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WuXi PharmaTech Announces First-Quarter 2011 Results
Date:5/10/2011

SHANGHAI, May 10, 2011 /PRNewswire-Asia/ -- WuXi PharmaTech (Cayman) Inc. (NYSE: WX), 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 first-quarter 2011.

Highlights

  • First-Quarter 2011 Net Revenues Increased 16% Year Over Year to $93.6 Million
  • Laboratory Services Net Revenues Grew 12% Year Over Year to $75.2 Million
  • China-Based Laboratory Services Net Revenues Increased 12% Year Over Year to $56.1 Million
  • U.S.-Based Laboratory Services Net Revenues Increased 12% Year Over Year to $19.1 Million
  • Manufacturing Services Net Revenues Grew 35% Year Over Year to $18.3 Million, Driven by Commercial Manufacturing
  • GAAP Diluted Earnings Per ADS Grew 16% Year Over Year to 24 Cents
  • Non-GAAP Diluted Earnings Per ADS Increased 16% Year Over Year to 29 Cents
  • Company Reconfirms 2011 Financial Guidance

  • Management Comment"WuXi began 2011 with a strong performance," said Dr. Ge Li, Chairman and Chief Executive Officer. "We achieved double-digit revenue and EPS growth, while we continued to invest in new capabilities and capacity to better serve our customers.

    "WuXi exceeded its financial guidance for the quarter. Revenues grew 16%, versus guidance of 13-15% growth. GAAP and non-GAAP operating margin of 21% and 25%, respectively, exceeded our guidance of 20% and 24%. All of our businesses contributed to this strong revenue and margin performance.

    "We continue to expect 2011 to be a strong year for WuXi, with revenue growth of 17-21% and stable margins despite an environment of RMB appreciation and labor cost inflation in China. WuXi is rapidly expanding its new Laboratory Services businesses and is positioned to reap the benefits of years of hard work in research manufacturing with revenue growth in our new commercial manufacturing business.

    "In 2011, we will continue to invest and build a strong integrated drug R&D service platform to be the industry's alternative R&D engine to discover and develop new drugs for our customers. Among our major investment projects in 2011 are a new site in Wuhan for our chemistry business, a new GMP biologics manufacturing facility in WuXi, and continuing build-up of pharmacology models and biology capabilities. We also continue to expand our research manufacturing capacity and our API/drug product stability testing capacity and capability.

    "WuXi has the right business model for long-term success," Dr. Li concluded. "Outsourcing of pharmaceutical R&D is increasing because it offers pharmaceutical and biotech companies greater operational flexibility. Offshore outsourcing to China gives them high-quality scientific expertise at reasonable prices. As the leading offshore outsourcing company in China, WuXi is well positioned to benefit from these trends."

    GAAP ResultsFirst-quarter 2011 net revenues increased 16% year over year to $93.6 million due to 12% growth in Laboratory Services net revenues and 35% growth in Manufacturing Services net revenues. Revenue growth in Laboratory Services was solid, driven by our comprehensive and integrated discovery and development services. Manufacturing Services revenue growth was driven by the continued ramp-up of our large-scale commercial manufacturing business, as well as the robust demand for clinical-trial materials from our research manufacturing business.

    First-quarter 2011 GAAP gross profit increased 14% year over year to $34.7 million due to solid revenue growth in Laboratory Services and both strong revenue growth and gross-margin improvement in Manufacturing Services. First-quarter 2011 GAAP gross margin decreased slightly year over year to 37.1% from 37.7% mainly due to business mix, as our highest rate of revenue growth occurred in our relatively lower-margin Manufacturing Services business. Gross margin in Manufacturing Services, while lower than that in Laboratory Services, improved year over year to 26.7% from 19.9% due to strong revenue growth and increasing capacity utilization in our large-scale manufacturing facility. Gross margin in Laboratory Services decreased year over year to 39.6% from 41.4% due to higher labor costs, the negative impact from appreciation of the Chinese RMB relative to the U.S. dollar, and increased depreciation expenses from investments in new capabilities and capacity expansion.

