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WuXi PharmaTech Announces Second-Quarter 2014 Results
Date:8/13/2014

SHANGHAI, Aug. 13, 2014 /PRNewswire/ -- WuXi PharmaTech (Cayman) Inc. (NYSE: WX), a leading research and development services company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its financial results for the second quarter of 2014. 

Second-Quarter 2014 Highlights

  • Net Revenues Increased 14.8% Year Over Year to $163.4 Million
  • Laboratory Services Net Revenues Grew 13.2% Year Over Year to $119.9 Million
  • China-Based Laboratory Services Net Revenues Increased 14.2% Year Over Year to $95.2 Million
  • U.S.-Based Laboratory Services Net Revenues Grew 9.6% Year Over Year to $24.7 Million
  • Manufacturing Services Net Revenues Increased 19.3% Year Over Year to $43.5 Million
  • GAAP Diluted Earnings Per ADS Remained Unchanged Year Over Year at $0.41
  • Non-GAAP Diluted Earnings Per ADS Increased 5.2% Year Over Year to $0.49
  • Full-Year 2014 Revenue and Diluted EPS Guidance Increased
  • Management Comment"WuXi PharmaTech had another solid performance in the second quarter," said Dr. Ge Li, Chairman and CEO of WuXi PharmaTech.  "We achieved record quarterly revenues, led by small-molecule manufacturing and biologics.  Our revenue growth was broad-based, with 19.3%, 14.2%, and 9.6% year-over-year growth in Manufacturing Services, China Lab Services, and U.S. Lab Services, respectively, and we exceeded our second-quarter guidance in revenues.

    "We also had a good quarter in profitability, exceeding our second-quarter guidance for non-GAAP diluted EPS and achieving the top of our guidance range for GAAP diluted EPS," Dr. Li continued.  "Gross margin in the second quarter reflected year-over-year improvement of more than one full percentage point, driven by productivity initiatives, effective cost control, and the favorable impact of a depreciated RMB.  We are using our free cash flow to reinvest in our business as we build new capabilities in manufacturing, biologics, genomics, cell therapy, sales and marketing, information technology, and other areas.  We also purchased $66 million of our stock in the second quarter.

    Our strong second-quarter performance gives us confidence about our performance for the remainder of the year.  We expect to sustain strong revenue growth in the second half of 2014, as we capitalize on the growing late-stage and commercial product pipeline in small-molecule manufacturing, the ramp-up of our biologics manufacturing business, and investments in new businesses.  We raise our full-year 2014 revenue guidance range from the previous $660-$670 million to $665-$670 million and increase our guidance for full-year 2014 GAAP and non-GAAP diluted EPS.

    "We remain committed to building the premier open-access R&D platform that enables anyone and any company to discover and develop innovative medicines to benefit the world's patients," Dr. Li concluded.

    Second-Quarter 2014 GAAP Results Second-quarter 2014 net revenues increased 14.8% year over year to $163.4 million.  Revenue growth in Laboratory Services of 13.2% was driven by our comprehensive and integrated drug discovery and development services.  Revenue growth of 19.3% in Manufacturing Services was caused by strong demand in both research manufacturing and commercial manufacturing compared to the second quarter of 2013.

    Second-quarter 2014 GAAP gross profit increased 18.9% year over year to $61.5 million due to 14.8% revenue growth and productivity improvement.  Gross margin increased year over year to 37.7% from 36.4% mainly due to improved productivity, the ramp-up of biologics services, and the favorable impact of a depreciated RMB versus the U.S. dollar, partially offset by increased labor costs in China.  Gross margin in Manufacturing Services increased year over year to 31.7% from 29.1%.  Gross margin in Laboratory Services increased year over year to 39.8% from 38.9%.

    Second-quarter 2014 GAAP operating income increased 9.0% year over year to $28.0 million due to the 18.9% increase in gross profit, partially offset by increased general and administrative expenses, including hiring of senior management, and R&D expenses in biologics, discovery biology, genomics, and other areas.  Operating margin declined to 17.1% from 18.1% due to these increased general and administrative and R&D expenses, partially offset by the impact of a depreciated RMB versus the U.S. dollar, which is favorable because a large majority of our revenues are denominated in U.S. dollars and most of our expenses are denominated in RMB.

    Second-quarter 2014 GAAP net income decreased 1.0% year over year to $29.3 million due to mark-to-market losses on foreign-exchange forward contracts of $2.5 million, compared to mark-to-market gains of $3.0 million in the second quarter of 2013, and a higher effective tax rate compared to the second quarter of 2013 due to the mix of taxable income and a $1.1 million one-time tax refund received in second-quarter 2013, partially offset by the 9.0% year-over-year increase in operating income, a $2.2 million gain on the sale of an investment by the corporate venture fund, smaller equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, and higher interest income due to higher cash balances and higher interest rates.  Realized gains on settled foreign-exchange forward contracts were $1.6 million in the second quarter of 2014.

