Bachem Holding AG (BANB) Earnings Call Transcript & Summary

Hello, and welcome to the 2003 Half Year Results session at Bachem. My name is Daniel Grotzky. I'm the Head of Group Communications at Bachem. I will be leading you through this call. Before we start 2 quick notes with regards to housekeeping. For one, we will have a Q&A session at the end. We will ask you then to use the raise your hand function so that we can hear your question, and I will be repeating that at the end. The other point is that this call is being recorded for replay on our website. And so that will be available to you in the next few days as well. With me today are Thomas Meier, the CEO of Bachem and Alain Schaffter, our CFO. Thomas will take us through the results of the first half of this year. Alain will then provide the financial perspective and Thomas will then spend a few words on the outlook going forward. And then we should have ample time for your questions after that. With that, I am very happy to hand over to Thomas. Thomas, please go ahead with your remarks.

Thank you. We're going to look now at the half year, and I'd like to do it. I can give you some perspective where we are and what we are going to achieve in the future. And I certainly know that you are aware that our main focus is on the full year. With that, we see that in the first half year of 2023, we had sales of CHF 23.9 million. That's a plus of 2.1% in Swiss francs. And in local currency, that's a plus of 5.3%. The growth was mainly driven by a successful commercial API business and resulted in a profitability of EBITDA of CHF 52.5 million, which is 21.9% of our sales. You see that there is some pressure on our margin. This pressure was exerted mainly by the hiring of new colleagues that we need for the future for the growth of the company. And to serve our portfolio. Our portfolio is very strong. We have a strong CMC pipeline with very important assets in there, and that continues even if we see some headwinds from financing of biotech companies and smaller companies that is more challenging than in the past. As mentioned, the API, the commercial APIs where we're going very well in the first half year, they made the first half year. And for Research & Specialties we have some reduced sales also because our capacity was limited in some instances. We build on our new capacities, we had a [ capital raise ] CHF 105.9 million. And we used that money to expand our capacity with a new building in Bubendorf, Building K, and also our workforce. We are now 1,926 full-time equivalents worldwide, and that's a net plus of 150 full-time equivalents. If you look at the pattern of the years, we see that the second half was almost always as strong than the first half or always strong as the first half, and we expect to stay for 2023. And on this slide, you can also see that 2023 was actually the strongest first half year we ever had at Bakken in terms of sales. If you look at the product categories, I touched on a few already. We see the commercial APIs with a plus of 15.4% and in local currency, a really strong showing and the CMC development at level compared to the first half year in 2022 and the decline in reserve Merchant Specialties. These dynamics are also explained in the next slide, where we see that for CMC development, we see very strong oligonucleotide projects in our pipeline. But at the same time, we also had some delays because biotech funding was harsher, and some projects got delayed mainly. I think they're going to come back. But for the moment, they're just a little bit paused. Commercial API was broadly successful. We have seen an increase of sales in APIs. We had very good generic sales, and we were also able to pass along the increase of incoming materials and energy and labor costs to our customers. The headwinds here for the patent products are the oligonucleotides. We mentioned that previously that an approved oligonucleotide had lower demand than originally expected. Research & Specialties, I mentioned capacity was a bit of an issue. That's why we're expanding to have more capacity ready for our customers in the future. Geographies, both Europe and America were successful. And also here, you can see the influence of the currency. We are running against a stronger euro, stronger yen, the stronger dollar, so the local currencies are always stronger than the Swiss result. There's not much we can do. We accept that and come up with a 2.1% increase in sales. And with that, I pass it on to Alain who's going to give you the detailed numbers.

