PolyPeptide Group AG (8H0.F) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PolyPeptide's Half-Year 2025 Results Presentation and Business Update Conference Call and Live Webcast. I am Sandra, the Chorus Call operator.  [Operator Instructions]  The conference is being recorded.  [Operator Instructions] The conference must not be recorded for publication or broadcast.  At this time, it's my pleasure to hand over to Tim Brandl, Director, FP&A and Investor Relations. Please go ahead, sir.

Thank you, Sandra, for the introduction. Good morning, everyone, and welcome to our H1 2025 results presentation. I'm being joined today by our CEO, Juan Jose Gonzalez; and our CFO, Marc Augustin, who will take you through the presentation, and we'll be open to take your questions at the end.  Before we start, I would like to draw your attention to our usual disclaimer on Page 2. For the Q&A, please follow the instructions on Page 3. Anyone who wishes to ask a question can do so via telephone or in writing in the webcast.  Moving on to the agenda. Juan Jose will start with a business update. Then Marc will guide you through our financial results before Juan Jose shares our guidance for the full year and midterm outlook.  Now without further ado, I'm pleased to hand over to our CEO, Juan Jose Gonzalez. Juan Jose?

Thank you, Tim, and good morning, everyone. Thank you for joining us today. There are 4 key messages for today's session. Number one, we posted a strong growth in revenue and cash flow. We grew 24% versus the first half of 2024, mainly driven by our commercial revenue in therapeutic -- in metabolics. We also posted a strong operating cash flow on the back of more disciplined working capital management and further customer prepayments.  Now we not only are improving our operating performance, we are not only securing customer prepayments, but we are also improving our financial flexibility. And this is on the back of expanding our revolving credit facility, which we announced in May 2024. The combination of these levers will allow us to continue to pursue capacity expansion and fulfill growth opportunities.  Number three, in terms of capacity expansion across our global manufacturing network, they are all on track. Specifically, our new SPPS glass capacity in Brain is progressing according to plan, and we are in line to achieve target utilization rate by the end of 2025. And it is on the back of this momentum that we have in the first half of '25 that we are revising our 2025 full-year guidance towards the upper range, and we are confirming our 2028 midterm outlook.  Now all of this was achieved in the context of a market growing rapidly. And peptides is one of the most attractive markets for CDMOs. If you look at the global peptide therapeutics market, is forecasted to grow between 2024 to 2030 at a compound annual growth rate above 15%, and this is largely driven by metabolics. There is a very rich and diversified pipeline of peptide drugs in clinical development today. There are nearly 500 between Phase I to Phase III, with metabolic and oncology accounting for over 40% of all the clinical development activity.  Now, if you look at metabolics, the market continues to evolve rapidly. There is a strong focus on differentiation, particularly in terms of indication expansion, enhanced efficacy, alternative delivery routes, and extended dosing intervals. The positive thing is that as customers are looking for differentiation in terms of metabolics, the peptide molecular structure is becoming more and more complex, which basically make them focus on synthetic solutions. And together with all the geopolitical concerns regarding China, this is favoring outsourcing Western-based CDMOs. And just to give you a sense of how engaged is PolyPeptide in all these clinical development programs, if you take all the Phase III peptide drugs in clinical development globally, PolyPeptide is working in over 1/3 of all of them. That makes us a company with the richest pipeline in the market.  Now, this is in terms of how this market is growing rapidly. Let's see how well we are positioned in this market. Basically, we believe that on the back of our multisite network with development and commercial infrastructure across the U.S., Europe, and Asia, we are very well positioned. PolyPeptide has 70 years of experience. We have deep peptide expertise with over 1,000 therapeutic peptides manufactured, and our multisite network give us the customer proximity to ensure that we are able to participate actively in all this development.  I mean just to give you a sense, from 2021 to today, if you look at all the peptide drugs that secure approval by the FDA, PolyPeptide were engaged in over half of them. Now with this multisite network, we have a very clear strategy in terms of how we want to compete in this market. And basically, we have a vision of being the most innovative peptide CDMO. We have a foundation around operational and quality excellence, industrial scale capabilities, talent culture, and sustainability. And then we are working on 3 competitive advantages. First of all, in terms of innovation. And in our previous call, we talked about our proprietary percolation technology. Today, we have rolled out across all of our large SPPS assets, which allow us to reduce solvent consumption by 40%. And in parallel, we are advancing the development of proprietary ultra-high capacity SPPS resin, which will boost reactor productivity by a factor of 2 to 3. So a very transformational innovation.  