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WuXi PharmaTech Announces First-Quarter 2012 Results
Date:5/11/2012

SHANGHAI, May 10, 2012 /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 the first quarter of 2012.

Highlights

  • Net Revenues Increased 26.2% Year Over Year to $118.0 Million
  • Manufacturing Services Net Revenues Grew 35.0% Year Over Year to $31.4 Million
  • Laboratory Services Net Revenues Grew 23.2% Year Over Year to $86.6 Million
  • China-Based Laboratory Services Net Revenues Increased 25.8% Year Over Year to $64.5 Million
  • U.S.-Based Laboratory Services Net Revenues Increased 16.4% Year Over Year to $22.2 Million
  • GAAP Diluted Earnings Per ADS Grew 15.8% Year Over Year to $0.28
  • Non-GAAP Diluted Earnings Per ADS Increased 15.1% Year Over Year to $0.33
  • Company Reconfirms 2012 Financial Guidance
  • Management Comment"WuXi began 2012 with a strong first quarter, achieving 26.2% revenue growth," said Dr. Ge Li, Chairman and Chief Executive Officer. "This strong revenue growth was broad-based across all of our businesses. We met or exceeded all of our financial targets for revenues and margins for the quarter. And we continue to invest to build capabilities and to expand capacities in both laboratory services and manufacturing services. For example, our new Wuhan chemistry site began operations in February.

    "WuXi is building a comprehensive and integrated technology platform and service offerings that will enable anyone and any company to discover and develop new products efficiently and cost-effectively," Dr. Li concluded. "China is becoming an important hub for pharmaceutical R&D in part because of China's pharmaceutical market, already the third largest in the world and growing very rapidly. By building high-quality operations to better serve our customers, WuXi has become the leader in the Chinese pharmaceutical R&D services industry. We are well-positioned to take full advantage of the significant long-term trend for increasing outsourcing of pharmaceutical research and development."

    Beginning with this financial report for the first quarter of 2012, WuXi PharmaTech presents its results of operations for Process Chemistry under the Manufacturing Services segment rather than the Laboratory Services segment. Process Chemistry develops processes for making active pharmaceutical ingredients (APIs) and advanced intermediates and thus is more closely related to operations of the Manufacturing Services segment. Prior-year results in this report also reflect this reclassification.

    Also beginning with the first quarter of 2012, WuXi PharmaTech presents other comprehensive income and its components in its Statement of Comprehensive Income in accordance with Accounting Standards Update 2011-05. For the periods presented herein, other comprehensive income consists of foreign currency translation adjustments resulting from the translation of our financial statements into our reporting currency, the U.S. dollar. The functional currency of our China-based operations is the RMB.

    GAAP ResultsFirst-quarter 2012 net revenues increased 26.2% year over year to $118.0 million due to strong growth in both Manufacturing Services and Laboratory Services. Manufacturing Services revenue growth was driven by robust demand for clinical-trial materials from our research manufacturing business and solid demand in our commercial manufacturing business. Revenue growth in Laboratory Services was driven by our comprehensive and integrated discovery and development services, with particularly strong growth in integrated medicinal chemistry, DMPK/ADME, formulation, toxicology, and bioanalytical services in China and by increased demand for testing services in the United States for both biologics and medical devices.

    First-quarter 2012 GAAP gross profit increased 20.7% year over year to $41.9 million mainly due to 26.2% revenue growth. First-quarter 2012 GAAP gross margin decreased year over year to 35.5% from 37.1%. Gross margin in Laboratory Services decreased year over year to 37.1% from 39.3% mainly due to the effects of increasing labor costs in China and the negative impact from appreciation of the RMB relative to the U.S. dollar, partially offset by improved productivity. Gross margin in Manufacturing Services slightly improved year over year to 31.0% from 30.5%.