Yes. So, I'm glad to talk through some details about the numbers from the first half year, starting with the key figures with the table. So, Thomas talked about sales and EBITDA, but also on EBIT, we had a drop due to the higher depreciation from the large investments we did in the past. On the net income, we have achieved that we are more or less stable. And the main impact there is that we have achieved this year a CHF 2.1 million net income from the financial results versus the last half year of negative CHF 11.2 million. So, there is the impact on the net income -- the earnings per share slightly lower that's because they are diluted from the capital increase that we did in March this year and very positive on the cash flow from operating activities, we see a CHF 44 million higher cash flow than in the first half of 2022. Talking about EBITDA, what are the drivers in this number? So, we start here with the first half year 2022 EBITDA of 28.7%. We see a drop in COGS. So, there is a 510 basis points impact, which is mainly driven by the higher personnel expenses from the new colleagues we hired, which are still on the onboarding and training phase. On the marketing space, we have been able to keep those costs stable. And on the R&D, so that's our own R&D, that's the patents that process improvements we committed to invest there. It's the future for Bachem. We will invest there also in the future, but there is a 140 basis points lower impact from R&D part. On the G&A, we are a growing company. We have filled some propositions that we need for the future with a slightly-40 basis points reduction in the EBITDA margin, which ends in the 21.9% margin for the first half year. We have in the U.S., maybe you have seen that CHF 1.5 million one-off nonrecurring payment from the reorganization. So, without that impact, it would be a CHF 22.5 million EBITDA margin for the first half year. Talking about the cash position. I said we have a CHF 44 million higher cash flow from operating -- on one hand, we have reduced our accounts receivable by about CHF 39 million. That's the main impact on the asset side asset income. On the other hand, to be able and have the right material to produce and to deliver our raw material on time to our customers. We have increased our inventory by CHF 38.7 million. On the other hand, we have been able with our customers as a partnership to increase our prepayments by CHF 44.5 million in the first half of the year. So that's the commitment for our working capital, but also for our CapEx from our customers. This leads up in the CHF 94.7 million operating cash flow. We have used that one hand for CapEx. It's a CHF 126.7 million that we have spent cash out for CapEx. This is higher than the operating cash flow, so we also sold securities in the amount of CHF 58 million during the first half of 2023. On the other hand, we did the capital increase in March. We closed that with a net cash income of CHF 105.9 million. And we paid out by the end of April, the dividend of CHF 56.2 million. This leads to a net change in cash for the first half year in 2023 of CHF 77.2 million balance sheet 2 main numbers, we have the working capital on the left and on the right equity and the working capital we have, by the end of June, CHF 289 million cash or cash equivalents on hand to support our growth strategy. And on the other hand, mainly impacted by the high prepayment from our customers, we have been able to reduce our net working capital by about CHF 36 million in the first half of the year. On the equity, as I mentioned, the capital increase led to an equity of CHF 1.3 billion, which is a ratio of about 83% by the end of June this year. And my last slide, talking about CapEx. We see we have about CHF 14.6 million in investments in the first half. CHF 101 million out of that is for capacity increase. So, it's a second plot of land in [indiscernible] for the new site, but it's also the buildings, the Building K and its equipment all over the world at all sites. On the depreciation, as mentioned, we see an increase there compared to last year's, that's because of depreciation of many equipment and capacity that went online also over the past few months. And it's very important that we have this CapEx. It's increasing the capacity that is needed. And we're talking about capacity and growth of the company. I'd like to give back to Thomas to talk about the outlook.