    Second-quarter 2014 GAAP diluted earnings per ADS remained unchanged at $0.41 due to the 1.0% decrease in net income, offset by a lower number of outstanding ADSs as a result of share purchases.  Second-quarter 2014 GAAP comprehensive income decreased 35.4% year over year to $24.1 million due to the 1.0% decrease in GAAP net income and unfavorable currency translation adjustments, offset by unrealized gains on available-for-sale securities.

    Second-Quarter 2014 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. 

    Second-quarter 2014 non-GAAP gross profit increased 19.3% year over year to $63.2 million due to the 14.8% revenue growth and productivity improvement.  Non-GAAP gross margin increased year over year to 38.7% from 37.2% due to improved productivity, the ramp-up of biologics services, and the favorable impact of a depreciated RMB versus the U.S. dollar, offset by increased labor costs in China. 

    Second-quarter 2014 non-GAAP operating income increased 13.8% year over year to $33.9 million due to the 19.3% increase in non-GAAP gross profit, partially offset by increased general and administrative expenses, including hiring of senior management, and R&D expenses in biologics, discovery biology, genomics, and other areas.  Non-GAAP operating margin decreased slightly to 20.8% from 20.9% due to increased general and administrative and R&D expenses, offset by the favorable impact of a depreciated RMB versus the U.S. dollar.

    Second-quarter 2014 non-GAAP net income increased 4.5% year over year to $35.2 million due to the 13.8% year-over-year increase in non-GAAP operating income, a $2.2 million gain on the sale of an investment by the corporate venture fund, smaller equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, and higher interest income due to higher cash balances and higher interest rates, partially offset by mark-to-market losses on foreign-exchange forward contracts of $2.5 million, compared to mark-to-market gains of $3.0 million in the second quarter of 2013, and a higher effective tax rate compared to the second quarter of 2013 due to the mix of taxable income and a $1.1 million one-time tax refund received in second-quarter 2013.  Realized gains on settled foreign-exchange forward contracts were $1.6 million in the second quarter of 2014.

    Second-quarter 2014 non-GAAP diluted earnings per ADS increased 5.2% year over year to $0.49 due to the 4.5% increase in non-GAAP net income and a lower number of outstanding ADSs as a result of share purchases.  

    Full-Year 2014 Financial GuidanceWuXi PharmaTech updates its full-year 2014 financial guidance:

  • Total net revenues of $665-$670 million, compared to previous guidance of $660-$670 million
  • GAAP diluted earnings per ADS of $1.55-$1.59, compared to previous guidance of $1.53-$1.58
  • Non-GAAP diluted earnings per ADS of $1.82-$1.86, compared to previous guidance of $1.80-$1.85
  • Capital expenditures of $95-$100 million, compared to previous guidance of about $85 million, driven primarily by capacity expansion in small-molecule manufacturing and investment in laboratories and technology in genomics, biologics, and biology
  • Third-Quarter 2014 Financial GuidanceWuXi PharmaTech provides the following third-quarter 2014 financial guidance:

  • Total net revenues of $171-$173 million
  • GAAP diluted earnings per ADS of $0.40-$0.42
  • Non-GAAP diluted earnings per ADS of $0.48-$0.50
  •  WUXI PHARMATECH (CAYMAN) INC.UNAUDITED CONSOLIDATED BALANCE SHEETS(in thousands of U.S. dollars, except ordinary share, ADS and par value data)June 30,December 31,2014

    2013Assets:Current assets:Cash and cash equivalents

    156,071

    88,871Restricted cash

    869

    3,145Short-term investments

    217,688

    302,267Accounts receivable, net

    134,311

    126,996Amount due from related parties

    2,374

    1,168Inventories

    41,518

    45,097Prepaid expenses and other current assets

    33,478

    31,436Total current assets586,309

    598,980Non-current assets:Goodwill

    31,084

    31,087Property, plant and equipment, net

    280,329

    279,254Long-term investments

    26,984

    21,781Intangible assets, net

    7,221

    7,128Land use rights

    5,442

    5,604Deferred tax assets

    249

    251Other non-current assets

    4,286

    4,782Total non-current assets355,595

    349,887Total assets941,904

    948,867Liabilities and equity:Current liabilities:Short-term and current portion of long-term debt

    115,642

    67,853Accounts payable

    36,900

    33,477Amount due to related parties

    256

    218Accrued expenses

    25,052

    34,605Deferred revenue

    25,201

    28,149Advanced subsidies

    13,237

    13,958Other taxes payable

    1,860

    107Other current liabilities

    19,678

    15,738Total current liabilities237,826

    194,105Non-current liabilities:Long-term debt, excluding current portion

    11,011

    11,124Advanced subsidies

    2,159

    2,295Other non-current liabilities

    6,924

    6,594Total non-current liabilities20,094

    20,013Total liabilities257,920

    214,118Equity:Ordinary shares ($0.02 par value, 5,002,550,000 authorized,  572,270,834  and 556,025,594 issued and outstanding as of December 31, 2013 and June 30, 2014, respectively) 