Now in terms of development, we already have the richest pipeline, and we are very much focused on making sure that we continue to work with all key metabolic players, not just with our commercial offering, but also with our pipeline, and also that we work across all other therapeutic areas. And the idea is we take our proprietary technology from innovation, and we create value propositions which are differentiated to customers. And then finally, we are working on a competitive advantage around capacity expansion through modularity. And basically, if you look at what some of our companies are doing, they are building very large vessels, which are very complex, we will say, are more rigid and more difficult to operate.  And because we have more advanced innovation, we actually can build mid-sized manufacturing lines. We're building a model, so we build them externally. And when they are ready, we place them across our manufacturing sites. And today, we are already in the process of deploying our first model, and everything indicates that this is going to be between 12 to 18 months faster than a traditional capacity expansion. So basically, the combination of these competitive advantages is going to help us to fulfill our vision of competing as the most innovative peptide CDMO.  Now, let's see how, on the back of this strategy, we are transforming our portfolio. And basically, our business mix is shifting rapidly towards metabolic and commercial revenue. On the left-hand side, you have our revenue by therapeutic area. In the first half of 2021, right when the company IPO, Metabolics accounted for 27% of our revenues. Four years later, those revenues have tripled. Our metabolic business is growing at a compound annual growth rate of 27% and already accounts for more than half of our global revenues. This is very important that we have this rapid growth in Metabolics because Metabolics will be the #1 growth engine of the peptide market.  On the right-hand side, you have our revenue by business area. And again, when we IPOed in the first half of 2021, our commercial business accounted for 44% of our revenues. 4 years later, it has grown to be 65% of our revenues. Now commercial revenues have some advantages of our development. They are on the back of long-term contracts. They are recurring revenues. You can deploy automation and operational efficiency, and just give more stability to the company. So this is in terms of how our product portfolio is shifting.  Now we are also doing very important investments in terms of capacity expansion. So let's see where we are. And basically, what we have here is our old capacity expansion plan. And in addition to our maintenance and debottlenecking programs, there are 3 key projects undergoing. The first one is our large-scale SPPS production in Braine in Belgium. And basically, we are in line to hit our target utilization by the end of 2025. In the first half of this year, this new capacity already started to contribute in revenues, and we have been able to break even. And then in the second half of the year, what we will see is that this capacity is going to have a positive impact in both revenues and profitability.  In terms of Strasbourg, we are also on track, and this capacity is targeted to become online at the end of 2025, and we expect that in 2026, it will follow a very similar dynamic to what we are having with our new capacity in Braine. And then finally, we are also working to double our SPPS capacity in Malmö. And this is our modular capacity expansion and is on track to become online at the end of 2027. These 3 capacity expansions are very important because it is on the back of that that we will be able to meet our 2028 guidance. And by the time we finish 2025 and start 2026, we have already have completed 2 of the 3.  Now, as we improve our performance, as we execute our capacity expansion plan, we are also strengthening our talent and capabilities. We have new groups in terms of procurement and engineering, and operational excellence. And we also have brought a very strong senior talent. I mean, Marc with me today, he came from Lonza, where he led a rapid expansion of biologics. We also announced previously the appointment of Stéphane Varray as our Chief Commercial Officer. He used to be the peptide platform leader at Corden.  And today, we are announcing some important changes in terms of operations. And basically, with the increasing importance of our multisite capacity expansion, Jens Fricke, who today is our Head of Global Operations, is going to move to be 100% focused on the execution of these CapEx programs. And therefore, we are appointing a new Chief Manufacturing and Supply Chain Officer, who is going to be Raoul Bernhardt. Raoul has over 30 years of healthcare operations experience, including over a decade working at Catalent, where he was the Vice President of Pharma Pro Delivery division, which was a global network of sites across the U.S., Europe, and Asia. We are very excited with Raoul joining us, and we are looking forward to working with him.  Now we are not only making changes at the senior level. We also have new leaders joining at our manufacturing sites in the U.S. For example, we have new colleagues coming into manufacturing and process development from other CDMO peptide players. And that is going to ensure that we have the right level of capabilities and experience as we continue to expand our U.S. operations.  Now with that, let me pass it to Marc, who is going to talk about our H1 financial results.

