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"During the second quarter of 2007, we experienced strong revenue andearnings growth compared to the same period last year," said Dr. Ge Li,Chairman and Chief Executive Officer of WuXi PharmaTech. "We achieved solidgrowth throughout our business divisions, with revenue from laboratoryservices up 102.1% and revenue from research manufacturing up 86.8%. In thesecond quarter of 2007, laboratory services remained the major revenuecontributor, accounting for 83.1% of our total net revenues, with researchmanufacturing accounting for the remainder. Our strong revenue growth wasdriven by the robust demand for drug R&D outsourcing services that we provide,and was a direct result of our ability to expeditiously deliver qualityresults to customers. As we continue to implement our growth strategy ofbecoming a full service provider of drug R&D outsourcing services, we aremaking steady progress in the expansion of the Jinshan manufacturing facilityand the design of our new preclinical drug safety evaluation center inSuzhou."
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Second Quarter 2007 Unaudited Financial Results
Net Revenues. Net revenues amounted to US$30.2 million in the secondquarter of 2007, compared to US$15.2 million for the second quarter of 2006,representing an increase of 99.3%, primarily attributable to increasedbusiness volume and the expansion of services and capacities. Net revenuesfrom laboratory services increased by 102.1% from US$12.4 million in thesecond quarter of 2006 to US$25.1 million in the second quarter of 2007. Thisincrease was a result of an increased number of projects and expandedlaboratory service offerings. Net revenues from research manufacturingincreased 86.8% over the second quarter of 2006 to US$5.1 million. Researchmanufacturing increased on an annualized basis as the Company has expanded andramped up manufacturing capabilities.
Gross Profit. Gross profit increased 118.0% to US$15.3 million in thesecond quarter of 2007, compared to US$7.0 million in the second quarter of2006. Second quarter 2007 gross profit reflects laboratory services cost ofrevenues of $11.8 million, compared to $5.7 million in the second quarter of2006, and research manufacturing cost of revenues of $3.2 million, compared to$2.4 million in the second quarter of 2006. Overall gross margin was 50.5% inthe second quarter of 2007, up from 46.2% in the second quarter of 2006. Theincrease was primarily due to the improvement in our research manufacturinggross margins of 37.7% in the second quarter of 2007, compared to 11.2% in thesame period of 2006, as at that time we had expanded our manufacturingcapacity but had not yet ramped up production.
Operating Expenses. Operating expenses, consisting of selling andmarketing expenses and general and administrative expenses, increased by 41.6%from US$5.5 million in the second quarter of 2006 to US$7.8 million in thesecond quarter of 2007. This increase was primarily due to business expansion.Operating expenses as a percentage of total net revenues decreased from 36.2%in the second quarter of 2006 to 25.7% in the second quarter of 2007.
Share-Based Compensation Expenses. The Company's share-based compensationexpenses, which were allocated to related expense line items, decreased inaggregate by US$1.7 million in the second quarter of 2007 from the secondquarter of 2006.
Net Income. Net income increased by 482.1% from US$1.2 million for thesecond quarter of 2006 to US$7.1 million for the second quarter of 2007. Netincome excluding share-based compensation expenses (non-GAAP) for the secondquarter of 2007 was US$8.6 milli
