JP Morgan 2012 Presentation.pdf

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    WuXi PharmaTech:The Leading China-Based

    R&D Services Company

    2012 J.P. Morgan Healthcare Conference

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    Cautionary Note Regarding Forward-Looking Statements

    Statements in this release contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private

    Securities Litigation Reform Act of 1995, including, among others, our financial guidance for third-quarter and full-year 2011(including, as applicable, estimated total net revenues, China-based Laboratory Services net revenues, U.S.-based LaboratoryServices net revenues, Manufacturing Services net revenues, gross margins, operating margins, capital expenditures,effective tax rates, and other trends), an increased trend towards outsourced and offshored R&D, our ability to benefit from thistrend and our related efforts to be the industrys alternative R&D engine to discover and develop new drugs for both the globaland Chinese markets and the anticipated benefits of the Abgent and MedKey acquisitions and other planned investments andcapital expenditures (including investments through WuXis corporate venture fund). These forward-looking statements arenot historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherentlyuncertain and outside of our control. Our actual results and financial condition and other circumstances may differ, possiblymaterially, from the anticipated results and financial condition indicated in these forward-looking statements. Among otherfactors, the state of the global economy may continue to be uncertain; pharmaceutical companies may not change theirbusiness models as expected or in a manner favorable to us; we may fail to capitalize on the opportunities presented; the

    pressures being felt by our customers and pharmaceutical industry consolidation may adversely impact our business and thetrends for outsourced and offshored R&D and manufacturing for longer than expected or more severely than expected; wemay not enjoy the anticipated benefits of the Abgent and MedKey acquisitions or other planned investments and capitalexpenditures (including investments made through the planned corporate venture fund) on a timely basis or at all; we mayneed to modify the nature and level of our investments and capital expenditures; we may not maintain our preferred providerstatus with our clients and may be unable to successfully expand our capabilities to meet client needs; and we may faceincreased margin pressure as a result of renminbi appreciation and increased labor inflation in China. In addition, other factorsthat could cause our actual results to differ from what we currently anticipate include our limited operating history; failure togenerate sufficient future cash flows or to secure any required future financing on acceptable terms or at all; failure to retainkey personnel; our reliance on a limited number of customers to continue to account for a high percentage of our revenues; therisk of payment failure by any of our large customers, which could significantly harm our cash flows and profitability; ourdependence upon the continued service of our senior management and key scientific personnel, and our ability to retain our

    existing customers or expand our customer base. You should read the financial information contained in this release inconjunction with the consolidated financial statements and related notes thereto included in our 2010 Annual Report on Form20-F filed with the Securities and Exchange Commission and available on the Securities and Exchange Commission's websiteat http://www.sec.gov. For additional information on these and other important factors that could adversely affect our business,financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of our 2010 Annual Report onForm 20-F. Our results of operations for third-quarter 2011 are not necessarily indicative of our operating results for any futureperiods. All projections in this release are based on limited information currently available to us, which is subject to change.

    Although these projections and the factors influencing them will likely change, we undertake no obligation to update or revisethese forward-looking statements, whether as a result of new information, future events or otherwise, after the date of thispress release, except as required by law. Such information speaks only as of the date of this release.

    http://www.sec.gov/http://www.sec.gov/
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    Use of Non-GAAP and Pro-Forma Financial Measures

    We have provided third-quarter and nine-month 2010 and 2011 gross profit, gross margin, operating

    income, operating margin, net income, and earnings per ADS on a non-GAAP basis, which

    excludes share-based compensation expenses, amortization and the deferred tax impact of

    acquired intangible assets and a $30 million termination fee received from Charles River

    Laboratories related to the proposed transaction, expenses incurred in connection with that

    transaction, and bonuses paid to employees after termination of that transaction. We believe both

    management and investors benefit from referring to these non-GAAP financial measures in

    assessing our financial performance and liquidity and when planning and forecasting future periods.

    These non-GAAP operating measures are useful for understanding and assessing underlying

    business performance and operating trends. We expect to continue providing these financial

    measures on a non-GAAP basis using a consistent method on a quarterly basis. You should not

    view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as

    being comparable to results reported or forecasted by other companies.