    11,121

    11,445Additional paid-in capital

    266,808

    353,173Retained earnings

    350,328

    303,171Accumulated other comprehensive income

    55,727

    66,960Total shareholders' equity683,984

    734,749Total liabilities and equity941,904

    948,867 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 EndedSix Months Ended June 30,June 30,%%2014

    2013Change2014

    2013ChangeNet revenues:Laboratory Services

    119,915

    105,903

    13.2%225,467

    203,384

    10.9%Manufacturing Services

    43,439

    36,424

    19.3%84,604

    70,808

    19.5%Total net revenues163,354

    142,327

    14.8%310,071

    274,192

    13.1%Cost of revenues:Laboratory Services

    (72,137)

    (64,753)

    11.4%(136,486)

    (125,629)

    8.6%Manufacturing Services

    (29,679)

    (25,819)

    15.0%(58,420)

    (49,402)

    18.3%Total cost of revenues(101,816)

    (90,572)

    12.4%(194,906)

    (175,031)

    11.4%Gross profit:Laboratory Services

    47,778

    41,150

    16.1%88,981

    77,755

    14.4%Manufacturing Services

    13,760

    10,605

    29.8%26,184

    21,406

    22.3%Total gross profit61,538

    51,755

    18.9%115,165

    99,161

    16.1%Operating expenses:Selling and marketing expenses

    (5,042)

    (4,443)

    13.5%(9,542)

    (8,374)

    13.9%General and administrative expenses

    (23,662)

    (19,215)

    23.1%(45,000)

    (37,421)

    20.3%Research and development expenses

    (4,831)

    (2,405)

    100.9%(9,209)

    (4,675)

    97.0%Total operating expenses(33,535)

    (26,063)

    28.7%(63,751)

    (50,470)

    26.3%Operating income28,003

    25,692

    9.0%51,414

    48,691

    5.6%Other income (expenses), net:Loss from equity-method investments

    (810)

    (1,401)

    (42.2%)(1,643)

    (1,619)

    1.5%Other income (expenses), net

    4,620

    7,203

    (35.9%)(820)

    10,260

    (108.0%)Interest income (expenses), net

    4,198

    1,997

    110.2%8,749

    3,591

    143.6%Total other income (expenses), net8,008

    7,799

    2.7%6,286

    12,232

    (48.6%)Income before income taxes36,011

    33,491

    7.5%57,700

    60,923

    (5.3%)Income tax expense

    (6,675)

    (3,871)

    72.4%(10,542)

    (9,591)

    9.9%Net income29,336

    29,620

    (1.0%)47,158

    51,332

    (8.1%)Other comprehensive income:Currency translation adjustments

    (5,324)

    7,733

    (168.8%)(11,158)

    9,353

    (219.3%)Unrealized gains on available-for-sale securities

    115

    -

    NA(75)

    -

    NAComprehensive income24,127

    37,353

    (35.4%)35,925

    60,685

    (40.8%)Basic net earnings per ADS0.42

    0.42

    (0.6%)0.66

    0.73

    (8.9%)Diluted net earnings per ADS0.41

    0.41

    (0.4%)0.65

    0.71

    (8.9%)Weighted average ADS outstanding—basic70,671,831

    70,892,623

    (0.3%)71,149,836

    70,571,293

    0.8%Weighted average ADS outstanding—diluted72,073,199

    72,506,783

    (0.6%)72,735,360

    72,151,600

    0.8% 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 EndedSix Months Ended June 30, June 30,2014

    2013%
    Change2014

    2013%
    ChangeGAAP gross profit61,538

    51,755

    18.9%115,165

    99,161

    16.1%GAAP gross margin37.7%

    36.4%37.1%

    36.2%Adjustments:Share-based compensation

    1,621

    1,143

    41.8%2,687

    2,182

    23.1%Amortization of acquired intangible assets

    48

    65

    (26.2%)97

    163

    (40.5%)Non-GAAP gross profit63,207

    52,963

    19.3%117,949

    101,506

    16.2%Non-GAAP gross margin38.7%

    37.2%38.0%

    37.0%GAAP operating income28,003

    25,692

    9.0%51,414

    48,691

    5.6%GAAP operating margin17.1%

    18.1%16.6%

    17.8%Adjustments:Share-based compensation

    5,873

    4,049

    45.0%10,286

    7,649

    34.5%Amortization of acquired intangible assets

    48

    65

    (26.2%)97

    163

    (40.5%)Non-GAAP operating income33,924

    29,806

    13.8%61,797

    56,503

    9.4%Non-GAAP operating margin20.8%

    20.9%19.9%

    20.6%GAAP net income29,336

    29,620

    (1.0%)47,158

    51,332

    (8.1%)GAAP net margin18.0%

    20.8%15.2%

    18.7%Adjustments:Share-based compensation

    5,873

    4,049

    45.0%10,286

    7,649

    34.5%Amortization of acquired intangible assets

    48

    65

    (26.2%)97

    163

    (40.5%)Deferred tax impact related to acquired intangible assets

    (16)

