WuXi Biologics (Cayman) Inc. (2269.HK) Earnings Call Transcript & Summary

Good morning, and good evening, everyone. Welcome to Wuxi Biologics 2025 interim results briefing. So today, it's our great honor to present to you Dr. Chris Chen, CEO of WuXi Biologics; and also Mr. Tu Ming, CFO of WuXi Biologics; and also Ms. Lina Fan who is the SVP and also the Senior IR Director of WuXi Bio. So now, I will hand over to Dr. Chris to share with us the results. Thank you, Chris.

Thank you, Cui Cui. And good morning, good afternoon and good evening. So really my pleasure to share with global investors about WuXi Biologics interim results again. The topic or the theme of my part is actually accelerated growth and very consistent with the talk I gave during JPMorgan Conference. So the first slide I want to share with you, this is a slide everyone is very familiar with. I think what's striking this time when I presented to you during the 2025 interim is actually except a few gross margin numbers -- margin rate, all numbers are [ presenting ] record high for the company, record high. So on the left side, really operating metrics, on the right side, the financials. So except the margin -- except during COVID, we have higher gross margin, high EBITDA margin because of the high [indiscernible] but now this year, I present metric [indiscernible] is record high for the company. So that's really the content, the background of my talk today. So -- going to the left side, we're looking at project numbers, a record, 864 numbers, 864 projects. New projects added for the first 6 months, 86, right? This continuing the strong momentum that we had last year was 151 projects. Last year, 151 was already record high, almost on par with during COVID years, and now we continue the strong momentum. So now it's 86 for the first half. This is certainly a record high for the first half. So our commercial projects also grew 50%. As I always tell investors, WuXi is -- our business model is very unique, very different. Besides become a good CRO or CDMO, we will also be a very strong CMO contenders. So our end projects now also grow 50%. As a result, our backlog also grew as well, very -- a meaningful way. We're very proud that we hosted 44 regulatory inspections with 100% success rate. This is almost like the best student in the class, right? No one can beat a 100% success rate. So if you look at our employee numbers, it's very consistent and very stable and our employee retention rate very high, 98.8%. So on right side is the financial numbers, you guys all read them, so I'll just highlight a few. Our revenue is close to RMB 10 billion, our adjusted EBITDA, CNY 4.3 billion, and our adjusted net profit by CNY 2.8 billion. As I mentioned earlier, so that our margin is slightly lower than during COVID years, but in fact, is still one of the best in the industry, right? So you see our gross margin -- gross profit margin grew from 39.1% to 42.7%. So our CFO, Ming, will talk in a lot more detail later on. And as a result, our EBITDA margin, our net profit margin all grew significantly. It's similar to our EPS with whopping 56.8% growth. If you look at the revenue breakdown, we actually see a very exciting trend in both early phase and late phase. You see early phase, R and early D, we actually grew more than 35%. The M part grow 25%. So both are very, very exciting for us. And in the middle part of the program in Phase I and the Phase II, we see a decline there. The most -- the #1 reason is actually quite a few large-scale projects was in this bucket and now get to manufacturing. So this, again, this paved away for our strong manufacturing revenue growth near future. And we also hope that this decline as the project -- as the program in Phase I and Phase II evolve, this one, this project or this decline will also be reversed in the near future. So again, you see very strong growth of revenue from R and early D and very strong revenue growth in M. This is our M revenue growth, almost 25% because of several large-scale manufacturing projects. This is the slide that our investors has been very familiar with. This is called the golden funnel. But if you -- I always tell investors, for WuXi Biologics, you only need know this funnel to be able to predict our financial performance. But I already mentioned the record high 86 projects earlier for the first 6 months of the year. Among them, 9 of them are Win-the-Molecule. So even in this year, first half, we have 9 Win-the-Molecule, including 2 Phase III programs. Among 86, actually, more than half projects come from U.S. Among 86, actually, more than 70% are ADC and bispecific or multi-specific projects. So WuXi Biologics is their sort of industry partner of choice for ADC and multi-specifics. And because they're very hard to do and they require a lot of expertise, they also require a lot of experience, and we happen to have the largest portfolio