On October 30, 2023 WuXi AppTec (stock code: 603259.SH / 2359.HK), a global company that provides a broad portfolio of R&D and manufacturing services that enable companies in the pharmaceutical, biotech and medical device industries to advance discoveries and deliver groundbreaking treatments to patients, reported its financial results for the third quarter and nine months ended September 30, 2023 ("Reporting Period") (Press release, WuXi AppTec, OCT 30, 2023, View Source [SID1234636468]):
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Revenue grew 4.0% year-over-year to RMB29,541 million; excluding COVID-19 commercial projects, revenue grew by 23.4%.
Adjusted non-IFRS gross profit increased 13.8% year-over-year to RMB12,511 million. Adjusted non-IFRS gross profit margin improved 3.6pts to 42.3%. The Company continued to improve operating efficiency; adjusted non-IFRS gross profit margin increased by ~1pt year-over-year at a constant exchange rate.
Net profit attributable to owners of the Company increased 9.5% year-over-year to RMB8,076 million; diluted EPS increased 18.7% year-over-year to RMB2.73. Adjusted non-IFRS net profit attributable to owners of the Company increased 20.6% year-over-year to RMB8,167 million; adjusted diluted non-IFRS EPS increased by 21.0% year-over-year to RMB2.77.
Free cash flow continued to grow. Resulting from the continued profit growth, better asset utilization and efficiency improvements, the Company’s operating cash flow grew strongly by 32.5% year-over-year.
In the first three quarters of 2023, we added over 900 new customers, and in total we served more than 6,000 active customers over the past 12 months. Demand from customers across regions globally continued to grow.
Excluding COVID-19 commercial projects, backlog maintained growth momentum of the first half of 2023, among which TIDES backlog accelerated growth by 245% year-over-year.
Revenue from the top 20 global pharmaceutical companies maintained rapid growth and reached RMB11.82 billion in the first three quarters of 2023, which grew strongly by 43% year-over-year excluding COVID-19 commercial projects.
The sustained and steady revenue growth is a result of our unique fully integrated Contract Research, Development and Manufacturing Organization (CRDMO) platform. WuXi Chemistry’s D&M pipeline has maintained rapid growth, with 343 new molecules added in the third quarter and a total of 926 new molecules added in the first three quarters of the year. To date, our D&M pipeline has exceeded 3,000 molecules for the first time, currently totaling 3,014, among which 12 commercial and phase III projects were added in the first three quarters of 2023. Revenue from D&M services maintained strong growth. Excluding COVID-19 commercial projects, D&M services revenue grew by 48.2%.
As an enabler of innovation, a trusted partner and a contributor to the global healthcare industry, the Company is committed to environmental protection and sustainability. We received the "AA" rating from MSCI for the third consecutive year, and upgraded to "Silver" rating by EcoVadis. Our outstanding ESG performance continues to be highly recognized by global ESG rating agencies, including MSCI, EcoVadis, S&P Global, Sustainalytics and CDP.
[1] In the first three quarters of 2022 and 2023, WuXi AppTec had a fully-diluted weighted average share count of 2,951,099,205 and 2,949,888,986 ordinary shares, respectively.
Fourth Quarter and 2023 Full Year Outlook
In the fourth quarter of 2023, revenue will all come from non-COVID-19 commercial projects. Without COVID-19 commercial projects, we expect the Company’s revenue in the fourth quarter to exceed RMB10 billion for the first time, among which WuXi Chemistry D&M will continue strong growth momentum and accelerate growth on top of the first three quarters. Excluding COVID-19 commercial projects, the Company’s revenue in the fourth quarter is projected to grow 29-34%. Excluding COVID-19 commercial projects, revenue will grow 25-26% in 2023, with the Company’s total revenue exceeding 40 billion for the first time. Due to lower than expected demand of early-stage drug discovery services, revenues from some lab service-related business will be significantly below budget. Therefore, we adjust 2023 revenue growth from 5-7% to 2-3%; excluding COVID-19 commercial projects, revenue growth from 29-32% to 25-26%.
Due to FX impact and efficiency improvements, adjusted non-IFRS gross profit margin expects to be up ~0.5pts and reach 41.7-42.1%; with further improved operating efficiency, adjusted non-IFRS net profit will exceed RMB 10 billion for the first time. Resulting from our unique CRDMO & CTDMO business model, better asset utilization and efficiency improvements, free cash flow expects to be up and reach RMB 4.5-5.0 billion, which will be over 17 times as compared to last year.
