wuxi second quarter 2013 earnings presentation

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Second Quarter 2013 Earnings Presentation Dr. Ge Li, Chairman and CEO Edward Hu, COO and CFO

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Page 1: WuXi Second Quarter 2013 Earnings Presentation

Second Quarter 2013 Earnings Presentation

Dr. Ge Li, Chairman and CEO

Edward Hu, COO and CFO

Page 2: WuXi Second Quarter 2013 Earnings Presentation

Cautionary Note Regarding Forward-Looking Statements

This presentation contains "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead are predictions about future events. Examples of forward-looking statements in this presentation include statements about our third-quarter and full-year 2013 guidance, the goals and growth of our various service offerings and the prospects of our strategic partnerships. Although we believe that our predictions are reasonable, future events are inherently uncertain and our forward-looking statements may turn out to be incorrect. Our forward-looking statements are subject to risks relating to, among other things, our ability to increase volume for our chemistry service offerings, to meet timelines for the expansion of our biologics service offerings, to realize the anticipated benefits of our strategic partnerships, to protect our clients’ intellectual property, and to compete effectively. Additional information about these and other relevant risks can be found in our Annual Report on Form 20-F for the year ended December 31, 2012. The forward-looking statements in this presentation speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements except as required by law.

2

Page 3: WuXi Second Quarter 2013 Earnings Presentation

We have provided the second-quarter and first-half 2012 and 2013 gross profit, gross margin, operating income, operating margin, net income, net margin, and earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses and the amortization and deferred tax impact of acquired intangible assets. 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 to provide net income and earnings per ADS 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, and should refer to the reconciliation of GAAP measures to non-GAAP measures for the indicated periods in this presentation.

Use of Non-GAAP and Pro-Forma Financial Measures

3

Page 4: WuXi Second Quarter 2013 Earnings Presentation

Revenues grew 9.2% year over year, led by 18.6% growth in China-

based Laboratory Services

Costs were well-controlled through continuous operational

improvements, increased productivity, and company-wide

implementation of Lean Sigma programs

Gross margins and operating margins were in line with recent

quarters and comparable to 2Q12

GAAP diluted EPS grew 45.5% to $0.41, driven by revenue growth,

cost control, and non-operational factors

We exceeded our 2Q13 revenue and diluted EPS guidance

Second Quarter Overview

4

Page 5: WuXi Second Quarter 2013 Earnings Presentation

Biologics services achieved strong revenue growth in 2Q13 and will be

one of the key drivers of revenue and earnings growth for the next

several years

The pipeline of small-molecule commercial manufacturing opportunities

continues to grow

WuXiPRA, our clinical services joint venture with PRA, was established

and Dr. James Pusey was named President and General Manager

On the basis of this strong quarter, we increased full-year 2013 guidance

• Revenue guidance increased from $565-$575 million to $572-$578 million

• GAAP diluted EPS guidance increased from $1.26-$1.30 to $1.38-$1.44

• Non-GAAP diluted EPS guidance increased from $1.49-$1.53 to $1.61-$1.67

Second Quarter Overview (continued)

5

Page 6: WuXi Second Quarter 2013 Earnings Presentation

Revenue exceeded guidance, driven primarily by higher than

expected revenues in biologics services, manufacturing, and

medicinal chemistry

Diluted EPS also exceeded guidance, driven by revenue growth, gross

margin improvement, larger mark-to-market gains on foreign-

exchange forward contracts, and lower tax expense

Second-Quarter 2013 Performance Versus Guidance

Actual Guidance

Total Revenues $142.3 million $138-140 million

GAAP Diluted EPS $0.41 $0.34-$0.35

Non-GAAP Diluted EPS $0.46 $0.39-$0.40

6

Page 7: WuXi Second Quarter 2013 Earnings Presentation

Second-Quarter 2013 Revenue Summary

(US$ in millions) Second Quarter

2013 2012 Δ

Total Net Revenue $142.3 $130.4 9.2%

China-Based Laboratory Services $83.4 $70.3 18.6%

U.S.-Based Laboratory Services $22.5 $23.3 (3.2%)

