Genscript Biotech Corporation (1548) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the 2022 GenScript Biotech Interim Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Mr. Shiniu Wei. Please go ahead.

Thank you, Desmond. Good morning, everyone. Welcome. I'm Shiniu Wei, CFO at GenScript . We also have the following management team members attending today's call: Mr. Robin Meng, Chairman of the Board; Dr. Patrick Liu, Rotating CEO of GenScript ; Dr. Ying Huang, CEO of Legend Biotech; Dr. Brian Min, CEO of GenScript ProBio; Dr. Ray Chen, President of GenScript Life Science Group; and Dr. Aixi Bai, General Manager of Bestzyme. Before we begin, I would still remind everybody to the obligatory forward-looking statements. Please take a second to read them. In today's conference call, Patrick will give an opening remark and present business update of 2022 first half. Then I will walk you through the company's financial performance. After that, Patrick will outline our company's future strategies and second half focus. Our Chairman, Robin, will give a summary, followed by a Q&A session at the end. Now I will invite Dr. Liu to highlight our business achievement in 2021 -- 2022 first half. Patrick?

Good morning or good evening, everyone. I'm very excited to share with you our business update in the first half of 2022. First of all, on behalf of the board, the management team and all GenScript employees, I would like to thank all shareholders, investors and analysts for your long time support. 2022 is an eventful year. We witnessed dramatic international geopolitical events, ongoing impact of COVID and [ too many ] hail this summer due to climate change. This makes us more aware of our social responsibility and the commitment embodied in our company's mission to make people and nature healthier through biotechnology. GenScript just celebrated its 20th anniversary on August 15. Going through numerous changes over the years, we now have well-established business portfolio in place, and our teams are working in a highly effective way. We are impressed and inspired by our Dare To Win! spirit as demonstrated by employees in the first half of this year. [ Even as COVID returned ] in Shanghai, our teams in Shanghai navigated difficulties to live and work on site. Both our domestic and overseas logistics teams [ tried to leverage shifting roles ] in a very short time to ensure our business continuity. [ Amidst strict power ] restrictions lasting for almost half a month this summer, our manufacturing and product team took swift action to meet the production schedule. I believe with the effort of our ambitious team, our company will continue this very strong growth momentum and become a top-tier biotech company in the world. On behalf of the management team, I would like [ to intend ] our thanks to everyone at GenScript, and I expect to achieve long-term success together with shareholders, investors and analysts as well. Now I would like to walk you through our business highlights for the first half of this year. Slide #5. So for our life science segment, since our inception, life science business have grown very steadily. Thanks to our solid expertise in life science, we have [ incubated ] 3 subsidiaries over the year, diversifying our presence across different business segments. Revenue from life science business grew by 16.5% year-over-year, demonstrating 20 years of continuous growth. As of the end of the first half, our life science business has a global footprint spanning more than 100 countries and regions with over 200,000 customers. Our extensive sales network and well-established global business have built the foundation for our future growth as the COVID impact is starting to diminish in Europe, with our fastest sales recovery in European region. Our sales in China and the U.S. are also growing very fast as well. So in the emerging field of gene and cell therapy, we have launched a series of services, raw materials and consumables to meet the market demand while setting the standard for the industry. We will continue to improve our business and upgrade our GMP capacity to ensure safety, efficacy and compliance required for those products. We are also commercializing GCT instruments and related business. We launched CytoSinct cell isolation platform, which was the first cell isolation solution in China. Also, we started to commercialize magnetic beads for cell isolation in the first half of this year. Our cell solution instrument is also [ under testing ]. This June, we launched the AmMag Quatro automated system, which is an automated plasmid preparation instrument that supports automation throughput, the plasmid preparation process and meet the demand for the high throughput needs. We further invested