of multi-specifics. We also have a large portfolio of ADCs, right? So on the right side, now you see we have 67 Phase III programs. If you assume a 70% success rate, basically in the next 5 years, we have another 50 manufacturing projects. So our commercial manufacturing grow from 24 to 70s in the next 5 years. That's assuming a static number based on today. As you know, we'll have more and more projects added later on. So I think that's why I always said our M will grow as significant as the company evolves in the next couple of years, right? And then 24 commercial projects, I already mentioned in the beginning of the talk. So again, this funnel give us plenty of growth in the next few years. This continues to reinforce our business model, CRDMO, right? So our R-to-D conversion is more than 90%. Our D-to-M conversion is more than 90%. Actually, right now, both of them are more than 95%. So I have always cautioned investors in our backlog is so big that, is so huge that you don't expect to us see -- don't expect to see significant growth of the backlog. And this time is an anomaly, right? Now you see our backlog, we have two part, milestone backlog and service backlog. You see milestone backlog grew from about $7 billion to $9 billion because of a significant progress of R as we mentioned that earlier this year. And then our service backlog grew from about $10 billion to $11.3 billion as well. And on top of that, we actually convert a lot of them to revenue. So really, this is -- for the first time, we see a significant growth of our backlog. And similar trend is for 3-year backlog, has been stable for the past couple of years. Now you see a very meaningful growth. Again, this is consistent with the funnel and consistent with the contract we signed and consistent with the project we introduced over the years. So as I mentioned earlier, we have the most exciting portfolio of our industry, right? We have 864 projects. Among them, more than 300 are first-in-class programs. Among them, maybe about more than 50% of global ADCs and global bispecifics, multi-specifics are in this portfolio. So you multi-specifics grow more than 36 -- almost 37%, right? So now we are working on 168 multi-specifics. This includes the most exciting programs like the CD3, CD19; CD3, CD20; CD3, BCMA; CD3, 19, 20, trispecifics, right? This also includes into the PD-1, VEGF and other bi-specific and multi-specific program. So we have the most exciting portfolio of multi-specifics. Similar to that, we also have more exciting portfolio with ADCs. Now you see our ADC program also grows significantly. And our -- now we have more than 225 programs. Those are programs in either entering clinic or in the clinic right now, amazing growth. So as I mentioned earlier, ADC and bispecifics or multi-specifics now account for more than 40% of our portfolio. And also early part of this year is actually account for more than 70% of this year's wins. So the two exciting segments of the biologics space, we are actually a very strong leader. We are a partner of choice for any company who wants to develop multi-specifics or ADCs because our technology, because our speed, because our execution, [ because of our ] quality. So we always wanted to share with you our regional -- in every geography, how WuXi fares in that. But North America continues to be the largest market for us, almost 60% of revenue come from North America, with that 20% growth actually is very exciting. This continue to be the strongest area for us. With all those noise, we continue to see whether it's early phase or late phase, whether it's R or D or M, we are the preferred partner of choice for North American clients. Europe, we see close to 20% of revenue with a modest growth. But because in the past, we did a lot of CMO projects. Now we are overcoming the CMO projects. Now we are really working on a lot -- including a lot of early-phase programs, and hopefully, you will see more exciting growth later on as well. China, you see now China accounts for 13% of revenue with also a single-digit decline in revenue. If you take into account all those programs Chinese companies out-license to global peers, if you move them and then put them in this bucket, then we actually see a single-digit growth in there I think. So China is really a negative growth or decline is mostly because of a lot of -- quite a few programs that out-licensed to global partners. You see very, very exciting growth in Asia, mostly Japan, Korea and Singapore. So I think now getting close to 7% revenue was more than double in terms of the growth speed. We continue to foresee this region and maybe getting close to 10% in the next couple of years. We continue to see very exciting development in Japan, in Korea, in Singapore and in other Asian countries. So with that, I'll hand over to our CFO, Ming, he will tell you a lot more about our financials for the first half.

