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Wuxi sees demand grow in Q3 underlining strength of China’s R&D sector

By Gareth Macdonald, 14-Nov-2011

Related topics: Bulk ingredients, Phase I-II, Phase III-IV, Clinical Development

Wuxi Pharmatech posted a positive set of third-quarter financials, further underlining the current strength of China’s R&D services sector.

Wuxi posted net revenue of $104m (EUR76m) for the quarter, up 24 per cent on the year earlier period, with the contribution from its manufacturing services business increasing 18.3 per cent to $20m and its laboratory increasing 9.2 per cent to $84m.

Of the laboratory services gains the firm’s China-based laboratory business contributed $63.2m an increase of 10 per cent year-on-year.

CEO Ge Li said: "WuXi achieved another solid quarter, driven by particularly strong revenue performances in Manufacturing Services, integrated medicinal chemistry, DMPK/ADME, toxicology, formulation, and analytical and bioanalytical services."

"Global R&D outsourcing to China continues to increase going into 2012," Dr. Li continued. "WuXi is well positioned to benefit from this outsourcing trend by offering our customers an integrated R&D services platform for cost-effective drug discovery and development.

Li went on to predict that Wuxi's total net revenues for 2012 will be between $402m to $406m, with a $1.5m contribution from recent acquisitions Abgent and MedKey .

Key to this, according to Li, will be a 15 per cent increase of the firm’s lab services business in China, and an 84 per cent hike in manufacturing services.

Jefferies & Co equity analyst David Windley was very positive about Wuxi thirds quarter performance, explaining in a note to investors that: “Wuxi contines to post attractive and differentiated growth in the CRO space and to exceed expectations.

He added that margin pressure has been well managed and that the recent launch of Janssen Pharmaceutical’s liver disease drug telaprevir has helped drive Wuxi’s large-scale manufacturing revenue growth.

China growth

Li comments and Wuxi's Q3 results fit with recent analysis which suggested that the R&D service sector in China is not seeing the drop in demand that is being seen elsewhere.

In September Lipin Cal, research analyst at William Blair, said: “The macroeconomic environment does not appear to be impacting client willingness to spend on R&D projects in China,” citing Wuxi as a key beneficiary.

And Wuxi seems determined to keep reaping the benefits of international interest in Chinese R&D, announcing the launch of a $50m corporate fund to help drive technology development in the country.

Li said: "This fund will invest in technologies and life-sciences companies to enhance our platform capabilities and to help great minds realize the potential of their technologies and intellectual property.

Through the fund's investments, WuXi expects to benefit from appreciation in value of the companies invested in and from access to these technologies and collaborations, including new revenue-generating opportunities." To date Wuxi has invested in only one company, Hua Medicine.

Windley was less convinced of the benefits of the investment approach, explaining that investors tend to prefer a more independent business relationship between vendors and clinets.

He added that: “We’d prefer that capital be used for share repurchase,” but conceded that “Wuxi is already capturing revenue generated from the relationship [with Hua].”