WuXi PharmaTech Disappointed by AppTec Acquisition

WuXi PharmaTech, Inc. (NYSE: WX) met, but didn’t beat, its 2008 financial guidance goals and admitted that its $151 million AppTec acquisition has not performed up to expectations. WuXi shut down AppTec’s US-based biologics manufacturing operations in December of 2008, saying it did not see any resurgence in that sector. However, AppTec’s biopharma and medical device testing business is continuing. WuXi Chairman and CEO Ge Li blamed AppTec’s disappointing performance on the larger economic crisis, which curtailed demand for contract biologics manufacturing.

WuXi reported that its Laboratory Services business doubled to $205 million in 2008. The majority of that came from China Lab Services revenues of $147.3 million. The remainder, called AppTec testing services and consisting of biopharmaceutical and medical testing, works out to $52.7 million. WuXi further said that AppTec’s discontinued manufacturing business added $8.3 million in revenues. WuXi listed AppTec’s contribution to revenues at $57.7 million over the eleven months it was part of WuXi.

When WuXi announced the AppTec deal in January, it declared the company produced $70 million in revenue during 2007, with a three-year compound growth rate of 46%. WuXi also pointed out in its earnings release that margins are lower at AppTec than the company’s China operations.

For all of 2008, WuXi’s net revenues climbed 74% to $261.8 million, helped in large part by AppTec’s $57.7 million contribution. On these revenues, WuXi recognized EBITDA of $72.2 million.

The company said organic growth in its core China operations was 45%. For 2009, WuXi expects revenue growth in its China-based Laboratory Services will increase a further 15% to 20%. Manufacturing in China will be lower, however. The company had a single large manufacturing project in the first half of 2008, which brought that business up to $48.5 million for full-year 2008.

WuXi recorded a $60.5 million writedown on its AppTec acquisition, resulting in a net loss for 2008 of $93.9 million. For all of 2008, non-GAAP operating income rose 56%, and non-GAAP net income was 31% higher, against a revenue increase of 87%.

To improve future growth, WuXi has two major projects underway. It is building a toxicology facility in Suzhou that will begin providing non-GLP toxicology services in the second half of 2009 and GLP toxicology services in mid-2010. WuXi admitted that the plant will incur operating costs in 2009, but won’t generate significant revenues until 2010. The company is also expanding its manufacturing facility in Jinshan, a project that should be completed by the end of 2009. This facility will be devoted to commercial-scale manufacture of advanced intermediates and APIs for products in late-stage-development.

For 2009, WuXi projects revenues will increase slightly to total between $265 million and $275 million. Although lab services should rise 15%-20%, lower manufacturing revenues will largely offset those gains. EBITDA will be flat at $72 million, and the company expects to spend between $50 million and $60 million in capital expenditures.

WuXi ended the year with cash of $56.7 million, a sizable decline from the $213.6 million it had at the end of 2007.

WuXi investors sold the stock off at Thursday’s opening, but its price has recovered as the session has progressed. In mid-session, WuXi is up 29 cents at $5.15. Over the past 12 months, the stock’s range has been from $3.67 to $24.26. At its current price, it has a market capitalization of $338 million.

Disclosure: none.