Thank you, Alain. I'm going to read now through the outlook. And as you can imagine, it's a positive outlook. We're investing in our team. We are expanding our capacity. And this is all driven by market dynamics that we think are quite brilliant. They are looking good. And on this slide, on the left side, you see positive trends we see there. And first and foremost, it's a trend to larger volumes, larger volumes of oligonucleotides. We are entering a new era for those modalities. Both of them are ramped up in a really high therapeutic areas with high demand. And so, we will be producing tons of material for the future, and there is a substantial change of what we have experienced over the last 50 years. This comes in combination with our CDMO offering, where we use our technical process and technical skills and a very high demand over both modalities. It is rewarding to work with those teams. For example, we had great success together with -- clearly for technological improvement for the oligonucleotide manufacturing. The therapeutic applications are also broadening up. So, it's cardiovascular [indiscernible] other indication are moving forward and certainly going to have great approvals in the coming years. On the right-hand side, risks or challenges, and we clearly -- Those success on competitive dynamics are moving into -- for example, in the oligonucleotide space. And so -- but I think we are very well into our journey. This is because we need the -- priorities for the first round, somewhat a niche player in main modality for the pharma industry, larger quantity. And this transformation is certainly-- it's important for the future success of the company. We're going to continue to have a smart portfolio selection to have the largest pipeline, but we want to have -- . And I think we have been successful in the past, and I remain very optimistic that we're going to continue that journey successfully. And this all is based on our focus on tight expertise, tight expertise that is the best of the industry, and that continues to be fostered by our process R&D and our day-to-day work. Now 2 examples of our capacity increases, the large Build K here in Bubendorf, we're working with full commitment thanks to an ambitious time line, and we are successful in expanding the equipment that's built in there and also our workforce in Bubendorf that was very successful in the first half year of 2023, and we will now reduce the pace somewhat in the second half of 2023. We have contracts already signed for this building. So, we are educating now the teams, and we're going to start manufacturing for those contracts in 2024. Following Building K, we will expand in Sisslerfeld in the Northwestern part of Switzerland, and that project is running according to schedule. We started our planning project, and we continue to believe that we need this operational at the end of this decade. So, if you look at our operating models, I think we have 3 within our company and the one on the right side is the trade [ leasing ] CDMO. That's where our process research is happening and where we introduce new techniques, new chemistry, new equipment for the first time. And then in the middle line, the blue one is the CDMO where we cooperate with pharma companies -- and those 2, I think they have been around for a very long time. But we are now going in with full force is the contract manufacturing where we produce larger quantities, higher volumes and that part also according to processes that are brought to us their property of somebody else. And we see a benefit in there. We see a high demand, and we're going to transform our organization to be professional in all 3 operating modes. That's what's happening right now. And like every transformation process, it comes with its own challenges, but it's, of course, also very rewarding to see that we are getting better every day and are successful in all 3 operating modes. And I think that's the slide that leads to the outlook in numbers. And for the full year of 2023, we see high single-digit growth in local currency and profitability around 30%. By 2026, we believe we are ahead of CHF 1 billion sales. And we're going to improve the EBITDA margin again and believe that we are above 30%. And with that, I think it's time for question and answers.

Thank you very much, Thomas. Thank you very much, Alain. We are indeed going to the Q&A part. So I see some hands already raised. Let's start with Daniel Buchta from Zucher.

Can you hear me, gentlemen?

Yes, we can.

Great. Perfect. Maybe starting on the short-term picture and looking at your EBITDA margin guidance of around 30%. If I do the math and even adjust for this CHF 1.5 million one-off, you would need like 35% EBITDA margin in the second half to get to 30% for the full year. Looking at my model, I have never seen Bachem having such a strong margin in one half year basically. And the Swiss franc becomes even more of a headwind. I mean maybe to you, how can you get to 30% still on a full year basis? And then maybe also, related to that on the 2026 guidance. I mean, you're saying still more than CHF 1 billion of revenue growth and also 30% or above 30% EBITDA margin by 2026. How much headroom is left in this guidance for FX headwinds because, I mean, this year, according to my model, you're going to lose 5% revenues because of that. At some point, CHF 1 billion might get ambitious and the same for margins given how FX sensitive you are, that's from my point.

Yes. Thank you, Daniel, for the question and I understand your concerns about that. But we have done our forecast. We are -- we have done some measures. One was in the U.S., the reorganization, and we see that it's possible based on our models that we can achieve to 35% where your math is totally correct and are convinced that we can make around 30% EBITDA. It's also the economy of scale. It's about the efficiency we're going to achieve and the savings with the realizations we mentioned before. And on the future in 2026, we plan now with -- I mean, U.S. dollar since June already again dropped, but we still see with that currency rate that we can achieve that in 2026.

Okay. Alain, let's take questions from James quickly. Morgan Stanley. Okay. Let's go to the next question of -- James, don't worry, we'll try you again in a moment. Vineet Agrawal from Citi.

Can you hear me?

There you go. Yes. Here we go.

Great. So, look, first, coming back on revenues. I mean, you have flagged some headwinds, right, from early stage services and continued commercial volume pressures in your oligo business and now you're flagging some increased competition as well. I mean, I'm just trying to understand what are the puts and takes for that over CHF 1 billion sales target? I mean if I take your CHF 220 million CapEx for Building K, Phase 1 and assume [ 121 ] sales to CapEx ratio and a full ramp by 2026. And maybe you won some revenues from the ramp of Phase 2 in 2026, you still need more than CHF 200 million revenues to meet that target. So, I'm just trying to think if you can walk us through that bridge? And then on margins. I think most of the improvement is going to come from the gross margin, right? Now you said that you had about 16% increase in your staff in first half. Now I'm assuming that increase is not sitting in your second half base of last year, right? So, I mean, we are just struggling because I think what the implied guidance for second half means is that you are probably looking at a COGS base, which is almost flat on an [ ROI ] basis compared to the second half last year. So yes, I mean, if you can share any more color on that, that would be very useful. Thank you.

