WuXi Woos Pharma

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Pharmaceutical outsourcing specialist WuXi PharmaTech (NYSE: WX) proved that outsourcing to China isn't dead yet and neither are Chinese companies moving stateside.

Revenues at WuXi were up 69%, thanks in part to its acquisition of U.S.-based AppTec Laboratory Services. But even excluding the acquisition, WuXi saw nice organic growth of 36% year over year. The bottom line looked even better, with operating income almost double what it produced in the year-ago quarter.

The one stain on an otherwise stellar quarter was the revenue that came from AppTec. In the two months that WuXi owned the company this year, AppTec contributed $11 million in revenues. At that rate, it will contribute about $60 million in 2008 -- well shy of WuXi's guidance in March of $85 million to $90 million.

WuXi doesn't seem worried about the lower-than-expected revenue from AppTec; management reiterated its previous revenue guidance of between $280 million and $300 million for the year. WuXi blamed the low revenue from AppTec on lower utilization of its biologic manufacturing facilities and expects to get utilization up to 50% by the end of the year. Since biologic manufacturing takes time to develop and scale up, it's likely that WuXi has estimated correctly -- especially since the company can see its manufacturing schedule well into the future.

Given the way pharmaceutical companies like Wyeth (NYSE: WYE), Schering-Plough (NYSE: SGP), and Merck (NYSE: MRK) are cutting back on costs by letting staff go, I'd say now is the perfect time to be in the business of helping companies save money on research and development costs. Look for the same kind of growth from contract research organizations like Covance (NYSE: CVD) and Pharmaceutical Product Development (Nasdaq: PPDI).