in capacity expansion. Our life science facilities in China, Singapore and the U.S. are operational successfully, including capacity expansion for our molecular biology protein, GCT-related raw materials and [ TRT-grade ] instrument [ and related ] business line. In addition, we also introduced our proprietary automated production process in those new facilities as well. So GenScript ProBio. ProBio continue to have very strong momentum in the first half of this year. ProBio's external revenue were over 94%. Backlog grew 57%. Overseas sales increased by 70% year-over-year. Revenue growth was attributed to rapid growth of downstream antibody CDMO business and a new GCT-related CDMO project as well. By the end of the first half, we have served about 1,600 global biotech and biopharma customers. On new project, our CMC orders are growing rapidly. In the first half, we added 21 CMC antibody projects and 39 GCT CMC project, almost equal to the total project number of 2021. We are also [ commencing R&D projects determined ]. In the first half, we helped customers [ obtain ] 11 domestic and international IND approvals. Our revenue growth is also attributed to [ our talent base ] as of now provides nearly 1,000 employees with 40% of them holding a master's degree or above. We will continue to grow [ our talent base ] as our business grows and provide competitive incentives to our employees. We are also pushing ahead with our capacity plan. [ I'll provide some more useful ] information very shortly. So for Bestzyme, in the first half, Bestzyme revenues declined by 17% due to the negative impact of COVID and a downturn in the feed enzyme market. However, gross margin and net margin significantly improved mainly due to the product mix change by actively pruning low-margin business. Despite external difficulties, Bestzyme business has been improving. Bestzyme's gross margin grew to 43%. We launched a number of optimized enzyme product and a new enzyme product for a home care detergent to address diversified needs and get into high-margin areas. In the first half, we also worked with a partner to develop and commercialize the chemical materials with our proprietary technology. This [ preparation ] generated about RMB 8 million in revenue in the first half. In the synthetic biology field, our project in the pipeline are well on the track as expected. We are also exploring [ mostly ] new applications as well. So Legend Bio. Cilta-cel, with a brand name CARVYKTI, received regulatory approval from the U.S. FDA and the European Commission for the treatment of adults with relapsed or refractory multiple myeloma. CARVYKTI has been launched in the U.S. in the first half. As China's first CAR-T product commercialized overseas, CARVYKTI's success is very strong validation of China's innovative [ drug ] product. Legend's efforts from R&D to commercial approval provided a path to global commercialization for innovative drugs. On behalf of the management team, I want to thank Legend and the GenScript team for this great achievement. As of the second quarter of this year, CARVYKTI generated about $24 million in sales. We believe that with [indiscernible] CARVYKTI and expansion into early line clinical trials, CARVYKTI [ will be a true clinical promise ] in commercialization. Legend Bio is also moving CARVYKTI into early line clinical trials. We're conducting Phase III clinical trials for CARTITUDE-4, 5 and 6 programs. CARVYKTI [ proves its ] potential use to treat a patient in the early lines of multiple myeloma. In addition, Legend is also pushing ahead with other pipelines. In early June, the U.S. FDA cleared IND application for our solid tumor [indiscernible] targeting relapse or refractory gastric, esophageal and pancreatic cancers. Next slide, Slide #6. In the first half, life science business continued to pursue innovation. On the platform side, we continue to automate our production lines. We have over 60% of genes synthesized from the automation platform. We have significantly improved our production efficiency. We also start implementing oligo and other automated production lines as well. To develop our business and shorten the turnaround time, we will launch a plasmid maxi-prep automation platform in the U.S. later this year. We believe this will support our local production in the U.S. and better meet our customer needs for gene synthesis services. In the first half, we launched a semiconductor chip platform with the world's highest throughput for DNA synthesis, which features low cost and high throughput. Based on this platform, we launched [indiscernible] synthesis of [ 8 million ] unique oligos [indiscernible] 2.5 million [ sites ] per square centimeter. This technology can also be [ applied to industrial ] genome