WuXi PharmaTech Announces Second-Quarter 2015 Results

Aug 13, 2015, 16:30 ET from WuXi PharmaTech (Cayman) Inc.

SHANGHAI, Aug. 13, 2015 /PRNewswire/ -- WuXi PharmaTech (Cayman) Inc.("WuXi") (NYSE: WX), a leading open-access R&D capability and technology platform company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its financial results for the second quarter of 2015. 

Second-Quarter 2015 Highlights

  • Net Revenues Increased 18.8% Year Over Year to $194.1 Million
  • Net Revenues for Laboratory Services Grew 17.9% Year Over Year to $123.5 Million
  • Net Revenues for Small-Molecule Manufacturing Services Increased 10.0% Year Over Year to $45.9 Million
  • Net Revenues for Biologics Services Grew 48.4% Year Over Year to $18.3 Million
  • Net Revenues for New Businesses and Other Grew 42.8% Year Over Year to $6.4 Million
  • GAAP Diluted Earnings Per ADS Declined 35.9% Year Over Year to $0.26
  • Non-GAAP Diluted Earnings Per ADS Decreased 21.6% Year Over Year to $0.38
  • Company Reconfirms Full-Year 2015 Revenue Guidance of $790-$800 Million, Withdraws Full-Year 2015 Diluted EPS Guidance Due to Uncertainties Regarding Currency Exchange-Rate Volatility and Costs Associated with Several Transactions Under Consideration

Management Comment

"WuXi had excellent year-over-year revenue growth of 18.8% in the second quarter, meeting the company's expectations," said Dr. Ge Li, Chairman and CEO.  "That revenue growth was again broad-based, with double-digit growth from each of the four segments of the business. Revenue growth in our small-molecule manufacturing businesses was slightly lower than expected due to the timing of product deliveries, but this is not expected to impact the full-year performance of this business. The revenue performance of our biologics business exceeded expectations. This overall performance gives us confidence to reconfirm our full-year 2015 revenue guidance of $790-$800 million.

"The quarter was also characterized by significant year-over-year declines in margins and diluted EPS because of sharply increased levels of investment in new businesses," Dr. Li continued.  "WuXi today is two groups of businesses -- strong core businesses, and promising, but very challenging, new businesses.  Our core businesses are performing well, generating solid revenue and operating income growth.  But we also see many compelling investment opportunities in new businesses, such as in genomics / bioinformatics, e-commerce, and China healthcare initiatives, opportunities that we are choosing to seize during this period of strength to drive longterm growth.  To date, these new businesses are developing more slowly than we had anticipated. 

"As many of you know, the RMB depreciated significantly versus the US dollar earlier this week, and this depreciation could result in significant mark-to-market losses and realized losses on foreign-exchange forward contracts in the third quarter and full year," Dr. Li concluded.  "In addition, WuXi is considering several transactions that in comparison to historical results could further reduce margins and diluted EPS in full-year 2015 and beyond.  Therefore, because of uncertainties regarding these circumstances, we are withdrawing our GAAP and non-GAAP diluted EPS financial guidance for full-year 2015."

Second-Quarter 2015 GAAP Results

Second-quarter 2015 net revenues increased 18.8% year over year to $194.1 million.  Laboratory Services revenue grew 17.9%, driven by our comprehensive and integrated drug discovery and development services.  Revenue growth of 10.0% in Small-Molecule Manufacturing Services resulted from strong demand in both research manufacturing and commercial manufacturing, slightly reduced by the timing of deliveries of specific projects.  Biologics Services revenue increased 48.4% from strong growth in both development and manufacturing.  Revenue growth of 42.8% in New Businesses and Other related mainly to the significant revenue increase of clinical site management services in China, offset by slower than expected growth in the genomics / bioinformatics business.

Second-quarter 2015 GAAP gross profit increased 8.4% year over year to $66.7 million due to 18.8% revenue growth, partially offset by increased labor costs in China and investments in new businesses.  Gross margin decreased year over year to 34.4% from 37.7%.  Gross margin in Laboratory Services decreased year over year to 37.0% from 40.9% due to increased labor costs in China and investments in new businesses.  Gross margin in Small-Molecule Manufacturing Services increased year over year to 36.6% from 31.8% because of changes in business mix and higher capacity utilization.  The decrease in gross margin in Biologics Services year over year to 25.0% from 34.5% was caused by investments in biomanufacturing, which is in an early stage of its revenue ramp-up.  Gross margin in New Businesses and Other decreased year over year to (5.8%) from 25.3% mainly as a result of investments in genomics and bioinformatics.  

