SHANGHAI, March 25 /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 fourth-quarter and full-year 2008.
Management Comment
“2008 was a year of extraordinary economic challenges, both in the worldwide economy and the healthcare industry,” said Dr. Ge Li, Chairman and Chief Executive Officer of WuXi PharmaTech. “At the same time, it was a year of substantial accomplishment for our company. For full-year 2008, we met our revised guidance for total company(1) net revenue and adjusted EBITDA. Our core China-based Laboratory Services business continued to achieve strong revenue and profitability growth. We deepened our customer relationships, which include virtually all of the world’s largest pharmaceutical companies and many other highly innovative pharmaceutical and medical device companies. We signed new expansion agreements with a number of our pharmaceutical partners. And we made significant progress in building new capabilities in toxicology and manufacturing.
“Throughout its history, WuXi PharmaTech has driven growth by adding new capabilities. In 2008, we acquired AppTec, Inc., to offer our life science customers a broader range of services. In retrospect, we wish we had foreseen the unprecedented economic downturn and credit freeze that severely impacted many of AppTec’s customers and, as a result, negatively impacted AppTec’s 2008 results, particularly in biologics manufacturing. Faced with the reality that biologics manufacturing would not recover in the foreseeable future, and attentive to shareholder interests, we discontinued this operation in December 2008. The continuing U.S.-based testing business is profitable.
“We look forward to 2009 as a year of continued growth in our Laboratory Services business and of continued investment in building new capabilities to sustain growth in 2010 and beyond. We will concentrate our investment in three areas: First, we are building our talent pool of scientists to support the growing demand for our laboratory services from our customers. Second, we are investing in our toxicology facility in Suzhou, with the aim of starting to provide non-GLP toxicology services in the second half of 2009 and GLP toxicology services in mid-2010. And third, we are investing in the expanded manufacturing facility in Jinshan with the intent of opening it by the end of 2009. We expect this facility to generate significant revenues from commercial-scale manufacture of advanced intermediates and APIs for products in late-stage-development.
“With our highly capable work force, world-class facilities, and strong relationships with the world’s leading life science companies, WuXi PharmaTech is well positioned with the capabilities and the strategy to drive longterm revenue and income growth,” Dr. Li concluded.
Total Company - Versus Guidance
Total company(1) full-year 2008 net revenues of $261.8 million, which include $253.5 million from continuing operations and $8.3 million from discontinued operations, fell within the Company’s net revenue guidance of $260-$265 million. Full-year 2008 adjusted EBITDA of $72.2 million fell within the Company’s guidance of $70-$75 million.
Continuing Operations-GAAP Results
Fourth-quarter 2008 net revenues from continuing operations increased 74% to $64.4 million compared to fourth-quarter 2007, and full-year 2008 net revenues for continuing operations grew 87% year-over-year to $253.5 million. These performances reflected strong growth in our China-based businesses, which achieved net revenue growth of 33% in the fourth-quarter 2008 and 45% in full-year 2008. AppTec, which we acquired at the end of January 2008, contributed $15.1 million of net revenues in fourth-quarter 2008 and $57.7 million in full-year 2008, which excludes the biologics manufacturing operation classified as discontinued operations (see table titled Revenue Reconciliation by Geography below).
With the discontinuation of biologics manufacturing, we now define our Laboratory Services business as China-based Laboratory Services and all AppTec testing services, which consist of biopharmaceutical and medical device testing. Net revenues from Laboratory Services increased 99% to $57.4 million in fourth-quarter 2008 and grew 100% to $205.0 million in full-year 2008, including increases of 47% to $42.3 million and 44% to $147.3 million in China-based Laboratory Services for fourth-quarter 2008 and full-year 2008, respectively.
We now define our Manufacturing Services segment as China-based manufacturing of advanced intermediates and active pharmaceutical ingredients (APIs). Net revenues from Manufacturing Services decreased 15% to $7.0 million in fourth-quarter 2008. Manufacturing Services net revenue increased 48% to $48.5 million for full-year 2008, driven by continued expansion of the breadth and depth of our customers and revenue from a single large project in the first half of 2008.
GAAP gross profit grew 27% to $20.3 million in fourth-quarter 2008 and 53% to $96.3 million for full-year 2008, driven by strong net revenue growth, continued healthy gross margins for our China-based Laboratory Services business, and inclusion of ongoing financial results for AppTec. Our GAAP gross margin was 31% and 38% for fourth-quarter and full-year 2008, respectively, versus 43% and 46% for fourth-quarter and full-year 2007, respectively. These declines in GAAP gross margin were mainly due to inclusion in 2008 of the ongoing financial results of AppTec, which has a lower gross margin than our China-based businesses; recording of the amortization of acquired intangible assets in 2008; and lower 2008 gross margins in our China-based Manufacturing Services business due to changes in project mix.
Following a strategic assessment of the ongoing AppTec business, we recorded non-cash charges for goodwill and acquired intangible asset impairment of $60.5 million, pre-tax, in fourth-quarter 2008 operating expenses in accordance with accounting standards SFAS 142 and SFAS 144. As a result, we reported GAAP operating losses of $56.7 million for fourth-quarter 2008 and $20.9 million for full-year 2008.
