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WuXi PharmaTech Announces Second-Quarter 2010 Results

2010-08-02 10:27 1678

SHANGHAI, Aug. 2 /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 its second quarter ending June 30, 2010.

(Logo: http://www.prnasia.com/sa/2009/04/01/200904011147.jpg )

Highlights

-- Second-Quarter 2010 Net Revenues Increased 21% Year Over Year to $81.0

Million

-- Laboratory Services Net Revenues Grew 18% Year Over Year to $72.6

Million

-- China-Based Laboratory Services Net Revenues Increased 18% Year Over

Year to $52.7 Million

-- U.S.-Based Laboratory Services Net Revenues Increased 19% Year Over

Year to $19.9 Million

-- Manufacturing Services Net Revenues Grew 55% Year Over Year to $8.4

Million

-- GAAP Diluted Earnings Per ADS Declined 8% Year Over Year to 18 Cents,

Reflecting Non-Recurring Deal Costs Associated With the WuXi - Charles

River Merger of 4 Cents Per Share

-- Non-GAAP Diluted Earnings Per ADS Increased 10% Year Over Year to 27

Cents

-- Company Increases Full-Year 2010 Guidance for Operating Income to 15-

20% Growth, Reconfirms Remaining Full-Year 2010 Guidance

Management Comment

"WuXi had a strong second quarter, with results in line with, or at the upper end of ranges for, results provided in our announcement on July 15, 2010," said Dr. Ge Li. "We achieved 21% year-over-year revenue growth. That revenue growth was broad-based, with each of our businesses contributing at least 18% year-over-year revenue growth. Gross margin and operating margin were also strong. We met or exceeded our projections for second-quarter 2010 performance. We are increasing our guidance for operating income for full-year 2010 and reconfirming the remainder of the increased full-year 2010 financial guidance that we announced on July 15.

"On July 29, WuXi announced that we and Charles River Laboratories would not proceed with our planned combination due to insufficient support among Charles River shareholders," Dr. Li continued. "We received a breakup fee of $30 million, which we will record in the third quarter and which more than offsets our transaction-related expenses. This outcome will have no effect on our strategy or operations, and we remain committed to our goal of building a broad, integrated platform of R&D services. This platform will help our customers to improve the success of discovery and shorten the development time of new products to meet unmet patient needs. This open-access service platform will allow customers to use the entire portfolio of our services or any portion of it.

"WuXi is achieving strong current financial performance while making the investments to continuously build capabilities and capacities in our core Laboratory Services business and our new large-scale manufacturing and toxicology businesses. With a sound strategy, market-leading position, and talented people, our future remains bright," Dr. Li concluded.

GAAP Results

Second-quarter 2010 net revenues increased 21% year over year to $81.0 million due to 18% growth in Laboratory Services net revenues and 55% growth in Manufacturing Services net revenues. Revenue growth in Laboratory Services was strong in both discovery chemistry and downstream services and in both China and the United States. Revenue growth in Manufacturing Services was driven by increasing demand for clinical-trial supplies.

Second-quarter 2010 GAAP gross profit increased 23% year over year to $33.2 million due to strong contributions from both Laboratory Services and Manufacturing Services, driven by revenue growth and gross-margin improvement in both segments. Second-quarter 2010 GAAP gross margin improved year over year due to improved project mix in both Laboratory Services and Manufacturing Services and benefits of Lean Six Sigma programs undertaken in the United States. This gross margin improvement occurred in spite of a larger contribution from the relatively lower-margin Manufacturing Services business and increased expenses related to the ramp-up of the Suzhou toxicology facility.

Second-quarter 2010 GAAP operating income grew 18% year over year to $16.1 million, driven by the 23% increase in gross profit and lower operating expenses driven by cost control, offset by $2.9 million of non-recurring deal costs relating to the previously proposed combination with Charles River Laboratories, mostly third-party professional service fees.

Second-quarter 2010 GAAP net income declined 6% year over year to $13.8 million due to an unfavorable change in other income (expenses) net and higher taxes, offset by the 18% increase in operating income, which was impacted by $2.9 million of non-recurring deal costs relating to the previously proposed combination with Charles River Laboratories. In second-quarter 2009, other income (expenses) net included gains from settlement of escrow shares of $1.7 million associated with the AppTec acquisition. The year-over-year increase in tax expense was mainly driven by higher 2010 China statutory tax rates compared to 2009 as a result of the income tax transitional phase-out rules in China.