Thank you, Chris. Slide 12 will give us the highlights of our financial metrics for the first half of fiscal year 2025. First, revenue. As Dr. Chen just mentioned, despite of the uncertainty from tariffs, geopolitical headwinds and also uneven pacing of biotech funding recovery, our revenue continued to grow at an accelerated pace. As you can see that our revenue almost reached RMB 10 billion in the first half, 16.1% increase over the same period last year. We're not just continuing our journey of solid growth over the past 5 years, but also transitioning into a phase of accelerated growth. Our revenue increase in the first half was primarily driven by the following factors: First is the successful execution of our Follow and Win-the-Molecule strategies as more and more projects advancing through our golden funnel towards the later stages. Now we have 67 projects in Phase III and 24 at the commercial manufacturing stage. And the volume of these late-stage projects are ramping up steadily. Win-the-Molecule strategy also added 9 projects to our portfolio with 2 in the late phases. All post-COVID industry adjustments have been fully absorbed in our financials. Overall, late phase and the commercial manufacturing revenue grew close to 25% and represented over 43% of our total portfolio during this reporting period. On development side, although the biotech funding recovery is still zigzagging, our share gain in the pre-IND space enabled us to achieve a revenue growth over 35% year-over-year, thanks to the 151 new projects we scored last year, followed by a record 86 projects in the first half of this year. Our process optimization and the productivity improvements also enabled us to shorten our revenue conversion cycle from DNA to IND to about 6 to 9 months. The decline in our early phase revenue year-over-year is largely due to the timing as the 3 big scale clinical manufacturing projects progressed from Phase II to Phase III, created a gap of close to RMB 0.5 billion, which will be replenished by the project from the pre-IND space over time. In our research and discovery services, we are also continuing our momentum from second half last year, thanks to our strong innovative technology platforms on bispecific, multi-specifics and ADC. You might recall that during our annual earnings release back in March, we talked about 7 molecular discovery deals that brought us about USD 140 million of upfront payments. Half was booked in the second half of last year and the other half, roughly $70 million, was booked in the first half of this year, with potentially $2.3 billion of milestone and royalty incomes in the future years. We also have a full pipeline of the new deals. So the momentum of R will continue in the second half and into the future. From a modality standpoint, our new exciting growth platforms such as ADC, bispecific and also multi-specifics contributed significantly to overall revenue increase during this reporting period. Lastly, with our capacity expansion globally, [ Dundalk, Ireland ]; Cranbury, New Jersey contributed close to [ 100 million of ] incremental revenue to other commercial and the clinical manufacturing sector in the first half. Moving over to gross profit, which increased about RMB 900 million to approximately RMB 4.3 billion in the first half. The whopping 27% increase in the gross profit to give us a 360 bps of the gross margin expansion year-over-year. The margin improvement was primarily attributed to the following factors: First, the [indiscernible] growth in R. The research sector gave us a positive mix impact as the upfront payments and the milestone income grew more than 2x during this reporting period. The margin rate for development sector expanded 1 point largely from the productivity gains. And also, the profitability from [indiscernible] and the manufacturing sector continue to meet or exceed our expectations. First utilization rates in China and Ireland continued to improve throughout 2025, the productivity improvement from WBS, our leading manufacturing implementation, also gave us 100 bps of the margin lift. Lastly, SBC, our share-based compensation declined CNY 200 million year-over-year as we continue to optimize our [indiscernible] factor, giving us 2 points of the GP margin expansion. Also, I want to mention here that there is no tangible tariff impact to our financials in the first half this year. Excluding share-based compensation, our adjusted gross profit margin stands at 45.6%, 120 bps improvement year-over-year, still one of the leading positions in the global CDMO industries. Moving on to our adjusted EBITDA, which is the proxy of our operating cash generation capabilities increased about 20.6% to RMB 4.3 billion during the reporting period. The adjusted EBITDA margin increased 117 bps to 43.3%, which is also one of the highest in the CDMO industry. Adjusted net profit is the IFRS base, the net profit, excluding the impact of foreign exchange gain and loss, share-based compensation and also fair value gain and loss from our investment portfolios or our asset divestitures. This is a proxy for our business profitability under continuous operation. As you can see that the adjusted net profit exceeded CNY 2.8 billion in the first half, 11.6% increase year-over-year. The growth in adjusted net profit was less impressive than the top line growth, was largely due to the SG&A increases as we continue to build the stand-alone capabilities