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    Profile of WuXi

    Leading China-based contract research organization serving the

    pharmaceutical, biotech, and medical device industries

    More than three times larger than the next largest China-basedcompetitor

    Virtually all of the largest pharmaceutical companies are customers,several for nearly a decade

    World-class operations in China and the United States

    One of the largest employers of chemists in the pharmaceuticalindustry

    Founded in 2000 to provide compound synthesis services fordrug discovery

    Has continuously been building capabilities and capacities alongthe drug discovery and development value chain

    Now offers a broad and integrated portfolio of laboratory and

    manufacturing services

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    WuXis Business Model Is Working

    WuXi is building an alternative R&D engine for the global life-

    sciences industry

    This engine offers a technology platform and integrated

    service offerings that will enable anyone and any company to

    discover and develop medicines

    China is rapidly becoming an important hub for

    pharmaceutical R&D, in part because of the rapid growth of

    the large Chinese pharmaceutical market itself

    WuXi will continue to lead the Chinese life-sciences industry

    by building capabilities and capacities to serve our customersbetter

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    Building WuXis Integrated R&D Service Platform: 2001

    TargetIdentification/

    Validation

    Screeningfor

    Drug Leads

    Hit/LeadIdentification

    LeadOptimization/

    MedicinalChemistry

    CompoundSynthesis

    AssayDevelopment

    FormulationADME/DMPK

    Manufac-turing

    ProcessScaleup

    Toxicology

    Phase 1ClinicalTrials

    Phase 2Clinical

    Trials

    Phase 3Clinical

    Trials

    ResearchManufacture

    Phase 4(Post-

    Marketing)Studies

    CommercialManufacture

    Discovery

    Preclinical

    Clinical

    Bioanalytical Services

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    Building WuXis Integrated R&D Service Platform: Today

    TargetIdentification/

    Validation

    CompoundSynthesis

    Discovery

    Preclinical

    Clinical

    Manufac-turing

    ProcessScaleup

    ResearchManufac-

    turing

    Bioanalytical Services

    AssayDevelopment

    Screeningfor

    Drug Leads

    Hit/LeadIdentification

    LeadOptimization/

    MedicinalChemistry

    ADME/DMPK

    Formulation Toxicology

    Phase 1ClinicalTrials

    Phase 2Clinical

    Trials

    Phase 3Clinical

    Trials

    CommercialManufacture

    Phase 4(Post-

    Marketing)Studies

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    WuXi PharmaTech Revenue Growth

    2004 2005 2006 2007 2008 2009 2010 2011

    $33.8$20.9

    $69.9

    $135.2

    $253.5

    (US$ in Millions)

    U.S.-BasedLaboratoryServices

    China-Based

    LaboratoryServices

    Manufacturing

    $270.0

    $334.1

    $406+~22%

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    Update of 2011 Financial Guidance

    Total Revenues $402-$406 million Exceeded

    China-Based LaboratoryServices Revenues

    +14-15% Achieved

    U.S.-Based LaboratoryServices Revenues

    + About 6% Achieved

    Manufacturing Services

    Revenues

    + At least 84% Achieved

    Gross Margin Approximately equal to 2010 level on GAAPbasis, decline of about 1.5 percentagepoints on non-GAAP basis

    Achieved

    Operating Margin About 21% GAAP; about 24% non-GAAP Achieved

    Effective Tax Rate About 18% Achieved

    Capital Expenditures $60-65 million Achieved

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    WuXi Business Segment Overview

    China-Based

    Laboratory Services

    Synthetic chemistry

    Medicinal chemistry

    Discovery biology

    DMPK/ADME

    Formulation developmentToxicology

    Biologics development

    Biologic reagentsmanufacturing

    Clinical development

    Bioanalytical servicesAnalytical/stability testing

    U.S.-Based

    Laboratory Services

    Medical device safetytesting

    Biologic products safetytesting

    Tissue processing services

    Cell banking

    Cell therapy

    Microbiology testing

    Lot release testing

    Manufacturing Services

    API manufacturing

    Advanced intermediatesmanufacturing

    Process scale-up

    Process validationUnder development:Biologics manufacturing(monoclonal antibodies,therapeutic proteins)