Thank you, Juan Jose, and a warm welcome from my side as well. Before we go into the details of our financial performance, I'd like to highlight 3 key takeaways. First, the continued expansion of our commercial metabolic business is the major driver of our sales growth. Second, profitability on the back of the base business, while the new asset in grain is already operating around breakeven. Third, our strong cash flow and improved financing situation, combined with rising profitability, place us in a solid position to capture future growth opportunities. And with that, let's start with sales.  In H1 2025, we achieved sales of EUR 167.1 million, representing a growth of more than 23% compared to last year. This remarkable increase was primarily driven by nearly EUR 30 million in our commercial business. As Juan Jose mentioned, we saw a successful start of the large-scale asset in Braine, which accounted for about 50% of the growth. Additionally, we continue to see robust growth in our existing base business while further optimizing our program portfolio to enable further efficiency gains.  On the development side, we saw sustained demand in the market across different therapeutic areas, generating a solid revenue increase of 4.1% versus the first half of 2024. While the development business tends to be more volatile due to program life cycle fluctuations, we are pleased with the consistent overall demand and growth. Currency exchange rate changes had a minor net positive impact. Within the group, positive and negative effects were largely balanced out.  And with that, let's move to the EBITDA bridge.  Based on the strong growth in our commercial business, as outlined before, we observed a EUR 14.5 million EBITDA increase. We are showing that in the first column of the bridge. As mentioned before, the sales growth is almost evenly split between our new large-scale asset in Braine and our base business across the network. On the EBITDA side, the base business is contributing nearly all of the EBITDA improvement, enabled by operational improvement as well as portfolio optimization, which are driving utilization and efficiency.  We are particularly pleased that the Braine asset already in H1 '25 reached breakeven on EBITDA level, only a few months after its start-up, demonstrating both flawless execution of the efficiency and the efficiency of the facility. As communicated earlier, we expected the asset to reach its target utilization by the end of the second half, which will further drive both sales and profitability in H2 compared to H1 2025. In other words, most of the profitability improvement of EUR 14.5 million in H1 2025 stems from our base business, while the growth business is successfully ramping up. This also illustrates the accretive impact of our commercial metabolic business, even though raw material costs increased by EUR 5.2 million compared to H1 2024.  Let's pause here for a second. The commercial business is and will stay the main driver of our sales growth, and at the same time, improve continuously the underlying profitability. We also continue to invest during the transition and growth in our most valuable asset, [ our people ]. Over the past months, we've expanded our organizational capabilities across key functions by adding nearly 90 FTEs, positioning us well for the growth ahead. This led to an EBITDA of EUR 7.6 million or 4.6% of sales before exceptional items. As anticipated in all larger projects, we faced non-operational costs also for the new asset in Braine, leading to an impact of EUR 2 million compared to H1 2024. I want to emphasize that these costs are entirely expected during the ramp-up phase of a new asset. We are very pleased with the current performance level of the asset and confident that the asset will continue to perform as well as evidenced in H1, and since it's already operating around breakeven.  Additionally, we have shared at our full-year '24 earnings call, we have embarked on a strategic investment in a new ERP system, which is a key enabler of our AI and digitalization road map. As this is a cloud-based solution, implementation costs are expensed, which impacted our EBITDA in H1 by EUR 1 million. Overall, our EBITDA margin continued to improve compared to the previous period, even after considering exceptional costs associated with the program and the asset ramp-up.  Turning from the EBITDA to the cash flow. This is certainly one of the base highlights. We achieved a substantial improvement in operating cash flow. Our disciplined approach in managing net working capital has clearly paid off. As a result, we delivered positive free cash flow of EUR 0.5 million and ended the first half with a solid cash position of EUR 76.7 million. This strong performance was driven not only by new customer prepayments of EUR 27.7 million, but also by the proactive inventory management ahead of the anticipated growth in the second half and stringent receivable collection.  As communicated earlier this year, we expanded our revolving credit facility to EUR 151 million, while also extending its maturity to 2028. At the end of H1, EUR 60 million was drawn under this facility, leaving substantial headroom for future investments and providing for operational flexibility. Finally, I would like to briefly revisit our 4-pillar financing strategy, first introduced during our full-year '24 earnings call. First, we remain laser-focused on profitability and improving operating cash flow, as shown in H1 2025. Second, we continue to ensure that large investments are closely aligned with customer support, offsetting our capital expenditure cash outflow. Third, we have strengthened our financial flexibility through the expanded revolving credit facility and the long-term support from our anchor shareholders. Lastly, at our Annual General Meeting, the shareholders approved the use of equity to provide additional flexibility under the right conditions. We see this as a tactical tool that complements our 3 primary financing pillars, strengthening our balance sheet and enabling us to size growth opportunistically at the right point of time.  Before concluding, let's briefly recap. First, strong first-half growth driven by the successful ramp-up of the Belgium facility and sustained performance from our base business. Sustainable EBITDA improvements in our base business, driven by the transition to more commercial business. Free cash flow achieved breakeven, validating our disciplined net working capital management. And last, strengthened financial position with a well-equipped toolbox and significant cash reserves, positioning us well for executing on our midterm targets. With these results, we look forward to an exciting second half of the year.  Thank you. And now back to Juan Jose and our '25 guidance.

