Shares in China’s WuXi PharmaTech were trading at a 10-month high after the Shanghai-based contract research organisation (CRO) delivered another quarter of earnings well above analysts’ estimates.
Operating income for the second quarter ended 30 June 2009 climbed 21.7% to US13.6 million, reflecting a 6.6% increase in gross profit and a 5.3% reduction in operating expenses. Net revenues for the quarter slipped 3.1% year on year to US$67.0 million.
Analysts polled by Thomson Reuters had been expecting revenues of US$63.7 million. The real surprise, though, came with earnings per share. The analyst consensus was for income of US$0.12 per American Depositary Share (ADS) in the second quarter. WuXi reported a jump of 66.7% in its diluted earnings per ADS, to US$0.20 compared with US$0.12 in the same period of 2008.
The second-quarter income was flattered by a net loss of US$2.2 million in the year-before period from discontinued operations, comprising the US biologics manufacturing operations in Philadelphia that WuXi decided to close down last December. Stripping out these losses, as well as other special items such as share-based compensation expenses and the amortisation/deferred tax impact of intangible assets, diluted earnings per ADS came in 4.3% higher at US$0.24.
There was strong growth from laboratory services during the quarter, with net revenues up by 19.3% year on year to US$61.5 million and gross profit 32.6% higher at US$26.3 million. By contrast, revenues from manufacturing services plunged 68.9% from the second quarter of 2008, to US$5.5 million, and gross profit fell by 85.7% to US$795,000.
According to WuXi, manufacturing services revenues are “inherently variable due to fluctuating demand and customer delivery schedules”, and most of the second-quarter decline in the business was down to “large projects in 2008 that did not recur in 2009”.
Laboratory services benefited from stronger demand for the CRO’s integrated drug discovery and development services, particularly in the DMPK (drug metabolism and pharmacokinetics)/ADME (absorption, distribution, metabolism, and excretion), bioanalytical, discovery biology, process research, analytical development, formulation development and core discovery chemistry segments.
“Our core capabilities in discovery chemistry continue to deliver a large portion of our revenues and revenue growth,” commented Dr Ge Li, chairman and chief executive officer of WuXi PharmaTech.
“In recent years, we have been building new capabilities in discovery biology, DMPK/ADME, formulation, toxicology, bioanalytical services, process research, analytical development services, and other areas,” he added. “These newer services have become increasingly significant revenue growth drivers as we offer an integrated platform of services. We have also expanded our services beyond development of small-molecule pharmaceuticals to include testing services for biologics and medical-device products.”
WuXi has raised its guidance for adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2009, to US$80-US$85 million compared with the previous forecast of US$72 million. Adjusted EBITDA were US$72.2 million in 2008.
The CRO is holding to its projection that net revenues for the current year will be in the range of US$265-US$275 million.