Due to lower than expected growth, the management team proactively proposes to terminate the 2023 H share incentive plan, repurchase and cancel 15,467,500 H shares, representing ~0.52% of the Company’s total share capital (worth of HKD ~1.3 billion[2]). This has been unanimously approved by the Company’s Board of Directors.
[2] Value based on the actual purchased price.
Management Comment
Dr. Ge Li, Chairman and CEO of WuXi AppTec, said, "We achieved steady growth across revenue, net profit, and free cash flow in the first three quarters of 2023, and expect the fourth-quarter revenue (without COVID-19 commercial projects) to exceed RMB10 billion for the first time. The Company’s growing pipeline and expanding customer base demonstrates heightened demand from our customers globally as they seek our services to bring new treatments to patients."
"We have constant faith in the Company’s unique CRDMO and CTDMO business models, and believe that the Company will continue solid growth in the future. WuXi AppTec is committed to meeting the growing demands from customers worldwide, enhancing our capacity and capabilities, and relentlessly pursuing operational excellence, productivity and efficiency, as we support our customers’ efforts to bring groundbreaking therapies to patients around the world. Together, we can realize our vision that ‘every drug can be made and every disease can be treated’."
Business Performance by Segments
WuXi Chemistry: Integrated CRDMO Business Model Drives Steady Growth, with Continued Expansion in New Modalities (WuXi TIDES)
Q1-Q3 revenue from WuXi Chemistry grew 2.0% year-over-year to RMB 21.24 billion, excluding COVID-19 commercial projects, revenue grew strongly by 31.0%. Q1-Q3 adjusted non-IFRS gross profit margin was 45.7%, with 4.5pts year-over-year improvement, mainly due to FX impact, while efficiency continued to improve.
Drug discovery services ("R") continued to generate downstream opportunities. In the past 12 months, we successfully synthesized and delivered more than 420,000 new compounds to customers, which grew 11% year-over-year. Through our "follow-the-customer" and "follow-the-molecule" strategies, we established trusted partnerships with our global customers, supporting the sustainable growth of our CRDMO business.
Development and manufacturing (D&M) services delivered strong growth.
In the first three quarters, D&M services revenue grew 1.4% year-over-year to RMB15.63 billion. Excluding COVID-19 commercial projects, D&M services revenue grew strongly by 48.2%.
In the first three quarters, we added 926 molecules to our D&M pipeline. To date, our D&M pipeline has exceeded 3,000 molecules for the first time and reached 3,014, including 58 commercial projects, 61 in phase III, 316 in phase II and 2,579 in phase I and pre-clinical stages, among which 12 commercial and phase III projects were added in the first three quarters of 2023.
Specifically, TIDES business (mainly oligo and peptides) continued to expand.
In the first three quarters, TIDES revenue grew strongly by 38.1% year-over-year to RMB2.07 billion. Q4 revenue is expected to increase significantly, with TIDES full year 2023 revenue growth expected to exceed 60%. As of September 30, 2023, backlog of TIDES accelerated growth by 245% year-over-year.
In the first three quarters, the number of TIDES D&M customers increased 31% year-over-year to 127, and the number of TIDES molecules increased 48% year-over-year to 230.
We initiated capacity expansion in Changzhou and Taixing. The expanded workshops are expected to commence operation in December 2023, with the total reactor volume of peptide solid phase synthesizers increased from 20,000L to 32,000L.
WuXi Testing: Drug Safety Evaluation Service & SMO Maintain Leadership Position and Drive Steady Growth
Q1-Q3 revenue from WuXi Testing grew 16.2% year-over-year to RMB4.85 billion. Q1-Q3 adjusted non-IFRS gross profit margin was 38.6%, with 1.8pts year-over-year improvement, mainly due to FX impact, while efficiency continued to improve.
Q1-Q3 2023 revenue from lab testing services grew 16.3% year-over-year to RMB3.54 billion. Among which, revenue from drug safety evaluation services grew 26.9% year-over-year. We maintained our industry leadership position in Asia Pacific for drug safety evaluation services that meet global regulatory requirements. Meanwhile, new facilities in Qidong and Suzhou have begun delivering new projects.
