WuXi: Solid Earnings, Solid Outlook

WuXi PharmaTech Inc. (WX), the Shanghai-based CRO, announced its Q2 financial results, showing that the company increased its revenues 134% to $70.8 million and enjoyed an 81% rise in non-GAAP net income.  Non-GAAP income was $15.5 million or 21 cents per ADS. The results were higher than analysts’ estimates, which called for WuXi to report $68 million of revenue and earnings of 14 cents per ADS.

Manufacturing revenues were especially strong, rising 400% from the year-earlier period to $25.6 million. For WuXi, manufacturing revenues are notoriously variable, depending partly upon a customer’s readiness to accept delivery of product. The laboratory services division brought in $45.2 million.

The non-GAAP numbers exclude charges for employee stock options ($3.4 million) and amortization related to the AppTec acquisition ($5.9 million).

WuXi did not break out separate numbers for its recent and controversial $151 million AppTec acquisition. In its conference call, WuXi officials said the company runs its business as a global business. Other than manufacturing vs. lab services, the company does not choose to detail its revenues by subsidiary or place of origin. When pressed further by analysts, WuXi did admit that earnings from its AppTec division were lower than last year on the manufacturing side and about even for laboratory services.

Chairman and CEO Ge Li put the acquisition in a more positive light, saying that the company was making headway on integrating AppTec into its corporate structure. WuXi is leveraging its traditional relationships with big pharma to gain business for AppTec’s strengths, which are medical device testing and biologics development. On the other hand, WuXi is offering its capabilities to AppTec’s client base, which stressed smaller biotechs. AppTec’s expertise, especially on the biologics side, will be shared with WuXi’s China facilities, and cross-training between the sites has already begun, according to Dr. Li.

On the large contract with Covance (CVD), WuXi said the company is still working out the details of their relationship and did not feel they could speak more about partnership until a formal contract is signed.

WuXi also teased analysts by saying that the company is working on major contract with a big pharma that involves a broad range of discovery services and also a major biologic manufacturing contract. Details, of course, were not disclosed.

Overall non-GAAP gross margin for WuXi was 40%, which the company broke down to laboratory service gross margin of 50% and manufacturing margins of 24%. The company recorded a loss of $2.3 million in the Other Income category from unrealized mark-to-market accounting losses in currency contracts.

WuXi reiterated its guidance that 2008 net revenues would total somewhere in a range between $280 million and $300 million.

WuXi’s stock traded 2.6% lower in mid-session, following the announcement. It was 50 cents lower at $18.80.