Second-quarter 2015 GAAP operating income decreased 39.1% year over year to $17.1 million mainly due to investments in new businesses, including increased selling and marketing, general and administrative, and research and development expenses and transaction expenses related to the proposed privatization, partially offset by the 8.4% increase in gross profit.  Operating margin declined to 8.8% from 17.1% due to these increased operating expenses.

Second-quarter 2015 GAAP net income decreased 33.7% year over year to $19.4 million mainly due to the 39.1% year-over-year decrease in operating income, an adverse change in realized gains on settled foreign-exchange forward contracts (gains of $0.2 million in the second quarter of 2015 compared to gains of $1.6 million in the second quarter of 2014), larger equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, losses of $1.2 million from writing off an investment in a portfolio company by our venture fund and lower gains on the sale of investments by the corporate venture fund (gains of $1.1 million in the second quarter of 2015 compared to gains of $2.2 million in the second quarter of 2014), and higher interest expense due to higher loan balances needed to support increased investment, partially offset by a favorable change of $5.8 million in mark-to-market gains and losses on foreign-exchange forward contracts (gains of $3.3 million in the second quarter of 2015 compared to losses of $2.5 million in the second quarter of 2014).

Second-quarter 2015 GAAP net income attributable to WuXi shareholders decreased 35.7% year over year to $18.9 million mainly due to the 33.7% year-over-year decrease in net income and net income attributable to non-controlling interests of $0.6 million in 2015.

Second-quarter 2015 GAAP diluted earnings per ADS attributable to WuXi shareholders decreased 35.9% year over year to $0.26 due to the 35.7% decrease in net income attributable to WuXi shareholders and a higher number of outstanding ADSs as a result of share issuances relating to the XenoBiotic Laboratories acquisition and vesting of restricted stock units, partially offset by the impact of share purchases in 2014.  Second-quarter 2015 GAAP comprehensive income attributable to WuXi shareholders decreased 21.2% year over year to $19.0 million mainly due to the 35.7% decrease in net income and an unfavorable change in unrealized losses on available-for-sale securities, partially offset by favorable changes in currency translation adjustments and cash flow hedges.

Second-Quarter 2015 Non-GAAP Results

Non-GAAP financial results exclude the impact of share-based compensation expenses and the amortization of acquired intangible assets and the associated deferred tax impact. 

Second-quarter 2015 non-GAAP gross profit increased 11.6% year over year to $70.5 million due to 18.8% revenue growth, offset by increased labor costs in China and investments in new businesses.  Non-GAAP gross margin decreased year over year to 36.3% from 38.7% for the same reasons. 

Second-quarter 2015 non-GAAP operating income decreased 22.3% year over year to $26.4 million due to investments in new businesses, including increased selling and marketing, general and administrative, and research and development expenses and transaction expenses related to the proposed privatization, partially offset by the 11.6% increase in non-GAAP gross profit.  Non-GAAP operating margin decreased to 13.6% from 20.8% due to higher operating expenses.

Second-quarter 2015 non-GAAP net income decreased 19.4% year over year to $28.4 million mainly due to the 22.3% year-over-year decrease in operating income, an adverse change in realized gains on settled foreign-exchange forward contracts (gains of $0.2 million in the second quarter of 2015 compared to gains of $1.6 million in the second quarter of 2014), larger equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, losses of $1.2 million from writing off an investment in a portfolio company by our venture fund and lower gains on the sale of investments by the corporate venture fund (gains of $1.1 million in the second quarter of 2015 compared to gains of $2.2 million in the second quarter of 2014), and higher interest expense due to higher loan balances needed to support higher investment, partially offset by a favorable change of $5.8 million in mark-to-market gains and losses on foreign-exchange forward contracts (gains of $3.3 million in the second quarter of 2015 compared to losses of $2.5 million in the second quarter of 2014).

Second-quarter 2015 non-GAAP net income attributable to WuXi shareholders decreased 21.3% year over year to $27.7 million mainly due to the 19.4% year-over-year decrease in net income and net income attributable to noncontrolling interests of $0.6 million in 2015.

Second-quarter 2015 non-GAAP diluted earnings per ADS attributable to WuXi shareholders decreased 21.6% year over year to $0.38 due to the 21.3% decrease in net income attributable to WuXi shareholders and a higher number of outstanding ADSs as a result of share issuances relating to the XenoBiotic Laboratories acquisition and vesting of restricted stock units, partially offset by the impact of share purchases in 2014.