Thank you very much, Marc. So before we talk about our guidance, let me just spend a moment talking about our approach to guidance. And we basically are very thoughtful in terms of how we want to guide the market. We have multiple projects moving across clinical phases. We have ramp-ups. We see all these capacity expansion projects. And basically, our approach to guidance is at the beginning of the year, we issued a relatively broad guidance. Then on the back of our first half results, we refined that guidance, and then we share with you our full year results at the end of the year. And basically, what we want is our performance to drive our valuation and not our guidance.  So with that in terms of context, let me talk about how we are revising our guidance for 2025. And basically, if we go through our revenue, EBITDA margin, and CapEx. In terms of revenues, at the beginning of the year, we basically indicated that we were planning to grow between 10% to 20%. We have had a strong first half of the year with a 24% growth. So we are revising that range towards the upper end. So now it's going to be between 13% to 20%. And on the back of the strong momentum we have in the first half of the year, we are very confident in terms of that range.  In the case of the EBITDA margin, we at the beginning of the year, target that we will increase our profitability versus 2024. Now we are indicating that it's going to be from high single digits to low double digits. And in the case of CapEx, we were targeting 20% of revenues. That was about $75 million. Now we are revising that target to $100 million, and this is just reflecting the customer demand for accelerated CapEx.  Now the priorities to be able to meet this revised guidance remains unchanged to what was the beginning of the year. We are very much focused on our operational and quality excellence programs. We are focusing on reaching our target utilization rate of the new SPPS asset in Belgium by the end of the year, and we want to continue to advance the capacity expansion programs in Malmö and Strasbourg, which will position us very well for the following years.  And then finally, we are working on a second wave of metabolic contracts, and we are already having some commercial discussion, which we will announce as we finalize them. So that's in terms of our 2025 revised guidance.  Now let's talk about our 2028 midterm guidance. And basically, a year ago, we put a target around doubling our 2023 revenues by 2028. We said that by then, we will have an EBITDA margin approaching 25%. And that during that period, our capital expenditure will be between 15% to 20%. So 1 year has passed since we issued that guidance, and we are reconfirming our ability to meet these targets. We believe that the momentum that we have, the progress in terms of our shift to metabolics and commercial, our capacity expansion, our stronger capabilities that we should be able to hit this guidance, and we are going to do it by every year moving towards this target. This is not something that we will achieve at the end of this period.  Now, this strategy around being the most innovative peptide CDMO, we believe is going to create a significant value for stakeholders by 2028. A company of that size with that level of profitability, with a rich pipeline, will be valued several times higher than where we are today. And that's why we are aggressively focused on execution. Our strategy doesn't involve to go into new markets beyond peptides or doing transformational transactions. We are very much focused on being a pure peptide player and executing against this midterm guidance.  And with that, let me pass you to Sandra for the Q&A.