editing, protein antibody engineering, molecular diagnostics and [indiscernible]. This platform may also be applied to other potential applications [indiscernible]. Our capacity expansion for GCT business [indiscernible] production line in Nanjing to provide GMP raw materials, such as sgRNA, ssDNA and dsDNA. Capacity expansion in Zhenjiang is also underway to meet demand on raw materials for the development of nonviral vectors. We leveraged our R&D expertise to develop a safe raw material for nonviral gene and cell therapy, including [ test new places ] in mRNA [ or protein from ] 160 [indiscernible] payload, such as single-stranded DNA and double-stranded DNA. We can help our customers ensure precise, targeted gene [indiscernible] improved safety profile. On protein capability, we developed our proprietary CHO expression system last year and launched the [ business ] in the first half of this year. The CHO system significantly increase the protein productivity and shorten the turnaround time. It also enables microgram [ to kilogram ] [indiscernible] in a single [ plate ]. This system makes our protein expression level and time line more competitive within the industry. On peptide business, we have become China's largest customized peptide service provider. Our [indiscernible] highest throughput and automation in the world. This platform can synthesize about 18,000 peptides in a month. On product innovation, considering increased demand for mRNA technology in drug development, we launched a one-stop [ ALL Your ] mRNA solution this June, including a proprietary [ product ] optimization platform [ for mRNA synthesis ] design, plasmid prep automation platform [ via ] high throughput screening, proprietary [indiscernible] translational [indiscernible] analogue and genetically modified [indiscernible] we're able to provide the fastest and most reliant delivery of mRNA therapy materials with superior performance. On GCT-related instruments and consumables, we launched the CytoSinct cell isolation platform to address high costs of cell isolation process in the [ development of cell therapy ]. We launched the beads for cell [ activation ] and cell isolation, [ gaining ] encouraging testing results from our customers. We have completed 3 validation batches for GMP-grade beads manufacturer, and we also plan to start a [ GMP-grade ] beads manufacturing in Nanjing in the third quarter of this year. Also, we are building a [ GMP-grade ] data facility in Zhenjiang to [ meet industry-grade ] manufacturing needs. Next slide. In 2022, we [ excited our ] capacity expansion for life science business, supporting our revenue and business planning in the next 3 to 5 years. Our [indiscernible] about 20,000 square meters in [ Zhenjiang has been filed ]. Our life science building [indiscernible] also about 20,000 square meters in Nanjing has also been [indiscernible] to completion this year. Our life science building of about [ 35,000 ] square meters [indiscernible] site will also be completed for the first phase by the end of this year. In 2023 and 2024, [indiscernible]. We continue to make [indiscernible] first half [indiscernible] 242 antibody discovery projects, 27 [indiscernible] development projects and 21 [indiscernible] helped our customers get 2 IND approvals. In GCT [indiscernible] business [indiscernible] in the first half, [indiscernible] 51 preclinical, 39 CMC and 38 clinical projects and also helped our customers get 9 IND approvals. Our antibody capability, thanks to our aggressive investment into [indiscernible] and accumulation of experience in this area in the past several years, our capability has significantly improved. While [indiscernible] turnaround has been shortened about 10% to 25%, our CMC turnaround from [indiscernible] has been shortened to 6 months, benefiting from upgrade of our cell line and vector platform [ of antibody ] yield. The average yield is higher than [ 6 grams ] per liter right now. On the plasmid platform, we have now become the #1 CMC supplier in China. In the first half, [ industrial ] strains and processes for special plasmid sequences [indiscernible] cell line [ process to support ] [indiscernible]. We also successfully delivered the first cell therapy CMC project with our proprietary suspension cell line PowerS-293T [indiscernible] production capacity, which is the largest in China. [ In fact ], it will be put into commercial production this year. This can [ meet the diversified needs ] of customers. We [ can do ] that as we continue to [indiscernible] and upgrade our [ vector ] technology [indiscernible]. Next slide. [indiscernible] track record, our business shifting [indiscernible] higher [ earning and ] stable business, and we're also building up our CMC batches