I think the first question goes to Thomas with regards to drivers for sales in the medium term based on the 2026 guidance and then the second one is probably for Alain with the margins.

I understand that it looks a little over -- for us to a billion. But I can confirm that on the forecast and the contracts we have, we believe firmly that we can reach the CHF 1 billion by 2026. Of course, it's important that we now exit seamlessly on our capital expenditure projects. And that by itself is a challenge. And also, we need to bring the teams in that and grow the team that they can successfully work on this equipment. Also, bear in mind that we go to larger volumes. So, it will be larger projects that deliver this additional growth. And for the margin, I think Alain already touched on that, and I would just echo that what he mentioned, we're going to have a positive impact of the reorganization we did in the U.S., and we see our numbers that this [ innovation is going to ] deliver around 30% is possible. I don't know, Alain if you have all those numbers your head? Do you want to reinforce that, or we let it there?

Maybe to mention when you do the calculation with the guidance minus what we have in H1, there is a sales forecast for the second half, which will have a positive impact, what I mentioned from the economy of scale and of cost absorption that we have right now in our organization. So, we did relay the forecast and based on a bottom up EBIT level, and we see this is achievable. It's not a walk in the park, of course, but it's based on our measures we have taken, it is possible to achieve this around 30% EBITDA.

And sorry, if I can follow up. I mean what sort of recovery are you assuming in your development segment? And what sort of recovery are you baking in for Research & Specialties? Because if I were to assume these both segments declined in line with the first half, that would probably imply sort of 25% constant exchange growth rate for your commercial API business in the second half.

I think we don't want to break out the broader categories forecast. We give you the overall forecast we have and give you the segments for the full year when we talk to you again. I'm sorry.

Okay. So, let's try to see if we can get James this time, James Quigley. Should we try one more time?

Can you hear me now?

Yes, here we go.

So, part of my questions were asked in the last question, but just to maybe drill a bit more into the margin movements for next year. Could you quantify the cost savings that you've made in the U.S. and the restructuring? That would be great if you can give us an idea of that? And then secondly, on oligonucleotides, you mentioned that you're unlikely to hit the CHF 100 million target this year due to a commercial drug. So, is that to do with purely just the demand of that drug? Or is it due with phasing of inventory buildup and then this year, you have other requirements? Or is it due to things like in-sourcing from customers? And when should we now think you could maybe achieve that CHF 100 million target for oligos?

I will start with the oligos. James, thank you for your question. And it's correct. We don't see that we can reach the CHF 100 million in the short term right now. But at the same time, we can confirm that our oligonucleotide initiative for antisense and small interfering RNAs is going very well. It's going according to plan or even slightly better. And it's just not possible to compensate for the reduced commercial demand by those development projects we have in the pipeline. The development projects are above the entire spectrum of the pharmaceutical development, and we are very positive that our collaboration with late-stage assets and large pharmaceutical company will bring us growth in the future, and we are happy with the initiatives in that way. And I think I answered your question.

I'll take the next question from [indiscernible].

Can you hear me? So maybe quickly on the midterm guidance, I think you have modified some of the wording. And you were speaking specifically about 2026, I think also on the margin. I'm just wondering if you could comment maybe a little bit about the evolution of the profitability in that time frame until we get to this year 2026. So how should we directionally think about it? And what are the drivers and what is the potential margin headwinds that we have to consider? And then maybe the second question relates to this new large-scale contract you have for Customer A. I'm wondering if you can talk here a little bit maybe about the upscaling process, how smoothly things are progressing and what will be also here the impact into next year.

I'll start again with the second question. I think that was about the contract with Customer B if I'm not mistaken.

Customer A ramp-up, right? Customer A ramp up for customers.

Yes. And I'm confused the development should be with Customer B, if I'm not mistaken.

No, I was referring to Customer A, sorry, the ramping up of the new large-scale contract.