[Operator Instructions] Our first question comes from Charles Weston from RBC Europe.

Two, if I can kick off with, please. First of all, on the negative mix. Can I just confirm that negative mix related to the product manufacturing location, i.e., from manufacturing in Spain rather than from the increase in metabolic versus other products? And secondly, can you give us some color on the utilization of the site in Braine? What's the average utilization or perhaps the end of H1 utilization? And if you assume that you will reach peak utilization at the end of the second half, what does that mean for the average utilization in the second half?

Thank you, Charles. And Marc is going to comment on the negative mix. But let me just say, overall, our metabolic contracts, our commercial business are actually margin accretive in terms of the company. It's just that because of the nature of these contracts, the mix is different than what we have on the development side. But Marc can comment.

Yes. Charles, thank you very much for the question. Please let me make one step back to answer your question. We are in a transition and growth phase, which is driving our profitability in different ways and which are partly linked. So let me first start with the growth. We see strong growth driven by commercial metabolic business in our base business and in our new assets. Especially in the base assets, this growth is driving the underlying profitability, as Juan Jose mentioned, and we have shown in the H1 bridge.  Around half of the growth is coming from base, but nearly the full profit increase is driven by the base business and the metabolic growth there. We introduced our profitability guidance of approaching 25% in 2028. And we said this transition towards metabolic commercial business will take some time to shift the portfolio. And we now start to see exactly the success of this transition in the base business. The shift to commercial business, especially metabolic, also means that we are seeing a higher share of raw material costs compared to the past, which was more driven by development and small volume production. This is shown in the second pillar of the EBITDA bridge and call mix.  Looking at the Braine assets, we are very pleased with the progress running short after the start, around a breakeven EBITDA level, which we see very positive and not only for the financial attractiveness of the growing metabolic business, but also showcasing the efficiency of the new asset. We expect in H2 the asset to contribute positively to the group profitability. But not -- so in the second half, the growth will be shown not only in the new asset in Braine, but also in the base business, as we have seen in the past '24 and '23, where the profitability and the sales grew stronger in the second half compared to the first half.

Yes. And Charles, maybe if I can just help you in terms of the capacity utilization for the new capacity in Braine. Maybe just a couple of things. One is the manufacturing of any new asset started slowly. And then as you are getting more and more confident, then you increase your capacity utilization. And then there is a difference between what you are manufacturing versus what you are invoicing because there is a time from when you finish manufacturing to when you go through all the quality process and then are able to ship to customers. Our objective is to make sure that by the end of 2025, we are at target utilization, and then you will see the full benefit in 2026. And if you remember, this capacity is supporting a $100 million contract.

The next question comes from Laura Pfeifer from Octavian.