experiments in helping our customers get their IND approvals. On GCT business, we have helped our GCT customers [indiscernible] 19 GCT-related IND approvals [indiscernible]. We have [ set ] a number of [indiscernible] on the plasmid and viral vector field [indiscernible] in the global gene and cell therapy [ industry ] development. Next slide, capacity expansion. While [ biologics ] CDMO will remain a top priority for ProBio, in the next 3 years, we also saw some capacity expansion of [ biologics viral ] business and process development to meet the increasing customer demand in this area. We also expect [ to commencing our 16,000-liter ] GMP facility in Zhenjiang in 2023. On GCT, we also [ focus on expansion facility ] plasmid and virus capacity. Our QC cGMP facility covering over [ 3,000 ] square meters in the U.S. is also under construction, which will be used to meet the needs from international customers. Next slide and turning to Bestzyme. In the second quarter, as Bestzyme launched a new [ protease ] product, [indiscernible], which is used in detergent to break down the protein stains on clothing. [indiscernible] by international companies. On feed enzyme, we optimized our product and launched a new product, [ cell wall hydrolase ], in response to market demand. We also optimized low-margin products to improve our gross margin significantly. We also upgraded the existing strains and processes to improve our production [ efficiency ] and reduce costs as well. [indiscernible], we now focus on functional proteins and [indiscernible] replacement of chemical [ method ]. Next slide and turning to Legend. In 2022, Legend and its partner J&J received last-line commercial approval of the lead product CARVYKTI for the treatment of multiple myeloma from the U.S. FDA and also received conditional marketing authorization from EU on May 25. Cilta-cel has the potential to address the worldwide challenge of multiple myeloma [ treatment ]. As a potential best-in-class CAR-T cell therapy with FDA approval, cilta-cel is a solid encouragement of China's innovative drug to seek global commercialization. Legend's course of success will also serve as an ideal reference for China's innovative drug industry. [indiscernible] we are conducting global cilta-cel studies, along with our partner, J&J. J&J and Legend are conducting [ 3 global ], randomized Phase III clinical trials, the first one being CARTITUDE-4, our [ first Phase III ] trial in the study. And this is evaluating patients with 1 to 3 prior lines of therapy and also refractory to REVLIMID. We completed enrollment of more than 400 patients in October of 2021, and now we are in the follow-up. We also started our first Phase III trial in early line multiple myeloma, CARTITUDE-5, and this is a Phase III, open label study of cilta-cel. We plan to enroll 650 patients. We are comparing to active controlled arm where the patients are being treated with standard of care VRd followed by Rd maintenance. This is actually the first Phase III trial for [ any systemic ] targeting CAR-T in the setting of multiple myeloma. CARTITUDE-6 was initiated early this year, another Phase III trial in front-line aiming to compare efficacy of DVRd followed by cilta-cel versus DVRd followed by ASCT in newly diagnosed multiple myeloma patients who are transplant eligible. [indiscernible] [ enrollment of at least 750 ] patients. Based on the promising clinical data we have generated in the [indiscernible] and the clinical development plan, we are very confident that cilta-cel [indiscernible] in the future. Next slide. Following the commercial approval in the U.S. and Europe, capacity expansion will be one of Legend's key priorities. For clinical supply, we have built GMP clinical supply sites for CAR-T products in Somerset, New Jersey in the U.S. and Nanjing, China. In addition, with the launch of CARVYKTI, our facility in Raritan, New Jersey has been put into operation, and it currently supports both [ clinics ] and commercial manufacturers worldwide. On global business presence, we are also building commercial sites in Ghent, Belgium and Nanjing, China to meet future commercial demand. J&J and Legend is building the Belgium facility; and upon completion, it will be able to supply globally together with our Raritan site. In China, we have one GMP operational facility in Nanjing, which serves as our clinical and also [ first launch site ] for our Chinese market. And at the same time, we are building a large [ field ] commercial manufacturing site in a new campus in Nanjing. So we believe that Legend is able to build commercial capacity as scheduled to meet [ the changing and urgent ] need for cilta-cel. So I think I now will turn it back to Shiniu again to cover the financial results. Shiniu?

