WuXi PharmaTech Announces Third-Quarter 2011 Results

SHANGHAI, November 11, 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 the third quarter of 2011.

Highlights

• Third-Quarter 2011 Net Revenues Increased 24.0% Year Over Year to $104.0 Million
• Manufacturing Services Net Revenues Grew 183.8% Year Over Year to $20.1 Million
• Laboratory Services Net Revenues Grew 9.2% Year Over Year to $83.9 Million
• China-Based Laboratory Services Net Revenues Increased 10.7% Year Over Year to $63.2 Million
• GAAP Operating Income Increased 15.8% Year Over Year to $22.2 Million
• Non-GAAP Operating Income Increased 10.1% Year Over Year to $24.9 Million
• GAAP Diluted Earnings Per ADS Declined 53.8% Year Over Year to 27 Cents Due to Inclusion in the Prior-Year Results of a Termination Fee Relating to the Proposed Transaction with Charles River Laboratories and an Increase in the Effective Tax Rate
• Non-GAAP Diluted Earnings Per ADS Increased 2.6% Year Over Year to 31 Cents Due to an Increase in the Effective Tax Rate
• WuXi Refines Its Full-Year 2011 Guidance
• Board Member Jeff Leng Elected to Audit Committee

Management Comment

"WuXi achieved another solid quarter, driven by particularly strong revenue performances in Manufacturing Services, integrated medicinal chemistry, DMPK/ADME, toxicology, formulation, and analytical and bioanalytical services," said Dr. Ge Li, Chairman and Chief Executive Officer. "We exceeded our revenue guidance and met our operating-margin guidance for the quarter. We are on track to achieve full-year 2011 revenues of $402 to $406 million, GAAP operating margin of about 21%, and non-GAAP operating margin of about 24%.

"Global R&D outsourcing to China continues to increase going into 2012," Dr. Li continued. "WuXi is well positioned to benefit from this outsourcing trend by offering our customers an integrated R&D services platform for cost-effective drug discovery and development.

"WuXi is building an alternative R&D engine for the life-sciences industry. This engine represents an integrated technology platform and service offerings that will enable anyone and any company to discover and develop medicines. China is rapidly becoming an important hub for pharmaceutical R&D, in part because of the rapid growth of the large Chinese pharmaceutical market itself. WuXi is positioned to continue to lead the Chinese life-sciences industry by building capabilities and capacities to serve our customers better.

"Our two recent acquisitions to expand our capabilities are examples of this strategy. The Abgent acquisition brings to WuXi biological research reagents for drug discovery and basic research. These product lines expand our service offering to our existing customers and to new customers in the life-sciences research community and tap into the rapidly growing Chinese life-sciences research market. The MedKey acquisition is an essential step in completing WuXi's broad, integrated platform of pharmaceutical R&D services, with integrated capabilities ranging from molecule synthesis to testing in humans. MedKey provides WuXi with an existing China-based clinical development service capability and infrastructure, giving WuXi access into this important market segment faster than we could accomplish on our own.

"WuXi has also formed a corporate venture fund, capitalized at up to $50 million. This fund will invest in technologies and life-sciences companies to enhance our platform capabilities and to help great minds realize the potential of their technologies and intellectual property. Through the fund's investments, WuXi expects to benefit from appreciation in value of the companies invested in and from access to these technologies and collaborations, including new revenue-generating opportunities."

Dr. Li concluded, "I am pleased to announce that on November 8, the Board of Directors of WuXi PharmaTech elected board member Jeff Leng to the Audit Committee."

GAAP Results

Third-quarter 2011 net revenues increased 24.0% year over year to $104.0 million mainly due to 183.8% growth in Manufacturing Services net revenues and 10.7% growth in China-based Laboratory Services revenues. Manufacturing Services revenue growth was driven by our large-scale commercial manufacturing business, as well as the robust demand for clinical-trial materials from our research manufacturing business. Revenue growth in China-based Laboratory Services was driven by our comprehensive and integrated discovery and development services, with particularly strong growth in medicinal chemistry, DMPK/ADME, formulation, toxicology, and analytical and bioanalytical services.

Third-quarter 2011 GAAP gross profit increased 36.0% year over year to $40.6 million due to 24.0% revenue growth and gross-margin improvement. Third-quarter 2011 GAAP gross margin increased year over year to 39.0% from 35.6%. Gross margin in Manufacturing Services improved year over year to 30.7% from 17.2% due to strong revenue growth and increasing capacity utilization in our large-scale manufacturing facilities. Gross margin in Laboratory Services increased year over year to 41.0% from 37.3% due to factors in both 2010 and 2011. In 2010, we recorded a non-recurring employee retention award of $3.1 million in cost of revenues. Offsetting this favorable year-over-year effect, in 2011 we experienced higher labor costs in China, 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.

