SHANGHAI, China, March 8 /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 2009.
Management Comment
"WuXi had a strong fourth quarter and a successful 2009," said Dr. Ge Li, Chairman and Chief Executive Officer. "We achieved all of our publicly stated financial goals. We were able to achieve solid revenue growth in 2009, led by a strong performance by our China-based Laboratory Services business, which achieved revenues at the top of its guidance range. Full-year 2009 adjusted EBITDA(1) exceeded our expectations.
"We expect another good year in 2010. We are targeting 2010 revenues to grow 15-19% above 2009 levels, driven by 13-16% growth in revenues of our China-based Laboratory Services business and an improving Manufacturing Services business. We believe that these rates of growth remain at or near the top of our industry. At the same time, 2010 will be a transition year, as we continue to invest in our China-based Laboratory Services, large-scale manufacturing, and toxicology businesses. In spite of these investments, operating income in 2010 will grow by up to 10%. We expect these investments will drive accelerating growth in revenues and operating income in 2011 and beyond.
"Improving R&D productivity is the most important challenge facing the world's pharmaceutical, biotech, and medical device companies. Outsourcing and offshoring enable these companies to obtain high-quality R&D services to advance compounds faster and at lower cost. As a leader in providing customers with high-quality outsourced R&D services, WuXi has been building a broad platform of fully integrated, cost-effective drug discovery and development services with the mission of helping our partners to improve the success of discovery and shorten the time of development. We expect that trends favoring greater R&D outsourcing and offshoring and greater use of integrated services will expand over the next decade, and that WuXi and its partners will both benefit from this trend," Dr. Li concluded.
GAAP Results -- Fourth-Quarter 2009
Fourth-quarter 2009 net revenues increased 15% year over year to $73.9 million due to 18% growth in Laboratory Services net revenues, partially offset by a 10% decline in Manufacturing Services net revenues. Revenue growth was strong in both discovery chemistry and newer laboratory services, such as discovery biology, DMPK/ADME, formulation, and bio-analytical services. Growth was achieved under both full-time-equivalent and fee-for-service contracts.
Fourth-quarter 2009 GAAP gross profit increased 44% year over year to $29.2 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 and lower gross margin. Fourth-quarter 2009 GAAP gross margin improved year over year to 39.6% from 31.5%, mainly due to lower amortization expenses for acquired intangible assets as a result of a lower balance for these assets following impairment charges relating to AppTec taken in fourth-quarter 2008. GAAP gross margin also benefited from a larger contribution from our higher-margin Laboratory Services business. Gross margin from Laboratory Services improved year over year to 41.7% from 32.8% due to lower amortization expenses for acquired intangible assets and improved profitability of newer downstream laboratory services, offset by increased expenses related to the ramp-up of the Suzhou toxicology facility. Partially offsetting this benefit, gross margin declined year over year in Manufacturing Services to 16.7% from 20.5% due primarily to unfavorable project mix and lower demand.
Fourth-quarter 2009 GAAP operating income was $13.6 million compared to an operating loss of $56.7 million in the prior-year period due to the 44% increase in gross profit, a 5% decrease in SG&A expenses, and a $60.5 million impairment charge relating to the AppTec acquisition recorded in the prior-year period.
Fourth-quarter 2009 GAAP net income from continuing operations was $12.5 million compared to a loss of $49.2 million in the prior-year period due to the improvement in operating income, offset by higher taxes and an unfavorable change in other income (expenses) net. Higher taxes were mainly the result of tax benefits in the prior year related to impairment charges for AppTec. Other income (expenses) net in fourth-quarter 2009 included foreign-exchange losses of $0.2 million, compared to $1.0 million of foreign-exchange gains in fourth-quarter 2008.
Fourth-quarter 2009 GAAP net income was $12.1 million compared to a loss of $93.9 million in the prior-year period due to the improvement in net income from continuing operations and a smaller loss from discontinued operations. Fourth-quarter 2008 GAAP net income included a loss from continuing operations of $49.2 million and an after-tax loss from discontinued operations of $44.6 million related to the closedown of the biologics manufacturing operation in our Philadelphia facility. The loss from discontinued operations in fourth-quarter 2009 of $0.4 million resulted from a write-off of certain obsolete assets and impairment of certain assets held for sale. Fourth-quarter 2009 GAAP diluted earnings per ADS was 16 cents, compared to a loss of $1.42 in fourth-quarter 2008.