    First-quarter 2012 GAAP operating income grew 4.0% year over year to $20.6 million due to the 20.7% increase in gross profit, offset by increased operating expenses relating to the hiring of new senior staff and sales and marketing personnel, RMB appreciation relative to the U.S. dollar, and R&D investment in developing capabilities in biology, biologics, genomics, and other areas. Operating margin decreased to 17.5% from 21.2% due to the increase in operating expenses.

    First-quarter 2012 GAAP net income increased 15.2% year over year to $21.0 million due to a 4.0% increase in operating income, gains on foreign-exchange forward contracts of $1.8 million, higher interest income from short-term investments, and a small decrease in the effective tax rate.

    First-quarter 2012 GAAP diluted earnings per ADS increased 15.8% to $0.28, mainly due to the 15.2% increase in net income and a lower share count caused by the repurchase of about 22.8 million ordinary shares, equivalent to about 2.8 million ADSs, which were previously converted from the convertible bonds by General Atlantic in February 2012.

    First-quarter 2012 GAAP comprehensive income decreased 1.1% year over year to $21.4 million due to the decrease in currency translation adjustments, partially offset by the 15.2% increase in GAAP net income.

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

    First-quarter 2012 non-GAAP gross profit increased 20.7% year over year to $43.5 million mainly due to broad-based revenue growth. Non-GAAP gross margin decreased to 36.8% from 38.5%. Non-GAAP gross margin in Laboratory Services decreased year over year due to increased labor costs and the negative impact from appreciation of the RMB relative to the U.S. dollar, partially offset by improved productivity. Non-GAAP gross margin in Manufacturing Services improved due to strong revenue growth and increased capacity utilization.First-quarter 2012 non-GAAP operating income increased 5.1% year over year to $24.3 million, primarily due to the 20.7% increase in non-GAAP gross profit, partially offset by the increase in non-GAAP operating expenses driven by the hiring of new senior staff and sales and marketing personnel, RMB appreciation, and R&D investment in developing capabilities in biology, biologics, genomics, and other areas. Operating margin decreased to 20.6% from 24.7% due to the increase in operating expenses.

    First-quarter 2012 non-GAAP net income grew 14.5% year over year to $24.5 million due to the 5.1% increase in non-GAAP operating income, gains on foreign-exchange forward contracts of $1.8 million, higher interest income from short-term investments, and a small decrease in the effective tax rate.

    First-quarter 2012 non-GAAP diluted earnings per ADS grew 15.1% year over year to $0.33, mainly due to the 14.5% increase in non-GAAP net income and lower share count caused by the repurchase of about 22.8 million ordinary shares, equivalent to about 2.8 million ADSs, which were previously converted from the outstanding convertible bonds by General Atlantic in February 2012.

    2012 Financial GuidanceThe company maintains its full-year 2012 financial guidance:

  • Total net revenues of $468-$488 million, or 15-20% year-over-year growth
  • Growth in total net revenues of China-based Laboratory Services of 18-24% on a pro-forma basis reflecting the classification of Process Chemistry in Manufacturing Services for both years
  • Growth in total net revenues of U.S.-based Laboratory Services of 6-9%
  • Growth in total net revenues of Manufacturing Services of 13-18% on a pro-forma basis reflecting the classification of Process Chemistry in Manufacturing Services for both years
  • Operating income margin of 17.5-19.0% on a GAAP basis, 20.0-21.5% on a non-GAAP basis
  • Capital expenditures of about $70 million
  • GAAP effective tax rate of about 17.5%
  • Second-Quarter 2012 Financial GuidanceThe company provides the following second-quarter 2012 financial guidance:

  • Total revenues of $124-$129 million, up 23-28% year over year
  • Laboratory Services revenues (not including Process Chemistry) of $90-$92 million
  • Manufacturing Services revenues (including Process Chemistry) of $34-$37 million
  • Operating margin of 17.5-18.0% GAAP, 20.5-21.0% non-GAAP
  • WUXI
    PHARMATECH (CAYMAN) INC.UNAUDITED CONSOLIDATED BALANCE SHEETS(in thousands of U.S. dollars, except ordinary share, ADS and par value data)March 31,
    2012December 31,
    2011Assets:Current assets:Cash and cash equivalents57,677