for XDC and investing in our global business development capabilities. Also, the tax expenses in the first half were higher year-over-year due to the onetime DTA, the deferred tax adjustment in Ireland in our first half 2024 baseline and also the smaller deduction basis for our share-based compensation in China. Next page, please. This slide shows us the profitability metrics over the past years in the first half, including IFRS-based net profit, net profit attributable to owners of the company, earnings per share and also adjusted earnings per share. You can see that IFRS-based net profit has grown at a CAGR of 23.6% between 2020 and 2024 and reached the CNY 2.8 billion in the first half of this year, a whopping RMB 1 billion increase over the same period last year. The 54.8% growth is largely driven by the 27% of the IFRS gross margin increase, as we discussed earlier and also the combined gain and loss from investment, divestiture and the foreign exchange of roughly CNY 378 million in total, 22 points of the net profit improvement year-over-year. So these gains from investment and divestiture activities will give us more dry powder to enable us to -- for more biotech incubating, global capacity expansion and also share buybacks in the near future. IFRS-based net profit attributable to the owners of the company grew 56% of the first half -- in the first half, slightly higher than the IFRS-based net profit as both the WuXi Bio and the subsidiary, WuXi XDC, grew at a similar pace between 53% and 55%. Hence, the financial impact of minority interest pickup remains proportional to the net profit growth. Basic earnings per share moved in tandem with IFRS net profit attributable to the owners of the company, grew 56.8% to CNY 0.58 per share. If we exclude share-based compensation, investment divestiture gain and loss, FX translation impact, our adjusted EPS was about CNY 0.59 per share, 7.3% improvement year-over-year. Next page, please. Slide 14 gives us more insights into our gross profit and the cost of sales. In the first half of this year, our gross profit margin was 42.7%, 360 bps extension from the same period last year. Excluding the CNY 300 million of the share-based compensation, our adjusted gross profit was 45.6%, 120 bps improvement year-over-year. As we discussed earlier the gross profit -- the gross margin expansion was primarily attributed to the takeoff of the research, discovery services, which gave us a favorable margin lift from the upfront payment and also the milestone payments, the improved capacity utilization in China and Europe and also the 1 point of productivity gains from WBS lean manufacturing implementation. You can see the composition of our cost components in the stack bars below, with roughly 16.5% in labor costs, 19.6% in material and 21.2% in overhead, which includes maintenance, utilities and the depreciation of the manufacturing facilities. Labor component was smaller than the historical average as we focus on labor productivity. Revenue generation per employee is a crucial KPI for all our business units. Dr. Chen will show you more later. Our total number of employees did not increase for the past 18 months, while our revenue increased 16.1% year-over-year. The higher overhead costs were primarily driven by the new facilities coming online as we extended our global capacity from about 150,000 liters at the beginning of 2023 to over 300,000 liters at the beginning of this year. The new capacity brought on more expansion -- more depreciation, utilities, maintenance and also other fixed overheads. The higher R and M, the research and the manufacturing mix in our portfolio will also contribute to a lower labor cost component over time. Next page, please. This page is about liquidity. At WuXi Biologics, we have a strong balance sheet and a solid cash position. As of the end of first half, we had CNY 12.5 billion cash on hand, sufficient funds to support our accelerated growth globally. We have a conservative funding strategy. For our CNY 60 billion balance sheet, we only have about CNY 2.7 billion of debt, 30% of which are working capital facilities. And our gearing ratio, which is defined as the -- hello, can you hear me?

Yes, Ming, please continue.

I just want to say that we have a very conservative funding strategy here for our CNY 60 billion balance sheet, we only have about CNY 2.7 billion of debt, 30% of which are working capital facilities. And our gearing ratio, which is defined as the interest-bearing debt over equity is nearly 5.6%. At the same time, we have close to CNY 6 billion of the bank credit facilities to tap into, if we need to. Our CapEx spending in the first half was CNY 1.9 billion, mainly for our capacity expansion for both Biologics and XDC in Singapore, Biologics facility in U.S. and also XDC's expansion in China. Subtracting working capital, occupation and tax payments, our free cash flow in the first half was slightly shy of breakeven, but adjusting certain timing items, we expect a substantial improvement in our free cash flow in the second half. For the total year of 2025, we're still committed to delivering positive free cash flow. This will be the fourth year in a row for us to deliver positive free cash flow. Hopefully, this time in a more meaningful way, and make a new record in our free cash flow history. Now I'm going to pass the baton back to Chris to share more insights into our business operations.

