WuXi PharmaTech Beats Estimates on Strong Contract Manufacturing Numbers

| About: WuXi PharmaTech (WX)

WuXi PharmaTech (NYSE: WX), one of China’s most visible CRO/CMOs, reported first quarter revenues that were slightly better than expected, up 16% at $93.6 million. The company’s lab service revenues increased 12%, but the star performer was contract manufacturing, which climbed 35% to $19.1 million. GAAP net income was up 17% at $18.2 million, or 24 cents per share.

WuXi took advantage of the earnings announcement to reconfirm guidance for full-year 2011: net revenues are expected to rise about 20% to $400 million, led by a 55% gain in its CMO business.

The company continues to invest in new facilities to expand future business. It is building a new lab in Wuhan for chemistry, a new GMP biologics manufacturing facility in WuXi, and continuing build-up of pharmacology models and biology capabilities. The company estimates its capital expenditures for these projects will total between $50 and $60 million in 2011.

In terms of full-year 2011, WuXi also expects:
•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%
• Decrease in gross margin of about 1 percentage point due to appreciation of the Chinese RMB relative to the U.S. dollar 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%
• 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 closed Tuesday’s trading session at $18, up 26 cents before the earnings announcement. The company has traded in a remarkably tight range over the past 12 months, from a low of $14.01 to a high of $19.10. At its current price, it is valued at 15 times trailing 10-month earnings, and it has a market capitalization of $1.3 billion.

Disclosure: none.