Total Laboratory Services $105.9 $93.6 13.2%

Manufacturing Services $36.4 $36.8 (1.1%)

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Page 8: WuXi Second Quarter 2013 Earnings Presentation

Revenue Performance by Business

2Q12 3Q12 4Q12 1Q13 2Q13

Total Net Revenues

Manufacturing Services

U.S.-Based Lab Services

China-Based Lab Services

$130.4

36.8

23.3

70.3

$125.8 26.9

21.9

77.0

$125.7 21.9

22.3

81.5

$131.9 34.4

23.0

74.5

$142.3

36.4

83.4

22.5

Total company revenue

was a record

China Lab Services

continued its strong

growth trend with a

record quarter

U.S. Lab Services revenue

growth is being impacted

by difficult comparisons

with a strong 2Q12

Manufacturing Services

revenue was our second

highest ever

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Page 9: WuXi Second Quarter 2013 Earnings Presentation

Second-Quarter 2013 GAAP Financial Summary

(US$ in millions)

Second Quarter

2013 2012 %

Growth

Net Revenue $142.3 $130.4 9.2%

Gross Profit 51.8 46.5 11.3%

Gross Margin 36.4% 35.7%

Operating Income 25.7 23.8 8.1%

Operating Margin 18.1% 18.2%

Net Income 29.6 20.5 44.6%

Effective Tax Rate* 11.6% 16.8%

Weighted Average ADS Outstanding—Diluted

72,506,783 72,984,759 (0.7%)

Diluted Net Earnings Per ADS 0.41 0.28 45.5%

9 * The 2Q13 effective tax rate reflects the mix of taxable income and one-time tax benefits of $2.3 million

Page 10: WuXi Second Quarter 2013 Earnings Presentation

GAAP Revenues/Gross Profit/Operating Income

Total Net Revenues

36.8

23.3

70.3

26.9

21.9

77.0

21.9

22.3

81.5

34.4

23.0

74.5

36.4

83.4

22.5

GAAP gross profit and

operating income were at

record levels

GAAP gross margin and

operating margin were

within the range of prior

quarters

2Q12 3Q12 4Q12 1Q13 2Q13

$130.4

46.5

23.8

35.7%

Revenues

18.2%

$125.8

46.1

21.5

36.6%

17.0%

$125.7

48.8

23.6

38.8%

18.7%

$131.9

47.4

23.0

36.0%

17.4%

$142.3

51.8

25.7 18.1%

36.4%

10

Gross Profit / Margin

Operating Income / Margin

Page 11: WuXi Second Quarter 2013 Earnings Presentation

Second-Quarter 2013 Non-GAAP Financial Summary

(US$ in millions)

Second Quarter

2013 2012 %

Growth

Net Revenue $142.3 $130.4 9.2%

Gross Profit 53.0 48.0 10.2%

Gross Margin 37.2% 36.8%

Operating Income 29.8 27.4 8.8%

Operating Margin 20.9% 21.0%

Net Income 33.7 23.9 41.0%

Effective Tax Rate* 10.4% 15.3%

Weighted Average ADS Outstanding—Diluted

72,506,783 72,984,759 (0.7%)

Diluted Net Earnings Per ADS 0.46 0.33 41.9%

11 * The 2Q13 effective tax rate reflects the mix of taxable income and one-time tax benefits of $2.3 million

