Bachem Holding AG (BANB) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome to the Bachem 2021 Annual Results Investor Call. I'm very happy to welcome you to this virtual event. Before we get started, maybe a word or 2 on ground rules as this is a virtual event slide right here for you in a moment. So as this is a virtual event, while we're going through the results, feel free to use the Q&A function. [Operator Instructions]. The call will be recorded, and a playback will be available on bachem.com. Also short note, we had a little glitch with the wireless. So in case we suddenly go off screen, that little glitch has come back, but we hope that it won't over here in Bubendorf. With me here today is the CEO of Bachem, Thomas Meier; as well as Alain Schaffter, the CFO. My own name is Daniel Grotzky, I'm Head of Group Communications and both moderate the Q&A later on as well. Our agenda starts with the full year results and an overview by Thomas, and Alain will take us through the financial perspective of the result 2021. And then Thomas will take over again with some thoughts on the outlook for the next 5 years. And without further ado, I'm happy to hand over to Thomas Meier, CEO of Bachem.

Thank you, Daniel, and a warm welcome to everyone to this 2021 full year investor call today. A short comment before we start. While the business results, we have published this morning are positive, at a personal level, we are all aware of the war in the Ukraine. The suffering that you see of people there has moved everyone at team Bachem. And I want to convey our deep sympathy and wish for peace with all those affected. With that, I'm happy to start the full year call. And of course, 2021 was a special year for Bachem. It was the 50th anniversary year. 50 years of focus for peptides and 50-year of success. And as we went through this year, of course, everybody put extra effort in to make many, many highlights. And today, I'm very proud that we can discuss and talk about some of those highlights in the next hour. And as we conveyed during the half year call in August, we put our target at CHF 500 million sales for 2021. And today, we are very happy and -- to communicate that we overachieved that goal. We achieved CHF 503.2 million revenue, and that's for the first time, more than CHF 0.5 billion. To have such a great result, of course, everything needs to work almost perfectly. And so it did, but still some parts are shining a little bit brighter than others and really what made the day for us last year was the CMC Development. We will touch on that on several aspects in this presentation, but we feel very proud about that work that we have done there and the contribution we received from the CMC Development. Growth by itself is not the target for Bachem. We want to have profitable growth, profitable growth for independents and also for safe jobs here in Bubendorf and over the world in California and also in Japan. To that end, we are very proud that we achieved an EBIT of CHF 128.9 million, but with an EBIT margin of 25.6%. And a net income of CHF 114.7 million, which is a margin of 22.8%, both improved and very much what we like to see. In addition, we had a capital increase in October, and we had net proceeds of CHF 571.6 million. And so now we have the money at hand for our capacity expansion. The Board of Directors of Bachem will propose to the general assembly an increase of the dividend to CHF 3.50 per share. And as I talked about the growth that we have seen over last year, we are, of course, expanding our capacity, and we had many positive developments there. For example, the groundbreaking for the new Building K in Bubendorf, that will be the largest manufacturing building of the Bachem group. And we are obviously searching for additional lands that we will purchase for a third Bachem manufacturing site, most likely in Switzerland. And most of all, we are very happy that we could engage over 164 new colleagues to work on this project to produce peptides and oligonucleotides for the market. This has all built on a very solid portfolio of products and a very strong CMC pipeline. The CMC pipeline, that's the future of the company. And in that respect, we are especially proud that we could add 20 very interesting projects over the year to this pipeline. And also, the second initiative for product expansion, the oligonucleotide is very successful. We are fully aligned with our plans. We are overachieving those plans, and we are certain that we will be over CHF 100 million sales in 2023. With that, we go into the numbers, and here they are. If you're looking at the EBITDA, we have CHF 175.4 million (sic) [ 157.4 million ] and an EBITDA margin of 31.3%, 80 basis points above last year. EBIT stands at CHF 128.9 million with a margin of 25.6%. That's an increase of 160 basis points. And the net income finally increased by more than 40% to CHF 114.7 million with a margin of 22.8%. We see one negative number here, relatively shrinking is the operating -- cash flow from operating activities. And there, we have special effects that Alain will explain to us in a few minutes. Looking at the results, it's very gratifying that all different product categories helped achieving