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

SHANGHAI, March 8, 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 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 2010 Highlights

• 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 to increases 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 to increases 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

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 Wednesday, March 9, 2011, to discuss its fourth-quarter 2010 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 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 Financial Measures

We have provided the fourth-quarter and full-year 2009 and 2010 gross profit, operating income, 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 fees relating to the terminated transaction with Charles River Laboratories, bonuses paid after the termination of the transaction, and losses from discontinued operations. We also provided fourth-quarter and full-year 2009 and 2010 adjusted EBITDA, which is GAAP net income adjusted by adding back depreciation and amortization, interest, income taxes, share-based compensation, mark-to-market gains (losses) from foreign-currency forward contracts, 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 2011 (including, as applicable, estimated total net revenues, China-based Laboratory Services net revenues, U.S.-based Laboratory Services net revenue, Manufacturing Services net revenues, gross margins, operating margins, capital expenditures, operating effective tax rates, and other trends), expanded growth in our commercial manufacturing business, our planned investments for 2011, anticipated industry changes and trends and our ability to benefit therefrom.

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, there may be potential customer, employee and management distraction following the termination of our proposed combination with Charles River Laboratories; 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 be unable to successfully make our planned investments and capital expenditures on a timely basis; these investments may not yield the desired results and 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 faced 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 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; risk of payment failure by any of our large customers, which could significantly harm our cash flows and profitability; 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 2009 Annual Report on Form 20-F filed with 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 2009 Annual Report on Form 20-F. Our results of operations for fourth-quarter and full-year 2010 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.

SOURCE WuXi PharmaTech (Cayman) Inc