    (21)

    (23.8%)(33)

    (50)

    (34.0%)Non-GAAP net income35,241

    33,713

    4.5%57,508

    59,094

    (2.7%)Non-GAAP net margin21.6%

    23.7%18.5%

    21.6%Income attributable to holders of ADS (Non-GAAP):Basic35,241

    33,713

    4.5%57,508

    59,094

    (2.7%)Diluted35,241

    33,713

    4.5%57,508

    59,094

    (2.7%)Basic earnings per ADS (Non-GAAP)0.50

    0.48

    4.9%0.81

    0.84

    (3.5%)Diluted earnings per ADS (Non-GAAP)0.49

    0.46

    5.2%0.79

    0.82

    (3.5%)Weighted average ADS outstanding8211; basic (Non-GAAP)70,671,831

    70,892,623

    (0.3%)71,149,836

    70,571,293

    0.8%Weighted average ADS outstanding  – diluted (Non-GAAP)72,073,199

    72,506,783

    (0.6%)72,735,360

    72,151,600

    0.8% WUXI PHARMATECH (CAYMAN) INC.REVENUE BREAKDOWN(in thousands of U.S. dollars)Three Months EndedSix Months Ended June 30, June 30,2014

    2013% Change2014

    2013% ChangeNet revenues:China-based Laboratory Services

    95,243

    83,399

    14.2%177,359

    157,844

    12.4%China-based Manufacturing Services

    43,439

    36,424

    19.3%84,604

    70,808

    19.5%Subtotal138,682

    119,823

    15.7%261,963

    228,652

    14.6%U.S.-based Laboratory Services

    24,672

    22,504

    9.6%48,108

    45,540

    5.6%Total net revenues163,354

    142,327

    14.8%310,071

    274,192

    13.1% 

    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 August 14, 2014, to discuss its second-quarter 2014 financial results and future prospects.  The conference call may be accessed by calling:

    China

    4001 200 539Hong Kong

    800 905 927Singapore

    800 616 3222United Kingdom

    0800 015 9725United States

    1855 298 3404United States—New York (toll)

    +1 631 5142 526Other countries (toll)

    +65 6823 2299Conference ID

    7388753A telephone replay will be available two hours after the call's completion at:

    China

    4001 842 240Hong Kong

    800 966 697Singapore

    800 616 2127United Kingdom

    0800 169 7301United States

    1866 846 0868Conference ID

    7388753A 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.

    Forward-Looking StatementsThis press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are not historical facts, but instead are predictions about future events.  Examples of forward-looking statements in this press release include statements about our third-quarter and full-year 2014 guidance and our goal of building an open-access technology platform.  Although we believe that our predictions are reasonable, future events are inherently uncertain, and our forward-looking statements may turn out to be incorrect.  Our forward-looking statements are subject to risks relating to, among other things, our ability to control our costs and sustain revenue growth, to realize the anticipated benefits of our investments, to protect our clients' intellectual property, to compete effectively, and to complete the expansion of our manufacturing facilities in Changzhou.  Additional information about these and other relevant risks can be found in our Annual Report on Form 20-F for the year ended December 31, 2013.  The forward-looking statements in this press release speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements except as required by law.

    Use of Non-GAAP Financial Measures  We have provided the second-quarter and six-month 2013 and 2014 gross profit, gross margin, operating income, operating margin, net income, net margin, and diluted earnings per ADS, and estimated third-quarter and full-year 2014 diluted earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses and the amortization and deferred tax impact of acquired intangible assets.  The non-GAAP financial measures used in this press release are useful for understanding and assessing underlying business performance and operating trends, and we believe that 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.  We expect to continue to provide such non-GAAP financial measures on a quarterly basis using a consistent method.  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.

    Statement Regarding Unaudited Financial InformationThe financial information in this press release is unaudited and subject to adjustments. Adjustments to the financial statements may be identified when our annual financial statements are prepared and audit work is performed for the year-end audit, which could result in significant differences from this unaudited financial information.

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

    Aaron Shi (for the media)
    Associate Director of Corporate Communications
    Tel:
    +86-21-5046-4362
    Email: aaron_shi@wuxiapptec.com


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