those results. We see a 34.1% increase in local currency for the Research & Specialties. In that business segment, we have seen strong demand for cosmetic peptides and cosmetic in a relatively broad meaning of the word. And as I said, the CMC Development was really the highlight of last year. We have seen an increase in Swiss francs of 48.7% to CHF 137.1 million (sic) [ 173.1 million ]. That's very gratifying to all of us because those are the projects for the future where we develop with sponsors new medicine that helps people in need. And we believe we have many very interesting projects there that will deliver for patients and for Bachem in the future. And then the Commercial APIs, those are the ones that we had already developed in the past, and they are now running on a relatively stable base. And we see there a sales volume of CHF 285.3 million, which is a plus of 13.3% in Swiss francs. Now we're looking at peptides and oligonucleotides, and I want to highlight some of the things we have observed over the last half year and what we believe is a drug substance market trends and of certain relevance. And for peptides, as you all know, peptides are an established class of pharmaceuticals and still, we see an expansion of their therapeutic indication and usage and also a change of formulation towards more convenient formulations. This is all positive. Of course, new therapeutic fields means there is going to be more help for patients who are in dire states and need some therapy or help, and the formulation makes it more convenient. So we see that we're moving away from injectables-only to a space where there are other and more convenient formulations like oral and nasal. And that's, of course, is good news for the patients. But at the same time, it's also a challenge for us as the producers because the quantities are increasing quite substantially while we changed from injectables to, for example, oral formulation. How do we react to this new situation at Bachem? We invest. And I would like to take one of those bullet points down there, and that's the continuous chromatography. And I think that's one of those investments we are most proud at Bachem, that's a technology and innovation -- technology innovation for producing peptides and oligonucleotides in respect that we move from batch manufacturing to a continuous manufacturing mode. That has advantages. You can produce more material with less resources. That means greener manufacturing, less solvent consumption, and it means also more cost-effective manufacturing. And both are very positive trends and, of course, help while we go into larger quantities for the market. Those things don't come easily. They need work, they need innovation, and this specific innovation was done in collaboration with a spin-off of the ETH in Zurich. And we are really happy that we have that now at commercial scale and are producing in a more green and more environmental-friendly way, those peptides and oligonucleotides. Onto the oligonucleotides. And the oligonucleotide, there's probably even more excitement in that field. I think you cannot overestimate how many developmental projects are out there. And at the same time, we see approvals and market launches shifting from orphan drugs into larger patient populations. So there, those drugs in the oligonucleotide space, they're reaching more patients. And of course, that needs also more material. And at the same time, we see many, many targets that are addressed with those oligonucleotides in earlier clinical stages. As this field is maturing, people are more interested in how we can manufacture those oligonucleotides more professionally at lower cost, greener, and that's exactly where we like to bring ourselves to the table and discuss and find new and improved ways. In that respect, we developed many strategies. We had many discussions, and we also filed a patent application for some of the innovation we did here in-house in Bubendorf, and we are certain that we can change the way oligos are produced in the future, while we are also producing with the established equipment that's out on the market. So as I said, a great success to the oligonucleotides initiative, we are on track and we accelerate as fast as possible as we go along. That brings us to the pipeline, if I may remember correctly, here we are. And when we look at the pipeline, one thing at Bachem is always key. We want to be as transparent as possible. And at the same time, we are looking for projects and products that make a difference. They make a difference for the patients being in a new therapeutic area, and they make a difference for us as a company as they are valuable projects that will deliver growth and business for the future. And with that I'm really pleased that as a net total, we could add 20 projects. I mean, some of the projects went out, but we added over 35 new projects. And as a result, we have a plus of 20 projects in this pipeline. And we look at the pipeline very carefully. We are trusted, we restructured, and we feel that's a very strong pipeline, and it will give us growth potential for the future, then lets us define those ambitious goals we communicated. On to the financial insights with Alain.