GAAP Results -- Full-Year 2009
Full-year 2009 net revenues increased 7% year over year to $270.0 million due to 22% growth in Laboratory Services net revenues, partially offset by a 58% decline in Manufacturing Services net revenues. Revenue growth was strong in both discovery chemistry and newer laboratory services, such as discovery biology, DMPK/ADME, formulation, and bio-analytical services. Growth was achieved under both full-time-equivalent and fee-for-service contracts.
Full-year 2009 GAAP gross profit increased 13% year over year to $108.4 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 and lower gross margin. Full-year 2009 GAAP gross margin improved year over year to 40.1% from 38.0%, mainly due to lower amortization expenses for acquired intangible assets as a result of a lower balance for these assets following impairment charges relating to the AppTec acquisition taken in fourth-quarter 2008. In addition, GAAP gross margin benefited from a larger contribution from our higher-margin Laboratory Services business. Gross margin from Laboratory Services improved year over year to 41.9% from 39.2% due to lower amortization expenses for acquired intangible assets and improved profitability of newer downstream laboratory services, offset by increased expenses related to the ramp-up of the Suzhou toxicology facility. Partially offsetting this benefit, gross margin declined year over year in Manufacturing Services to 18.1% from 33.1% due primarily to unfavorable project mix and lower demand.
Full-year 2009 GAAP operating income was $52.1 million compared to an operating loss of $20.9 million in the prior year due primarily to the 13% increase in gross profit and a $60.5 million impairment charge relating to AppTec recorded in the prior year.
Full-year 2009 GAAP net income from continuing operations was $53.4 million compared to a loss of $15.0 million in the prior year due to the improvement in operating income and a favorable change in other income (expenses) net, offset by higher taxes. Higher taxes were mainly the result of tax benefits in the prior year related to impairment charges relating to AppTec. Other income (expenses) net in full-year 2009 included foreign-exchange gains of $3.8 million, compared to $0.4 million of foreign-exchange gains in full-year 2008.
Full-year 2009 GAAP net income was $52.9 million compared to a loss of $64.2 million in the prior year due to the improvement in net income from continuing operations and a smaller loss from discontinued operations. Full-year 2008 GAAP net income included a loss from continuing operations of $15.0 million and an after-tax loss from discontinued operations of $49.3 million related to the closedown of the biologics manufacturing operation in our Philadelphia facility. The loss from discontinued operations in 2009 of $0.6 million resulted from impairment and write off of certain assets held for sale. Full-year 2009 GAAP diluted earnings per ADS was 72 cents, compared to a loss of $1.01 in full-year 2008, due primarily to the net losses from continuing operations and from discontinued operations in the prior year, mainly driven by impairment charges.
Non-GAAP Results -- Fourth-Quarter 2009
Non-GAAP financial results excluded the impact of share-based compensation expenses, amortization and the deferred tax impact of acquired intangible assets, impairment charges, and losses from discontinued operations.
Fourth-quarter 2009 non-GAAP gross profit increased 23% year over year to $30.8 million, mainly due to revenue growth and improved gross margin. Fourth-quarter 2009 non-GAAP gross margin increased year over year to 41.7% from 39.1% due to improved gross margin in the Laboratory Services business and the larger relative contribution of this higher-margin Laboratory Services business. The benefit was partially offset by increased operating costs of the Suzhou toxicology facility and a decline in the gross-profit contribution from Manufacturing Services due to lower revenues and lower gross margin.
Fourth-quarter 2009 non-GAAP operating income increased 54% year over year to $17.3 million, primarily due to the 23% increase in non-GAAP gross profit and a 3% decrease in operating expenses due to cost control.
Fourth-quarter 2009 non-GAAP net income grew 59% year over year to $16.0 million due to a 54% increase in non-GAAP operating income and lower taxes, offset by an unfavorable change in other income (expenses) net. Taxes were lower due to tax planning initiatives. Changes in other income (expenses) net and taxes are discussed above for GAAP results. Diluted non-GAAP earnings per ADS from continuing operations grew 56% year over year to 22 cents compared to 14 cents in fourth-quarter 2008, mainly due to the 59% increase in non-GAAP net income.