    71,368Restricted cash1,338

    2,458Short-term investments122,001

    128,054Accounts receivable, net80,001

    72,736Inventories46,289

    45,351Prepaid expenses and other current assets15,431

    15,133Total current assets322,737

    335,100Non-current assets:Goodwill34,703

    34,701Property, plant and equipment, net257,958

    245,694Long-term investments5,335

    4,335Intangible assets, net10,095

    10,568Land use rights5,458

    5,488Deferred tax assets7,489

    8,499Other non-current assets19,265

    19,469Total non-current assets340,303

    328,754Total assets663,040

    663,854Liabilities and equity:Current liabilities:Short-term and current portion of long-term debt43,289

    28,661Accounts payable25,440

    22,803Accrued expenses13,332

    20,913Deferred revenue16,800

    15,881Advanced subsidies8,031

    6,417Other taxes payable3,572

    2,196Convertible notes-

    35,864Other current liabilities11,787

    10,018Total current liabilities122,251

    142,753Non-current liabilities:Long-term debt, excluding current portion1,595

    1,646Advanced subsidies1,342

    3,215Long-term payable2,087

    3,944Other non-current liabilities6,461

    6,570Total non-current liabilities11,485

    15,375Total liabilities133,736

    158,128Equity:Ordinary shares ($0.02 par value, 5,002,550,000 authorized, 570,489,352
    and 574,347,674 issued and outstanding as of December 31, 2011, and
    March 31, 2012, respectively) 11,487

    11,410Additional paid-in capital349,029

    345,832Retained earnings123,009

    103,159Accumulated other comprehensive income45,779

    45,325Total equity529,304

    505,726Total liabilities and equity663,040

    663,854 WUXI PHARMATECH (CAYMAN) INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands of U.S. dollars, except ADS data and per ADS data)Three Months Ended
     March 31,20122011% changeNet revenues:Laboratory Services86,650

    70,308

    23.2%Manufacturing Services31,378

    23,247

    35.0%Total net revenues118,028

    93,555

    26.2%Cost of revenues:Laboratory Services(54,488)

    (42,712)

    27.6%Manufacturing Services(21,649)

    (16,149)

    34.1%Total cost of revenues(76,137)

    (58,861)

    29.4%Gross profit:Laboratory Services32,162

    27,596

    16.5%Manufacturing Services9,729

    7,098

    37.1%Total gross profit41,891

    34,694

    20.7%Operating expenses:Selling and marketing expenses(3,279)

    (1,958)

    67.5%General and administrative expenses(16,162)

    (12,172)

    32.8%Research and development expenses(1,813)

    (724)

    150.4%Total operating expenses(21,254)

    (14,854)

    43.1%Operating income20,637

    19,840

    4.0%Other income (expenses), net:Other income (expenses), net2,740

    1,627

    68.4%Interest income (expenses), net1,699

    831

    104.5%Total other income (expenses), net4,439

    2,458

    80.6%Income before income taxes25,076

    22,298

    12.5%Income tax expense(4,088)

    (4,074)

    0.3%Net income20,988

    18,224

    15.2%Basic net earnings per ADS0.29

    0.26

    12.7%Diluted net earnings per ADS0.28

    0.24

    15.8%Weighted average ADS outstanding—basic71,978,914

    70,419,377

    2.2%Weighted average ADS outstanding—diluted74,543,632

    74,944,373

    (0.5%)Other comprehensive income:Currency translation adjustments454

    3,457

    (86.9%)Comprehensive income21,442

    21,681

    (1.1%) WUXI PHARMATECH (CAYMAN) INC.RECONCILIATION OF GAAP TO NON-GAAP(in thousands of U.S. dollars, except ADS data and per ADS data)Three Months Ended
    March 31,20122011% changeGAAP gross profit41,891