Full-Year 2015 Financial Guidance

WuXi PharmaTech reconfirms full-year 2015 revenue guidance of $790-$800 million.  The company withdraws its full-year 2015 guidance for GAAP and non-GAAP diluted EPS because of uncertainties regarding currency exchange-rate volatility and potential significant costs associated with several transactions under consideration.  The rapid depreciation of the RMB against the U.S. dollar could result in significant mark-to-market losses and realized losses on foreign-exchange forward contracts.

 

WUXI PHARMATECH (CAYMAN) INC.

 UNAUDITED CONSOLIDATED BALANCE SHEETS

 (in thousands of U.S. dollars, except ordinary share and par value data)




 June 30,
2015

 December 31,
2014

 Assets:




 Current assets:




         Cash and cash equivalents


253,530

211,456

         Restricted cash


710

793

         Short-term investments


204,651

223,533

         Accounts receivable, net


179,014

162,942

         Amounts due from related parties


6,855

4,397

         Inventories


61,405

48,546

         Prepaid expenses and other current assets


37,724

31,990

                     Total current assets


743,889

683,657

 Non-current assets:




         Goodwill *


89,780

53,619

         Property, plant and equipment, net


395,562

351,688

         Long-term investments


103,299

49,037

         Intangible assets, net *


51,489

23,020

         Land use rights


13,975

14,120

         Deferred tax assets


2,158

1,417

         Other non-current assets


5,827

5,068

                     Total non-current assets


662,090

497,969

                     Total assets


1,405,979

1,181,626

 Liabilities and equity:




 Current liabilities:




         Short-term and current portion of long-term debt


112,407

199,719

         Accounts payable


67,904

58,466

         Amounts due to related parties


419

275

         Accrued expenses


44,484

43,454

         Deferred revenue


30,804

27,669

         Advanced subsidies


12,322

12,106

         Other taxes payable


6,051

2,299

         Other current liabilities


24,037

29,787

                     Total current liabilities


298,428

373,775

 Non-current liabilities:




         Long-term debt, excluding current portion


228,867

13,987

         Advanced subsidies


3,057

2,286

         Other non-current liabilities *


23,192

13,724

                     Total non-current liabilities


255,116

29,997

                     Total liabilities


553,544

403,772

 Equity:




        Ordinary shares ($0.02 par value, 5,002,550,000 authorized,  567,444,208 and 561,159,373 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively) 


11,349

11,223

         Additional paid-in capital


326,642

295,308

         Retained earnings


451,985

415,329

         Accumulated other comprehensive income


54,371

55,994

                     Equity attributable to shareholders of WuXi


844,347

777,854

        Non-controlling interests


8,088

-

                     Total shareholders' equity


852,435

777,854

                     Total liabilities and equity


1,405,979

1,181,626


*A preliminary allocation of the purchase price of NextCODE Health, LLC., to the assets acquired and liabilities assumed was made based on available information and incorporating management's current estimates. The Company is currently finalizing the valuation of the assets acquired and liabilities assumed. The final allocation of the purchase price may differ from this preliminary allocation.

 


 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


 (In thousands of U.S. dollars, except ADS data and per ADS data)






 Three Months Ended
 June 30,


 Six Months Ended
 June 30,



2015

2014

% Change


2015

2014

% Change

 Net revenues:









       Laboratory services


123,467

104,765

17.9%


237,753

199,528

19.2%

       Small-molecule manufacturing services


45,893

41,720

10.0%


91,442

81,410

12.3%

       Biologics services


18,347

12,365

48.4%


32,760

20,618

58.9%

       New businesses and other


6,431

4,504

42.8%


12,227

8,515

43.6%

 Total net revenues


194,138

163,354

18.8%


374,182

310,071

20.7%

 Cost of revenues:









       Laboratory services


(77,780)

(61,893)

25.7%


(148,401)

(118,802)

24.9%

       Small-molecule manufacturing services


(29,095)

(28,458)

2.2%


(57,853)

(55,125)

4.9%

       Biologics services


(13,756)

(8,102)

69.8%


(26,105)

(14,718)

77.4%

       New businesses and other


(6,804)

(3,363)

102.3%


(12,307)

(6,261)

96.6%

 Total cost of revenues


(127,435)

(101,816)

25.2%


(244,666)

(194,906)

25.5%

 Gross profit:









       Laboratory services


45,687

42,872

6.6%


89,352

80,726

10.7%

       Small-molecule manufacturing services


16,798

13,262

26.7%


33,589

26,285

27.8%

       Biologics services


4,591

4,263

7.7%


6,655

5,900

12.8%

       New businesses and other


(373)