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    China-Based Laboratory Services Grew Steadily

    2009 2010 2011

    408

    258

    171

    2009 2010 2011

    185.8

    219.4

    ~251

    Number of CustomersRevenues ($ millions)

    18%

    14-15%

    47%

    58%

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    Toxicology Services Are Gaining Momentum

    2009 2010 2011

    Number of Customers

    US FDA GLP compliant, OECD

    and SFDA certified GLP facilityfor general toxicology and

    genetic toxicity studies

    Contracts signed with Johnson

    & Johnson and a second largepharmaceutical client

    Six large pharmaceutical

    companieshave begun to use

    our services

    Revenue is ramping up rapidly;

    Suzhou site (tox and large

    animal DMPK) expected to break

    even by 4Q12

    9

    24

    43

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    Manufacturing Services

    2009 2010 2011

    (US$ in Millions)

    Revenues ($ millions)

    20.1

    39.9

    ~75

    99%

    ~88% Research manufacturing

    Driven by innovative work of ~310process chemists

    Produces advanced intermediates andAPIs for drug candidates in preclinicaland clinical trials

    Facility expansion will be operationalby 2Q12 and will double our capacity

    Currently working on 4 Phase III, 17Phase II, and 75 Phase I/preclinicalprograms, some of which will feedtoxicology and commercialmanufacturing

    Commercial manufacturing

    Produces advanced intermediates for amajor new drug

    2009 2010 2011

    167184

    203

    Number of Projects

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    U.S.-Based Laboratory Services

    2009 2010 2011

    64.1

    Revenues ($ millions)

    75.5~80

    18%

    ~6%Provides a broad range of testing

    services for biologics and medical

    devices necessary for regulatory

    approval or product release

    Excluding one tissue processingcustomer, 2011testing revenues

    grew double digits

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    Investing for the Future

    WuXi continues to build capabilities and capacities in the followingareas:

    New Wuhan site for chemistry laboratories

    Expanded and integrated drug discovery capabilities andcapacities

    Biologics discovery and development laboratory in Shanghai andcGMP biologics manufacturing facility in WuXi

    Expanded formulation development and drug productmanufacturing capacity

    Clinical development capabilities

    Abgent marketing and sales capabilities and new reagent productdevelopment capabilities

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    Wuhan Chemistry Laboratories

    Facility to open 1Q12

    Wuhan is a major city in central China with a large talent pool

    Initial staff of ~ 200 people will eventually grow to more than

    1,000

    Allows WuXi to

    leverage lower

    costs in central

    China

    Receiving

    strong localgovernment

    support

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    Integrated Biologics Services

    Will offer full range of

    services from discovery tocommercial drug substance/drug product manufacturing

    Signed multiple integrateddevelopment and

    manufacturing contracts

    Built a strong team ofleaders with proven trackrecords in US/EU

    Established a leadingmonoclonal antibodytechnology platform inChina

    Expected to contribute torevenue growth starting in

    2013

    First cGMP Biologics Facility in China

    City of WuXi

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    Abgent: Producer of Biological Research Reagents

    One of the worlds leading manufacturers of antibodies,

    peptides, and proteins for research, with catalog of about20,000 antibodies

    About 150 employees work in a 34,000 square-footlaboratory in Suzhou and a 10,000 square-foot laboratory

    and office in San Diego Expands our service offering to our existing customers and

    to new customers in the life-sciences research communityand taps into the rapidly growing Chinese life-sciencesresearch market

    In 2012, plan to develop new high-value-added productsand expanded sales and marketing capabilities in the U.S.and China to build a platform for strong growth in 2013 andbeyond

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    MedKey: China-Based Clinical Research Services

    Provides services in regulatory affairs, Phase I-IV clinical trial

    management, and site management for multinational andChinese pharmaceutical companies filing products in China

    Has operations in 15 Chinese cities, with offices in Shanghai,Beijing, and Guangzhou, covering all regions of China

    Provides WuXi with an existing clinical development servicecapability and infrastructure in China, launching us into thisbusiness faster than we could accomplish on our own

