WuXi AppTec Co., Ltd. (2359.HK) Earnings Call Transcript & Summary

Good morning, everyone. I'm Yang Huang, China Healthcare analyst of JPMorgan based in Hong Kong. Welcome to the third day of our JPMorgan Healthcare Conference. This morning's session is going to be kicked off by WuXi AppTec, and we have WuXi AppTec Co-CEO, Dr. Minzhang Chen, who is going to give us a presentation. Dr. Chen?

All right. Thank you, Yang. Good morning, everyone. Happy New Year. I'm glad to be here first today to kick off the day. I hope our presentation can provide you with some valuable insights. So I would like to start by sharing the background and highlights of our company. And afterwards, our full management team will be happy to address any questions you may have. As usual, today's presentation includes some forward-looking statements. We just released our 2025 positive profit alert this week with preliminary estimates of revenue and profit. The final results for 2025 will be disclosed in our annual report on March 24. We will also provide our formal guidance for 2026 at that time. The Healthcare industry is both inspiring and exciting, driven by continuous technology advancement and science innovations that improve human health and the longevity. However, the industry also faces significant challenges, long development cycles, costs -- high cost and low success rate and numerous unmet clinical needs. Biotech companies race against time to advance the drug pipeline, striving to outpace competitors and achieve value creation milestones. Large pharma companies continue to bolster their pipelines through M&As, licensing deals or by enhancing internal R&D efficiency. So to address those challenges, we were founded to be an integrated enabling platform, guided by our vision that every drug can be made and every disease can be treated. We provide our global customers, both biotech and large pharma with one of the highest quality, fastest speed and the most cost-effective solutions to help them significantly improve efficiency and accelerate the drug development process. This has been our consistent commitment for the past 25 years putting customers at the top of our priorities. Every capability we build and every solution we deliver has been driven by one mission, enabling innovation and bring breakthrough treatment to patients worldwide. So during this stage at the JPMorgan conference, we've had the privilege of meeting many customers, partners and investors. Our role goes beyond providing efficient and high-quality services to innovative drug companies. We also enable our customers to create sustainable equity value thereby attracting a broader spectrum of investors. So this flywheel, not only spurs groundbreaking technology advancements and a new drug innovation, but also propels the sustainable growth of the entire ecosystem. So our integrated platform supports every stage of the new drug R&D cycle, from early-stage drug discovery, preclinical and clinical development, all the way to commercial manufacturing. This unique end-to-end CRDMO platform with seamless collaboration of our 3 focused core business segments, so WuXi Biology, WuXi Chemistry and WuXi Testing are constantly delivering value to our customers and supporting their efforts to turn scientific discoveries into real-world therapies. As a trusted partner, we are privileged to work alongside nearly 6,000 partners across more than 30 countries over the past year. As a leading global CRDMO company, we expanded our total reactor volume for small molecule APIs to over 4 million liters by the end of 2025 and increased our Solid Phase Peptide Synthesizer capacity to more than 100,000 liters. Our small molecule CDMO pipeline continues to grow now to over 3,400 molecules from preclinical to commercial stage. Building on this momentum, we achieved strong growth in 2025 and set new records in revenue, profit and backlog. Our total revenue reached RMB 45.5 billion, with continuing operations growing 21.4% year-over-year. Our adjusted non-IFRS net profit reached RMB 15 billion, resulting in a net profit margin of 32.9%. So a 5.9 percentage point improvement year-over-year. With backlog exceeding RMB 55 billion, we are well positioned to support the company's sustainable future growth. Our global network of more than 20 R&D and manufacturing sites, spans from Asia, Europe to North America. We continue to enhance our capabilities and expand global CRDMO capacities to support long-term customer demand, our future growth. So our unique CRDMO business model starts with our integrated research platform, enabling customers to advance innovation from early drug discovery through preclinical and R&D stage. As a key contributor to the industry, this early-stage enabling platform has supported more than 9,000 customers over the past 15 years. We have also been continuously working with the top 20 global pharmas for the same period, thanks to the trust from the large pharmas. Notably as a key entry point to our CRDMO ecosystem, this integrated research platform has contributed nearly 65% of the company's new customers and successfully delivered more than 430,000 compound -- new compounds to customers over the past 12 months. This not only helps generate the flow and opportunities for our downstream operations, but also creates synergies across business segments to nearly 30% of our R&D projects are jointly supported by our one-stop solutions to accelerate time lines and drive project delivery. Meanwhile, we have continued to invest in emerging technologies over the past decades and build the capabilities at the forefront of innovation. This enables us to develop industry insights and be well prepared whenever our customers need us. So this page demonstrates our unique CRDMO model with the final chart of WuXi Chemistry's small molecule pipeline. As we as we just suggested in the research or our stage, so we successfully synthesized and delivered more than 430,000 new compounds to our customers over the past 12 months. The complexity of these compounds also continue to increase. In the development and manufacturing, D&M stage, by Q3 2025, our small molecule CDMO pipeline reached over 3,400 molecules from preclinical to commercial stage with 621 molecules newly added in the first 3 quarter of 2025. We are currently supporting 16% of the global clinical stage small molecule new drugs. So every 1 out of 6 global clinical stage molecules -- 1 out of 6 we support. As we enhance the capabilities of our integrated platform, we constantly improve the internal conversion of molecules across the CRDMO value chain. For example, among the 621 newly added molecules to our D&M pipeline, 250 molecules originated from our platform. Actually, a majority of our 80 commercial drugs was a result of internal conversion, thanks to our unique CRDMO model. So the CRDMO model is very simple to follow the molecule, follow the customer and follow the science. This allows our pipeline to efficiently advance and