I have 2 questions, please. Maybe on the sales guidance for this 13% to 20% growth, I think this is still quite a broad range for outcomes, potential outcomes in the second half, ranging from, I don't know, mid-single-digit growth to the high teens. So can you please give us an idea how much growth you expect from your base business? And also how much of commercial revenue you expect to be contributed by Braine? I think this would be just helpful to get a better feeling why the range is still so broad. And then related to that, is there an upside potential? So could you also do even better, given that you already grew at 24% in the first half?  And then secondly, on the margin target for this year, you have now provided a range. Do I interpret it correctly that it might read as 8% to 12% when you say single digit -- high single digit to low teens? And also here, what are the drivers and the headwinds we should consider? And specifically, maybe you could comment here on what profitability level do you see as feasible for the Braine. I think you mentioned it's now at breakeven. It will contribute, but will it already be accretive? Or will it still be dilutive to margins in H2?

Thank you, Laura. And let me just start with the revenue range. And of course, we grew 24% in the first half of the year. So we are very pleased with the momentum of the company. Now we have multiple programs. This is a new asset that we are ramping up. There is volatility. And at the end is not just how much you can manufacture, but then how much you can invoice in the second half of the year. So although we are confident in terms of our growth rate, we do see a range of outcomes. Now, whatever we end up growing in the second half of the year, what you can get from our performance in the first half is that we are moving through accelerated growth phase in 2025, '26, '27, and '28.  In terms of our EBITDA, I mean, you are right that that will be like 8% to 12%. That will be a good conclusion in terms of what will be the EBITDA margin. And again, we have different clinical programs, moving in between phases, ramp-ups, and depending on what is the level of revenues that we achieve, that will give you a different level of EBITDA margin. But again, if you look at our 2028 guidance, a lot of our improvement in profitability comes from our leverage, our ability to grow, and making sure that that flows into our bottom line. And we expect to see that dynamic in the second half, which is similar to what we saw in 2023 and 2024, where a lot of our profitability is concentrated in the second half of the year. So I don't think this is going to be dissimilar.  And Marc, I don't know if you want to comment in terms of whether our Braine facility will be -- the brand new capacity will be margin accretive [indiscernible]?

No, happy to do so. So as we saw in the first half, Braine is contributing nicely to the growth we have seen in the first half. And Juan Jose mentioned already, we expect further growth in the second half compared to the first half in the base business, as well as in the growth business in Braine. So having said that, of course, this new asset in Braine will improve over time, and the sales contribution will grow in the second half. And with the growing sales contribution, you can also assume that the asset, which is currently running around breakeven on an EBITDA level, will contribute positively to the overall profit of the group.

The next question comes from Charles Pittman King from Barclays.

A quick clarification for my 2 questions. Can I just push again a little bit on the last question that you see Braine as dilutive to group margins for 2H? It sounds like it's on track to become accretive next year, exit rate, but just for 2H, does it remain dilutive? But my 2 questions, just firstly, on the metabolic space, I'm just interested to know how -- to get some insight from you on how your conversations have evolved over the past 6 months. Have you seen any kind of indication -- change of indicated demand from your customers? I mean you mentioned that you had this accelerated CapEx requirement as you raised your FY '25 outlook. Is that indicative of higher demand?  And then just secondly, on China, I think you mentioned earlier that you see increasing of in-licensing of China assets as a positive tailwind for rising focus of Western CDMO use. I'm just wondering if you can give us a little bit more insight into that perspective.