Q1-Q3 2023 revenue from clinical CRO & SMO (Site Management Organization) grew 15.9% year-over-year to RMB1.32 billion.
SMO revenue grew strongly by 31.0% in Q1-Q3 2023, maintaining a leadership position in China. In the first three quarters of 2023, SMO supported 35 new drug approvals for customers.
In the first three quarters of 2023, clinical CRO enabled our customers to obtain 13 IND approvals and submit 5 NDA filings.
WuXi Biology: New Modalities Business Drives Growth; WuXi Biology Platform Continues to Generate Downstream Opportunities
Q1-Q3 revenue from WuXi Biology grew 6.5% year-over-year to RMB1.89 billion. Q1-Q3 adjusted non-IFRS gross profit margin was 42.8%, with 1.6pts year-over-year improvement due to FX impact.
The Company focused on improving capabilities related to new modalities. In the first three quarters of 2023, WuXi Biology revenue from new modalities grew strongly by 35% year-over-year, contributing to 25.9% of WuXi Biology revenue.
The comprehensive early discovery screening platform integrates multi-technologies (HTS, DEL, ASMS, FBDD, CADD etc.) and analysis capabilities of multi-dimensional databases, which can provide extensive and in-depth services to clients. In the first three quarters of 2023, it continued to generate downstream opportunities and contributed more than 20% of the Company’s new customers.
WuXi ATU: CTDMO Business Model Drives Growth
Q1-Q3 revenue from WuXi ATU grew 11.6% year-over-year to RMB1.03 billion. Q1-Q3 adjusted non-IFRS gross profit margin was (6.1)%, with 0.4pts year-over-year improvement due to FX impact.
The Company focused on improving our CTDMO integrated enabling platform and strengthening capabilities and capacities. We provided development, testing and manufacturing services to 68 projects, including 7 Phase III projects (2 projects in BLA review stage, and 2 projects in BLA preparation stage), 9 Phase II projects and 52 pre-clinical and Phase I projects.
In the first three quarters of 2023, we supported a customer to complete the BLA filing for a Tumor Infiltrating Lymphocyte (TIL) product with the FDA, which is expected to be the world’s first innovative TIL-based therapy, and our facilities in Philadelphia (U.S.) successfully passed the FDA pre-license inspection (PLI). In addition, we supported a customer to file BLA for Lenti-viral Vector (LVV) used in a CAR-T product, and became the first CGT CDMO in China to pass Center for Food and Drug Inspection of NMPA (CFDI) LVV on-site inspection. We expect that our customers will obtain approval for their products in the fourth quarter of 2023. Moreover, we completed the technology transfer for the manufacturing of a blockbuster commercial CAR-T product, whose process performance qualification is now in progress, and is expected to file pre-approval submission (PAS) to FDA in the first half of 2024. In June 2023, we signed an LVV manufacturing contract with a large pharmaceutical customer used in a commercial CAR-T product, which is expected to start manufacturing in the first half of 2024.
WuXi DDSU: the First Year to Receive New Drug Application (NDA) Approval of New Drugs Developed for Customers; Breakthrough to Receive the First Royalty Income
Q1-Q3 revenue from WuXi DDSU declined 26.9% year-over-year to RMB0.49 billion. Q1-Q3 adjusted non-IFRS gross profit margin was 31.6%, with 3.5pts year-over-year improvement mainly thanks to favorable project mix.
In the first three quarters of 2023, 2 new drugs developed for our customers have obtained National Medical Products Administration (NMPA) approvals, including one for COVID-19 infection treatment and the other for tumor treatment. Moreover, 2 new drug candidates are in the NDA review stage. We continued to receive the royalty income of the 2 approved new drugs from customers. Royalty income is estimated to grow with more than 50% CAGR over the next 10 years as more and more products are commercialized by customers.
In the first three quarters of 2023, we supported customers to file INDs for 15 drug candidates and obtain 19 Clinical Trial Approvals (CTAs). Cumulatively, we have submitted 187 new chemical entity IND filings and obtained 163 CTAs for customers, among which 2 projects have obtained NDA approvals, 2 projects are in the NDA review stage, 5 projects are in Phase III, 29 projects are in Phase II, and 70 projects are in Phase I, covering multiple therapeutic areas.