Reflecting losses from both continuing and discontinued operations, we recorded a GAAP net loss of $93.9 million in fourth quarter 2008 and $64.2 million for full-year 2008.
Continuing Operations-Non-GAAP Results
The non-GAAP gross margins from continuing operations of 39% in fourth-quarter 2008 and 44% in full-year 2008 were lower than 44% and 48%, respectively, for the comparable periods in 2007, mainly due to the inclusion of financial results for AppTec, which had lower gross margins than our China-based businesses, lower gross margins in our China-based Manufacturing Services business due to changes in project mix, and the timing of certain expense accruals, which were less weighted in fourth-quarter 2007.
Fourth-quarter 2008 non-GAAP operating income and net income declined 19% and 40%, respectively, compared to the prior-year period due to the timing of certain expense accruals, which were less weighted in fourth-quarter 2007, and lower gross profit in both Laboratory Services and Manufacturing Services and higher sales and marketing and general and administrative expenses in fourth-quarter 2008. Full-year 2008 non-GAAP operating income and net income increased 56% and 31%, respectively, versus 87% growth in revenue. The lower rates of growth were due to inclusion of lower-margin AppTec results in 2008 results and lower 2008 margins in the Manufacturing Services business due to changes in project mix. (See the table titled Reconciliation of GAAP to Non-GAAP below).
Discontinued Operations
All results of the biologics manufacturing business are reflected in Discontinued Operations in fourth-quarter and full-year 2008. We recorded a Loss from Discontinued Operations, net of tax, of $44.6 million in fourth-quarter 2008 and of $49.3 million for full-year 2008, in both cases including a pre-tax impairment charge of $49.6 million.
Commenting on financial guidance, Edward Hu, chief operating officer and acting chief financial officer, said, “While WuXi PharmaTech is not immune from the impact of the global recession and the pressures being felt by our customers, we expect to achieve net revenue growth in 2009 while we invest in our future beyond 2009. Our targeted net revenues of $265 million to $275 million in 2009 compare with $258.5 million in 2008 from our continuing operations on a pro-forma basis(2). In a near-term operating environment of pharmaceutical industry consolidation and lower R&D spending growth, our core China-based Laboratory Services business is still expected to achieve 15-20% net revenue growth in 2009. Manufacturing Services net revenue is expected to be below 2008 levels due to the non-recurrence of a single large 2008 project and relatively uncertain project timing and mix. U.S. testing net revenue is expected to be comparable to 2008 U.S. testing net revenue.
“We expect 2009 adjusted EBITDA to be relatively flat with 2008 adjusted EBITDA of $72 million. This includes benefit from growth of the overall business and discontinuation of the loss-making biologics manufacturing business, which is offset by a margin decline from investments we will make in the business in 2009. These investments include opening of the new Suzhou facility, whose operating expenses will precede revenues as this facility prepares to become operational. We are also incurring additional rental and overhead expenses relating to newly leased laboratories in Shanghai and Tianjin. To minimize the decline in margins due to these investments, we will maintain strict cost control throughout the company.
“We project capital expenditures of $50-$60 million in 2009, mainly relating to equipment purchases for expanding China-based Laboratory Services and non-construction costs relating to the Suzhou and Jinshan facilities. These capital expenditures will be funded primarily from operating cash flow,” Mr. Hu concluded.
Conference Call
WuXi PharmaTech senior management will host a conference call at 8:00 am (Eastern) / 5:00 am (Pacific) / 8:00 pm (Beijing/Shanghai/Hong Kong) on Thursday, March 26, 2009, to discuss its fourth-quarter and full-year 2008 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 and Pro-Forma Financial Measures
The Company has provided the fourth-quarter and full-year 2007 and 2008 gross profit, operating income, net income on a non-GAAP basis, which excludes share-based compensation expenses, impairments of goodwill and intangible assets, amortization of acquired intangible assets, and discontinued operations. In addition, total company(1) revenues for the full year include revenues from eleven months of continuing and discontinued AppTec operations. The pro-forma full-year revenues include the January 2008 revenues from continuing operations of the AppTec business. The Company believes both management and investors benefit from referring to these non-GAAP and pro-forma financial measures in assessing the Company’s 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. The Company expects to provide gross profit, operating income, net income on a non-GAAP basis using a consistent method on a quarterly basis going forward.
Readers 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, expected 2009 operating results (including estimated total net revenue, China-based Laboratory Services and U.S. testing net revenues and related adjusted EBITDA and other trends) and capital expenditure levels; and our planned investments in building our talent pool of scientists, in our toxicology facility in Suzhou and related non-GLP and GLP toxicology service capability by the second half of 2009 and mid-2010, respectively, and in our Jinshan facility with the intent of opening it by the end of 2009.
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, 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, and 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 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; dependency 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 2007 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 10 of our 2007 Annual Report on Form 20-F. Our results of operations for fourth-quarter and full-year 2008 are not necessarily indicative of our operating results for any future periods. Any 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: Ronald Aldridge (for investors), Director of Investor Relations
of WuXi PharmaTech (Cayman) Inc. at +1-215-218-5515 or ir@wuxiapptec.com;
or Sherry Shao (for the media) of WuXi PharmaTech (Cayman) Inc. at
+86-21-5046-4002, or pr@wuxiapptec.com
Web site: http://www.wuxiapptec.com/