Okay. That is fully dependent on our capital expenditure project here in Bubendorf, and as I mentioned, we are working against a challenging time line, and we go as quickly as we ever can. There are uncertainties involved, like everybody knows, if you execute such a project, and we remain optimistic that we will be operational as planned in 2024. And then other question? Or is that good, okay?

Yes. I think so, but it's true that you still expect the CHF 25 million revenues related to Customer A to be booked this year. Is this still the case?

We don't break single customers out. That's all that I can say.

Okay. So, I go back to question one about the margin where we say 26% ahead. It does not mean that we are not ahead of 30% in 2024 or 2025. But it's a challenging time and what we, in general, do not change our guidance, which has split out the midterm 2026, but our target is to achieve the 30% as soon as possible and being higher and taking 30% of the floor with upside potential.

Okay. Then [indiscernible] wrote me that he does not have an unmute button. But let's try to see if we can take your questions anyway.

Hello?

Yes, it works perfect.

Sorry, I have trouble to log in, so I missed the first 10 slides. So maybe you have already commented. But on the U.S. restructuring, you mentioned in the press release that you changed the project portfolio. I have no clue. Will you meet -- can you be a bit more specific?

We just aligned our team and our skill base to the projects we see coming there in the future. And we have a very clear program for the U.S. sites. We have a development pipeline and a mid- to large claim manufacturing [unit] in Vista. And we want to make sure that we have the skill sets needed because we see high demand for peptide manufacturing there. I think that's what we wanted to do and what we are doing.

So, it's not related to a to, let's say, an American customer who produces a peptide in Bubendorf, right?

We are clearly having a network strategy for the group. So, projects are shifting around and quite frequently, we see projects building up in U.S. and at one point in time, they get shifted to Switzerland. But right now, it's really focusing again on peptides in the U.S. I think that was our initial momentum or [ impulse ] we wanted to take.

Okay. And the second and last question, if I may. What I don't understand is that you once said that for the first half, you were really, really running with a full capacity. That's why you didn't have more growth. But now with the guidance, you will have at least CHF 100 million more sales in the second half than in the first half. So just to understand that how is that possible? Maybe it's related that you have already produced some batches in the first half and will book it in the second half? Or how can I better get this?

Yes. That's right, Daniel. And it might be a little bit counterintuitive, but we did build up our teams, and we're going to run our equipment for longer hours with stronger teams. And the second idea that we had some things produced already that they are work in progress and are not yet sold is also correct. So, I think it's the combination of those 2 effects, whereas the real jump in revenue will be with new capacity in the new building.

The new capacity comes online…

In 2024.

In spring, right? You said once.

Yes, that's certainly an ambitious goal.

Next questions will come from Tanya Hansalik.

Can you hear me?

Yes, we can hear you.

Great. Yes. Most of my questions have been answered, but maybe just a few more. One is on the 2023 sales guidance for high single-digit growth. I wanted to clarify, since there is quite an FX headwind expected for the second half, is this in Swiss francs or local currencies? And that's one. And 2 is, do you expect any more onetime costs for the efficiency programs at the U.S. sites in the second half?

I think it's in local currency, that's what we can control more or less, and we don't have any one-offs for programs as we speak right now.

Okay. Then next question would come from…

Many of the questions have been answered. Just to make sure the question of Tanya was your sales -- for 2023 is now, I understand, in local currency because before I expect it to be in Swiss franc and then about a very strong negative currency effect. And that's my first question.

It's local currency.

And if you start production of the Building K let's say in the second half, is it is it fair to assume that the sales generated with the Building K will be very late in the year, meaning it will not too much influence the 2024 sales and more the 2025? Or will there be meaningful sales generated in this building already in 2024?

That's a very smart observation. The sales from 20 -- from Building K will certainly be to a large extent in the second half of 2024. And it depends when this building will be operational. I mean, we're going to start part of the building. We don't start the entire building. That's also important and as I said, we in those times, and we hope that there's something happening that's meaningful in 2024.

And the other thing is that you have to invest strongly in CapEx for your plans. I would like to understand how much CapEx you invest in 2023 and 2024 because you had an increase of capital, and you have to finance everything. And at the same time, you're increasing stock. Is it fair to assume that in 2020, you will have about CHF 200 million and the same for 2024? That's my next question.

