WuXi PharmaTech Announces Second-Quarter 2009 Results
"WuXi PharmaTech's overall financial performance in the second quarterexceeded our expectations, both in revenues and profitability, buildingconfidence that we will meet our previously announced guidance for revenuesand beat our previously announced guidance for adjusted EBITDA for the fullyear," said Dr. Ge Li, Chairman and Chief Executive Officer. "The company isachieving its current financial goals in a difficult operating environmentwhile investing in new growth opportunities that we expect will drive revenueand income growth over the next several years.
"Our current success reflects our sound business model and expandingcapabilities. Our core capabilities in discovery chemistry continue todeliver a large portion of our revenues and revenue growth. In recent years,we have been building new capabilities in discovery biology, DMPK/ADME,formulation, toxicology, bioanalytical services, process research, analyticaldevelopment services, and other areas. These newer services have becomeincreasingly significant revenue growth drivers as we offer an integratedplatform of services. We have also expanded our services beyond developmentof small-molecule pharmaceuticals to include testing services for biologicsand medical-device products.
"In our short history, WuXi PharmaTech has grown to become a leadingcontract research organization providing integrated R&D services to the globallife science industries. Our mission as a company is to partner with theworld's leading life science and medical device companies to help them improvethe success of research and shorten the time of development," Dr. Li concluded.
Second-quarter 2009 net revenues decreased 3% year over year to $67.0million due to a 69% decline in Manufacturing Services net revenues, offset by19% growth in Laboratory Services net revenues. Manufacturing Services netrevenues are inherently variable due to fluctuating demand and customerdelivery schedules, and the majority of the year-over-year decline inManufacturing Services net revenues came from large projects in 2008 that didnot recur in 2009. In addition, Manufacturing Services net revenues insecond-quarter 2009 were impacted by project mix that included moreearly-stage projects. Laboratory Services net revenues in second-quarter 2009benefited from stronger demand for our integrated drug discovery anddevelopment services, particularly in DMPK/ADME, bioanalytical services,discovery biology, process research, analytical development services,formulation development, and our core discovery chemistry services.
Second-quarter 2009 GAAP gross profit increased 7% year over year to $27.1million, mainly due to an increased contribution from Laboratory Services,driven by both revenue growth and gross-margin improvement, offset by adecline in the gross-profit contribution of Manufacturing Services from lowerrevenues and lower gross margin. Second-quarter 2009 GAAP gross marginimproved year over year to 40% from 37%, mainly due to lower amortizationexpenses for acquired intangible assets as a result of a lower balance forthese assets following impairment charges taken in fourth-quarter 2008. Grossmargin from Laboratory Services improved year over year to 43% from 38%, alsomainly due to lower intangible amortization. Partially offsetting thisbenefit, gross margin declined year over year in Manufacturing Services to 15%from 32% due primarily to unfavorable project mix and inventory write-downs.
Second-quarter 2009 GAAP operating income increased 22% year over year to$13.6 million due to the 7% increase in gross profit and a 5% decline inoperating expenses. Second-quarter 2009 GAAP operating expenses declined 5%year over year to $13.4 million due to a 10% decline in general andadministrative expenses resulting from cost control and improved operatingefficiency, partially offset by a 29% increase in selling and marketingexpenses resulting from expanded business development efforts.
Second-quarter 2009 GAAP net income from continuing operations increased37% year over year to $14.7 million due to the 22% increase in operatingincome and a favorable change in other income (expenses) net, offset by highertax expense. Other income (expenses) net in second-quarter 2009 includedgains from foreign-exchange forward contracts of $0.3 million, compared tolosses of $1.4 million on such contracts in second-quarter 2008. Taxes insecond-quarter 2009 were $2.1 million, or 12% of pretax income. In theprior-year period, a larger tax benefit was recorded mainly due to thedeferred tax impact from amortization of acquired intangible assets.
