WuXi PharmaTech Looks Ahead to Profitable 2013

By Zachary Brennan

- Last updated on GMT

WuXi PharmaTech Looks Ahead to Profitable 2013

Related tags: Revenue

CRO WuXi PharmaTech has announced 22% net revenue growth in 2012 as its China-based lab services grew significantly. That trend is expected to continue with double-digit growth in 2013.

WuXi is the only CRO expected to grow earnings slower than revenue, Tim Evans, senior analyst at Wells Fargo said in an investor note. The company’s operating margin is also “the highest among our CRO coverage, and the company faces significant headwinds​,” Evans said.

In 2012, the company’s China-based lab services were particularly strong as net revenues increased more than 22% year over year. WuXi also invested $67.8m in new facilities and equipment in 2012, and Dr. Ge Li, chairman and CEO of WuXi, said in a conference call that was the most the company “has ever invested in one year​.”

Those investments include a new chemistry facility launched in Wuhan last month, a new cGMP biomanufacturing facility in Wuxi​, and funds for joint ventures (JV) with PRA​ and MedImmune​.

The JV with PRA will be formed in early second quarter 2013 and WuXi is currently in the process of getting Chinese government approval now, Dr. Li said. He added that the JV’s backlog will be building this year, and is likely to be a positive contributor to the company’s bottom line by around 2014.

A lot of the clinical business from PRA will be Phase 2 and Phase 3 trials​,” he added.

As for 2013, the company expects an increase of between 13% and 15% in revenue, as well as another $60m in investments. In particular, WuXi expects greater than 40% growth in toxicology revenues in 2013, built around increases in Chinese demand, as well as strong growth in biology.

A 33m backlog in biologics growing bigger every quarter will likely be realized over at least two years, Dr. Li added. “Our customers are moving to a balance of small and large molecules​,” Dr. Li said, noting that it could reach a 50-50 balance, but now “it’s about 90 percent small molecules, 10 percent large molecules​.”

Potential Hiccups

But the rosy outlook has some potentially worrisome areas. Competition in synthetic chemistry in China and India is producing pricing pressure, the company said in the conference call last week, though synthetic chemistry only makes up 18% of the company’s revenues.

WuXi’s manufacturing business is also at risk, according to Evans, because sales of telaprevir, which generated more than 40% of the company’s manufacturing revenue in 2011, “are expected to decline rapidly​.” Still, the company expects “mid-teens manufacturing growth in 2013…a testament to the company’s success generating research manufacturing business​.”

In addition, WuXi cited lower demand for advanced intermediates in its commercial manufacturing business. Continuing margin pressure from labour inflation is also expected to affect earnings per share growth in 2013.

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