Thank you, Ming. I think Wuxi Biologics has a very unique CRDMO model. Our model is very complex. It's not easy to understand. So often, investors just compare with typical CMO. So that's why I want to use this slide, again, to highlight the difference of our CRDMO model. So besides the traditional, our business model is called Follow the Molecule, so we -- for the R, we prepare the first milligram -- the first 10 milligram of the molecule. For D, we prepare for the 10-gram -- 100-gram. For M, hopefully, 100 kilo, even a [ metric ton ]. So as the mass of the drugs increase significantly, right, our revenue also increase exponentially. And that -- but that business model is mostly based on cost-plus model. But besides the cost-plus model, we actually have a very significant IP-driven revenue. So I want to highlight here, during R phase, if the program is -- if a partner get one of the program from WuXi Biologics, typically, we receive upfront payment of $30 million or $40 million and milestone payment up to $200 million and then a royalty of 3% to 5%, even up as high as 10%. So for a $1 billion drug, we may be able to get $100 million of royalties alone. Those are actually very high margin revenue because most of the cost was already absorbed in the prior years. So the GP -- gross margin could be as high as 80% or even more, right? So this is the IP-driven revenue. And then once we get into development, this is a normal part of our business of WuXi, as I mentioned, this is cost-plus. But besides that, we actually have a cell line IP as well. And this is something we've not mentioned frequently in the past because we assume everyone will be manufacturing with us. But if they don't, if they don't manufacture with us, the cell line IP, we actually generated a significant amount of revenue. So we have more than 600 projects -- we will have more than 600 projects with cell line royalties by the end of this year. So let me give you an example. So if -- for example, if WuXi Biologics making 100% of the M, then my partner, my clients don't need to pay any cell line royalties. But if they decide to give 50% volume to WuXi Biologics, another 50% in-house or to a third party, then I make money from the 50% of the M in WuXi Biologics. I also makes the money for the products that someone else makes, and that's because we have the cell line IP. So in terms of the difference of the profit. So for example, if I make $100 from the manufacturing ourselves, and if my partner manufacturer outside of WuXi, then they have to pay out between $25 to $200 in terms of the royalties. Again, this really showcases resilience of our business model. So even if someone don't manufacture with us, we still get a portion of manufacturing profit, and the product can be even as high as revenue from manufacturing profit for some of the programs. And this -- that's why for WuXi Biologics, we have a very unique business model. So our R-D-M CRDMO model is very unique in that sense. We -- R leads to D, D leads to M, so our revenue get higher and higher. Not only we have the service-based revenue, we also have IP driven revenue. So last year, the IP-driven revenue was already a significant part of our revenue composition. If you look at the profit from 2024, about 15% of the profit actually come from those IP driven, by either R or D, either cell line royalty or the milestone payment or upfront payment. And that's why I always said WuXi Biologics has a very different business model. We are not a CMO. We are not a CDMO. We are a CRDMO. And hopefully, that's very clear with this explanation. That's why I spent quite a few minutes on this slide. So talk about R. We actually have more than 50 programs that we are eligible for royalties. So we are also eligible for milestone payment upfront. So this is -- that's why last year, this IP-driven revenue or profit is already significant in our portfolio, right? We have 50 programs like that. Among the 50 programs, a few, let's say, two or three potentially have achieved mega blockbuster sales, $5 billion or even $10 billion of sales. But if you think about that, if we have a program with a $5 billion or $10 billion sales, even 3% or 5% of that royalty becomes very, very meaningful to our top line and the bottom line. So I think at some point, the WuXi Biologics will be receiving hundreds of million dollars of royalties and milestones from those programs and eventually will be $1 billion or more. And that's why I always said our CRDMO business model is very different from our peers. This was -- when I IPO-ed, I had the same business model, but at that time, it was, let's say, 10, 15 years away. Now it's only -- now, it's reaching -- now this is already getting too close, getting -- now this is actually already close to $100 million. So go from $100 million to $300 million to $500 million to $1 billion is foreseeable in let's say, 5 to 8 years later, this will become $1 billion revenue. And that's how significant is this model is to WuXi Biologics. So on the D part as everyone knows, that's our stronghold, that's really WuXi cup of tea, right? So we have a very strong market share. As you know, and that's why we won 86 new projects early this year. And as everyone knows, our industry is -- there is also a lot of M&A, right? So either U.S. biotech being acquired by large pharma or Chinese biotech program out-license to global. And WuXi actually will benefit from all those trends because oftentimes, WuXi continue to be the main CMC player behind scene, helping either the global acquisition or the Chinese asset out-licensed to global peers. So for Chinese assets out-licensed to global partners, we typically have about 70% market share. And then as the program goes from China to global, our revenue -- our service revenue tends to grow 5 to 10x. And that's why I have always tell some investors, this is almost like a pie in the sky for us. If the Chinese program gets out-licensed to the global to