Second-quarter 2009 GAAP net income grew 72% year over year due to the 37%increase in net income from continuing operations and no losses fromdiscontinued operations. Second-quarter 2008 GAAP net income included a lossfrom discontinued operations related to the biologics manufacturing business.There was no impact from discontinued operations in second-quarter 2009, asthese operations had ceased. Second-quarter 2009 GAAP diluted earnings perADS grew 72% year over year to 20 cents, compared to 12 cents insecond-quarter 2008.
Non-GAAP financial results excluded the impact of share-based compensationexpenses, amortization and the deferred tax impact of acquired intangibleassets, and losses from discontinued operations.
Second-quarter 2009 non-GAAP gross profit decreased 6% year over year to$28.4 million, mainly due to a decline in the gross-profit contribution fromManufacturing Services due to lower revenues and lower gross margins,partially offset by the favorable impact of higher gross profit in theLaboratory Services business. Second-quarter 2009 non-GAAP gross margindeclined year over year to 42% from 44% due to lower gross margin in theManufacturing Services business from unfavorable project mix and inventorywrite-downs.
Second-quarter 2009 non-GAAP operating income declined 9% year over yearto $17.1 million primarily due to the decline in non-GAAP gross profit.Operating expenses were essentially flat compared to the same period of 2008.
Second-quarter 2009 non-GAAP net income grew 7% year over year to $17.8million due to a favorable change in other income (expenses) net, which morethan offset the 9% decrease in non-GAAP operating income and higher taxes.Changes in other income (expenses) net and taxes are discussed above for GAAPresults. Diluted non-GAAP earnings per ADS from continuing operations grew 7%year over year to 24 cents compared to 23 cents in second-quarter 2008.
Commenting on financial performance and guidance, Edward Hu, ChiefOperating Officer and acting Chief Financial Officer, said, "Oursecond-quarter 2009 financial results exceeded our expectations and give usreason to reconfirm our full-year 2009 revenue guidance and increase ourfull-year 2009 adjusted EBITDA estimate to $80-$85 million. Second-quarter2009 net revenues grew 13% versus first-quarter 2009. Laboratory Services netrevenue growth of 19% year-over-year reflected growing demand for our platformof integrated services. As anticipated, Manufacturing Services net revenueswere still light in the second quarter due to project delays and project mix,and we expect revenues in this business for this year to be in the range of$20-$30 million, depending on delivery schedules. As previously discussed, weexpect total gross margin will decline in second-half 2009 as we increasehiring and continue investments."
WuXi PharmaTech senior management will host a conference call at 8:00 am(Eastern) / 5:00 am (Pacific) / 8:00 pm (Beijing/Shanghai/Hong Kong) onWednesday, August 12, 2009, to discuss its second-quarter 2009 financialresults and future prospects. The conference call may be accessed by calling:
A telephone replay will be available two hours after the call's completionat:
A live webcast of the conference call and replay will be available on theinvestor relations page of WuXi PharmaTech's website athttp://www.wuxiapptec.com
About WuXi PharmaTech
WuXi PharmaTech is a leading pharmaceutical, biotechnology, and medicaldevice R&D outsourcing company, with operations in China and the United States.As a research-driven and customer-focused company, WuXi PharmaTech providesbroad and integrated portfolio of laboratory and manufacturing servicesthroughout the drug and medical device R&D process. WuXi PharmaTech'sservices are designed to assist its global partners in shortening the cycleand lowering the cost of drug and medical device R&D. WuXi PharmaTech'soperating subsidiaries are known as WuXi AppTec. For more information, pleasevisit: http://www.wuxiapptec.com.
Use of Non-GAAP Financial Measures
We have provided three-month and six-month 2008 and 2009 gross profit,operating income, net income and earnings per ADS on a non-GAAP basis, whichexcludes share-based compensation expenses, amortization and deferred taximpact of acquired intangible assets, and discontinued operations. We alsoprovided three-month and six-month 2008 and 2009 adjusted EBITDA, which is theGAAP net income adjusted by adding back depreciation and amortization,interest, income taxes, share-based compensation and mark-to-market gains(losses) from foreign-currency forward contracts. We believe both managementand investors benefit from referring to these non-GAAP measures in assessingour financial performance and liquidity and when planning and forecastingfuture periods. These non-GAAP operating measures are useful forunderstanding and assessing underlying business performance and operatingtrends. We expect to continue providing gross profit, operating income, andnet income 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 asubstitute for results under GAAP, or as being comparable to results reportedor forecasted by other companies, and should refer to the reconciliation ofnon-GAAP measures to GAAP measures for the indicated periods attached hereto.