    Will focus in 2012 on significantly expanding clinical teams andbuilding capabilities

    Two multinational CROs have recently bought China-basedclinical CROs, validating our interest in this business

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    (US$ in Millions)

    3Q10 4Q10 1Q11 2Q11 3Q11

    Gross Profit/Margin

    Revenues

    Operating Income/Margin

    GAAP Revenues/Gross Profit/Operating Income

    $83.8

    29.8

    19.2

    35.6%

    22.9%

    $88.5

    34.1

    18.8

    37.1%

    21.2%

    $93.6

    34.738.5%

    19.8 21.2% 21.5

    38.6

    $101.1

    21.3 %

    $104.0

    40.6

    22.2

    38.2 %39.0%

    21.4 %

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    (US$ in Millions)

    3Q10 4Q10 1Q11 2Q11 3Q11

    Gross Profit/Margin

    Revenues

    Operating Income/

    Margin

    Non-GAAP Revenues/Gross Profit/Operating Income

    $83.8

    34.5

    22.6

    41.2%

    27.0%

    $88.5

    22.4

    35.6

    25.3%

    40.2%

    $93.6

    36.1

    23.1 24.7%

    38.5%

    $101.1

    40.0

    25.0

    39.5%

    24.7%

    $104.0

    41.8

    24.9

    40.2%

    24.0%

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    Uses of Cash

    WuXi has about $200 million of cash and a $29 million

    bank loan

    We see several good opportunities to use this cash and

    our free cash flow for targeted investments, primarily in

    China, to continue to build our capabilities and capacity

    A convertible note of $36 million will be redeemed on

    February 9 if the stock price is below $12.60, reducing

    the share count for calculating diluted EPS similar to a

    share buyback

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    2012 Growth Strategy

    Grow China-based Laboratory Services by leveraging our

    integrated discovery and development capabilities in

    medicinal chemistry, CMC, toxicology, and IND services

    Advance manufacturing project pipeline with our strong

    process and research manufacturing capabilities

    Build Chinas leading biologics drug discovery and

    development platform

    Continue to drive U.S.-based Laboratory Services to broaden

    testing service offerings and gain market share

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    WuXi is Well Positioned to Continue to Grow

    The pharmaceutical industry is undergoing transformational

    change and adopting a more collaborative and networkedR&D model for drug discovery and development

    WuXi is building an integrated open-access R&D services

    platform as the industrys alternative R&D engine to enable

    anyone and any company to discover and develop new drugs

    Outsourcing of R&D increases pharmaceutical companies

    flexibility and agility and reduces their fixed costs

    Offshore outsourcing of R&D to China will accelerate because

    of the fast-growing Chinese pharmaceutical market and

    growing R&D capabilities in China

    WuXi will work hard to become THE technology platform

    company of Chinas life science industry

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    Appendix

    GAAP to Non-GAAP Reconciliations

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    3Q2011(US$ in millions)

    GAAP

    Share-Based

    Compensation

    Expenses

    Amortization of

    Acquired

    Intangible Assets

    Non-GAAP

    Net revenues 104.0 104.0

    Cost of revenues (63.4) 0.9 0.4 (62.1)Selling & marketing expenses (2.7) (2.7)

    General & administrative

    expenses(15.6) 1.4 (14.2)

    Other income/(expenses), net 3.0 3.0

    Income tax expenses (4.7) (0.1) (4.8)

    Net income 20.6 2.3 0.3 23.2

    Third-Quarter 2011 GAAP to Non-GAAP Reconciliation

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    9M2011(US$ in millions)

    GAAP

    Share-Based

    Compensation

    Expenses

    Amortization of

    Acquired

    Intangible Assets

    Non-GAAP

    Net revenues 298.6 298.6

    Cost of revenues (184.8) 2.8 1.0 (181.0)Selling & marketing expenses (7.2) (7.2)

    General & administrative

    expenses(43.0) 5.6 (37.4)

    Other income/(expenses), net 6.6 6.6

    Income tax expenses (12.7) (0.4) (13.1)

    Net income 57.5 8.4 0.6 66.5

    Nine-Month 2011 GAAP to Non-GAAP Reconciliation