Page 12: WuXi Second Quarter 2013 Earnings Presentation

Non-GAAP Revenues/Gross Profit/Operating Income

Total Net Revenues

36.8

23.3

70.3

26.9

21.9

77.0

21.9

22.3

81.5

34.4

23.0

74.5

36.4

83.4

22.5

Stable margin trends similar

to GAAP numbers

2Q12 3Q12 4Q12 1Q13 2Q13

$130.4 Revenues $125.8 $125.7

$131.9

$142.3

29.8 20.9%

48.5

26.7

53.0

27.4

50.0

26.6

47.6

27.4

48.0 37.2%

36.8%

20.2%

39.8%

21.8% 21.2%

37.8%

21.0%

36.8%

12

Gross Profit / Margin

Operating Income / Margin

Page 13: WuXi Second Quarter 2013 Earnings Presentation

Second-Quarter 2013 Revenue Distribution

36.8

23.3

70.3

26.9

21.9

77.0

21.9

22.3

81.5

34.4

74.5

36.4

83.4

22.5

29.8

48.6

26.7

53.0

27.4

50.0

26.6

47.6

27.4

48.0

13

2Q132Q12

China-Based Lab Services

Medicinal Chemistry And Other Discovery*

27.0% Development**

15.8%

U.S. Lab Services 15.8%

Manufacturing 25.6%

*Includes Medicinal Chemistry, Biology, DMPK/ADME, Biological Reagents and others

**Includes Formulation, Analytical Development, Toxicology, Bioanalytical Services, Biologics, Clinical, and Genomics

Synthetic Chemistry

17.2%

Medicinal Chemistry And Other Discovery*

26.0%

Development** 10.7%

Manufacturing 28.3%

U.S. Lab Services 17.8%

Synthetic Chemistry

15.8%

Page 14: WuXi Second Quarter 2013 Earnings Presentation

Factors Impacting 2Q13 Diluted EPS

14

$0.28

$0.41 ~$.14

(~$.02) (~$.02)

2Q12 Diluted EPS

2Q13 Diluted EPS

Business Growth

Investment* Labor

Inflation

$0.33

$0.46

GAAP

Non-GAAP

Non-GAAP

GAAP

~$.07

(~$.04)

Mark-to-Market Gains**

Other FX Impacts

* Investment includes losses from biologics R&D, biologics manufacturing facilities, JVs with MedImmune and PRA, and risk sharing projects ** Mark-to-market gains on foreign-exchange forward contracts of $3.0 million were recorded in 2Q13, while mark-to-market losses of $2.3 million were recorded in 2Q12

Page 15: WuXi Second Quarter 2013 Earnings Presentation

Capital Resources and Cash Flow

36.8

23.3

70.3

26.9

21.9

77.0

21.9

22.3

81.5

34.4

74.5

36.4

83.4

22.5

29.8

48.6

26.7

53.0

27.4

50.0

26.6

47.6

27.4

48.0

Cash and short-term investments of $299.6 million at June 30,

2013

Total debt (bank loans) of $64.8 million at June 30, 2013

Operating cash flow of $39.6 million for 2Q13, $79.0 million for

1H13

Capital expenditures of $8.6 million for 2Q13, $14.6 million for

1H13; we expect full-year 2013 capital expenditures of about $60

million as planned

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Page 16: WuXi Second Quarter 2013 Earnings Presentation

Full-Year 2013 Financial Guidance

New Previous

Total Revenues $572-578 million $565-575 million

Gross and Operating Margins (GAAP and Non-GAAP)

Comparable to 2012 Comparable to 2012

GAAP Diluted EPS $1.38-$1.44 $1.26-$1.30

Non-GAAP Diluted EPS $1.61-$1.67 $1.49-$1.53

Capital Expenditures About $60 million About $60 million

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Page 17: WuXi Second Quarter 2013 Earnings Presentation

Strong Revenue and Diluted EPS Growth

17

$572-578

$499.9

$407.2

$334.1

(US$ in Millions, except per-ADS amounts)

$270.0

Revenues

GAAP Diluted EPS

Non-GAAP Diluted EPS

$1.38-1.44

$1.61-1.67

2013 Est.

$1.19

$1.40

2012

$1.07

$1.24

2011

$1.22*

$1.09

2010

$0.72

$0.89

2009

• Reflects activity relating to proposed Charles River Laboratories transaction, including receipt of termination fee and payment of transaction costs and employee bonuses