Thank you, Thomas, and also a warm welcome from my side and happy to guide you through some of our key figures for 2021. So the first slide, as a reminder, the number that Thomas has already went through, maybe a small remark on the earnings per share here, which did not grow in the same amount as the net income percent-wise, and that's because of the higher number of shares through the capital employed. On the first page, let's talk about the EBIT margin increase in 2021 and the drivers behind. So we started with a 24.0% margin in 2020. We had a positive contribution in all areas mainly driven by our COGS part, which is a favorable product mix, but also our content efforts to optimize and optimize our processes and also have now more and more of the economy of scale that fits in this target. On the marketing and sales, we also have a positive and that's clearly still driven by the corona situation, we were not able to travel in '21. We have no fairs, no road shows. So for '22 we expect higher costs in that area. On the R&D, this area grow like we have the growth on top line, so there is no impact on the margin. It shows that we invest in our internal projects, that we invest in innovation. And we expect that this number is going to up in the future to make sure that we can also invest in the future of Bachem group. On the G&A, also a positive one, slightly impacted by also travel costs. We try to do everything to keep this number stable, but we also need to consider that based on the growth we have, we also maybe need to invest in our administration in the next few years. So this led up to a 25.6% EBIT margin for '21, which is 160 basis points higher than in '22 (sic) [ '20 ]. And shows we don't approach on top line. We do it on a profitable way. That is always our target and will always be for the future. On the next slide, the cash flow. We mentioned now several times our capital increase, and you will hear it sometimes more over the next few slides. We take a CHF 571.6 million in net proceeds. And it was a great success, but the next step is how to avoid interest charges on cash. And there we have taken some necessary steps. One was a prepayment of tax authorities of close to CHF 10 million. That helped us to bring down our cash on hand and then avoid the interest charges there. And that has a direct impact on our operating cash flow before the change in working capital. That's why we only have CHF 24 million compared to the net income of CHF 36.6 million. Then on the second, the operating cash flow, which Thomas mentioned, is with a negative prefix. The prior year comparison is not that easy because in 2020, we had some one-off effects. I will go that on the later page. And at the end of the year, we had CHF 89.2 million cash on hand, which is an increase by CHF 65.7 million. So let's talk about the operating cash flow. Next slide. So we have the CHF 140 million where we started before the change in working capital. We had very strong November and December sales. So there was compared to prior year balance sheet, an increase of CHF 28.5 million on the trade receivable line. In 2020, there was a positive number of [ CHF 2.6 million ]. This is a huge difference on that bar. The inventory on the balance sheet. We increased our inventory by 11%. Cash-wise, it means that we spent CHF 25.7 million. And this is important, it's mainly driven by work-in-progress and raw material, starting materials. And this is important that we have everything on stock that we can produce and sell our products and deliver our products to our customers on time with the quality that is needed. On the change in payables and accruals, there were 2 main factors. And last year, there was a positive impact of CHF 25.5 million. Now with CHF 11.5 million, the difference of CHF 14 million. There is the 2 factors: one is prepayment from customers that we increased this year, but not in the same amount that we had in 2020; and on the other hand, in 2020, we changed the payment terms from our suppliers, and there was also a onetime positive impact by the end of the year. And so this year, the balance sheet difference is not that much anymore. This led us to the CHF 97.6 million operating cash flow. And what have we done with that? We invested mainly in CapEx to make sure that we have the capacity also in the future to make sure that we have the right equipment, we are modern. We have -- we are compliant with everything that is needed. That is the CHF 116.8 million. On the other hand, and for this time, I split that up, it's a CHF 352 million that we have from the capital increase that we have invested in assets and securities like shares or bonds. There is a committee overseeing that. And to make sure that we can keep our assets safe, but also have the liquidity on time when it's needed for Bachem for the future. On the financing cash flow, again, the capital increase, of course, the fee income reduced by the repayment of our loan from banks or the related party to shareholder and minus the dividend we paid in May last year. And as mentioned, that's the CHF 65.7 million net change in cash in '21. So also 2 main numbers, which are impacted by the capital increase. We have reduced our debt versus our shareholder, but also third party from the banks to CHF 20 million. So we reduced net by CHF 87.3 million, which clearly shows that we are financially independent also for the future. But even if it would be necessary, we will still have open credit lines that we could use if there is a need for that. On the equity side, in absolute Swiss franc number. We have increased the equity by CHF 645 million, which led us to an equity ratio of 86% by the end of this year. And then on the last slide, very important, the CapEx overview. You see we have invested CHF 130.7 million, which is 26% of our sales. CHF 103 million out of this CHF 130 million is clearly dedicated to capacity globally all over the world in all sites, but mainly driven for the Building K here in Bubendorf, and it will also be a huge part in the future. That goes to Bubendorf, but nevertheless, we invest in all sites in the future. That's from my side. Back to you, Thomas, for the outlook.