Yes, Charles, and thank you for the question. So let me talk about metabolics and what we have seen in the last 6 months, then about Western CDMOs and China, and how that is playing out. And then Marc can talk about whether this new capacity will be margin dilutive or not in the second half of this year. So first of all, in terms of metabolics, I mean, this market is, again, growing very rapidly, and it's a very dynamic environment, and we believe that those trends are favoring Western CDMOs. So if you look at some of the announcements, you see either the leading players or new companies getting ready to enter into the market, focusing on acquiring assets and differentiating their portfolio. And the way they try to differentiate their portfolio move them from recombinant solutions towards more and more synthetic solutions. And of course, that's very good for us.  The imbalance between supply and demand still continues, which basically means that the overriding focus, either for existing players or players that want to get into the market, is to secure capacity. And you can see that when you look at our customer prepayments, where you have customers willing to fund the expansion to be able to secure capacity. So I think all of these things are there, and we believe it is positive in our case. If you look at our metabolic performance, we basically grew 98% this year versus last year. And we have such an exposure in terms of working with all the key metabolic players and such an expertise in terms of metabolic clinical development that we are very well positioned there.  Now I would say the concerns regarding China, of course, started with the Biosecurity Act, and then with all the tariff and geopolitical tensions, is making our customers actually try to work more with Western-based CDMOs. So in the case of development, we are seeing projects moving, I would say, more rapidly towards SaaS. In the case of commercial contracts, of course, it takes time to move those. But I will say we are basically seeing an environment where Chinese CDMOs are focusing on supporting the Chinese market, where Western CDMOs are focusing on U.S. and European players.  Now Marc, do you want to comment on the margin dilution?

Yes, sure. So as I mentioned, the new asset is around breakeven in H1. And with the increasing sales performance in the second half, we expect that the asset is adding absolute EBITDA to the group. But of course, if you look at -- from a margin perspective, that is, of course, not that strong. It needs to build up during the time of what we said, we expect a high utilization towards the end of the year. So from that perspective, you're right.

Yes. So I think it's going to be margin accretive in 2026.

The next question comes from Konstantin Wiechert from Baader Helvea.

Juan Jose, maybe we can start with a question on the Indian side again. I would appreciate if you could give us an update on the talks that you had with customers to transition certain products to that site. If possible, could you give us maybe a rough ballpark number how much sales you expect to switch in '26 and whether you expect any one-off costs related to that? That would probably be my first question, and then I'll put the next one after that.

Yes. Thank you, Konstantin. And listen, first of all, customers are more focused on securing supply, both in the U.S. and Europe. And you can see that the majority of our CapEx investment is against those geographies. Now in the case of India, we do have this manufacturing site. We are doing some tactical investments to be able to increase capacity. And basically, what we are doing is we are reallocating some key projects to India to free up capacity so they can better support, especially metabolic projects. And that's basically how we are managing it. But our India facility is relatively small. So this is not really that material for the performance of the company.

That will happen mostly in the next year or already this year. I mean, we see growth of about EUR 12 million or so in the generics and cosmetics business. Is that something where that move or that growth has been driven also by growth in the Indian side? Or is that not related to that?

I mean it's not related to that. We have different generic programs in different sites. Yes. But in terms of the optimization of the portfolio, this is something which is important because we are specializing the sites depending on some key therapeutic areas and capabilities. So we are shifting our product portfolio, and that process takes time. It's something that we started last year, and we're doing it this year, and it will continue next year. But it will position us very well to make sure that we can better support customers.

And then maybe on the -- just to ask a bit differently again on the mix effect. How much was that really driven by the growth in the labs or the transition to the large-scale production? And how much of that was driven by this growth or growing share in the generics and cosmetics business? Was that having a negative impact as well?

So the mix effect is coming mainly out of the commercial -- growing commercial business where we have a different cost structure compared to a development business or small-scale production. It is not specifically coming out of the generic business.

And with this like, let's say, contribution margins of 30% that you've shown now in the first half year, is that something that you are happy with? Where should this go over the next 2 years? What is probably holding you back in the first half to probably go more towards the range of, I would assume, 45% to 55%.

Yes. So as mentioned earlier, so we expect the margin to improve towards the second half of the year, as we have seen in the prior years and also supported now through the ramp-up of the new asset in Braine. Over the longer time horizon, we said that we are approaching the EBITDA margin of 25% by '28. And we are for that on a good track and feel very confident to achieve that.

Yes, sorry, I keep the last question, and then I go back in the line. Just Yes, I mean most have already asked anyways, right? Have you still produced like when you switch to your main or your metabolic customer, potentially metabolic customer to the large-scale asset in the first half, have you still produced volumes for that customer or for that product on the equipment that you have so far produced capacity on just to get a better understanding of the growth in the base business.