Page 18: WuXi Second Quarter 2013 Earnings Presentation

Third-Quarter 2013 Preview

Estimated total revenues of $143-$145 million

Estimated GAAP diluted earnings per ADS of $0.32-$0.34

Estimated Non-GAAP diluted earnings per ADS of $0.38-$0.40

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Page 19: WuXi Second Quarter 2013 Earnings Presentation

Synthetic Chemistry

70.3

26.7

48.0

19

Synthetic chemistry is achieving single-digit revenue growth from

solid volume increases and modest price declines

Recent new business from several customers will drive sequential

growth in revenues in 2H13

Business from biotech companies continues to grow

Margins are stable to slightly improving

• Wuhan facility, now about 20% of synthetic chemistry revenue, offers

more flexible pricing option to customers

• Increased productivity and efficiency are key drivers for both FTE and

FFS business growth

We expect single-digit revenue growth in this business beyond 2013

Page 20: WuXi Second Quarter 2013 Earnings Presentation

Medicinal Chemistry and Other Discovery Services

20

Our differentiated capabilities in integrated drug discovery are

driving mid-teen year-over-year revenue growth

Ongoing programs, mainly with multinational companies, are going

well

Biology, particularly oncology, is growing well from an expanded

customer base, increased customer satisfaction, and projects

supporting medicinal chemistry

Page 21: WuXi Second Quarter 2013 Earnings Presentation

Toxicology Services

21

Our toxicology revenue is on target to grow about 40% in 2013,

despite a continuing depressed worldwide market, as customers

recognize WuXi’s quality and value

The business had 48 customers in 2Q13, up from 32 in 2Q12, and

represents a healthy mix of companies—large and small,

multinational and Chinese, pharmaceutical and biotech

About 70% of studies are GLP studies

Our non-human primate studies, primarily for biologics, are a large

share of our business due to our expertise in this area

Page 22: WuXi Second Quarter 2013 Earnings Presentation

Biologics Services

22

2Q13 revenue significantly exceeded our expectations, steep revenue

ramp-up expected in 2H13, business expected to break even by end of 2013

Backlog grew to $53 million at end of 2Q13 from $40 million at end of

1Q13, is expected to grow further in 2H13

WuXi formed a collaboration with Ambrx and Zhejiang Medicine to develop

and commercialize ARX788, Ambrx's antibody drug conjugate (ADC) for

Her2-positive breast cancer

Development of MEDI5117 in our JV with MedImmune is advancing as

planned

Five international clients are emerging as anchor clients

Drug product (fill/finish) facility has been constructed and is being

validated

We installed two 2,000-liter bioreactors, which will be used to produce

Phase 2/3 clinical trial materials starting 2H13

Page 23: WuXi Second Quarter 2013 Earnings Presentation

Clinical Services

23

WuXiPRA, our clinical services joint venture with PRA, was established in

April 2013

Dr. James Pusey was appointed President and General Manager

• More than 25 years of experience in medical practice, international clinical trial