Thank you, Alain, and let's continue with the outlook for the coming years. And Bachem is now in the -- made the first step in the second 50 years. And we do that on a very similar way that we did for the first 50 years. We want to be a company that's focused on the long term. And for that, we defined ourselves that we strive to have a leading position for peptides and oligonucleotides. And we are looking at sales above CHF 1 billion in the coming years. We want to have a profitable growth for independence, and we attract and develop the most engaged and skilled workforce in the field. I think we cannot overemphasize how important people are. It's a knowledge business we are in, and we need those specialists and experts, and we can build an requirement and a team where people like to collaborate together because we are the leaders for peptides and we strive to be the same for oligonucleotides, and I'm quite certain that we will achieve that within a relatively short time period. If you look at the drivers of the growth we have seen over the last years and we expect for the coming years, we built 3 columns here. One is a trend that favors specialist. We see that in discussions with large pharmaceutical companies, they are interested to talk to us because we bring innovation to peptides, we bring innovation even more to oligonucleotides, and they are happy to engage in those discussions. And also, to partner with us for their manufacturing of the larger volumes and quantities. That is what we always have expected and why we focused on difficult molecules and difficult tasks. I would say, the most difficult ones that are chemically accessible, and that pays a huge dividend right now for Bachem and uncertain also in the future. At the same time, we also feel that the pandemic and the development of the mRNA vaccines was an eye-opener for agility and also cost consciousness of an outsourced pharma pipeline. The way how those vaccines were produced and brought to the market in a record time, is a testament to what we are capable of doing in the CDMO space. We believe that this trend will hold, and we can even further accelerate it by our quality work we do every day. The demand for TIDES for peptides and oligonucleotides, we believe it will continue to grow. Based on the new formulations and also the new therapeutic indications we see on the horizon, and we are very happy to participate in this growth, and that's why we are expanding our capacity. And that brings us to the value proposition we are bringing to the market, and that's very clear. We bring the deepest technology understanding of all players, and we want to keep it that way. We want to focus. We want to build a group of experts. We want to increase our capabilities in lockstep with the capacities. And I think we are on a very good track there, and it's exciting to see and to imagine what's possible and earn those fruits of success we had over the last years and continue that way into the future. With that, we go to the next slide. Unfortunately, I would say there's also uncertainty. Uncertainty with the outlook, uncertainty with the geopolitic situation we are currently in. And we at Bachem, we are used to manage risks very systematically. And so if you look at the geopolitical risk, we see that we don't have much of an exposure to Ukraine and Russia in terms of sales and not in terms of manufacturing or sourcing of starting materials. Inflation on the other hand, is something we are all feeling on a personal level, but also as a company. And we take that very seriously and are currently engaged with our customers because we see the need that the inflation we have to pass on, and those discussions are ongoing as we talk. And then there's the supply chain. The supply chain got the bid gummed up already during the pandemic crisis, and we see that this strength continues. We are relatively well positioned concerning starting materials. We have not seen delays because of mixing chemicals or starting materials, but we are challenged at times when it comes to our construction work, some of our supply is delayed and orders have very long lead times. We manage those risks. And so far, we were only slightly delayed, and we hope we can keep it that way. But there is certainly an element of uncertainty around the supply chain as we talk, and we will see how this continues in 2022. Interest rates, on the other hand, are not such a big deal for us. We are cash positive, and we don't see much of an influence there. Now we go into the outlook for the next 5 years. Now first, we have the investment in Building K. And this investment is one that excites everyone here in Bubendorf, but also in the