Wuxi Pharma Drops on News of Deal Dissolution with Covance

WuXi PharmaTech (WX) and Covance (CVD) have decided not to continue their previously announced joint ownership of a preclinical laboratory, currently under construction. WuXi will now own 100% of the 323,450 square feet Suzhou facility, which was the company’s original intention. After announcing its plans to build the Suzhou facility one year ago, WuXi announced in June that it would form a 50-50 joint partnership with Covance to own and operate the facility. Now, it’s back to Plan A, which, emphasizing the positive, WuXi says will give shareholders “the full benefit” of the facility. No explanation was given for the change of plans.

Covance was supposed to invest $30 million into the JV. The facility, which is expected to open in the second half of 2009, will offer a complete range of GLP toxicology, drug metabolism and bioanalytical chemistry services. These emphasize somewhat later-stage capabilities than the services available from WuXi’s Shanghai facility.

The news of the partnership’s dissolution has sent the price of WuXi’s shares to a new all-time low. Following the announcement, WuXi was trading Monday for $12.87, a loss of $2.81 in the early part of the session.

Less than one year ago, the price of WuXi’s shares was $45.65. Quarter after quarter, the company continues to report solid and growing financial results, though WuXi is no longer predicting 100% gains in revenue and profit into the indefinite future, as it was when the company made its IPO in 2007.

With the benefit of the AppTec acquisition, WuXi’s revenues will double this year, though net income is expected to grow by only 50%. For 2009, revenues and net income are both expected to increase by approximately 35%. On a trailing 12 month basis, WuXi has a Price/Earnings ratio of 24, though its forward P/E, based on 2009 expectations, drops to 16.

Disclosure: none.