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WuXi PharmaTech Announces Fourth-Quarter and Full-Year 2010 Results

SHANGHAI, March 8, 2011 /PRNewswire via COMTEX/ --

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 fourth-quarter and full-year 2010.

Fourth-Quarter 2010 Highlights

  • Net revenues grew 20% year over year to $88.6 million
  • Laboratory Services net revenues increased 16% year over year to $78.5 million
  • China-based Laboratory Services net revenues grew 16% year over year to $59.6 million
  • U.S.-based Laboratory Services net revenues increased 17% year over year to $18.9 million
  • Manufacturing Services net revenues increased 59% year over year to $10.1 million
  • GAAP diluted earnings per ADS grew 41% year over year to 23 cents
  • Non-GAAP diluted earnings per ADS grew 29% year over year to 28 cents

Full-Year 2010Highlights

  • Net revenues grew 24% year over year to $334.1 million
  • Laboratory Services net revenues increased 18% year over year to $294.9 million
  • China-based Laboratory Services net revenues grew 18% year over year to $219.4 million
  • U.S.-based Laboratory Services net revenues increased 18% year over year to $75.5 million
  • Manufacturing Services net revenues increased 95% year over year to $39.2 million
  • GAAP diluted earnings per ADS grew 69% year over year to $1.22
  • Non-GAAP diluted earnings per ADS grew 22% year over year to $1.09

Management Comment

"WuXi concluded a strong 2010 with a solid fourth quarter," said Dr. Ge Li, Chairman and Chief Executive Officer. "Revenue grew 20% in the quarter, with strong performances in all of our businesses. We further expanded our capabilities and capacity to better serve our customers, and they responded by expanding their collaborations with WuXi.

"For full-year 2010, WuXi exceeded its financial guidance for revenues and operating income. Revenues grew 24% to $334.1 million, versus guidance of $330-$333 million. Non-GAAP operating income grew 35% to $88.1 million, compared to guidance of 28-32% growth. GAAP EPS grew 69% to $1.22, driven by strong revenue growth, expense restraint, and receipt from Charles River Laboratories of a $30 million fee for termination of the proposed transaction involving the two companies. Non-GAAP EPS increased 22% to $1.09. All of our businesses contributed to this strong full-year revenue and earnings performance.

"We expect 2011 to be another strong year for WuXi, with revenue growth of 17-21% and stable margins despite an environment of RMB appreciation and labor cost inflation in China. WuXi is rapidly expanding its new Laboratory Services businesses and will reap the benefits of years of hard work in research manufacturing with revenue growth in our new commercial manufacturing business.

"In 2011, we will continue to invest and build a strong integrated drug R&D service platform to be the industry's alternative R&D engine to discover and develop new drugs for our customers. Among our major investment projects are a new chemistry site in Wuhan, a new GMP biologics manufacturing facility in WuXi, new pharmacology models and biology capabilities, and an expansion of our API/drug product stability testing capability.

"The pharmaceutical industry is undergoing transformational change and is adopting a more collaborative and networked model," Dr. Li concluded. "Outsourcing of R&D is one of the key elements of this industry transformation. Growth in offshore outsourcing and in China's domestic pharmaceutical market will drive more and more R&D to China. As the leading R&D services company in China, WuXi is well positioned to benefit from this powerful trend."

GAAP Results -- Fourth-Quarter 2010

Fourth-quarter 2010 net revenues increased 20% year over year to $88.6 million due to 16% growth in Laboratory Services net revenues and a 59% increase in Manufacturing Services net revenues. Revenue growth in Laboratory Services was strong in both our core discovery chemistry services and in newer laboratory services, such as discovery biology, DMPK/ADME, formulation, and analytical development services, which reflected the stronger demand for our broad-based and integrated drug discovery and development services. This growth was geographically diverse, strong in both our China and U.S. operations. Manufacturing Services revenue growth was driven by the initial ramp-up of our large-scale manufacturing business, as well as the robust demand for clinical-trial materials from our research manufacturing business.

Fourth-quarter 2010 GAAP gross profit increased 17% year over year to $34.1 million due to revenue growth in Laboratory Services and both revenue growth and gross-margin improvement in Manufacturing Services. Fourth-quarter 2010 GAAP gross margin decreased year over year to 38.5% from 39.6% mainly due to business mix, as our highest rate of revenue growth occurred in our relatively lower-margin Manufacturing Services business. Gross margin in Manufacturing Services, while lower than that in Laboratory Services, improved year over year to 21.2% from 16.7% due to strong revenue growth and improved capacity utilization in our large-scale manufacturing facility. Gross margin in Laboratory Services decreased year over year to 40.8% from 41.7% due to the higher depreciation expenses from the investments in new capabilities and capacity expansion and the negative impact from appreciation of the Chinese RMB relative to the U.S. dollar.

Fourth-quarter 2010 GAAP operating income increased 38% to $18.8 million due to the 17% increase in gross profit and a 2% decrease in operating expenses due to cost-control efforts.