entire Bachem group. It's a large investment. It's about CHF 220 million. And this investment will step up our capability in terms of TIDES manufacturing. It will step up the volumes we can produce, but it's also a step-up in the technology we are using in the way we are building those reactors, in the way we automate them and in the way we will run it later in operation. The building is progressing as we are talking, it's already over with the ground. We have the tanks in there. And if everything works as we plan it, we will be operational in early 2024 and produce oligos and peptides in this build. We say it's about a 50-50 split. So we foreseeing that as many peptides, as oligonucleotides will leave that building. And of course, as we talked before, there are synergies. So we can adjust, especially in the downstream if the product mix would change. The new site, I said you're looking at potentially buying land for the future of Bachem, and we're looking very hard in the Northwestern part of Switzerland because we like the education level we see here and the minimal complexity in collaboration with the headquarters in Bubendorf. And we believe that we will have a decision probably early next year where this land is, and then we can continue our planning. And probably this site will go on stream in the second half of this decade. But we're not only investing in Switzerland, we're investing in our global network for manufacturing, so that is also investments in California as we see need there to increase our capacity. And with that, I believe now the outlook is the next slide. And here we go. We continue with our growth target of an average of 15% over the next 5 years. And I have to stress that this is an ambitious target. If you're in a manufacturing business, 15% growth per year, that's a lot. It needs to be produced; we need the capacity that we believe this is possible. And the same is true for the EBIT, we believe we can grow percentages ahead of sales. But there again, this is an average over the years, and we will see a certain fluctuation as we have special influences in 1 year or the quarter. We're building capacity, I spoke about the new Building K. And as we talked that it will go online in 2024, we will move in there modularly step-wise. And so you can imagine that the larger chunk of capacity addition will happen in the later part of this time period till 2026. For the portfolio, we are very happy with peptides and oligonucleotides. And we are really certain that oligonucleotides will grow in a strong business pillar for Bachem while peptides will stay around. And we continue to look at those peptides and oligonucleotide, engage most with those, we believe that make a huge difference for our company and ultimately for the patients. We're going to continue the business model as we have it. We want a strong vertical integration in that respect that we can produce starting materials ourselves and are very knowledgeable in testing those we buy from the market and can secure quality and also supply in difficult times like we have done during the corona pandemic. So we believe this is valuable and we want to keep it that way. And even more details for 2022. On the next slide, the growth appraisal for 2022. We will make as every year during the half year talk, we believe in August, we have a good picture, and we can give you more numbers with certainty that we believe is the right to communicate. For profitability, we have talked about the uncertainties we see. We believe this will continue for a little while. And at the same time, we are continuously control our costs and work on a better productivity in the processes we execute, but also in general business operation. And we believe that we will have a benefit there. At the same time, we have seen that we can gain when we invest in process development and R&D, and we will increase that budget as we did last year. And we also expect, as Alain mentioned, a little bit higher marketing and sales costs as the corona pandemic is finally coming to an end. If you look at the portfolio, we must mention that we have a year-on-year fluctuation in commercial products. And that's driven by different influences, and it's very normal. It always happens. And if you press me hard for 2022, I expect that overall, we have growth a little bit below the 15% we see as an average for the next 5 years. In addition, we see many CMC projects. And as usual, those projects, they come to a close in the second half. So in combination, we believe that the second half of 2022 will be the stronger half of this year. And with that, I'm happy to take your questions and hope that there are interesting discussions.

