WuXi PharmaTech (Cayman) (WX)

Q2 2012 Earnings Call

August 14, 2012 8:00 am ET


Ronald Aldridge - Director of Investor Relations

Ge Li - Co-Founder, Chairman, Chief Executive Officer, Member of Strategy Committee and Member of Compensation Committee

Edward Hu - Chief Financial Officer and Chief Operating Officer


Ingrid Yin - Oppenheimer & Co. Inc., Research Division

Ramesh C. Donthamsetty - JP Morgan Chase & Co, Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Roberto Fatta

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Katherine Lu - Cowen and Company, LLC, Research Division

Bin Li - Morgan Stanley, Research Division

B. Kemp Dolliver - Religare Capital Markets, Research Division

Hao Zhou - Piper Jaffray Companies, Research Division

Shaojing Tong - BofA Merrill Lynch, Research Division

Wei Du - Goldman Sachs Group Inc., Research Division

Jack Hu - Deutsche Bank AG, Research Division



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Ladies and gentlemen, thank you for standing by and welcome to the WuXi PharmaTech Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 14th of August, 2012. I would now like to hand the conference over to your speaker for today, Mr. Ron Aldridge. Sir, please go ahead.

Ronald Aldridge

Thank you, Jorge, and good morning or good evening, to everyone participating in our second quarter 2012 earnings conference call. Hosting this conference call today is Dr. Ge Li, Chairman and Chief Executive Officer. Joining him is Edward Hu, our Chief Financial Officer.

During today's presentation and question-and-answer session, we will make forward-looking statements. These forward-looking statements represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and partially are completely outside our control. I would also like you to refer to the risk factors inherent in our business that you see here and that have been filed with the SEC and are on our company website under the Investor Relations section. Actual results can be materially different from any forward-looking statements we make today.

Also, in discussing our financials, we will use certain non-GAAP measures, which excludes share-based compensation expenses and amortization and the deferred tax impact of acquired intangible assets. We believe these non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. Reconciliations of our GAAP to non-GAAP second quarter 2012 results of operations are found in today's earnings release, which has been posted to our website and in the appendix to this presentation. [Operator Instructions]

And now it's my pleasure to introduce Dr. Ge Li to review our second quarter 2012 performance and to discuss our third quarter and full year 2012 business outlook. Dr. Li?

Ge Li

Thank you, Ron, and good evening, or good morning, everyone. Slide 3, please.

I'd like to begin by reminding you of WuXi's business model. Our second quarter 2012 results show that this model is successful and working well. WuXi is building an alternative R&D engine to serve the global life sciences industry. This engine offers a technology platform and integrated service offerings that will eventually enable anyone and any company to discover and develop medicines more efficiently and cost-effectively. Our clients can utilize our entire integrated service platform from A to Z or can use support on our service platform to advance its projects from one stage to the next. Our ambition is to make WuXi the backbone of China's growing life science R&D service industry.

Slide 4, please. WuXi continued to perform well in the second quarter. Revenue growth in our China Lab Service business accelerated, driven by growing outsourcing demand of companies worldwide and by WuXi's expanding service capabilities. Manufacturing also had a strong growth in this quarter, driven by increased delivery of APIs for clinical trials and our advanced intermediate for commercial products. I'm particularly proud to tell you that our China-based operations achieved quarterly revenue of more than $100 million, the first time in the company history. U.S.-based Laboratory Service also achieved high double-digit year-over-year revenue growth in the second quarter, driven by growth in demand for our biologics testing services.

Slide 5, please. Our integrated medicinal chemistry business grew strongly in the quarter. We're making substantial progress in building a lot of discovery, development in the manufacturing business. Our new biologics development lab, the non-GMP biologics manufacturing facility in Shanghai, are now fully operational. Construction of our state-of-the-art cGMP biologics manufacturing facility in WuXi city is on track to be completed in the fourth quarter of this year, and we are refining our full year 2012 financial guidance. As a result, our strong revenue in the quarter had a better visibility for the remainder of the year by increasing our full year revenue projection from $468 million to $488 million to $488 million to $498 million.

Slide 6, please. WuXi has now built a fully integrated service platform from discovery to preclinical development, single file management in the clinical and the commercial GMP manufacturing. We command the leading position in medicinal chemistry service in China with more than 60 programs currently running. We'll continue to invest aggressively in both existing business and in new business such as biologics, clinical development, genomics and the biological reagents to keep us ahead of our competition and further differentiate and to diversify our portfolio of services. While our significant investment, coupled with a rising labor cost in China, including near-term pressure on our margins, we expect our strong revenue growth to more than offset our margin pressure and to grow profit in 2012. We continue to work to stabilize the margin by improving productivity and building differentiated businesses that command premium pricing.

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