Third-quarter 2011 GAAP operating income grew 15.8% year over year to $22.2 million due to the 36.0% increase in gross profit, offset by expenses relating to the hiring of new senior staff and sales and marketing personnel, RMB appreciation, and developing our biology research capabilities. Operating expenses in the third quarter of 2010 had a favorable net impact of $2.4 million associated with the proposed transaction with Charles River Laboratories.

Third-quarter 2011 GAAP net income decreased 53.4% year over year to $20.6 million due to a $30 million termination fee relating to the proposed transaction with Charles River Laboratories in the prior-year results and an increase in the effective tax rate due to income mix and higher statutory tax rates for certain Chinese legal entities, offset by the 15.8% increase in operating income and higher interest income from short-term investments.

Third-quarter 2011 GAAP diluted earnings per ADS decreased 53.8% to 27 cents, mainly due to the 53.4% decrease in net income.

Non-GAAP Results

Non-GAAP financial results excluded the impact of share-based compensation expenses and the amortization of acquired intangible assets and the associated deferred tax impact in both the current-year and the prior-year results, and the $30 million termination fee received from Charles River Laboratories related to the proposed transaction, expenses incurred in connection with that transaction, and bonuses paid to all employees after termination of that transaction in the prior-year results.

Third-quarter 2011 non-GAAP gross profit increased 20.9% year over year to $41.8 million due to broad-based revenue growth offset by a decline in non-GAAP gross margin to 40.2% from 41.2%. Non-GAAP 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. This effect was partially offset by improved non-GAAP gross margin in Manufacturing Services due to strong revenue growth and increased capacity utilization in our large-scale manufacturing facilities.

Third-quarter 2011 non-GAAP operating income increased 10.1% year over year to $24.9 million, primarily due to the 20.9% 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 building of our biology research capabilities.

Third-quarter 2011 non-GAAP net income grew 3.5% year over year to $23.2 million due to the 10.1% increase in non-GAAP operating income and higher interest income from short-term investments, offset by an increase in the effective tax rate due to income mix and higher statutory tax rates for certain Chinese legal entities.

Diluted non-GAAP earnings per ADS grew 2.6% year over year to 31 cents, mainly due to the 3.5% increase in non-GAAP net income, offset by slightly higher share count due to the exercise of stock options and restricted stock.

2011 Financial Guidance

The company updates its full-year 2011 financial guidance:

• Total net revenues of $402-406 million, including about $1.5 million from two months of combined revenue from the newly acquired Abgent and MedKey businesses
• Growth in net revenues of China-based Laboratory Services of 14-15%
• Growth in net revenues of U.S.-based Laboratory Services of about 6%
• Growth in net revenues of Manufacturing Services of at least 84%
• GAAP gross margin approximately equal to that in full-year 2010, and a year-over-year decline in non-GAAP gross margin of about 1.5 percentage points
• GAAP operating margin of about 21% and non-GAAP operating margin of about 24%
• Capital expenditures of $60-65 million
• GAAP effective tax rate of about 18%

Conference Call

WuXi PharmaTech senior management will host a conference call at 8:00 am (U.S. Eastern) / 5:00 am (U.S. Pacific) / 9:00 pm (Beijing/Shanghai/Hong Kong) on Friday, November 11, 2011, to discuss its third-quarter 2011 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 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 third-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, amortization and deferred tax impact of acquired intangible assets, transaction costs and termination fee relating to the terminated transaction with Charles River Laboratories, bonuses paid after the termination of the transaction, and losses from discontinued operations. 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 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, our financial guidance for third-quarter and full-year 2011 (including, as applicable, estimated total net revenues, China-based Laboratory Services net revenues, U.S.-based Laboratory Services net revenues, Manufacturing Services net revenues, gross margins, operating margins, capital expenditures, effective tax rates, and other trends), an increased trend towards outsourced and offshored R&D, our ability to benefit from this trend and our related efforts to be the industry's alternative R&D engine to discover and develop new drugs for both the global and Chinese markets and the anticipated benefits of the Abgent and MedKey acquisitions and other planned investments and capital expenditures (including investments through WuXi's corporate venture fund).

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 the planned 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; 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 third-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: +1-201-585-2048
Email: ir@wuxiapptec.com

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

Web site: http://www.wuxiapptec.com/