So thank you very much, Thomas. Thank you very much, Alain. And we indeed already have a couple of questions in the chat. We also have hands up. We've got a lot of questions from Daniel Buchta. I'm going to start with one of those to try to see what we haven't maybe tackled yet. So here you go. Question from Daniel Buchta. Your large competitor from Basel, I suppose this means [indiscernible], always states that they see quite some OpEx headwinds ahead of the launch of new major sites, for instance, for hiring and training of new staff. Given your material Bubendorf expansion coming on stream 2024, how could this affect your margins in 2022 and 2023? The question is about OpEx headwinds that could result from the Bubendorf expansion in '22 and '23 in terms of things like hiring and training staff. Alain, would you take that question?

Well, I'll take it.

Or if you want to take that question. Okay, Thomas wants to take the question. Go ahead.

Thank you, Daniel, for the question. And yes, you have costs for education and bringing people on board. But as always, we try to do that modularly. We take those people on, and we can use them already in the current manufacturing Building G and then we will expand into Building K. And we believe that this is going to be a relatively smooth transaction. We have programs in place. We will educate here on site in Bubendorf, and we will also increase our apprenticeship program. We are running very successfully for the last couple of decades. And as it is a challenge, I appreciate that, we believe the influence will be relatively moderate.

So let's take a raised hand. We have Daniel Jelovcan, who raised his hand. Could we have Daniel Jelovcan on the line and unmute it.

Yes, you hear me?

Yes.

The first question is just enquiries on the oligo target of the CHF 100 million. Can you shed a bit more light, is that broadly distributed? Are there clinical phases in it, I guess, so? Or is it just 1 or 2 major products, which are already launched, just a bit more light on that? That's the first question, and I'll take the other one after the answer.

Thank you, Daniel. It is correct that there are approved products in there, and there's also a couple of development projects in this mix for the CHF 100 million. And we see that over the next years, we will especially extend our development pipeline, but hope that we can also add some late-stage assets and then have additional approvals pretty soon.

So it will not be 2 products with CHF 50 million each, correct?

You're pressing harder and harder. I can say that what you stated is correct. It will be more than 2.

Okay. Perfect. And just -- I mean, there was the slowdown in the Commercial API in the second half, the same was experienced by your competitor from [indiscernible] so not a surprise really, but after the great momentum in the first half, can you elaborate a bit more on that? I mean, was it a typical semester shift with new batches or mature of the peptides or whatever you can tell us?

Yes. Thank you. It's a fair question. I can only speak for us, of course, and I would say, I'm here for almost 30 years, it's the usual. You have a few projects that are getting launched. People build up launch stock and then they slow down and some other effects in that pipeline. It's really nothing to be worried about. We live with those fluctuations. And they will remain for the foreseeable future. And sometimes it goes one way and sometimes it goes the other way.

So let's go on to a question that we got here in the chat. This one is from Dariusz Ubik. Dariusz writes, regarding the growth of less than 15% in 2022, is it only regarding the Commercial API or for the group as a whole. Thomas?

That will be for the group as a whole. And we expect a very strong year again for our CMC Development, as I said, and that's why we have a bit of a seasonality in 2022, as we expected that the second half will be stronger.

Let's take another raise hand. [indiscernible] has raised his hand. Can we have...

Yes. Can you hear me?

Yes, we can.

Perfect. My first question would also be on the growth guidance. Can you elaborate a little bit more why that is the case that you believe we will be likely below the 15%? Is it just that you have these approvals last year and the big ramp up, and this is quite high, and there is no other imminent ramp up in H1, and that's the reason? But -- or is it something else? So what can you tell us a little bit more in detail?

Okay. I think we guided that we have an average of 15%, and we are around that number. So there's absolutely no surprise. I think it's -- as I said before with Daniel, it's business as usual. And I think we mentioned how strong the CMC Development pipeline is. And in the commercial sphere, there is not something we would like to highlight or report. It's really going as it was planned and according to plan.

Let's take -- sorry, go ahead.

Out of the 11 Phase III projects you have in your pipeline, are some of them expected to get a market approval already this year or not?

Yes. And as I try to explain, it's not only those 11 Phase III projects that are in there that are important. There might be also approvals happening for products that were approved in 2021 or earlier that are used in different indications or that get approval in different geographies. And so there are many different things happening at the same period in time. And of course, we are anxious to learn more as it happens, and we are getting forecast from our customers. And we do our very best to communicate as transparent as possible what's happening. And the guidance is the guidance. And I think we should really be excited about the results we have last year and about all this great potential that's out there in the market. I see substantial growth in the future. And as I said, 15% every year in average, it's an ambitious target.

Let's have another question here from the Q&A function. I'm going to lump 2 together because they're pretty much similar. We have Michail Paraskevopoulos who asks us, can you tell us what are the sales from oligos in 2021? And that is similar to Daniel Buchta's who asks us, can you share more color on the oligo business? How many oligos do you have in development and commercialized into the portfolio already? And how many drugs do you expect to become commercial in 2022 in your portfolio?

All right. We currently report 3 product categories, and we don't break the oligonucleotides and the peptides apart, but I'm happy to shed some more colors on it. I would say on top of my head, we are engaged in roughly around 10 projects with oligonucleotides. And we add more as we speak. There is a market that is underserved right now. So it's kind of getting the right projects into the right equipment and working on it, and this number will increase. And as always, the numbers are important, but more important is that you're working on the right projects and that you are successful and stay in the market and get a good launch.

Let's take a raised hand. [indiscernible] has raised her hand, get her on the unmuted line.