convert the molecules from early discovery into clinical and commercial phases, capturing high-quality molecules as they progress. So if you look at our Phase III and the commercial pipeline, the number of molecules has grown from 107 to 167 in the past few years. That's a 56% increase. Concurrently, the revenue from these molecules has surged by more than 150%. This considerable growth in revenue reflects the increased complexity and the quality of the molecules that we support as well as the expanded scope and strengthen the partnership with our customers. It serves as a fundamental driver for our sustained future growth. So here are some additional perspectives to demonstrate how we timely address unmet needs for patients. And as a result, the quality of our pipeline. In 2025, FDA approved 30 small molecule new drugs and we actively supported 8 of them, so representing a 27% share. Over the past 5 years, we have supported 21% of small molecule new drugs approved by FDA during that period of time. So every 1 out of 5 FDA-approved drugs that we support. So GLP-1 is another field that I'm sure many of you are familiar with. We are deeply involved in this sector, and our GLP-1 pipeline growth is outpacing the industry. At present, we are supporting 24 GLP-1 drugs. Of this 24, 15 are small molecule and peptide new drugs in Phase II and Phase III clinical trials positioning us to secure a 25% market share. Specifically, at the global clinical stage, we support 11 out of 56 peptide drugs and 12 out of 36 small molecule drugs. Also, additionally, we support 1 out of 7 commercial drugs currently on the market. So leveraging the insights gained during the early stage research, our CRDMO model enables us to quickly identify and seize the opportunities in emerging new modalities like oligo and peptide. With strengthened capabilities and fast-growing capacity, our TIDES business has consistently delivered strong growth in recent years. So we expect TIDES revenue to grow another 90% plus in 2025. So our total capacity of solid phase peptide synthesizer has now exceeded 100,000 liters, and this expansion completed ahead of schedule in September 2025, positions us well to meet growing customer demand. So as a result, the company has continuously delivered sustained growth in both revenue and profit achieving over 20% CAGR in revenue and over 30% CAGR in adjusted net profit in recent years. In 2025, we raised our full year guidance twice, yet again, we beat expectations and set a new record. Our continuing operations revenue grew 21.4% year-over-year with total revenue now reaching RMB 45.5 billion. Our adjusted non-IFRS net profit reached RMB 15 billion, growing 41.3% year-over-year, resulting in a net profit margin of 32.9%. That's a 5.9 percentage point improvement year-over-year. This clearly underscores the company's financial resilience throughout the cycles. Our continued business growth, efficient operations and enhanced financial management have enabled us to generate sustained free cash flow. This strong cash generation allows us to continue investing in capabilities, capacities and talents. At the same time, also returning value to shareholders. In 2025, we expect CapEx to remain in the range of RMB 5.5 billion to RMB 6 billion. In addition, with such strong business and profit growth, we expect free cash flow to hit another new record. As our CRDMO model evolves, we continue to improve our profitability. Our earnings per share have increased almost tenfold since we went IPO. While continuously investing in our capabilities and capacity, the company remains committed to rewarding shareholders. In 2025, the company has implemented nearly RMB 7 billion in cash dividends, share repurchases and cancellations, representing more than 70% of the company's net profit in 2024. Over the past 7 years, the cumulative amount of dividends and the share buybacks has exceeded RMB 20 billion, which is over 40% of our cumulative net profit since IPO. With faith in our CRDMO model to foster long-term growth and profitability, we are confident in our ability to continue delivering value and generating returns for our shareholders. So as an enabler of innovation and a trusted partner, we actively promote sustainability. In 2025, we achieved the highest AAA rating from MSCI for the first time and improved to CDP climate change A rating. In addition, we maintained our CDP water security A rating and EcoVadis Gold rating. Our near-term emissions reduction targets have been validated by SBTi. Our credibility has been widely recognized by global authority ratings and initiatives, including UNGC, PSCI, S&P Global and many others. We continuously drive and execute ESG initiatives in every aspect of our business strategy and operations. So most importantly, we remain steadfast in our unwavering commitment to protecting customer IP and adhering to the highest quality and compliance standards. In 2025, we successfully completed 740 quality audits and inspections conducted by global customers and the regulatory agencies as well as 60 customer information security audits. So this equates to an average of over 2 quality audits per day and more than 1 information security audit per week, always 100% pass rate and 0 critical findings. 20 of our main operating sites have been certified under the global standard of ISO/IEC 27001 information security management system. So IP is the lifeline of both our company and our customers. Our approach to IP protection is deeply rooted in our founding principles of integrity, adherence to global quality standards and the commitment to world-class security. So if we enforce a zero-tolerance policy towards any form of infringement, this has been the core value of WuXi AppTec since our founding. We recently celebrated our 25th anniversary. The journey over the past 25 years have been extremely rewarding, and we are fully confident in steering the next 25 years with our unique CRDMO model and operational excellence. Central to our strategy is no doubt the focus on our CRDMO core business to deliver exceptional services to customers and benefit patients worldwide. To support this, we will relentlessly enhance our global capabilities and capacity to meet the long-term customer demand and drive innovation that prepares our industry forward. With our unique CRDMO model to closely follow the science and develop in-depth industry insights, we are better positioned to capture new molecule opportunities that will fuel our future growth. At the same time, we will maintain organizational agility and continuously improve operational excellence to consistently deliver superior efficiency and quality. We believe these efforts will ensure sustained resilience in our profitability and cash flow through all times, enabling value creation and consistent investment in our business growth, talents and rewarding shareholders. So this concludes my presentation. Thank you for your time. And now we're happy to take your questions.