companies like Merck, Lilly or Pfizer, right, or J&J or Roche, so -- because a program just for China, I may receive, let's say, $10 million to $15 million revenue. A program destined for global, then I received $100 million or even $200 million of revenue as there is a 5 to 10x amplification on that. And the good news is, whether it's a small biotech acquired by large pharma or a Chinese program licensed to global, WuXi always keep the project. So far, our keeping rate is more than 95%. And that's why our revenue will continue to grow as the global deals are happening. So that's the D part. And then now I'll talk about M. So at the beginning of the call, I mentioned already that M will actually be driving a significant part of the growth. So PPQ is a key -- it's almost like a gate for M. So you do PPQ and then you wait for -- you file for FDA approval and then once they approve, you launch your product. So that's why PPQ is a very good leading indicator of M revenue. So you see during COVID time, we are able to do 20 PPQ a year. But this year, we already have 25. What's more exciting, actually next year, even as of today, we already see 27 for next year. So we still have 12 months to work on additional projects. So hopefully, next time when I share with you, 2026, you will see a lot more PPQs. So more PPQ means more revenue. More PPQ mean exponential growth of the manufacturing revenue as well. I think another fact that I want to share with you is that we have done close to 100 PPQs already. We only have one failure so far. So our track record is at 98% plus, almost 99%. And that's why everyone in the industry, our partners love us because when they do PPQ with WuXi, it's almost like they have insurance, it's going to be successful. And that basically means the BLA filing will be on time. And on top of that, we -- as I mentioned earlier, we have a very strong regulatory track record and the product will be approved. So with the PPQ success, with regulatory approval success, our partners can really trust WuXi to deliver the product for them. So over the years now, we have built a very strong global network. We have a strong network in China for R, D, and M. Now we just finished building out our strong network in U.S. and Europe for R, D and M. So R is in Boston, the D in Cranbury, New Jersey. The M is already in Ireland and will be in Worcester, Massachusetts. So that's the second line -- second R-D-M. And the third R-D-M will be in Singapore. So I think to really serve every client in every region, now we have three parallel supply chain to be able to really address the global need of any client from Basel, from London to New York, Boston, San Francisco, Shanghai and even Tokyo and so. So I want to give you a very quick update on our global site as well as I said I'm sure you are very -- very much interested. As I mentioned, we have a very strong network in Ireland. So we have three facilities in Ireland. And as of today, all three facilities are producing product for us. We have done four PPQs with 100% success. And last week, we actually received EMA approval for the first product in this site. So that's really marked a great milestone. So from -- for this Ireland facility, to remind global investors, this is one of the fastest-built facility in Ireland. This is also one of the most high-quality facility in Ireland. We received ISPE award for that. And now we received the product approval for this site from essentially year 5, and this is actually an incredible track record. So we can deliver this in Ireland. So that's again, demonstrated a strong execution capability of WuXi Biologics and our mindset, our quality, our operations are all now carry over very well in Ireland. So as I mentioned earlier, we have three supply chains. One is in the U.S. The U.S., the clinical is in New Jersey and the commercial is in Massachusetts, all are progressing very, very well. And lastly on this slide, we are also adding more capacity in China, the facility. For the first time, now we have launched a 5,000 single reactor. 10 years ago, when we started with single-use, it was 2,000. Now we're going to 5,000. And in U.S. next year, we're going with 6,000. So single reactor now is as big as 6,000. So I mentioned our third supply chain with the third line that reside in Singapore from R and D and M. So I'm happy to share with you that we started our drug product facility construction. We are finishing up the design of drug substance facility. What we can achieve in Singapore is actually unbelievable. Our subsidiary, XDC, is close to finishing up the facility in Singapore. So if you visit Singapore, I'm more than happy to have someone host you to visit this site. About February of this year, you see green -- you see the graph on the line. And on March, now we started piling. And this June, we -- actually, the facility is ready, and now we are doing [indiscernible] runs. By end of this year, we'll be doing product runs in there. So essentially from piling to product runs is about 18 to less than 20 months. This is for the first time we are doing this outside of China, on time, on budget. So this is a very significant. That's why we are very confident that we can deliver a third supply chain in Singapore. So I mentioned earlier that our PPQ success is very, very high. Another very essential quality, essential attribute for -- become a manufacturing global leader is quality. I'm very happy to say that we have -- so far, we have 100% success on -- that's why I said it's the best student in the class, right? No one can beat 100% success. We have 44 already, including 22 from U.S. FDA and from EMA. And almost every day, we are being audited by our clients. And so, so far, for the first half, we already have 139 client audits. That basically translates to full year, almost 300 audits. So as you know, we only have 200 working days. So every day, we're being audited by global clients. And then for every two client -- every