WuXi PharmaTech Earnings Call Insights: Backlog Recognition, Tox Business

On Friday, WuXi PharmaTech (Cayman), Inc. ADR (NYSE:WX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Backlog Recognition

Jack Hu – Deutsche Bank: Congratulations for good quarter. I have two questions. First is, when I look at your annual report it says, as the backlog for Lab service was around $84 million, by year end 2011 versus $53 million and $48 million – or actually $46 million in the two previous years so there is all around 60% of increase for your backlog recognition. What happened here and can you share with us what’s the implication going forward? My second question is, during the first quarter we have seen a lot of positive news flow on HCV, so what is your – what should – how should we think about for WuXi Manufacturing revenue going forward beyond the 2013?

Edward Hu – CFO: Yes. I will answer your first question and Dr. Ge will address your second question. The backlog number disclosed in the 20-F is actually just a snapshot in time, it just that it happens to be December 31 of each year. So, it’s growing quite a bit compared to past few years because we have been signing up those contracts, particularly large manufacturing contracts as well as larger collaboration and FT collaboration contracts, that’s primarily driving why the backlog is growing in year end. But often cases actually the fourth quarter the backlog is even stronger.

Ge Li, Ph.D. – Chairman and CEO: Our Manufacturing Services revenue growth is broad-based as we indicated in the call. Actually, we have now four projects to manufacturing commercial – intermediates for commercial products and now we have like another three products. I am certainly happy that HCV field is growing and HCV patients are treated, but our revenue growth is really very – it’s broad-based, not only on one product.

Tox Business

Ingrid Yin – Oppenheimer: Congratulations on a great quarter. My questions are focused on your two businesses. One is on tox business, so we’ve seen some of your U.S. competitors is still reducing capacity in U.S., and we’ve seen WuXi is developing more customers. Are these customers are China-based and U.S.-based? How do you think of your competitors’ action of still reducing capacity? We see the guidance, 4Q this business will breakeven, is it on cash flow basis or P&L basis? On biologics, we know that there will be strong growth drivers going forward is Abgent part of it and Shanghai Development Center and Manufacturing, what are the capacity, are they mostly biosimilar or novel therapeutic molecules?

Edward Hu – CFO: On the tox business, the U.S. capacity reduction and relatively low demand is not indicative of our China business. The reason is that, most pharmaceutical companies are (indiscernible), so they have fewer product programs going towards long-term tox. Nevertheless, in China the tox business in GLP particularly is just beginning, so our demand is driven by both the international companies coming to China, they want to file IND in China and also driven by our local the domestic Chinese pharmaceutical companies, they also want to do, to be able to file IND both in China and in the U.S. So, that’s where WuXi is very well positioned to serve to those customers. When we say we are driven by Q4 in this business we meant on the P&L at that level.

Ge Li, Ph.D. – Chairman and CEO: Also in China, there are many like international standard GLP facility and the capability. The (older) capacity is (indiscernible) is almost irrelevant. On the biologics questions, our business is coming from both biosimilar and very innovative products, and our customer base is also including domestic pharmaceutical companies, as well as the international companies.