BEIJING - WuXi PharmaTech reported strong earnings growth for the third quarter, but also cautioned that the financial crisis sweeping across the globe would cut into profits for the whole of 2008.

The Shanghai-based WuXi PharmaTech posted unaudited net revenues of $66 million for the third quarter of 2008, a rise of 96 percent compared with $34 million in the corresponding period of last year. The company also reported that gross profits rose by 38 percent to $21.4 million, compared with $16.0 million in the July-September period of 2007.

WuXi also reported this week that it had signed a new contract with Johnson & Johnson subsidiary Janssen Pharmaceutica to expand collaboration in pharmaceutical research services.

Under the new agreement, WuXi, which already provides discovery chemistry services for J&J, will extend its research to cover discovery biology, chemical and analytical development, formulation, and preclinical and bio-analytical services.

Still, WuXi PharmaTech's senior management this week warned that despite a steep climb in revenues for the third quarter, the company was unlikely to meet its original target of between $280 million and $300 million in net revenues for the entire year.

"WuXi has revised its guidance [target] for net revenues downwards to between $260 million and $265 million," WuXi VP, Corporate Communications, Hai Mi said in an interview.

"We have had a number of contract delays or cancellations from small biotech companies," Mi said. "Most of these are connected to WuXi AppTec," he explained.

WuXi PharmaTech acquired the American biologics outfit AppTec Laboratory Services early this year in a deal valued at more than $160 million. AppTec's three U.S. FDA-registered operations, spread out across St. Paul, Minn., Philadelphia and Atlanta, provide testing, contract research, and cGMP manufacturing services for the biopharmaceutical and medical device industries. AppTec specializes in therapeutic recombinant protein and monoclonal antibody testing and services.

WuXi's top-echelon managers, many of them with advanced science degrees or MBAs from the West, had initially forecast that a cross-selling synergy between WuXi PharmaTech and AppTec, along with a gradual transfer of biologics capabilities from the U.S. to China, would sharply boost the merged WuXi AppTec's earnings (Also see "WuXi PharmaTech Set For Sales Synergy with U.S. Subsidiary AppTec" - Scrip, 9 June, 2008.).

But the banking and stock market crisis that has ricocheted from the United States to Europe and beyond is apparently already cutting into the research budgets of some small biopharmaceutical firms.

That, in turn, is having a negative effect on AppTec's clients and earnings, Mi said.

"The impact of the overall economic downturn is more pronounced among smaller biotech firms" that make up part of AppTec's client base, Mi told PharmAsia News. "Some venture capitalists in biotechnology might have problems with funding," he added.

Jinsong Du, an equity research analyst at Credit Suisse in Hong Kong, said that the snowballing financial crisis is exerting downward pressure on the earnings growth of not only AppTec in the U.S., but also, to a lesser extent, on WuXi's operations in China. Wuxi provides contract research services for nine of the world's top ten pharmaceutical giants.

Mi, meanwhile, countered suggestions that the company's aborted plans to set up a joint venture preclinical testing facility with Covance in eastern China would hurt WuXi's earnings this year or even next year (Also see "Covance, WuXi Abandon Plans To Create Joint Drug Testing Facility In China" - Scrip, 2 October, 2008.).

"The joint venture would not have started generating revenues until 2010," Mi said. He added that WuXi will complete the preclinical testing facility on its own, and that the recent decision to call off the joint venture with Covance was unlikely to hurt profit growth even over the longer term.

But since the two sides abandoned negotiations on setting up the venture, the CEO of Covance, which is headquartered in Princeton, New Jersey, has announced he will set up a competing testing center in China, but has not presented a timetable for the move.

"WuXi's preclinical testing facility in Suzhou is scheduled to open in the second half of 2009," said Mi, who added the company would seek FDA certification for the center.

Yet WuXi also faces competition in terms of providing preclinical testing services for the globe's leading pharmaceutical firms from another direction. This week, Charles River Laboratories opened its new testing facility in Shanghai (Also see "Charles River Set To Launch First Global CRO Preclinical Testing Center In China" - Scrip, 13 October, 2008.).

- Kevin Holden (pharmasia@elsevier.com)

WuXi Reports Expanded Research Deal With J&amp;J And Higher Profits, But Also Sharper Risks Sparked By Global Financial Crisis

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WuXi Reports Expanded Research Deal With J&J And Higher Profits, But Also Sharper Risks Sparked By Global Financial Crisis