Cautionary Note Regarding Forward-Looking Statements
Statements in this release contain "forward-looking" statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended, and as defined in thePrivate Securities Litigation Reform Act of 1995, including, among others,anticipated full-year, second-half, and third-quarter 2009 operating results(including estimated total net revenues, China-based Laboratory Services netrevenues, Manufacturing Services net revenues, adjusted EBITDA, gross margins,and other trends), planned capital expenditure and investment levels, and theanticipated benefits of those efforts and the planned expansion of our serviceofferings and areas of related revenue growth.
These forward-looking statements are not historical facts but insteadrepresent only our belief regarding future events, many of which, by theirnature, are inherently uncertain and outside of our control. Our actualresults and financial condition and other circumstances may differ, possiblymaterially, from the anticipated results and financial condition indicated inthese forward-looking statements. Among other factors, continued uncertaintyin the global economy and the pressures being felt by our customers andpharmaceutical industry consolidation may adversely impact our business andthe trends for outsourced R&D and manufacturing for longer than expected ormore severely than expected; we may be unable to successfully make our plannedinvestments and capital expenditures on a timely basis; these investments maynot yield the desired results; we may need to modify the nature and level ofour investments and capital expenditures; pharmaceutical companies may notchange their business models as expected or in a manner favorable to us; wemay fail to capitalize on the opportunities presented; we may not maintain ourpreferred provider status with our clients; and we may be unable tosuccessfully expand our capabilities to meet client needs. In addition, otherfactors that could cause our actual results to differ from what we currentlyanticipate include our limited operating history; failure to generatesufficient future cash flows or secure any required future financing onacceptable terms or at all; failure to retain key personnel; effectiveintegration of continuing products and services from AppTec; our reliance on alimited number of customers to continue to account for a high percentage ofour revenues; risk of payment failure by any of our large customers, whichcould significantly harm our cash flows and profitability; dependence upon thecontinued service of our senior management and key scientific personnel; andour ability to retain our existing customers or expand our customer base. Youshould read the financial information contained in this release in conjunctionwith the consolidated and pro-forma financial statements and related notesthereto included in our 2008 Annual Report on Form 20-F filed with andavailable on the Securities and Exchange Commission's website athttp://www.sec.gov. For additional information on these and other importantfactors that could adversely affect our business, financial condition, resultsof operations and prospects, see "Risk Factors" beginning on page 6 of our2008 Annual Report on Form 20-F. Our results of operations for second-quarter2009 are not necessarily indicative of our operating results for any futureperiods. All projections in this release are based on limited informationcurrently available to us, which is subject to change. Although theseprojections and the factors influencing them will likely change, we undertakeno obligation to update or revise these forward-looking statements, whether asa result of new information, future events or otherwise, after the date ofthis press release, except as required by law. Such information speaks onlyas of the date of this release.(Logo: http://www.newscom.com/cgi-bin/prnh/20040705/CNM002LOGO ) Second-Quarter 2009 Highlights -- Net revenues totaled $67.0 million -- Laboratory Services net revenues increased 19% year over year to $61.5 million -- China-based Laboratory Services net revenues grew 26% year over year to $44.8 million -- U.S.-based Laboratory Services net revenues increased 4% year over year to $16.7 million -- Manufacturing Services net revenues decreased 69% year over year to $5.5 million -- GAAP diluted earnings per ADS grew 72% year over year to 20 cents -- Non-GAAP diluted earnings per ADS grew 7% year over year to 24 cents
SOURCE WuXi PharmaTech (Cayman) Inc.
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