    First-quarter 2011 GAAP operating income grew 14% to $19.8 million due to the 14% increase in gross profit and 15% growth in operating expenses driven by staff hiring in SG&A functions and higher labor costs.

    First-quarter 2011 GAAP net income increased 17% to $18.2 million due to the 14% increase in operating income and a favorable change in other income (expenses) net, offset by higher taxes. Other income (expenses) net in first-quarter 2011 included foreign-exchange gains of $1.2 million compared to foreign-exchange losses of $0.4 million in first-quarter 2010. Higher taxes were the result of higher statutory tax rates for two of our China legal entities and higher pretax income.

    First-quarter 2011 GAAP diluted earnings per ADS increased 16% to 24 cents, mainly due to the 17% increase in net income, offset by slightly higher share count due to exercise of stock options.

    Non-GAAP ResultsNon-GAAP financial results excluded the impact of share-based compensation expenses and the amortization of acquired intangible assets and the associated deferred tax impact.

    First-quarter 2011 non-GAAP gross profit increased 12% year over year to $36.0 million due to revenue growth in Laboratory Services and both strong revenue growth and gross-margin improvement in Manufacturing Services. First-quarter 2011 non-GAAP gross margin decreased year over year to 38.5% from 39.8% mainly due to business mix, as our largest revenue growth occurred in our lower-margin Manufacturing Services business. Gross margin in Manufacturing Services, while lower than that in Laboratory Services, improved year over year due to increased capacity utilization in our large-scale manufacturing facility. Gross margin in Laboratory Services decreased year over year due to higher labor costs, the negative impact from appreciation of the Chinese RMB relative to the U.S. dollar, and increased depreciation expenses from investments in new capabilities and capacity expansion.

    First-quarter 2011 non-GAAP operating income increased 13% year over year to $23.1 million, primarily due to the 12% increase in non-GAAP gross profit and growth in operating expenses driven by staff hiring in SG&A functions and higher labor costs.

    First-quarter 2011 non-GAAP net income grew 17% year over year to $21.4 million due to a 13% increase in non-GAAP operating income and a favorable change in other income (expenses) net, offset by higher taxes. Higher taxes were the result of higher statutory tax rates in China and higher pretax income. Diluted non-GAAP earnings per ADS grew 16% year over year to 29 cents compared to 25 cents in first-quarter 2010, mainly due to the 17% increase in non-GAAP net income, offset by slightly higher share count due to exercise of stock options.

    2011 Financial GuidanceThe company reconfirms all of its full-year 2011 financial guidance:

  • Total net revenues of $390-405 million, which represents 17-21% growth
  • Growth in net revenues of China-based Laboratory Services of 14-18%
  • Growth in net revenues of U.S.-based Laboratory Services of 8-10%
  • Growth in net revenues of Manufacturing Services of 50-60%
  • Decrease in gross margin of about 1 percentage point due to appreciation of the Chinese RMB relative to the U.S. dollar and labor cost inflation, partially offset by a gross margin increase in our manufacturing business
  • GAAP operating margin of 21-22%, non-GAAP operating margin of 24-25%
  • Capital expenditures of $50-60 million
  • GAAP effective tax rate of 17-18% due to an increase in the statutory tax rate of the company's Shanghai and Tianjin legal entities from 11% in 2010 to 15% and 12%, respectively, in 2011

  • The Company provides the following guidance for second-quarter 2011 performance:

  • Total net revenues of $97-99 million
  • Laboratory Services revenues of $79-80 million, Manufacturing Services net revenues of $18-19 million
  • GAAP and non-GAAP operating margins comparable to the first quarter of 2011

  • WUXI PHARMATECH (CAYMAN) INC.UNAUDITED CONSOLIDATED BALANCE SHEETS(in thousands of U.S. dollars, except ordinary share, ADS and par value data)March 31, 2011December 31, 2010Assets:Current assets:Cash and cash equivalents