Second-quarter 2010 GAAP diluted earnings per ADS decreased 8% to 18 cents, mainly due to the 6% decrease in net income. Non-recurring deal costs associated with the terminated WuXi - Charles River merger had an impact of 4

cents per share.

Non-GAAP Results

Non-GAAP financial results excluded the impact of share-based compensation expenses, amortization of acquired intangible assets and the associated deferred tax impact, and non-recurring deal costs relating to the previously proposed combination with Charles River Laboratories.

Second-quarter 2010 non-GAAP gross profit increased 23% year over year to $35.0 million, due to strong contributions from both Laboratory Services and Manufacturing Services, driven by revenue growth and gross-margin improvement in both segments. Second-quarter 2010 non-GAAP gross margin improved year over year due to improved project mix in both Laboratory Services and Manufacturing Services and benefits of Lean Six Sigma programs undertaken in the United States. This gross margin improvement occurred in spite of a larger contribution from the relatively lower-margin Manufacturing Services business and increased expenses related to the ramp-up of the Suzhou toxicology facility.

Second-quarter 2010 non-GAAP operating income increased 32% year over year to $22.5 million, driven by the 23% increase in gross profit and lower operating expenses driven by cost control.

Second-quarter 2010 non-GAAP net income grew 12% year over year to $19.9 million due to the 32% increase in operating income, offset by an unfavorable change in other income (expenses) net and higher taxes. In second-quarter 2009, other income (expenses) net in second-quarter 2009 included gains from settlement of escrow shares of $1.7 million associated with the AppTec acquisition. The year-over-year increase in tax expense was mainly driven by higher 2010 China statutory tax rates compared to 2009 as a result of the income tax transitional phase-out rules in China.

Second-quarter 2010 non-GAAP diluted earnings per ADS increased 10% to 27 cents, mainly due to the 12% increase in net income.

2010 Financial Guidance

The Company is pleased to increase its guidance for full-year 2010 operating income and to reconfirm the rest of its previous financial guidance for 2010 provided on July 15, 2010. All comparative comments refer to year-over-year comparisons. The Company's current guidance for 2010 is as follows:

-- Total net revenues of $320-325 million, which represents 19-20% growth

-- Growth in net revenues of China-based Laboratory Services of 16-18%

-- Double-digit growth in net revenues of U.S.-based Laboratory Services

-- Growth of net revenues of Manufacturing Services of at least 70%

-- A decline in GAAP and non-GAAP gross margins of two to three percentage

points

-- Growth in non-GAAP operating income of 15-20%, compared to 10-15% in

previous guidance

-- Capital expenditures of about $50 million

-- Effective tax rate of 13-15%, excluding one-time transaction costs

The Company provides the following guidance for third-quarter 2010 performance:

-- Total net revenues of $78-$80 million

-- Net revenues of China-based Laboratory Services of $55-$56 million,

representing 15-17% growth

-- A decline in gross margin as expected and in line with our full-year

financial guidance

"Strong trends toward greater outsourcing and offshoring of pharmaceutical R&D services will continue for years," Dr. Li concluded. "As the leading China-based CRO, WuXi is well positioned to benefit from these trends. WuXi has excellent prospects to sustain strong revenue and income growth for many years to come."

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

2010 31, 2009

Assets:

Current assets:

Cash and cash equivalents 79,122 80,510

Restricted cash 1,481 1,358

Short-term investment 22,170 22,083

Accounts receivable, net 57,712 45,817

Inventories 11,281 14,276

Prepaid expenses and other current assets 9,892 10,125

Total current assets 181,658 174,169

Non-current assets:

Goodwill 23,956 23,956

Property, plant and equipment, net 189,366 181,830

Intangible assets, net 5,286 6,634

Prepaid land use rights 5,278 5,308

Deferred tax assets 9,767 9,514

Other non-current assets 5,028 5,890

Total non-current assets 238,681 233,132

Total assets 420,339 407,301

Liabilities and Equity:

Current liabilities:

Short-term and current portion of long-term

debt 10,257 34,415

Accounts payable 13,497 14,356

Accrued expenses 16,893 17,072

Deferred revenue 6,509 4,554

Advanced subsidies 2,241 2,800

Other taxes payable 2,114 2,901

Other current liabilities 6,423 4,239

Liabilities of discontinued operations (Note

1) -- --

Total current liabilities 57,934 80,337

Non-current liabilities:

Long-term debt, excluding current portion 1,985 2,115

Advanced subsidies 1,283 1,420

Convertible notes 35,864 35,864

Other non-current liabilities 6,628 7,432

Total non-current liabilities 45,760 46,831

Total liabilities 103,694 127,168

Equity:

Ordinary shares ($0.02 par value,

5,002,550,000 authorized, 556,144,592 and 11,123 11,012

550,609,256 issued and outstanding as of June

30, 2010, and December 31, 2009, respectively)

Additional paid-in capital 326,247 320,672

Accumulated deficit (39,355) (68,631)

Accumulated other comprehensive income 18,630 17,080

Total equity 316,645 280,133

Total liabilities and equity 420,339 407,301

WUXI 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 Six Months Ended

June 30, June 30,

% %

2010 2009 Change 2010 2009 Change

Net revenues:

Laboratory Services 72,581 61,489 18% 139,579 118,084 18%

Manufacturing Services 8,456 5,464 55% 22,060 8,017 175%

Total net revenues 81,037 66,953 21% 161,639 126,101 28%

Cost of revenues:

Laboratory Services (41,171) (35,204) 17% (80,456) (69,059) 17%

Manufacturing Services (6,659) (4,670) 43% (17,558) (6,643) 164%

Total cost of revenues (47,830) (39,874) 20% (98,014) (75,702) 29%

Gross profit:

Laboratory Services 31,410 26,285 19% 59,123 49,025 21%

Manufacturing Services 1,797 795 126% 4,502 1,374 228%

Total gross profit 33,207 27,080 23% 63,625 50,399 26%

Operating expenses:

Selling and marketing

expenses (2,333) (2,413) (3%) (4,615) (3,747) 23%

General and

administrative expenses (14,785) (11,031) 34% (25,485) (22,741) 12%

Total operating

expenses (17,118) (13,444) 27% (30,100) (26,488) 14%

Operating income 16,089 13,636 18% 33,525 23,911 40%

Other income

(expenses), net:

Other income

(expenses), net 433 2,975 (85%) 616 6,368 (90%)

Interest income

(expenses), net 159 144 11% 257 94 173%

Total other income

(expenses), net 592 3,119 (81%) 873 6,462 (86%)

Income before income

taxes 16,681 16,755 0% 34,398 30,373 13%

Income tax (expenses)

benefit (2,923) (2,069) (41%) (5,122) (3,952) 30%

Net income 13,758 14,686 (6%) 29,276 26,421 11%

Basic net earnings per

ADS: 0.20 0.22 (8%) 0.42 0.39 8%

Diluted net earnings

per ADS: 0.18 0.20 (8%) 0.39 0.36 9%

Weighted average ADS

outstanding-basic 69,416,476 67,944,436 69,246,669 67,469,104

Weighted average ADS

outstanding-diluted 74,591,847 73,152,798 74,465,668 73,356,170

* Not meaningful

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 Six Months Ended

June 30, June 30,

2010 2009 % 2010 2009 %

GAAP gross profit 33,207 27,080 23% 63,625 50,399 26%

GAAP gross margin 41% 40% 39% 40%

Adjustments:

Share-based compensation 997 562 1,885 1,153

Amortization of acquired

intangible assets 764 764 1,528 1,528

Non-GAAP gross profit 34,968 28,406 23% 67,038 53,080 26%

Non-GAAP gross margin 43% 42% 41% 42%

GAAP operating income 16,089 13,636 18% 33,525 23,911 40%

GAAP operating margin 20% 20% 21% 19%

Adjustments:

Share-based compensation 2,748 2,659 5,069 4,658

Amortization of acquired

intangible assets 764 764 1,528 1,528

Non-recurring deal cost 2,933 -- * 2,933

Non-GAAP operating income 22,534 17,059 32% 43,055 30,097 43%

Non-GAAP operating margin 28% 25% 27% 24%

GAAP net income 13,758 14,686 (6%) 29,276 26,421 11%

GAAP net margin 17% 22% 18% 21%

Adjustments:

Share-based compensation 2,748 2,659 5,069 4,658

Amortization of acquired

Intangible assets 764 764 1,528 1,528

Deferred tax impact related

to acquired intangible assets (296) (296) (592) (592)

Non-recurring deal costs 2,933 -- * 2,933 -- *

Non-GAAP net income 19,907 17,813 12% 38,214 32,015 19%

Non-GAAP net margin 25% 27% 24% 25%

GAAP net income 13,758 14,686 (6%) 29,276 26,421 11%

Add back:

Depreciation and

amortization 6,851 5,620 22% 13,230 10,627 24%

Interest (income) expenses,

net (159) (144) 11% (257) (94) 173%

Income tax expenses 2,923 2,069 41% 5,122 3,952 30%

EBITDA 23,373 22,231 5% 47,371 40,906 16%

Adjustments:

Share-based compensation 2,748 2,659 3% 5,069 4,658 9%

Mark-to-market gains

(losses) from

foreign-currency forward

contracts (200) 401 * 416 (2,219) *

Non-recurring deal costs 2,933 -- * 2,933 *

Impairment charge from

discontinued operations -- -- -- -- *

Adjusted EBITDA 28,854 25,291 14% 55,789 43,345 29%

Income attributable to

holders of ADS (Non-GAAP):

Basic 19,907 17,813 12% 38,214 32,015 19%

Diluted 19,907 17,813 12% 38,214 32,015 19%

Basic earnings per ADS

(Non-GAAP) 0.29 0.26 9% 0.55 0.47 16%

Diluted earnings per ADS

(Non-GAAP) 0.27 0.24 10% 0.51 0.44 18%

Weighted average ADS

outstanding - basic 69,416,476 67,944,436 69,246,669 67,469,104

Weighted average ADS

outstanding - diluted 74,591,847 73,152,798 74,465,668 73,356,170

* Not meaningful

WUXI PHARMATECH (CAYMAN) INC.

REVENUE BREAKDOWN

(in thousands of U.S. dollars)

Three Months Ended Six Months Ended

June 30, June 30,

2010 2009 % 2010 2009 %

Net revenues:

China-based Laboratory

Services 52,673 44,810 18% 102,645 86,458 19%

U.S.-based Laboratory

Services 19,908 16,679 19% 36,934 31,626 17%

Subtotal 72,581 61,489 18% 139,579 118,084 18%

China-based Manufacturing

Services 8,456 5,464 55% 22,060 8,017 175%

Total net revenues 81,037 66,953 21% 161,639 126,101 28%

Conference Call

WuXi will hold a conference call at 10:00 am EDT to discuss the results and the outlook for WuXi's business. The conference call may be accessed by calling:

United States: 1-866-519-4004

China (Landline): 800-819-0121

China (Mobile): 400-620-8038

Hong Kong: 800-930-346

United Kingdom: 0-808-234-6646

International: +65-6723-9381

Conference ID: 90840146

Web PIN: 8656

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

United States: 1-866-214-5335

China North: 10-800-714-0386

China South: 10-800-140-0386

Hong Kong: 800-901-596

United Kingdom: 0-800-731-7846

International: +61-2-8235-5000

Passcode: 90840146

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 second-quarter 2009 and 2010 gross profit, gross margin, operating income, operating margin, and earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses, amortization of acquired intangible assets and associated deferred tax impact, and non-recurring deal costs relating to the previously proposed combination with Charles River Laboratories. 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 providing gross profit, operating income, and diluted 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.

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. These forward-looking statements, including those with respect to our financial guidance for third-quarter 2010 and full-year 2010 and prospects generally, anticipated customer benefits of our integrated R&D platform, expected strong performance of all our businesses and industry trends favoring outsourcing and offshoring R&D, 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, potential customer, employee and management distraction following the termination of our proposed combination with Charles River Laboratories, continued uncertainty in the global economy, 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; 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 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; 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; our ability to retain our existing customers or expand our customer base; and future regulatory or legislative actions. 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 2009 Annual Report on Form 20-F filed with and available on the Securities and Exchange Commission's website at http://www.sec.gov. 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: +1-201-585-2048

Email: ir@wuxiapptec.com

Stephanie Liu (for the media)

WuXi PharmaTech (Cayman) Inc.

Tel: +86-21-5046-4362

Email: pr@wuxiapptec.com

Source: WuXi PharmaTech (Cayman) Inc.
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