Thank you, Patrick. We are on Page 15 for those who are on the webcast. GenScript continues to grow steadily in the first half of 2022. Group adjusted external revenue grew 32.7% year-over-year to about $305 million. Group adjusted gross profit reached about $188 million, 31.4% higher year-over-year. The adjusted gross margin was about 61.6%. Group consolidated net loss was about $226 million, and adjusted net loss was about $130 million. Non-cell therapy business continued its growth in first half. External revenue grew 26.6% to about $248 million. Non-cell therapy revenue benefited from new product launch, stronger business development capabilities and capacity expansion in all 3 business units. The adjusted non-cell therapy gross profit was about $135 million, 22.4% higher year-over-year. The adjusted net profits for non-cell therapy [ business was about ] $30.2 million, 14.4% higher year-over-year. Our cell therapy segment external revenue was about $57 million, 68% higher year-over-year. This represents continued revenue recognition from the upfront and milestone payments with J&J collaboration. Adjusted net loss for cell therapy business was about $160 million mainly due to increased clinical studies of cilta-cel and other R&D activities. Please also note that cell therapy profit loss figures reported at the group level maybe slightly different from Legend's own numbers due to intercompany elimination. On Slide 16, as we can see, we continue to invest into R&D in the first half. Excluding share-based compensation, our total R&D was $168 million, down about 2% year-over-year. In first half, due to our strategic investment across non-cell therapy business lines, R&D expenses of non-cell therapy business grew significantly, which is in line with our strategic expectation. We expect R&D spending to further rise as we increase investment in Life Science business, biologic CDMO and Synthetic Biology. We expect R&D for non-cell therapy business overall, account for over 10% of revenue in the long run. We also made significant capital expenditure in first half. CapEx was about $82.5 million. Major areas of CapEx included capacity expansions for Life Science business, CDMO business and production to support commercialization of cilta-cel. The group has a very strong balance sheet. As of the end of first half 2022, total cash position including cash and cash equivalent, time deposits and wealth management products stood at $1.26 billion. Cell Therapy business has a cash position of $789 million, while non-cell therapy business cash position stood at about $474 million. Now let's turn to financial performance of each unit. On Slide 17, we reviewed the Life Science Products and Services financial performance. In first half, on top of our high achievement last year, our Life Science business continued to grow steadily. External revenue was about $171 million, up 16.5%. Life Science business has also further diversified. Excluding the impact of COVID-related products, revenue of Life Science business would have grown to over 20%. Due to the impact of long-term projects and the growth in first half for Life Science will be slower than what we expect in the second half. An adjusted gross profit grew 8.6% year-over-year to about $101 million. Increased shipping costs due to COVID had a negative impact on our business, which cost about 1.5% of gross margin for Life Science business, but also we expect this impact to narrow in second half. In addition, we have been investing in overseas production capacity in Singapore and U.S. As we ramp capacity there, this will have a negative impact on our gross profit margin. In the first half, launch of the 2 new facilities had a negative impact of 3.3% on gross margin. And COVID-related products such as cPass also declined in the first half with lower gross margin as well. Overall [indiscernible] on gross margin [indiscernible] in Life Science business. On the positive side, we have continued to gain our production efficiency. Therefore, overall, gross margin has decreased about 3.5% in this business. We believe with further logistic optimization, overseas capacity ramp-up and a normalized COVID-response environment, our gross profit in second half -- gross profit margin in the second half well stabilize and be comparable to what we have achieved in the first half. Also, I would like to note, as ProBio has been established as an independent legal entity in the second half of last year, the group's back-office expense has been allocated to the Life Science and ProBio business segments this year. Now due to the allocation of back-office expenses, R&D, selling and administration expenses and operating profit for segment cannot be compared to last year's number directly. As we can see, the adjusted operating profit of the Life Science business was about $33.2 million in first half and adjusted operating net profit was about -- net profit margin was about 20%. Excluding the impact of COVID-related products, we expect the Life Science business for the full year to still grow 20% to 25%. On Slide 18, let's look at biologic CDMO performance. In first half, our biologic CDMO business, ProBio continued its robust growth. ProBio's external revenue grew about 96 -- 94% year-over-year to $6.4 million. Revenue growth was attributed to successful delivery of ongoing projects and