 and 2009 gross profit, operating income, net income and earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses, amortization and deferred tax impact of acquired intangible assets, and discontinued operations. We also provided three-month and nine-month 2008 and 2009 adjusted EBITDA, which is the GAAP net income adjusted by adding back depreciation and amortization, interest, income taxes, share-based compensation and mark-to-market gains (losses) from foreign-currency forward contracts. We believe both management and investors benefit from referring to these non-GAAP measures in assessing our financial performance and liquidity and when planning and forecasting future periods. These non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. We expect to continue providing gross profit, operating income, and net income on a non-GAAP basis using a consistent method on a quarterly basis.

You should not view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of non-GAAP measures to GAAP measures for the indicated periods attached hereto.

Cautionary Note Regarding Forward-Looking Statements

Statements in this release contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995, including, among others, anticipated full-year and fourth-quarter 2009 operating results (including estimated total net revenues, China-based Laboratory Services net revenues, Manufacturing Services net revenues, adjusted EBITDA, gross margins, and other trends), planned capital expenditure and investment levels, and the anticipated benefits of those efforts and the planned expansion of our service offerings and areas of related revenue growth.

These forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. Our actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Among other factors, continued uncertainty in the global economy and the pressures being felt by our customers and pharmaceutical industry consolidation may adversely impact our business and the trends for outsourced R&D and manufacturing for longer than expected or more severely than expected; we may be unable to successfully make our planned investments and capital expenditures on a timely basis; these investments may not yield the desired results; we may need to modify the nature and level of our investments and capital expenditures; pharmaceutical companies may not change their business models as expected or in a manner favorable to us; we may fail to capitalize on the opportunities presented; we may not maintain our preferred provider status with our clients; and we may be unable to successfully expand our capabilities to meet client needs. In addition, other factors that could cause our actual results to differ from what we currently anticipate include our limited operating history; failure to generate sufficient future cash flows or secure any required future financing on acceptable terms or at all; failure to retain key personnel; effective integration of continuing products and services from AppTec; our reliance on a limited number of customers to continue to account for a high percentage of our revenues; risk of payment failure by any of our large customers, which could significantly harm our cash flows and profitability; dependence upon the continued service of our senior management and key scientific personnel; and our ability to retain our existing customers or expand our customer base. You should read the financial information contained in this release in conjunction with the consolidated and pro-forma financial statements and related notes thereto included in our 2008 Annual Report on Form 20-F filed with and available on the Securities and Exchange Commission's website at http://www.sec.gov. For additional information on these and other important factors that could adversely affect our business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of our 2008 Annual Report on Form 20-F. Our results of operations for third-quarter 2009 are not necessarily indicative of our operating results for any future periods. All projections in this release are based on limited information currently available to us, which is subject to change. Although these projections and the factors influencing them will likely change, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this press release, except as required by law. Such information speaks only as of the date of this release.


CONTACT: for investors, Ronald Aldridge, Director of Investor Relations,
+1-201-585-2048, ir@wuxiapptec.com, or for the media, Stephanie Liu,
+86-21-5046-4362, pr@wuxiapptec.com; both of WuXi PharmaTech (Cayman) Inc.

Web site: http://www.wuxiapptec.com/

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