I have 2. First of all, could you say something about the study development of the first 2.5 months of 2022? And second, I was positively surprised about the changing share structure. Could you say something about what is the reason that you did that?

All right. Maybe we split that, and I take the first part and then Alain chips in for the share structure. Business is running according to plan for the first 2.5 months.

On the share structure, we decided to -- or we tried to optimize our share capital. So right now, we have two, this A and B, and it's always -- also with potential investors or with external parties, it's always some are on the stock exchange, some are not. And therefore, we decided to have unified shares for the future and have all on the stock exchange. So there is no hidden something behind that. [indiscernible] will still be the main shareholders. They are committed to the company, and there is -- it's just easier for shareholders, but also for us as a company to have a better overlook on the shares. And the second, the split of 1 to 5 is really that we have a lighter share that also smaller or investors can also drive smaller packages there.

Another question from the Q&A chat, [indiscernible] asked us, will you be involved this year in the production of new GLP-1 drugs prescribed for obesity indication, please?

A very specific question. We are involved in several GLP projects. I think that's what I want to answer.

Another one from the Q&A from [indiscernible] on profitability in 2022. Given your remark on the favorable product mix you had last year, will this repeat again this year? Or should we be rather expecting a flattish EBIT margin development in 2022, also taking into account that S&M costs will normalize, marketing and sales costs will normalize? Alain?

So thank you for that question. Yes, of course, as we mentioned, we most likely will increase also our R&D expenses and maybe also invest in our administration. One good thing, our clear target is to grow over proportional to top line, but maybe it's not that wrong to be more conscious on the '22 EBIT margin. We will most likely not see a jump that we did -- that we had last year from '20 to '21.

I'm seeing still raised hands from [indiscernible], I'm not sure if they all are actively raised hands or whether they are just the old raised hands, so maybe the team could just take down the raised hands in case was already asked the question. And if you do still have a question, then just re-raise your hand. A question here from Daniel Buchta in the Q&A function. How is your Propofol business doing 2021 and 2022 expected? And how big is it revenue-wise now?

All right. Thank you for the question. It's correct. We had investments during the corona pandemic in accelerating the output for Propofol. We have seen -- that was in 2020. We have seen a good 2021 for Propofol, and we expect also a good 2022. We don't give the individual numbers for Propofol. So I think that's what we can share.

We have [indiscernible], who I think has re-raised his hands, so let's get [indiscernible] on the phone.

Yes. I actually wanted to re-raise my hand. So my question was about the EBIT. But probably, if I still have leave here one question for Alain. Can you give us a little bit more insight into the cost inflation you see in your input costs and also employee costs? And especially also probably Thomas for you, then how are these negotiations you mentioned with the clients, how are they going? Are you able to be -- to pass on some of the price increases which are not contractually there?

A few questions, right, in one. So we see, of course, also the inflation on our side. It's one on the CapEx on the investments that has cash impact, but not a P&L impact today. We also see it in our materials when we have to buy on stock. We have long-term contracts with our suppliers. So we don't see, at the moment, material impact from there. And on the contract side, we have contracts where it's in there that we can negotiate there, there we clearly talk to the customers, refine solutions there. So some are contractual. And -- but we also talk to all the clients if there is a possibility to share on these higher costs. And also on our employees, of course, we also see the inflation there. Switzerland is not that much impacted or affected by that. It's more maybe in the U.S., but it seems that there is an impact, but it's not a material impact that we have -- that much higher cost that we have a big impact on our EBIT margin in '22.

Okay. So the impact on the margin of revenue come from these tailwind from COVID following a way and higher R&D and probably less favorable product mix?

Maybe on R&D, that's clearly an investment into the future of Bachem with innovation and new projects.

Okay. And I think there was a second piece for Thomas there? We have a question for Thomas.

Yes. But Alain already answered.

Okay, got it. I'll manage. Okay. Just maybe let's take this one here that we have in the Q&A, we have Daniel Buchta. Just to see if there's anything to add to that, similar way, maybe Alain quickly, can you say a word on raw material cost development and general availability for Bachem? Do you foresee any margin headwind in 2022 due to this can you pass it on completely? I think you've answered part of that, but maybe raw material line.