    34,694

    20.7%GAAP gross margin35.5%

    37.1%Adjustments:Share-based compensation1,066

    975

    9.3%Amortization of acquired intangible assets525

    355

    47.9%Non-GAAP gross profit43,482

    36,024

    20.7%Non-GAAP gross margin36.8%

    38.5%GAAP operating income20,637

    19,840

    4.0%GAAP operating margin17.5%

    21.2%Adjustments:Share-based compensation3,155

    2,937

    7.4%Amortization of acquired intangible assets525

    355

    47.9%Non-GAAP operating income24,317

    23,132

    5.1%Non-GAAP operating margin20.6%

    24.7%GAAP net income20,988

    18,224

    15.2%GAAP net margin17.8%

    19.5%Adjustments:Share-based compensation3,155

    2,937

    7.4%Amortization of acquired intangible assets525

    355

    47.9%Deferred tax impact related to acquired
    intangible assets(195)

    (138)

    41.3%Non-GAAP net income24,473

    21,378

    14.5%Non-GAAP net margin20.7%

    22.9%Income attributable to holders of ADS (Non-GAAP):Basic24,473

    21,378

    14.5%Diluted24,473

    21,378

    14.5%Basic earnings per ADS (Non-GAAP)0.34

    0.30

    12.0%Diluted earnings per ADS (Non-GAAP)0.33

    0.29

    15.1%Weighted average ADS outstanding – basic (Non-GAAP)71,978,914

    70,419,377

    2.2%Weighted average ADS outstanding – diluted (Non-GAAP)74,543,632

    74,944,373

    (0.5%) WUXI PHARMATECH (CAYMAN) INC.REVENUE BREAKDOWN(in thousands of U.S. dollars)Three Months Ended
    March 31,20122011% changeNet revenues:China-based Laboratory Services64,452

    51,231

    25.8%China-based Manufacturing Services31,378

    23,247

    35.0%Subtotal95,830

    74,478

    28.7%U.S.-based Laboratory Services22,198

    19,077

    16.4%Total net revenues118,028

    93,555

    26.2%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 Friday, May 11, 2012, to discuss its first-quarter 2012 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:70558333A 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:70558333A 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 Measures  We have provided the first-quarter 2011 and 2012 gross profit, gross margin, operating income, operating margin, net income, net margin, 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 full-year 2012 (including, as applicable, estimated total revenues, Laboratory Services revenues, Manufacturing Services revenues, operating margins and other trends), increased customer demand for our services, investment in various new businesses, investment in expanding our existing business, building a comprehensive and integrated technology platform, the ability of this platform to enable anyone and any company to discover and develop new products efficiently and cost-effectively, China's becoming an important hub for pharmaceutical R&D, the growth of China's pharmaceutical market, and our share repurchase program.

    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 not enjoy the anticipated benefits of the Abgent and MedKey acquisitions or other planned investments and capital expenditures (including investments made through our corporate venture fund) on a timely basis or at all; 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; we may face increased margin pressure as a result of renminbi appreciation and increased labor inflation in China and the company's investment; and we may not repurchase our ADSs as anticipated for market or other reasons. In addition, other factors that could cause our actual results to differ from what we currently anticipate include 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 2011 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 2011 Annual Report on Form 20-F. Our results of operations for first-quarter 2012 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.

    Incorporation by ReferenceWuXi PharmaTech hereby expressly incorporates by reference into its registration statement on Form F-3 (File No. 333-161757) the discussions contained in "GAAP Results," the unaudited consolidated balance sheets, the unaudited condensed consolidated statements of operations, and the revenue breakdown by geography, from this press release.

    For more information, please contact:WuXi PharmaTech (Cayman) Inc.
    Ronald Aldridge (for investors)
    Director of Investor Relations
    Tel:
    +1-201-585-2048
    Email: ir@wuxiapptec.com

    Harry He (for the media)
    WuXi PharmaTech (Cayman) Inc.
    Tel:
    +86-21-5046-4362
    Email: pr@wuxiapptec.com


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    SOURCE WuXi PharmaTech (Cayman) Inc.
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