Thank you, Dr. Chen. And joined on the stage, we also have co-CEO, Dr. Yang; and CFO, Ms. Shi on stage. So quickly, if you have questions, you can raise your hand. And we also can accept questions from all our audience. I think you have to submit your questions through the app digital book. And if you have question, just raise your hand. Otherwise, I will start asking a few questions. Okay. Maybe -- yes, please.

[indiscernible]

Yes, yes, sure. I think the question you're asking is about the number of audits, right? We try to understand, is that number consistently high every year or just...

[indiscernible]

Just particularly high in the recent years?

So the 2025 -- the number of 2025 is a record high because the business keep growing, but this is normal. So that's a large number of quality audits. But every year -- but as the business grow, and we have more and more projects, more and more customers, that will be more and more quality audits. So we average 2 audits every day. But actually, each audit last like 3 to 5 days. So that's a large amount of audits, which is representing the growing business.

Yes, question over there.

So my question is on the TIDES business. We have significantly increased our capacities last year. So if you could help us understand what does the utilization stands at? And one question on TIDES again is that what do we manufacture here? Is it the entire API or we are manufacturing intermediates there?

So the first question is about the capacity. So our capacity is highly used for the TIDES business -- for the peptide solid phase synthesizer. We built it because of the demand. And also, we do both. We do both. We do intermediate as well as API for peptide.

Any plans to increase these capacities over the next few years?

Plan to increase...

Peptide capacity.

Capacities, yes, actually, we're going to invest more this year 2026 and continue to increase the capacity, so as our pipeline continues to grow.

Is there a target for peptide capacity increase?

We're in the planning stage right now, yes. But definitely, we will build one new plant this year.

Questions there?

I'm a big supporter of the company. I think manufacturing, doing -- all in China, just fine. However, last year, the -- under the Biden administration, the FDA Commissioner actually made a statement. He said he didn't like Chinese companies doing this. He thought it was not keeping profitability in America. Do you get any pushback? I don't think you do. But are you getting pushback these days on doing anything in China for American Pharma?

I'm sorry, can you repeat?

Yes, if I may. So this audience question is because of the U.S. government's policy, have we received any pushback of doing things in China.

Well, that's a very -- actually, it sounds very simple, but a very complex question. But if you look at our business, '24 and '25, especially the past 2 years, we still grow very strongly, both '24 and '25. We just have a record growth in '25. So from the business result, you can see that the business is growing very strongly.

I just want to add, on a quarter-by-quarter basis, we do disclose the business growth by region. And while we are still preparing for the full year formal result. As of the third quarter and the last few quarters, the U.S. remained a growth region and actually one of our highest growth region overall. So it is a direct demonstration. First of all, the customers in the United States continue to use our service and our service capacity capabilities remain in high demand.

Okay. So -- maybe it's my time to ask questions. And my first question to the management is -- management already disclosed profit alerts, that's record high revenue, record high adjusted nonprofit. So can you give us some kind of color? What is the main driver for the outstanding financial performance for 2025?

Yes. I think a couple of reasons. One is definitely the demand for the GLP-1. Clearly, it's high and our execution. So we were able to meet that demand. So that is one factor. And if you take the GLP-1 out and the rest of the business also grow strongly. So both factors give this result.