three client audits, oftentimes, client don't have any finding. They send five people to spend three days with us. So you're talking about 10 to 15 persons a day. And then reviewing every document, trying to find any issues that we may have in our manufacturing process, in our QC process, in engineering. And then about 30% of the time, they don't find anything. If you think about it, if you send 10 people -- 10 person a day -- 10 person a day to visit a facility, and you didn't find anything for that visit. And that's how good we are in terms of our quality. And that's why we can consistently pass FDA inspections and EMA inspections. So I think as everyone in our space getting to digital, WuXi Biologics is -- also want to be a global leader in digital. So we have already spent -- I think this is already our fifth year in digital journey. So I think even before COVID, we started our digital journey. So I think end of this year, hopefully, we will be a global leader in digital as well. So DaVinci client portal is a go-to resource for every data, every invoice or every action items that our clients need to work with us is in DaVinci client portal. BioFoundry, our own system for digitalized lab. And then EBR is our own -- it's our way of digitalized manufacturing, automated manufacturing in there. I think with the WBS with digital and with our way of improvement, that's why you have seen over the past 8 years, we have -- over the past 8 years, our revenue per person grew from $100,000 to more than -- almost $250,000. So actually, it's an incredible growth. So every year, our per FTE revenue actually grew 11% on average. We continue to foresee this and maybe even higher -- at an even higher rate in the next couple of years as we go through more digital, more WBS. And certainly, the high margin revenue from upfront payment from milestone and for royalties will help because there's no FTE associated with that because all the work cost was already absorbed in the prior years. I think for me, every earning, I always have differentiating factors work for us. I think we have been talking about bispecifics for a long time. Back in 2018, we launched WuXiBody and that's a bispecific technology. Back -- 2019, we launched a CD3 platform. So now our CD3 platform is being used more than 10 programs, the leading program from Merck, from GSK, from [indiscernible] all using that CD3 platform, our own bispecific platform. So today, I want to highlight a few on ADCs, I think you probably heard that from Jimmy yesterday as well. So now we have our own ADC technology, you can either cover linker, payload and conjugation. Again, this really showcases how WuXi want to help our global partners, our global clients saying, if you need a technology, we have something for you, and hopefully, it's also the best-in-class. When we started -- when WuXi Biologics was started 14 years ago, we bet that a single-use technology is the future, single-use is the future. Now looking back, I think we really think that we bet on the right path, everything is so successful in there. So single-use technology is not only cost efficient, it's also sustainable. It's actually very efficient. And if you look at the next slide, right, we have already made metric ton level of quantity of [ mAbs ] for global clients for using our technology. So as I said earlier, 10 years ago, it was 2,000 liter, now it's 5,000 liter, next year it will be 6,000-liter single reactor. If the reactor volume is not enough, we'll [ multitask ] them. We now input, [ 6 -- 2,000 reactor, 3,000, 4,000. ] In the figure, we can put two 6,000 together. I think that we have already made more than 300 batches in five manufacturing facilities in two countries using this technology. Now we have already received more than 20 FDA approvals for this. So it's proven with a single use, now we can deliver not only 100 kilogram, but now at 2 to 3 metric ton, 2,000 kilograms or 3,000 kilogram. I think this is one way of achieving that. The other way of achieving that, I'm not sure whether some of you investors follow our own news. WuXi Biologics achieved 100-gram per liter using continuous processing technology. 100-gram per liter using continuous processing technology. Continuous technology, as you know, is 3 to 5 gram per liter. Basically, we can achieve 20x productivity improvement. So for our 10,000 -- our 1,000-liter reactor is equal someone else's 20,000-liter reactor using our continuous technology. That's in two ways how we can really become a manufacturing powerhouse either using this technology or using continuous processing. As our industry shifts more and more to autoimmune disease, the kidney disease, the convenience, essentially administration at home is more and more important. So we -- over the past 10 years, we developed our own formulation technology so that we can -- for every biologic, we try to develop it in a liquid formulation and put in the syringe so that patients can administer at home. It's so much more convenient, but also saves a lot of money for the health care system. To achieve that, you need to do a very high concentration because oftentimes, the dose is fixed. For example, if dose is 200 milligram, and if you only able to formulate 25 mg per mL then you have to do 80-gram delivery -- 8 mL delivery. You cannot ask the patient to shoot themselves 8 times for one treatment, it's too much. But now with technology, we can do 200 milligrams in 1 injection, 1 mL. And this almost work we have done over the past 8 years. And now we have more than 100 projects. Among the 800 projects, now we have more than 100 projects we are able to do this. So again, this is a proven technology for us already and really help the autoimmune patients in a good way. WBS and ESG are always a key component of our strategy. So I think Ming already mentioned WBS, I think this is already -- this is a WuXi way of improving ourselves. Every year, we improve our time line. Every year, we