Non-GAAP Results -- Full-Year 2009
Full-year 2009 non-GAAP gross profit increased 3% year over year to $114.1 million, mainly due to revenue growth, offset by lower gross margin. Full-year 2009 non-GAAP gross margin decreased year over year to 42.3% from 43.6% due to a decline in the gross margin from Manufacturing Service from project mix and lower demand, a decline in gross margin of the Laboratory Services business due to the impact of increasing operating costs from the Suzhou toxicology facility and a decline in the U.S.-based Laboratory Services business due to project mix, partially offset by the positive impact from the larger relative contribution of this higher-margin Laboratory Services business. Within Laboratory Services, improved profitability of newer laboratory services more than offset the impact of increasing operating costs from the Suzhou toxicology facility.
Full-year 2009 non-GAAP operating income increased 3% year over year to $65.4 million, primarily due to the 3% increase in non-GAAP gross profit and a 4% increase in operating expenses.
Full-year 2009 non-GAAP net income grew 12% year over year to $65.5 million due to a 3% increase in non-GAAP operating income, a favorable change in other income (expenses) net, and lower taxes. Taxes were lower due to tax planning initiatives in 2009. Changes in other income (expenses) net are discussed above for GAAP results. Diluted non-GAAP earnings per ADS from continuing operations grew 11% year over year to 89 cents compared to 80 cents in full-year 2008, mainly due to the 12% increase in non-GAAP net income.
(See the table titled Reconciliation of GAAP to Non-GAAP below).
Performance Versus 2009 Financial Guidance
The company's full-year 2009 performance versus its financial guidance was as follows:
Commenting on 2010 guidance, Edward Hu, chief operating officer and acting chief financial officer, said, "In 2010, we expect continued solid financial performance while we invest for the future. We expect that growth in total net revenues will significantly accelerate from 7% in 2009 to 15-19% in 2010, driven by broad-based demand for our integrated services platform. China Laboratory Services is expected to achieve revenue growth of 13-16%. Manufacturing Services revenues are expected to grow more than 70% year over year in 2010, benefiting from a large delivery in the first quarter and from generally improving demand. Revenues in U.S.-based Laboratory Services are expected to grow at a mid-single-digit rate. These projections assume very small revenue contributions from the large-scale manufacturing and toxicology businesses in 2010.
"Operating income in 2010 is expected to achieve growth of up to 10 percent compared to 2009, driven by strong revenue growth and increased leverage of SG&A. An expected 2-5 percentage point gross margin decrease, primarily in the second half of 2010, is due to several factors, including an increase in labor and depreciation expenses, expenses from the ramp-up of the toxicology and large-scale GMP manufacturing operations, and pricing pressure. We are working to improve our projected 2010 gross margins. We expect the growth rate in operating income to accelerate in 2011, driven by continued strong revenue growth from China-based laboratory services, meaningful revenues from toxicology and large-scale manufacturing, and improving margins."
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, March 9, 2010, to discuss its fourth-quarter 2009 financial results and future prospects. The conference call may be accessed by calling:
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 the fourth-quarter and full-year 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 results from discontinued operations. We believe both management and investors benefit from referring to these non-GAAP and pro-forma financial 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 to provide net income and earnings per ADS 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 GAAP measures to non-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, among others, our financial guidance for first quarter 2010 and full year 2010 (including, as applicable, estimated total net revenues, China-based Laboratory Services net revenues, Manufacturing Services net revenues, operating income, adjusted EBITDA, gross margins, and other trends) and outlook for 2011 (including expected growth in China-based laboratory services, improving margins and meaningful revenues for various service areas) and the factors driving each; 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, 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; 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 fourth-quarter and full year 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: WuXi PharmaTech (Cayman) Inc., Ronald Aldridge (for investors),
Director of Investor Relations, +1-201-585-2048, or ir@wuxiapptec.com;
Stephanie Liu (for the media), WuXi PharmaTech (Cayman) Inc., +86-21-5046-
4362, or pr@wuxiapptec.com
Web site: http://www.wuxiapptec.com/
