Following the recent disappointment of its abandoned preclinical joint venture with Covance in China, Shangai-based contract research organisation (CRO) WuXi PharmaTech has lowered its revenue guidance for 2008 after preliminary results for the third quarter came in below analysts’ expectations.
Unaudited results for the quarter ended 30 September showed net revenues of US$66.0-US$67.5 million on a GAAP (Generally Accepted Accounting Principles) basis. Taking the median point of that range gave an increase of 96% on revenues of US$34.0 million reported for Q3 2007. Analysts polled by First Call/Thomson Financial were looking on average for revenues of US$73.84 million in the latest quarter.
The figures will have been boosted by the acquisition in January of AppTec, a US supplier of laboratory testing, contract research & development and manufacturing services, although WuXi did not separate out the WuXi results. In the preliminary third-quarter report, net revenues from laboratory services were US$46.0-US$47.0 million, 74% more (based on the middle point) than in the same period last year. Manufacturing services revenues were 177% ahead at US$20.0-US$20.5 million.
WuXi achieved gross profits of US$21.4-US$22.9 million in the quarter, up by 38% on a GAAP basis, while operating income dipped by 1% to US$6.7-US$8.2 million. However, earnings before interest, taxes, depreciation and amortisation (EBITDA) climbed 44% to US$13.9-US$15.4 million.
Preliminary gross profit from laboratory services for the third quarter was 49% higher at US$18.7-US$19.7 million but gross profit in the manufacturing services segment dropped by 5% to US$2.7-US$3.2 million.
“WuXi continues its historical trend of delivering strong revenue and profitability growth, as reflected in the 96% top-line revenue and 52% non-GAAP EBITDA growth,” commented chairman and chief executive officer Dr Ge Li.
As the CRO enters the fourth quarter, though, “we expect lower than anticipated full-year 2008 revenues, due to cancelled or delayed projects from small biotechnology customers”, Li noted. “However, our China-based laboratory services business remains strong and is expected to grow over 40%, year over year.”
Even with the current turbulence in financial markets, “we believe the need for outsourced services remains robust”, he added. “WuXi has an outstanding reputation for providing high-quality, intellectual property-protected services in a cost-effective and efficient manner. In all environments, we are positioned to meet and anticipate our customer needs, by expanding and evolving our services, while maintaining our focus on revenue growth and profitability.”
In light of “the current economic environment and its impact on the anticipated research and development spending of its smaller customers”, WuXi has revised its net revenue guidance for 2008 downwards from US$280-US$300 million to US$260-US$265 million. This would represent year-on-year revenue growth of 92-96%.
Full-year EBITDA on a non-GAAP basis, excluding share-based compensation charges, the potential impact of goodwill-impairment charges, and further adjustment of foreign currency forward contracts, is expected to be in the range of US$70-US$75 million.
WuXi is scheduled to report its finalised operating results for the third quarter on 12 November.