Yes. So yes, I think your assumption for correct. We expect more than CHF 200 million this year, and we are also investing now starting investing in Sisslerfeld. So both years more than CHF 200 million is not a wrong assumption.

Thank you, let's hear from [indiscernible].

Maybe also a bit remaining on the midterm outlook. If we look into Building K, I think then over the next basically 2 to 3 years, you expect the second stage of the building. And maybe then also regarding your updated midterm guidance, now only targeting above 30% by 2026. How much more employees would you need to also be able to serve the second expansion phase of the Building K. And is this then maybe a driver for still somewhat more muted profitability that could occur in 2024 or 2025? Or is this then a lower extent and therefore, shouldn't have such a high impact as we have seen currently?

Okay. So, I'm not quite sure I understood the question fully. We will hire more people as more capacity comes on stream, and we guided for 2023 with a pretty precise EBITDA margin we expect. And we told you in the long run, we are targeting to be above 30%. And as the years progress, we will give you an update with the half year as we do and as we see the picture. I think we cannot give any more granularity as that. And I must ask you to call it in again. I think that's all I can say.

Yes. Sorry, maybe just let me rephrase it very quickly. But what I was hoping to get some more color on this, how much of basically the employees that you're hiring now are only enough for the Phase 1 now? Or also are you already training staff for the second expansion phase then as well? Or would there be another need for larger hiring wave in the next years?

I think the second expansion should get productive in the middle of the decade. So right now, we are hearing for the first expansion. And that -- is all the [ staggers ] of that so we don't have too many hands in the team. So that's a continuum that we're going to see for the year.

[indiscernible] While take [ Andy Schneider ].

Yes. I have a question for Alain regarding change and amortization with all the investments, it's quite difficult to have good estimates here for the next few years. Maybe you can help us here a little bit, what should we expect for this year, next year and probably the year after, that would be helpful.

Yes. So, we had about CHF 17.7 million for the first half. You can expect that it's more than double this year. So, you have our office building here in Bubendorf becoming on -- or we move in the third or the [ fourth water ]. So, I would say it will still be around 7%, 6.5%, 7%, maybe this year on the upper end, 7% of the total sales where we will end up right now what we see. And in the future is, of course, as soon as Building K goes online, there will be a huge portion that will jump in, in the depreciation of 2024 and the model still is the same. It's about 6.5% to 7% of total sales when we are growing in the future.

Okay. The ratio will not materially change?

Will not change. If [ axel ] is right, it doesn't change.

And the second one is again regarding the guidance. So, if I understood you correctly before, it's at least 30% for 2024, 2025, 2026. So not another around 30% a year in the next year?

Maybe I think I said it's -- the target at least 2026 is ahead of and we want to be ahead of 30 already earlier than just in 2026.

So, there may be another around 30% year in 2024.

I would not say no to that.

Okay. So, let's try to see if we can get a Vineet Agrawal again. Otherwise, let's go into a second round of questions I have here from a couple of Vineet Agrawal, raise your hand again. Let's hear from Vineet.

Can you hear me? All right. So first, how do you think about finance going forward? And do you plan to come back to equity markets? And maybe if you could just let us know what percentage of your revenues come from early stage uses. And just maybe a last one. Can you let us know what percentage of the cost associated with these expansion projects are capitalized versus expensed? So, I know you are hiring staff for Phase I Building K, but how much of it is an expense versus capitalized? And if you can share any color on that, that would be useful.

Yes. So maybe I can start with the financing and the capitalization of costs. So, on the financing, we have cash on hand. We have our operating cash flow, and we still have credit lines with the banks. And what we're not going to do, there's also a strong commitment or an opinion that we will not go to the capital market again. So, it will be owned, or debt financed in the future if needed for [indiscernible]. On the capitalization, I mean, what is capitalized is the part of engineering and qualification of the CapEx -- and internal 10% of total cost is capitalized, which is, as I said, engineering and some other functions. The people who are trained are not capitalized.

And then there was also a question, Thomas, I think, with regards to exposure to early stage how much of the revenues are…

Our Product Segment for API development is what we consider to be the earlier stage when they get approved, they move to commercial. So -- the number there. And on top of that, we -- I don't have any additional numbers.