Fourth-quarter 2010 GAAP net income from continuing operations grew 38% to $17.3 million mainly due to the 38% increase in operating income and improved other income (expenses) net, offset by higher taxes. Other income (expenses) net in fourth-quarter 2010 included gains from foreign-exchange forward contracts of $1.8 million, compared to losses of $0.2 million in fourth-quarter 2009. Higher taxes were mainly the result of higher pretax income, especially the pretax income in our U.S. operations, which is taxed at approximately a 40% rate, and the progressively rising statutory tax rates in China.

Fourth-quarter 2010 GAAP net income grew 42% to $17.3 million due to the 38% growth in net income from continuing operations and the nonrecurrence of a loss from discontinued operations in the prior-year period related to a write-off of certain obsolete assets and impairment of certain assets held for sale. Fourth-quarter 2010 GAAP diluted earnings per ADS grew 41% to 23 cents mainly due to the 42% growth in GAAP net income.

GAAP Results -- Full-Year 2010

Full-year 2010 net revenues increased 24% year over year to $334.1 million driven by strong revenue growth in all business--18% growth in both China-based and U.S.-based Laboratory Services net revenues and 95% growth in Manufacturing Services net revenues. In China-based Laboratory Services, revenue growth was strong in both discovery chemistry and newer laboratory services, such as discovery biology, DMPK/ADME, formulation, and analytical development services. Revenue growth in U.S.-based Laboratory Services was broad-based and particularly strong in tissue processing services. Revenue growth in Manufacturing Services reflected both increased demand for research manufacturing of clinical-trial materials and initial revenues from large-scale manufacturing.

Full-year 2010 GAAP gross profit increased 18% year over year to $127.6 million, due to revenue growth in Laboratory Services and revenue growth and margin improvement in Manufacturing Services. Full-year 2010 GAAP gross margin decreased year over year to 38.2% from 40.1% mainly due to higher revenue growth of our lower-margin Manufacturing Services business and lower margins in our Laboratory Services business. Gross margin in Laboratory Services decreased year over year to 40.6% from 41.9% mainly due toincreases in labor costs and overhead/depreciation expenses of new pharmacology/DMPK/chemistry laboratories in Shanghai and the toxicology facility in Suzhou. Partially offsetting, gross margin improved year over year in Manufacturing Services to 20.0% from 18.1% due primarily to a significant increase in revenues and improved capacity utilization in large-scale manufacturing. In addition, full-year 2010 GAAP gross profit was reduced by $3.1 million and GAAP gross margin was reduced by 0.9 percentage points due to transaction-related bonuses paid to scientist employees after the termination of the proposed Charles River transaction.

Full-year 2010 GAAP operating income grew 37% to $71.5 million due to the 18% increase in gross profit and a slight decrease in operating expenses due to cost control, offset by $3.7 million in transaction-related bonuses paid to all employees.

Full-year 2010 GAAP net income from continuing operations grew 70% to $90.8 million due to the 37% increase in operating income and a favorable change in other income (expenses) net, offset by higher taxes. The improvement in other income (expenses) net in full-year 2010 mainly related to a $25 million termination fee related to the proposed Charles River transaction, which was recorded as other income (the remaining $5 million fee was recorded in operating expenses to offset transaction-related expenses). Higher taxes resulted from the combination of higher pretax income, especially from U.S.-based Laboratory Services, and the progressively higher statutory tax rates in China.

Full-year 2010 GAAP net income increased 72% to $90.8 million due to the 70% increase in net income from continuing operations (including the Charles River payments) and the nonrecurrence of a loss from discontinued operations in the prior-year period related to a write-off of certain obsolete assets and impairment of certain assets held for sale. Full-year 2010 GAAP diluted earnings per ADS grew 69% to $1.22 cents, mainly due to the 72% growth in GAAP net income.

Non-GAAP Results--Fourth-Quarter 2010

Non-GAAP financial results excluded the impact of share-based compensation expenses, amortization and the deferred tax impact of acquired intangible assets, and losses from discontinued operations.

Fourth-quarter 2010 non-GAAP gross profit increased 16% year over year to $35.6 million due to revenue growth in Laboratory Services and both revenue growth and gross-margin improvement in Manufacturing Services. Fourth-quarter 2010 non-GAAP gross margin decreased year over year to 40.2% from 41.7% mainly due to business mix, as our largest revenue growth occurred in our lower-margin Manufacturing Services business. Gross margin in Manufacturing Services, while lower than that in Laboratory Services, improved year over year due to improved capacity utilization in our large-scale manufacturing facility. Gross margin in Laboratory Services decreased year over year due to the higher depreciation expenses from the investments in new capabilities and capacity expansion and the negative impact from appreciation of the Chinese RMB relative to the U.S. dollar.

Fourth-quarter 2010 non-GAAP operating income increased 30% year over year to $22.4 million, primarily due to the 16% increase in non-GAAP gross profit and a small decrease in operating expenses due to cost control.