    147,118

    115,401Restricted cash

    1,699

    1,989Short-term investment

    15,326

    38,084Accounts receivable, net

    68,045

    57,041Inventories

    20,081

    17,277Prepaid expenses and other current assets

    15,029

    15,124   Total current assets267,298

    244,916Non-current assets:Goodwill

    24,845

    23,956Property, plant and equipment, net

    208,550

    205,547Intangible assets, net

    3,807

    4,254Land use rights

    5,376

    5,352Deferred tax assets

    10,082

    10,887Other non-current assets

    2,117

    3,221   Total non-current assets254,777

    253,217   Total assets522,075

    498,133Liabilities and equity:Current liabilities:Short-term and current portion of long-term debt

    4,533

    263Accounts payable

    15,376

    14,800Accrued expenses

    10,922

    20,548Deferred revenue

    9,437

    8,816Advanced subsidies

    3,596

    4,460Other taxes payable

    4,699

    2,790Convertible notes

    35,864

    --Other current liabilities

    9,592

    7,891   Total current liabilities94,019

    59,568Non-current liabilities:Long-term debt, excluding current portion

    1,791

    1,852Advanced subsidies

    3,338

    2,934Convertible notes

    --

    35,864Other non-current liabilities

    4,614

    5,085   Total non-current liabilities9,743

    45,735   Total liabilities103,762

    105,303Equity:Ordinary shares ($0.02 par value, 5,002,550,000 authorized as of December 31, 2010 and March 31, 2011; 560,972,080 and 565,840,984 issued and outstanding as of December 31, 2010 and March 31, 2011, respectively)

    11,317

    11,219Additional paid-in capital

    366,618

    332,913Retained earnings

    40,403

    22,180Accumulated other comprehensive income

    29,975

    26,518   Total equity418,313

    392,830 Total liabilities and equity522,075

    498,133WUXI PHARMATECH (CAYMAN) INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of U.S. dollars, except ADS data and per ADS data) Three Months Ended March 31, 20112010% ChangeNet revenues:Laboratory Services

    75,218

    66,998

    12%Manufacturing Services

    18,337

    13,604

    35%Total net revenues93,555

    80,602

    16%Cost of revenues:Laboratory Services

    (45,414)

    (39,285)

    16%Manufacturing Services

    (13,447)

    (10,899)

    23%Total cost of revenues(58,861)

    (50,184)

    17%Gross profit:Laboratory Services

    29,804

    27,713

    8%Manufacturing Services

    4,890

    2,705

    81%Total gross profit34,694

    30,418

    14%Operating expenses:Selling and marketing expenses

    (1,958)

    (2,282)

    (14%)General and administrative expenses

    (12,896)

    (10,701)

    21%Total operating expenses(14,854)

    (12,983)

    14%Operating income 19,840

    17,435

    14%Other income (expenses), net:Other income (expenses), net

    1,627

    183

    *Interest income (expenses), net

    831

    98

    *Total other income (expenses), net2,458

    281

    *Income before income taxes22,298

    17,716

    26%Income tax expense

    (4,074)

    (2,199)

    85%Net income18,224

    15,517

    17%Basic net earnings per ADS0.26

    0.22

    15%Diluted net earnings per ADS0.24

    0.21

    16%Weighted average ADS outstanding—basic 70,419,377

    69,075,025Weighted average ADS outstanding—diluted74,944,373

    74,230,526*  Not meaningful or greater than 100%WUXI PHARMATECH (CAYMAN) INC.RECONCILIATION OF GAAP TO Non-GAAP(in thousands of U.S. dollars, except ADS data and par value data) Three Months Ended March 31,20112010% ChangeGAAP gross profit34,694

    30,418

    14%GAAP gross margin37%

    38%Adjustments:Share-based compensation

    975

    889

    10%Amortization of acquired intangible assets

    355

    764

    (54%)Non-GAAP gross profit36,024

    32,071

    12%Non-GAAP gross margin39%

    40%GAAP operating income19,840

    17,435

    14%GAAP operating margin21%

    22%Adjustments:Share-based compensation

    2,937

    2,322

    26%Amortization of acquired intangible assets

    355

    764

    (54%)Non-GAAP operating income23,132

    20,521

    13%Non-GAAP operating margin25%

    25%GAAP net income18,224

    15,517

    17%GAAP net margin19%

    19%Adjustments:Share-based compensation

    2,937

    2,322

    26%Amortization of acquired intangible assets

    355

    764

    (54%)Deferred tax impact related to acquired intangible assets

    (138)