fast growth of gene and cell therapy CDMO demand. Within ProBio, gene and cell therapy CDMO service revenue saw explosive growth, up 168% and year-over-year. Revenue for antibody and protein drug CDMO grew 77.5%. As we focus on overseas business over the years, ProBio's domestic and international business are growing in parallel. Our China-based and international revenue split is nearly half and half. In the future, we will continue to pursue a global strategy to diversify our revenue footprint. Based on our existing backlog, we expect ProBio to continue robust growth and maintain a CAGR of 50% to 60% in the next 2 to 3 years. As of second half, total backlog right now is about $228 million, up 57% year-over-year. This significant backlog buildup had resulted in rapid increase in project numbers, we expect to convert this backlog into revenue in the next 1 to 2 years. As ProBio grew its revenue, gross profit also grew significantly, up 125% to $24 million. ProBio's gross margin continued to grow fast driven by higher capacity utilization, substitution with domestic raw materials and R&D platform optimization and a higher labor efficiency. In first half, adjusted operating profit for ProBio was about $3.2 million, and we expect ProBio's gross profit to further rise in the future. With gross profit increase and operation optimization, we believe ProBio's financial performance will continue to improve. For the full year of 2022, we expect ProBio's revenue to grow about 60% to 70%. Turning to Industrial Synthetic Biology Products, Bestzyme's revenue declined 7% year-over-year to $16.6 million in the first half. This is mainly driven by product mix optimization. We actively pruned low and negative gross margin products, therefore, gross profit and gross margin significantly improved. Revenue decline was also contributed by negative impact from the feed industry in China, which is experiencing a downturn. Also, Russia and Ukraine war had a negative impact on our overseas business for ProBio. However, we have noticed a recovery of customer demand in Q3. We do not think this onetime decline in revenue in first half will impact our long-term revenue growth outlook for Bestzyme. Excluding revenue from -- also in the first half, we had licensed out a patent to our partners and receive patent royalty in first half. Excluding this impact, our gross margin was over 40%. This represents an increase of about 10 points year-over-year. And benefiting from improved gross profit, we also achieved operating profit in first half for [ Bestzyme ]. For the full year of 2022, we expect Bestzyme's revenue to grow between -- to grow in high-single digits within 10%. On [indiscernible] cell therapy, Legend Biotech's external revenue was about $57 million. R&D expenses were slightly lower year-over-year. R&D expenses at Legend include costs for conducting clinical trials in the U.S. and China for cilta-cel program, which was $89.6 million. R&D expenses for other pipelines were $60.5 million. As Legend continued to invest in R&D, adjusted net loss was about $163 million. At the end of first half, Legend has a cash position of $789 million. Also, we had just finished a follow-on offering in Q3 for Legend. So accounting for that, Legend reached another $402 million. Overall, we believe Legend has a very strong cash position to support cilta-cel clinical trials and investment into other pipelines. Now I will hand back to Patrick and for him to share our major business and management focus in second half. Patrick?

Thank you, Shiniu. Overall speaking, I think our business growth in the first half is in line with our business timing, and we believe that momentum will continue in the second half and the years to come as well. So on Life Science business, we will continue to invest in its Services and Products to tap into the rapid evolving market. We will also upgrade automation capabilities of our Life Science business and increase the throughput of gene synthesis molecule protein peptide business lines and focus on the global capacity expansion to support our global business growth. ProBio is also growing very fast. We will further strengthen our business development for large biopharma to seek high-quality business growth. We will also stick to our global strategy, build a solid international business and scale up our GMP capacity. In the GCT CDMO field, we will strive to maintain our CDMO leadership position in China while also expanding our presence in the international market. On Bestzyme, we will synergize R&D with downstream industrial-grade production and a leverage of large-scale industry fermentation capability accumulated over the years. We will continue to optimize our product portfolio, launch more competitive products and accelerate R&D in the Synthetic Biology pipelines. For international business, we will strengthen our presence overseas to diversify our revenue stream. On Legend, with last-line commercial approval for our first-of-kind drug CARVYKTI, we will also more commit into early line clinical trials, expecting to make these innovative product available to multiple patients. On other pipeline, Legend will also focus the products for solid tumor, liquid tumor and the infectious disease, reshaping the landscape of cell therapy. Now I think I would turn it to our Chairman, Mr. Robin Meng to give a summary.