Fourth-quarter 2010 non-GAAP net income grew 30% year over year to $20.7 million due to a 30% increase in non-GAAP operating income and a favorable change in other income (expenses) net, offset by higher taxes. Other income (expenses) net in fourth-quarter 2010 included gains from foreign-exchange forward contracts of $1.8 million, compared to losses of $0.2 million in fourth-quarter 2009. Taxes were higher due to higher pretax income and higher China statutory tax rates. Diluted non-GAAP earnings per ADS from continuing operations grew 29% year over year to 28 cents, mainly due to the 30% increase in non-GAAP net income.

Non-GAAP Results--Full-Year 2010

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

Full-year 2010 non-GAAP gross profit increased 20% year over year to $137.2 million due to revenue growth in Laboratory Services and revenue growth and margin improvement in Manufacturing Services. Full-year 2010 non-GAAP gross margin decreased year over year to 41.1% from 42.3% mainly due to higher revenue growth of our lower-margin Manufacturing Services business and lower margins in our Laboratory Services business. Gross margin from Laboratory Services decreased year over year mainly due toincreases in labor costs and overhead/depreciation expenses from the new pharmacology/DMPK/chemistry laboratories in Shanghai and the toxicology facility in Suzhou. Partially offsetting, gross margin improved year over year in Manufacturing Services due primarily to initial revenues and improved capacity utilization in large-scale manufacturing.

Full-year 2010 non-GAAP operating income increased 35% year over year to $88.1 million, primarily due to the 20% increase in non-GAAP gross profit and relatively flat operating expenses due to cost-control efforts.

Full-year 2010 non-GAAP net income grew 24% year over year to $81.3 million due to the 35% increase in non-GAAP operating income, offset by an unfavorable change in other income (expenses) net and higher taxes. Other income (expenses) net was lower due to gains from foreign-exchange forward contracts of $2.8 million in 2010, compared to gains of $3.6 million in 2009. Taxes were higher due to higher pretax income and higher China statutory tax rates. Diluted non-GAAP earnings per ADS from continuing operations grew 22% year over year to $1.09, mainly due to the 24% increase in non-GAAP net income.

(See the table titled Reconciliation of GAAP to Non-GAAP below).

2011 Financial Guidance

The company projects 2011 financial performance as follows:

  • Total net revenues of $390-405 million, which represents 17-21% growth
  • Growth in net revenues of China-based Laboratory Services of 14-18%
  • Growth in net revenues of U.S.-based Laboratory Services of 8-10%
  • Growth in net revenues of Manufacturing Services of 50-60%
  • Decrease in gross margin of about 1% due to possible appreciation of the renminbi and labor cost inflation, partially offset by a gross margin increase in our manufacturing business
  • GAAP operating margin of 21-22%, non-GAAP operating margin of 24-25%
  • Capital expenditures of $50-60 million
  • GAAP effective tax rate of 17-18% due to an increase in the statutory tax rate of the company's Shanghai and Tianjin legal entities from 11% in 2010 to 15% and 12%, respectively, in 2011

WUXI PHARMATECH (CAYMAN) INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands of U.S. dollars, except ordinary share , ADS and par value data)



December 31, 2010

December 31, 2009





Assets:



Current assets:




Cash and cash equivalents

115,401

80,510


Restricted cash

1,989

1,358


Short-term investment

38,084

22,083


Accounts receivable, net

57,041

45,817


Inventories

17,277

14,276


Prepaid expenses and other current assets

15,124

10,125


Total current assets

244,916

174,169

Non-current assets:




Goodwill

23,956

23,956


Property, plant and equipment, net

205,547

181,830


Intangible assets, net

4,254

6,634


Prepaid land use rights

5,352

5,308


Deferred tax assets

10,887

9,514


Other non-current assets

3,221

5,890


Total non-current assets

253,217

233,132






Total assets

498,133

407,301





Liabilities and equity:



Current liabilities:




Short-term and current portion of long-term debt

263

34,415


Accounts payable

14,800

14,356


Accrued expenses

20,548

17,072


Deferred revenue

8,816

4,554


Advanced subsidies

4,460

2,800


Other taxes payable

2,790

2,901


Other current liabilities

7,891

4,239


Total current liabilities

59,568

80,337

Non-current liabilities:




Long-term debt, excluding current portion

1,852

2,115


Advanced subsidies

2,934

1,420


Convertible notes

35,864

35,864


Other non-current liabilities

5,085

7,432


Total non-current liabilities

45,735

46,831






Total liabilities

105,303

127,168





Equity:




Ordinary shares ($0.02 par value, 5,002,500,000 authorized as of December 31, 2010, and December 31, 2009; 560,972,080and 550,609,256 issued and outstanding as of December 31, 2010,and December 31, 2009, respectively)

11,219

11,012


Additional paid-in capital

332,913

320,672


Retained earnings(Accumulated deficit)

22,180

(68,631)


Accumulated other comprehensive income

26,518

17,080


Total equity

392,830

280,133






Total liabilities and equity

498,133

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

December 31,

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