I mean I think I answered that. We see an impact there where we have long-term contracts with our suppliers. We have negotiated. And we are in a good position to have not a full hit that is diluting our margin.

Another question from the chat from [indiscernible] you mentioned the target of 15% is ambitious. Where do you see the biggest risk not to reach this target? So a little bit of risk analysis there. I guess Thomas will take that one.

Thank you. Yes. The biggest risk with us is the CDMO who are always surprises with development of development projects that they don't fulfill their clinical targets. And -- or that something happens with approved drugs that they are getting proved from the target, so they have issues with payers' contribution and then the volume decrease.

Last one here in the Q&A, and then we've got one raised hand open right now. But Q&A first, [indiscernible] asking, you share insights into how you win new clients? Are they mostly appointing you directly? Or is it mostly via your research chemicals business? Thomas, that's for you, I think.

It is direct contact in most cases. And it's a relatively small world in the oligo and peptides for us. So people know each other, and it's -- frankly, it's were a larger part of the people business. Everybody knows each other and we talk to each other and we find the best solution for the manufacturing need that the larger pharmaceutical companies have.

And we have Daniel Jelovcan, who has re-raised his hand. So it's Daniel's question.

Just 2 more, and then I'm also saturated. The first one is a simple one for Alain. Just the CapEx. I mean your old guidance was CHF 500 million for the next 5 years. So 2020 to '26, I think that's still the same. So can we expect for this year also around CHF 100 million? Or is there may be some more investment schedule for this year? That's the first question.

Well, thank you for that. More than CHF 500 million we guided last year was excluding the new sites. So if I carve this out and we still say more than CHF 500 million, we can expect for '22 higher number -- the same or a higher number than in '21. If there is the land already in '22, of course, they will have a big impact when you think that we are looking for such a huge 100,000 square meters of land.

And my second question was in oligos, your experience. I mean, you think the outsourcing trend is similar as with peptides? Or is it more complex that the pharma-biotech companies don't do much in-house? Or I ask the question because, for instance, for me that the clean discipline in the CDMO space is cell and gene. And there, to me, a surprise Novartis has that in-house CDMO and even have contracts with biotech companies. So just trying to figure out a bit the trend in oligo in the future, outsourced so for you or in-house?

I think it's outsourcing. And of course, it depends on the performance we do as a CDMO community, and I'm very optimistic that we will be able to prove to the large pharmaceutical company that its better business sense to outsource with Bachem than do it in-house. But I think the jury is still out. There are investments also in larger pharmaceutical companies. We know that, but it's really a question to prove that you bring the better value than it's scanning outsourced.

And is it different over the continents, U.S., Europe, big pharma?

Yes, good point. I always feel that outsourcing is more natural to American companies. But I think the European pharmaceutical companies, they are also in a change mode in that respect, that chemistry work, historically, has been very important, but those new modalities, they are not actually there. And so I think we are in very, very, very advanced conversations, and I hope we can communicate soon and those are outsourcing discussions.

Two more questions here in the Q&A. One comes from [indiscernible] One more question, please, from [indiscernible]. Could you please share how much oligos you expect to generate in 2022? Since 2023, you expect to be already above CHF 100 million?

All right. Thank you for the question. Unfortunately, I cannot.

Okay. And then [indiscernible] asks for Alain here. You mentioned the CapEx of more than CHF 500 million is exclusive -- I guess that means excluding the new site, can you finance the site with existing cash/cash flow? Or do you have to look for once again for external financing?

Yes. That's a quick answer. Yes, at the moment, we can finance what is -- what we plan for. And there is no need for an external finance. But as I mentioned, there would be if we have to be faster because customers need capacity there are credit lines with our banks. But at the moment, we don't see any external financing needed.

Okay. So there, that concludes, I think, our Q&A. We are well on time. We've covered a lot of ground, has been answered. If you still do have questions, feel free to shoot us an e-mail to [email protected], and we'll do our best to get back to you as fast as possible. And with that, thank you very much to Thomas and Alain for spending this hour together with us and for presenting and providing some -- your insights and thoughts. And thank you to all of you who have joined us today from wherever you are based. I wish you a rest and remainder of the day and look forward to rejoining with you throughout the next couple of months or certainly than at our half year results. Bye-bye.