Thanks, Patrick. And thanks to all shareholders, investors and analysts for your continued support. This August marked the GenScript's 13th anniversary. Over the past decades, the group has evolved from a team of 3 cofounders only to over 5,000 employees worldwide. I'd like to express my sincere gratitude to [indiscernible] founders, management teams and all the employees. It's my privilege to work with them and share the constant success at Genscript. On the way much into the future growth, we see quite a strong headwind. Climate change, global pandemic outbreak and energy shortage post immense challenges to the society. We are also facing challenges from intensified competition, rising geopolitical complexity and the regulatory changes to the biotech industry. However, as the gene of innovation has been embedded in our group companies, I believe that we are able to convert the challenges into developing opportunities with the joint commitments of the group. Our Genscript employees will stick to our mission to make people and the nature healthier through biotechnology and shape Genscript as the most trustworthy biotech company in the world. Thanks again, and best wishes to all the participants of the conference. Shiniu?

Thank you, Robin. Desmond, we can open up for Q&A.

[Operator Instructions] Your first question comes from the line of [ Linda Shu ] from Haitong International.

Thank you Patrick and Shiniu for a very clear introduction on the business segments. I have 2 questions. One is that for the Life Science research services, we noted that the GP margin actually had a decline and Shiniu actually explained that one of the reason is there was shipping cost increase and also contributes about 1% of the GP margin's decline. And I would like to understand, is it possible to add the end price given the increased cost on the labor and energy global-wise. And what is the GP margin outlook for the second half of this year? This is my first question. My second question actually is also related to the GP margin. That is for the Industrial Synthetic Biologics business. And we noticed that actually this business has turned into profit this year and the margin increased significantly to 43%. And I would like to understand what is key reasons? And how do we expect to stabilize GP margin of this business and also the sales growth of this segment in the next 2 years?

Thank you, Linda. So for your first question, in terms of gross profit margin impact for Life Science. I will first elaborate a bit on the numbers, and I will have Ray, our President of Life Science group to give you further color. So as you had mentioned, shipping cost increase had a negative impact on our gross margin in this business, which was about 1.5 percentage points on GP margin. As you remember, we had started to increase our shipping charges from the second half of last year, and we continue to optimize that this year. So we believe in the second half, impact from this particular area should be normalized when you compare it year-over-year. And also impacting gross profit margin for Life Science was the capacity ramp-up for overseas site as well as reduction in COVID-related products. Overseas site had a negative impact of about 3.3%, and COVID-related products had a negative impact of about 1.8 percentage points for gross margin. But on the positive side, we have continued to optimize our product portfolio, mix change and production efficiency gains had contributed a positive about 3% on gross margin in this business. So Ray, perhaps you can comment more on the outlook.

Sure. And thank you, Linda, for your question. This is Ray Genscript Life Science. And just wanted to echo Shiniu on the numbers. Yes, the cost of shipping logistics has increased significantly during the pandemic. But we believe that we have optimized and built a very robust logistic routes and systems and that will ensure a reliable delivery for our global customers. This is a lot of efforts we have made. And also that, as Shiniu mentioned, we kept innovating and upgrading our platforms with automation to further reduce costs and improve reliability. And for example, the automation coverage of our gene and plasma platforms and now reached 50% comparing with 40% last year, which is quite remarkable as well. And most -- and more importantly, we're expanding aggressively and strategically not only is the global production capabilities and the capacities, but also in our portfolio capabilities further to GMP in some selected areas that we are pioneering, which means more profitable versus the conventional GMP area. So with all those efforts, and we are confident that all -- we will surely drive our revenue growth in a steady and profitable way. Thank you, Linda, for your question.