SHANGHAI, Aug. 11 /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 second-quarter 2009.
Management Comment
“WuXi PharmaTech’s overall financial performance in the second quarter exceeded our expectations, both in revenues and profitability, building confidence that we will meet our previously announced guidance for revenues and beat our previously announced guidance for adjusted EBITDA for the full year,” said Dr. Ge Li, Chairman and Chief Executive Officer. “The company is achieving its current financial goals in a difficult operating environment while investing in new growth opportunities that we expect will drive revenue and income growth over the next several years.
“Our current success reflects our sound business model and expanding capabilities. Our core capabilities in discovery chemistry continue to deliver a large portion of our revenues and revenue growth. In recent years, we have been building new capabilities in discovery biology, DMPK/ADME, formulation, toxicology, bioanalytical services, process research, analytical development services, and other areas. These newer services have become increasingly significant revenue growth drivers as we offer an integrated platform of services. We have also expanded our services beyond development of small-molecule pharmaceuticals to include testing services for biologics and medical-device products.
“In our short history, WuXi PharmaTech has grown to become a leading contract research organization providing integrated R&D services to the global life science industries. Our mission as a company is to partner with the world’s leading life science and medical device companies to help them improve the success of research and shorten the time of development,” Dr. Li concluded.
GAAP Results
Second-quarter 2009 net revenues decreased 3% year over year to $67.0 million due to a 69% decline in Manufacturing Services net revenues, offset by 19% growth in Laboratory Services net revenues. Manufacturing Services net revenues are inherently variable due to fluctuating demand and customer delivery schedules, and the majority of the year-over-year decline in Manufacturing Services net revenues came from large projects in 2008 that did not recur in 2009. In addition, Manufacturing Services net revenues in second-quarter 2009 were impacted by project mix that included more early-stage projects. Laboratory Services net revenues in second-quarter 2009 benefited from stronger demand for our integrated drug discovery and development services, particularly in DMPK/ADME, bioanalytical services, discovery biology, process research, analytical development services, formulation development, and our core discovery chemistry services.
Second-quarter 2009 GAAP gross profit increased 7% year over year to $27.1 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. Second-quarter 2009 GAAP gross margin improved year over year to 40% from 37%, 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. Gross margin from Laboratory Services improved year over year to 43% from 38%, also mainly due to lower intangible amortization. Partially offsetting this benefit, gross margin declined year over year in Manufacturing Services to 15% from 32% due primarily to unfavorable project mix and inventory write-downs.
Second-quarter 2009 GAAP operating income increased 22% year over year to $13.6 million due to the 7% increase in gross profit and a 5% decline in operating expenses. Second-quarter 2009 GAAP operating expenses declined 5% year over year to $13.4 million due to a 10% decline in general and administrative expenses resulting from cost control and improved operating efficiency, partially offset by a 29% increase in selling and marketing expenses resulting from expanded business development efforts.
Second-quarter 2009 GAAP net income from continuing operations increased 37% year over year to $14.7 million due to the 22% increase in operating income and a favorable change in other income (expenses) net, offset by higher tax expense. Other income (expenses) net in second-quarter 2009 included gains from foreign-exchange forward contracts of $0.3 million, compared to losses of $1.4 million on such contracts in second-quarter 2008. Taxes in second-quarter 2009 were $2.1 million, or 12% of pretax income. In the prior-year period, a larger tax benefit was recorded mainly due to the deferred tax impact from amortization of acquired intangible assets.
Second-quarter 2009 GAAP net income grew 72% year over year due to the 37% increase in net income from continuing operations and no losses from discontinued operations. Second-quarter 2008 GAAP net income included a loss from discontinued operations related to the biologics manufacturing business. There was no impact from discontinued operations in second-quarter 2009, as these operations had ceased. Second-quarter 2009 GAAP diluted earnings per ADS grew 72% year over year to 20 cents, compared to 12 cents in second-quarter 2008.
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.
Second-quarter 2009 non-GAAP gross profit decreased 6% year over year to $28.4 million, mainly due to a decline in the gross-profit contribution from Manufacturing Services due to lower revenues and lower gross margins, partially offset by the favorable impact of higher gross profit in the Laboratory Services business. Second-quarter 2009 non-GAAP gross margin declined year over year to 42% from 44% due to lower gross margin in the Manufacturing Services business from unfavorable project mix and inventory write-downs.
Second-quarter 2009 non-GAAP operating income declined 9% year over year to $17.1 million primarily due to the decline in non-GAAP gross profit. Operating expenses were essentially flat compared to the same period of 2008.
Second-quarter 2009 non-GAAP net income grew 7% year over year to $17.8 million due to a favorable change in other income (expenses) net, which more than offset the 9% decrease in non-GAAP operating income and higher 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 7% year over year to 24 cents compared to 23 cents in second-quarter 2008.
Commenting on financial performance and guidance, Edward Hu, Chief Operating Officer and acting Chief Financial Officer, said, “Our second-quarter 2009 financial results exceeded our expectations and give us reason to reconfirm our full-year 2009 revenue guidance and increase our full-year 2009 adjusted EBITDA estimate to $80-$85 million. Second-quarter 2009 net revenues grew 13% versus first-quarter 2009. Laboratory Services net revenue growth of 19% year-over-year reflected growing demand for our platform of integrated services. As anticipated, Manufacturing Services net revenues were still light in the second quarter due to project delays and project mix, and we expect revenues in this business for this year to be in the range of $20-$30 million, depending on delivery schedules. As previously discussed, we expect total gross margin will decline in second-half 2009 as we increase hiring and continue investments.”
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 Wednesday, August 12, 2009, to discuss its second-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 six-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 six-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, second-half, and third-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 second-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.
SOURCE WuXi PharmaTech (Cayman) Inc.
CONTACT: WuXi PharmaTech (Cayman) Inc., Ronald Aldridge (for investors),
Director of Investor Relations, +1-215-218-5515, ir@wuxiapptec.com and
Stephanie Liu (for the media), +86-21-5046-4362, pr@wuxiapptec.com
Web site: http://www.wuxiapptec.com//