    (296)

    (53%)Non-GAAP net income21,378

    18,307

    17%Non-GAAP net margin23%

    23%Income attributable to holders of ADS (Non-GAAP):Basic21,378

    18,307

    17%Diluted21,378

    18,307

    17%Basic earnings per ADS (Non-GAAP)0.30

    0.27

    15%Diluted earnings per ADS (Non-GAAP)0.29

    0.25

    16%Weighted average ADS outstanding – basic (Non-GAAP)70,419,377

    69,075,025Weighted average ADS outstanding – diluted (Non-GAAP)74,944,373

    74,230,526WUXI PHARMATECH (CAYMAN) INC.REVENUE RECONCILIATION BY GEOGRAPHY(in thousands of U.S. dollars) Three Months Ended March 31,20112010% ChangeNet revenues:China-based Laboratory Services

    56,141

    49,972

    12%China-based Manufacturing Services

    18,337

    13,604

    35%Subtotal

    74,478

    63,576

    17%U.S.-based Laboratory Services

    19,077

    17,026

    12%Total net revenues93,555

    80,602

    16%Conference CallWuXi PharmaTech senior management will host a conference call at 8:00 am (U.S. Eastern) / 5:00 am (U.S. Pacific) / 8:00 pm (Beijing/Shanghai/Hong Kong) on Wednesday, May 11, 2011, to discuss its first-quarter 2010 financial results and future prospects. The conference call may be accessed by calling:United States:

    1-866-519-4004China (Landline):800-819-0121China (Mobile):

    400-620-8038Hong Kong:

    800-930-346United Kingdom:0-808-234-6646International:+65-6723-9381Conference ID:59879300A telephone replay will be available two hours after the call's completion at:United States:

    1-866-214-5335China (Landline):10-800-714-0386China (Mobile):

    10-800-140-0386Hong Kong:

    800-901-596United Kingdom:0-800-731-7846International:+61-2-8235-5000Conference ID:59879300A 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 PharmaTechWuXi 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 a 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 MeasuresWe have provided the first-quarter 2010 and 2011 gross profit, gross margin, operating income, operating margin, net income, and earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses and amortization and deferred tax impact of acquired intangible assets. We believe both management and investors benefit from referring to these non-GAAP 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 StatementsStatements 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, our financial guidance for second-quarter and full-year 2011 (including, as applicable, estimated total net revenues, China-based Laboratory Services net revenues, U.S.-based Laboratory Services net revenue, Manufacturing Services net revenues, operating margins, capital expenditures, effective tax rates, and other trends), expanded growth in our commercial manufacturing business, our planned investments for 2011, anticipated industry changes and trends and our ability to benefit therefrom.

    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, the state of the global economy may continue to be uncertain; 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; the pressures being felt by our customers and pharmaceutical industry consolidation may adversely impact our business and the trends for outsourced and offshored 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; we may not maintain our preferred provider status with our clients and may be unable to successfully expand our capabilities to meet client needs; and we may face increased margin pressure as a result of renminbi appreciation and increased labor inflation in China. 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 to 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; the risk of payment failure by any of our large customers, which could significantly harm our cash flows and profitability; our 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 financial statements and related notes thereto included in our 2010 Annual Report on Form 20-F filed with the Securities and Exchange Commission 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 2010 Annual Report on Form 20-F. Our results of operations for first-quarter 2011 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.

    For more information, please contact:WuXi PharmaTech (Cayman) Inc. Ronald Aldridge (for investors)Director of Investor Relations Tel:   +1-201-585-2048Email: ir@wuxiapptec.comStephanie Liu (for the media)WuXi PharmaTech (Cayman) Inc.Tel:   +86-21-5046-4362Email: pr@wuxiapptec.com
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