Just to add on that, we publish the pipeline once a year at the full year mark. So, if you -- can see highly how much products are in the early phase -- you look at that give you a guidance on the sales expense, but you could look at the pipeline from the… Okay. raised hand from -- another question.

Can you hear me again?

Yes.

Great. Maybe coming back a bit on the development in the CMC development. I mean, slightly negative organic growth, basically, is this to a large degree driven by the oligo business? Or is also the peptide business, the early-stage products, do you also see there a slowdown? And if so, maybe for both businesses, is this other just delays of projects or have also projects been canceled? I've seen for example, from [indiscernible] cautious comments on -- Payment -- potential in terms of, you said also pay currency or I don't know, some other Swedish krona. I mean, how are the payment…

All right. Well, the first question -- slow down. It is still going very strong and we're working against a very strong first quarter for API development where we had extra volumes for toxicology. So overall, the pipeline developed as we had -- but we see, and that's also effect outside of the cardiovascular -- area, there are some smaller companies that are having difficulties at time to fund themselves and then they call in and lay some of the -- as everybody took -- and right now, I mean, it's a little bit softer if you want to sell something. But we remain very happy with what we are achieving and optimistic that those assets we have there are also a good selection of the pie, result in a market that will be successful. When it comes to currencies, we all are Swiss franc, and we try to sign our contracts in Swiss francs. And sometimes, we are successful in that, and sometimes we are not. And I think that's all I can say.

Were also second question is…

First, you doubled R&D in the first half, is it fair to assume that this is the new ROM level for this year and the next year that you are spending much more than in the past?

I think what you want to do is, and I think Alain alluded to that, we want to cement our leadership position by running our own process R&D, and we see that as a positive impact on our skill set. And so, we're going to continue to invest in R&D. So, I think this will slightly increase for the coming years for the level we have seen. This [ is what we need to ] spend this year.

Maybe I can add. It's about what we mentioned before, it's about [ 21% ] of sales what we want to invest in.

And other thing is again, Research & Specialties.

Let me give you a forecast for the whole business, we see it and we don't break it down into segment freight. I cannot give you any more color here.

And the last thing is that the oligo and the CHF 100 million goal is a little delayed. Can we expect CHF 100 million in 2024?

I think I wanted to be clear there that in the short term, we will not reach the goal. I think we're going to grow long term. But right now, this CHF 100 million seems to be a bit elusive looking at the commercial demand that's [ performing ].

Let's take [indiscernible].

Sorry, I just didn't lower my hand.

Okay, fine. Then I think I saw a reraised hand by Daniel [indiscernible].

Yes. On the commercial phase. I mean, there are that many products on the market, especially big ones. So, is it fair to say that when you have a little bit less sales than you probably expected that there is more in-house capacity or production by large pharma? Or is it probably more other CDMOs. I guess it's the first one, but can you share at least a little bit of my thoughts.

I think it's relatively clear. It's just a product that is losing momentum in the market, and that's why we are producing less.

I mean to speak it out, I mean it's clear that oligo is [ appointing ], so it can be related to not -- don't want to comment to you on a specific customer or not, but so examples like that, is that correct?

I can just repeat. It's a product that's selling less than before.

Okay. And then looking at the time, looking at the list, let's have one last question, [indiscernible].

Maybe again, one question on the currency. I would guess that you basically try to sell in U.S. dollars from your U.S. site. Is this correct? And then maybe as a follow-up on that then, due to the restructuring as well, you should have lower sales from U.S. production based, and therefore, maybe in the second half, the FX factor from U.S. dollar should also be then less pronounced than you would think based on 2022 sales. Is that correct?

Maybe these are best for Alain.

Yes, I'm not sure if I could follow the math behind. Yes, when U.S. are selling, it's mainly in U.S. dollar, it's U.S. dollar only that I think -- when you talk about the FX, that was lower or the same of last year. So yes, there will be still -- but we don't expect lower sales in the second half because of the organization.

Okay. So, looking at the time, I think we're going to close the call. Thank you very much for attending. If there are any additional follow-up questions, feel free to drop us an e-mail. We got through most of the questions, but I think [indiscernible] if you are hearing me then feel free to shoot us an email. And thank you very much for joining us today. Thank you, Alain. Thank you, Thomas, for the remarks and answers and have a wonderful remainder of the day how long that may be depending on where in the world you are. Goodbye.