management, CRO services, and global pharmaceutical sales, marketing, and

clinical operations

China’s pharmaceutical market and the clinical trial business to support it

are growing at a strong, sustainable double-digit pace

• IMS Health estimates the China pharmaceutical market will grow 15-18%

annually from $67 billion in 2011 to $155-165 billion in 2016

WuXi’s local knowledge and discovery and development capabilities and

PRA’s global clinical experience and systems are a good fit

Our goal is to become the partner of choice for clinical research services in

China

Page 24: WuXi Second Quarter 2013 Earnings Presentation

Small-Molecule Manufacturing Services

24

Manufacturing Services revenue is expected to grow high-teens in

2013 on the strength of our process chemistry and research

manufacturing capabilities

Behind our six current commercial products, nine Phase 3 products

are in the pipeline and advancing in clinical trials

• Two of these nine products have large revenue potential once the

products are approved and launched

• Three commercial/Phase 3 products have received a breakthrough

designation from the FDA and a fourth is receiving fast-track review,

showing the innovative nature of the products we manufacture

Page 25: WuXi Second Quarter 2013 Earnings Presentation

U.S.-Based Laboratory Services

25

The U.S. testing business underperformed in 1H13, with 2Q13

revenue down 3.2% and 1H13 revenue essentially flat year-over-

year

This performance was due to weak new project wins, delayed starts

of new projects, and difficult comparisons with strong 1H12 results,

which were driven by two non-recurring projects

We now expect low-single-digit full-year 2013 revenue growth

We believe our U.S. testing business will benefit from the growth of

biologics pipelines and particularly from commercialization of many

therapeutic antibody products in coming years

Page 26: WuXi Second Quarter 2013 Earnings Presentation

The second quarter performance exceeded our expectations, leading us to increase

our full-year 2013 projections

This outperformance consisted of both sustainable improvements (higher revenues,

cost control) and short-term benefits (larger mark-to-market gains on foreign-

exchange forward contracts, lower tax expense)

We believe all of our businesses are growth businesses, with particularly strong long-

term growth expected from integrated drug discovery services, small-molecule drug

development and manufacturing, biologics services, and clinical research services

We continue to build a broad, integrated platform of R&D services that will enable

anyone and any company to discover and develop medicines more efficiently and

cost effectively

This integrated platform does more than simply provide convenience to clients; it

helps them realize their dream of being a drug discoverer and developer; we have

grown our active client base to more than 1,000 pharmaceutical and biotech

companies

Conclusion

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Page 27: WuXi Second Quarter 2013 Earnings Presentation

Appendix

GAAP to Non-GAAP Reconciliations

Share Count Information

ADS Shares for Earnings-per-ADS Calculation

27

Page 28: WuXi Second Quarter 2013 Earnings Presentation

Second-Quarter 2013 GAAP to Non-GAAP Reconciliation

28

2Q2013

(US$ in millions)

GAAP

Share-Based

Compensation

Expenses

Amortization of

Acquired Intangible

Assets and Deferred

Tax Impact

Non-GAAP

Net revenues 142.3 142.3

Cost of revenues (90.6) 1.1 0.1 (89.4)

Selling & marketing expense (4.4) (4.4)

General & administrative expense (19.2) 2.9 (16.3)

Research & development expense (2.4) (2.4)

Other income/(exp.), net 7.8 7.8

Income tax expense (3.9) (3.9)

Net income 29.6 4.0 0.1 33.7

Page 29: WuXi Second Quarter 2013 Earnings Presentation

First-Half 2013 GAAP to Non-GAAP Reconciliation

29

1H2013

(US$ in millions)

GAAP

Share-Based

Compensation

Expenses

Amortization of

Acquired Intangible

Assets and Deferred

Tax Impact

Non-GAAP

Net revenues 274.2 274.2

Cost of revenues (175.0) 2.2 0.2 (172.6)

Selling & marketing expense (8.4) (8.4)

General & administrative expense (37.4) 5.4 (32.0)

Research & development expense (4.7) (4.7)

Other income/(exp.), net 12.2 12.2

Income tax expense (9.6) (9.6)

Net income 51.3 7.6 0.2 59.1

Page 30: WuXi Second Quarter 2013 Earnings Presentation

Share Count Information

30

ADS Shares

ADS issued and outstanding 71,064,167

Share options and equivalents granted and outstanding 2,763,641

ADS available for future grants under employee incentive plan 3,875,680

(As of June 30, 2013)

Page 31: WuXi Second Quarter 2013 Earnings Presentation

ADS Shares for Earnings-per-ADS Calculation

31

Date Activities

Weighted

Average

ADS Shares

April 1, 2013 Ordinary share balance 67,833,189

April 1, 2013 RSUs vested 2,984,358

Second Quarter 2013 Share options exercised and RSUs vested 89,645

Second Quarter 2013 Share repurchase program (14,569)

June 30, 2013 ADSs outstanding – basic 70,892,623

June 30, 2013 Share options and equivalents 1,614,160

June 30, 2013 ADSs outstanding – diluted 72,506,783