1,141

NA


(80)

2,254

NA

 Total gross profit


66,703

61,538

8.4%


129,516

115,165

12.5%

 Operating expenses:









       Selling and marketing expenses


(7,052)

(5,042)

39.9%


(13,688)

(9,542)

43.5%

       General and administrative expenses


(34,910)

(23,662)

47.5%


(67,730)

(45,000)

50.5%

       Research and development expenses


(7,686)

(4,831)

59.1%


(14,052)

(9,209)

52.6%

 Total operating expenses


(49,648)

(33,535)

48.0%


(95,470)

(63,751)

49.8%

 Operating income


17,055

28,003

(39.1%)


34,046

51,414

(33.8%)

 Other income (expenses), net:









       Loss from equity-method investments


(1,734)

(810)

114.1%


(3,316)

(1,643)

101.8%

       Other income (expenses), net


4,600

4,620

(0.4%)


8,435

(820)

NA

       Interest income (expenses), net


2,950

4,198

(29.7%)


5,736

8,749

(34.4%)

 Total other income (expenses), net


5,816

8,008

(27.4%)


10,855

6,286

72.7%

 Income before income taxes


22,871

36,011

(36.5%)


44,901

57,700

(22.2%)

 Income tax expense


(3,422)

(6,675)

(48.7%)


(7,668)

(10,542)

(27.3%)

 Net income


19,449

29,336

(33.7%)


37,233

47,158

(21.0%)

 Less: Net income attributable to non-controlling interests


(577)

-

NA


(577)

-

NA

 Net income attributable to WuXi shareholders


18,872

29,336

(35.7%)


36,656

47,158

(22.3%)

 Other comprehensive income:









 Currency translation adjustments


(275)

(5,324)

(94.8%)


(747)

(11,158)

(93.3%)

 Unrealized gains (losses) on available-for-sale securities

(1,357)

115

NA


(2,749)

(75)

*

 Cash flow hedges, net of tax


1,806

-

NA


1,874

-

NA

 Other comprehensive income (loss)


174

(5,209)

NA


(1,622)

(11,233)

(85.6%)

 Less: Other comprehensive income attributable to

non-controlling interests


(5)

-

NA


(5)

-

NA

 Other comprehensive income (loss) att. to WuXi shareholders


169

(5,209)

NA


(1,627)

(11,233)

(85.5%)

 Comprehensive income att. to WuXi shareholders


19,041

24,127

(21.2%)


35,029

35,925

(2.5%)

 Basic net earnings per ADS att. to WuXi shareholders


0.27

0.42

(35.9%)


0.52

0.66

(21.7%)

 Diluted net earnings per ADS att. to WuXi shareholders


0.26

0.41

(35.9%)


0.51

0.65

(21.7%)

 Weighted average ADS outstanding -- basic


70,891,036

70,671,831

0.3%


70,611,042

71,149,836

(0.8%)

 Weighted average ADS outstanding -- diluted


72,376,462

72,073,199

0.4%


72,182,247

72,735,360

(0.8%)


*  > 1,000%

 


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
 June 30,



 Six Months Ended
 June 30,



2015

2014

% Change



2015

2014

% Change











 GAAP gross profit


66,703

61,538

8.4%



129,516

115,165

12.5%

 GAAP gross margin


34.4%

37.7%




34.6%

37.1%


 Adjustments:










         Share-based compensation


2,617

1,621

61.4%



4,201

2,687

56.3%

         Amortization of acquired intangible assets


1,208

48

*



2,606

97

*

 Non-GAAP gross profit


70,528

63,207

11.6%



136,323

117,949

15.6%

 Non-GAAP gross margin


36.3%

38.7%




36.4%

38.0%












 GAAP operating income


17,055

28,003

(39.1%)



34,046

51,414

(33.8%)

 GAAP operating margin


8.8%

17.1%




9.1%

16.6%


 Adjustments:










         Share-based compensation


8,103

5,873

38.0%



14,987

10,286

45.7%

         Amortization of acquired intangible assets


1,208

48

*



2,606

97

*

 Non-GAAP operating income


26,366

33,924

(22.3%)



51,639

61,797

(16.4%)

 Non-GAAP operating margin


13.6%

20.8%




13.8%

19.9%












 GAAP net income


19,449

29,336

(33.7%)



37,233

47,158

(21.0%)

 GAAP net margin


10.0%

18.0%




10.0%

15.2%


 Adjustments:










         Share-based compensation


8,103

5,873

38.0%



14,987

10,286

45.7%

         Amortization of acquired intangible assets


1,208

48

*



2,606

97

*

         Deferred tax impact related to acquired intangible assets


(369)

