WuXi PharmaTech Drops Despite All the Good News

WuXi PharmaTech (WX) reported that its Q4 revenues were up 64% over the year earlier, coming in at $37.1 million. Net income more than tripled, rising 205.7% to $12.1 million. The numbers mean that earnings per ADS were 17 cents, fully diluted. The revenue number was about $2 million above analysts’ estimates, and earnings per ADS handily beat the street’s forecast, which called for 13 cents per ADS.

WuXi also forecast much higher revenues of $280 million to $300 million in 2008. However, these numbers include revenue from the AppTec acquisition (which was completed on January 31, 2008). In 2007, AppTec was expected to have revenues of about $71 million, and it had been growing at a compound annual rate of 46%. Subtracting out the AppTec contribution leaves the traditional WuXi PharmaTech business with projected 2008 revenues of about $200 million.

That is a big jump from WuXi’s 2007 revenues, which were up 93% at $135 million. Net income GAAP)] was $33.9 million, higher by 283%, and non-GAAP was up 159% at $44.6 million.

In its remarks on 2007, WuXi said that it remains “focused on our goal to transform the drug R&D model globally,” a lofty target. AppTec will add services and a medical device capability, plus a U.S. presence, though detractors worry that the high costs of running trials in the U.S. will have a negative effect on overall margins.

One of the big drivers of revenue growth was research manufacturing, which jumped to $8.3 million in Q4 2007 from $1.1 million a year earlier. That number is notoriously volatile, however, depending on when clients take delivery of product.

During 2007, WuXi increased its client base from 60 customers to 70. Billings to its top 10 clients doubled during the year, emphasizing that repeat business, not conquest sales, are fueling growth.

Gross margins took a hit in the fourth quarter, dropping to 43% from 56% in 2006. WuXi blamed an appreciation of the RMB and higher bonus incentive payments to scientific staff for the drop, which was, the company was quick to point out, only 3% below the rate for all of 2006.

The company said that its building projects remain on track; specifically:

• R&D Facilities -- Total square footage of WuXi’s laboratory facilities increased 326,200 square feet in 2007.
• Jinshan Facility -- Construction of the Jinshan expansion is on schedule, with production expected to begin in the second half of 2008.
• Suzhou Facility -- Construction on a GLP (Good Laboratory Practice) facility based in Suzhou, China began in the third quarter 2007, and should be on line in 2009.

Despite all the good news, WuXi is trading near its 52-week low, closing Wednesday at $19.33, which was lower by another 88 cents (4%). It has traded as high as $45.65 since making its IPO debut in August 2007.

Disclosure: none.