(16)

*



(815)

(33)

*

 Non-GAAP net income


28,391

35,241

(19.4%)



54,011

57,508

(6.1%)

 Non-GAAP net margin


14.6%

21.6%




14.4%

18.5%












 Less: Net income attributable to non-controlling interests


(651)

-

NA



(651)

-

NA

Net Income attributable to WuXi shareholders of ADS (Non-GAAP):










 Basic


27,740

35,241

(21.3%)



53,360

57,508

(7.2%)

 Diluted


27,740

35,241

(21.3%)



53,360

57,508

(7.2%)











 Basic earnings per ADS (Non-GAAP) attributable to WuXi shareholders


0.39

0.50

(21.5%)



0.76

0.81

(6.5%)

 Diluted earnings per ADS (Non-GAAP) attributable to WuXi shareholders


0.38

0.49

(21.6%)



0.74

0.79

(6.5%)











 Weighted average ADS outstanding
   - basic (Non-GAAP)


70,891,036

70,671,831

0.3%



70,611,042

71,149,836

(0.8%)

 Weighted average ADS outstanding
  - diluted (Non-GAAP)


72,376,462

72,073,199

0.4%



72,182,247

72,735,360

(0.8%)


*  > 1,000%  

Conference Call

WuXi PharmaTech senior management will host a conference call at 8:00 am (U.S. Eastern) / 5:00 am (U.S. Pacific) / 8:00 pm (Beijing/Shanghai/Hong Kong) on August 14, 2015, to discuss its second-quarter 2015 financial results and future prospects.  The conference call may be accessed by calling:

China

4001 200 539

Hong Kong

800 905 927

Singapore

800 616 3222

United Kingdom

0800 015 9725

United States

1855 298 3404

United States -- New York (toll)

+1 631 5142 526

Other countries (toll)

+65 6823 2299

Conference ID

2278500

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

China

4001 842 240

Hong Kong

800 966 697

Singapore

800 616 2127

United Kingdom

0800 169 7301

United States

1866 846 0868

Conference ID

2278500

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 open-access R&D capability and technology platform company serving the pharmaceutical, biotechnology, and medical device industries, 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 services throughout the drug and medical device R&D process.  WuXi is also building a platform to provide clinical diagnostic services directly to physicians and their patients globally.  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.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are not historical facts, but instead are predictions about future events.  Examples of forward-looking statements in this press release include statements about expected full-year 2015 revenues, costs associated with several transactions under consideration and the related negative impact on gross margins and earnings per share (EPS), expected drivers of our future growth, and our planned investments in small-molecule manufacturing, biologics, new businesses and other areas and expected market opportunities and trends and related benefits of those investments.  Although we believe that our predictions are reasonable, future events are inherently uncertain, and our forward-looking statements may turn out to be incorrect.  Our forward-looking statements are subject to risks relating to, among other things, our ability to control our costs and sustain revenue growth, to realize the anticipated benefits of our investments, to protect our clients' intellectual property, to compete effectively, and to complete the expansion of our small-molecule manufacturing facilities in Changzhou and other manufacturing facilities and potential co-development and acquisition activities.  Additional information about these and other relevant risks can be found in our Annual Report on Form 20-F for the year ended December 31, 2014.  The forward-looking statements in this press release speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements except as required by law.

Use of Non-GAAP Financial Measures 

We have provided the second-quarter 2014 and 2015 gross profit, gross margin, operating income, operating margin, net income, net margin, and diluted earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses and the amortization and deferred tax impact of acquired intangible assets.  The non-GAAP financial measures used in this press release are useful for understanding and assessing underlying business performance and operating trends, and we believe that 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.  We expect to continue to provide such non-GAAP financial measures on a quarterly basis using a consistent method.  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.

Statement Regarding Unaudited Financial Information

The financial information in this press release is unaudited and subject to adjustments.  Adjustments to the financial statements may be identified when our annual financial statements are prepared and audit work is performed for the year-end audit, which could result in significant differences from this unaudited financial information.

For more information, please contact:

Ronald Aldridge (for investors)
LaVoieHealthScience
Tel:   +1-617-374-8800 x 109
Email: ron_aldridge@wuxiapptec.com
raldridge@lavoiehealthscience.com

Aaron Shi (for the media)
Director of Corporate Communications
Tel:   +86-21-5046-4362
Email: aaron_shi@wuxiapptec.com

SOURCE WuXi PharmaTech (Cayman) Inc.



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