improve quality, we improve delivery, we improve in regulatory. I think WBS is -- financially, we are able to achieve our 100 bps improvement on gross margin just because we're doing WBS. And that's our goal for every year. Every year, at least from WBS, we want to achieve 100 bps improvement on margins. I'm also very proud that the global community rate us very high on ESG. We are ranked highest on every metric on ESG. On two rating agencies, we're actually top 1%. In one rating agency, globally they're rating 800 companies in the pharmaceutical space and pharmaceutical-biotech space and supply chain space, we actually ranked -- all of 800 companies, we ranked at #2. We are almost there with -- ranked #1, essentially the most ESG-friendly company, the most ESG-committed company in this space. So with that, I want to summarize. I think from the beginning, I said. What's unique about WuXi is our business model, is our CRDMO business model. We made the first milligram, first gram, first kilogram, first metric ton, right? And then revenue grow exponentially. And not only the cost-plus model of revenue, service revenue. We also have IP revenue for our R and D. And R will lead to D, the current conversion rate is more than 95%. The D will lead to M. With all those noise, with all those challenges, now our D to M conversion is still more than 90% -- more than 95%. So our CRDMO model is really, really unique. And that's why we always said we are unique in our industry. So for the strong first half '25 results really reinforce was our confidence, right? So you see our overall revenue grew 16%. Our early-phase grew a whopping 35%. Our manufacturing grow almost 25%. Continuing the momentum, the largest -- the highest number of projects of 151 last year. Now this first half grow 86. And a lot of them -- 70% of them are highly complex projects like ADC and bispecific with a single ASP higher than traditional mAb projects, right? Our manufacturing, I mentioned 25 PPQ, now and even more next year, right? So I really -- I think the -- so first half 2025, we can see this is almost a launchpad for accelerated growth. Over the past couple of years, past 18 months, we also divested some assets, improve our efficiency, right? So looking forward for the second half -- I mean for 2026, now we really see accelerate growth. That's why I said launching pad right now. R, D and M are all on fire, right? So M, I already mentioned the growth in there. On top of the growth on top line, our margin actually will expand, right, from WBS, from digital, from more milestone and royalty revenue, from large-scale CMO projects. But Ming already mentioned, we are expecting a significantly higher free cash flow this year. And as our CapEx will continue to be realize, our free cash flow will be stronger and stronger. Our global expansion, Ireland, Germany, U.S., Singapore, are on track. The loss from global operation is getting reduced and reduced, is significant as well. So that's also another way our margin will be higher and higher. And largely, with all the new technology we're launching, it will help us achieve more business. The highly automated DS manufacturing. This is what I mentioned. For 15 -- if we do this manufacturing, we do it for 15 days, we get 100 grams per liter. The actual result is actually 110 per liter. 110 gram per liter for 15 days. So if we supply 100% of KEYTRUDA, we only need three reactor, each one of them 1,000 liter. And that's the technology -- next-generation technology we're developing for our industry. So with a very strong result in the first half, we are very confident that's why we raised our target for revenue from 12%-15% to 14% to 16%. Not only we have a higher revenue, we also believe our margin will be higher and our free cash flow will be higher as well compared to last year. That's why I said first half 2025, launching pad -- is a launching pad for accelerated growth. Thanks so much.

Thank you so much, Chris and Ming. So now we are heading for the Q&A session. [Operator Instructions] So before we open up the line, so I will ask a question on behalf of all the investors. I think on top of our mind, BIOSECURE Act is still the most relevant part. So recently, we heard some good news about BIOSECURE Act because for the updated version, no WuXi names were on the list. So Chris, so can you share with us your insights and also take away from this?

Thank you, Cui Cui. As you mentioned, so the proposed version of BIOSECURE will likely be -- the proposed version BIOSECURE is out. It is proposed to be introduced in this year's NDAA. The good thing is with all the industry-wide effort with lobbying from WuXi Biologics, right now, our names are not on it. We always -- we continue to lobby, the U.S. politicians saying, we are a very compliant company. We help U.S. companies become more successful. We are enabler. We don't compete with U.S. companies. We are enabler of the global biology industry. I think so this message is probably heard. And we really -- I think the WuXi Biologics now continues to develop our -- continue to focus on our core business, can you serve every client in U.S., in Europe, in China and in Japan.

And also, congrats on this progress and also on your very solid result delivery. So now we will open up our line. So our first question is coming from Ziyi Chen from Goldman Sachs.

I've got a couple of questions. First is about the CapEx. We saw that WuXi Biologics trimmed the total CapEx for this year by about CNY 700 million, while yesterday, XDC mentioned that the raised CapEx by about CNY 160 million. So net-net for non-XDC part, company has revised down the guidance by CNY 860 million. So we're trying to understand what has been the reason for that? And the second question is, it has been very encouraging to see the company raise the forecast for PPQ in 2026. Just wondering, what has been the contribution of commercial projects to the revenue now? Because we know that late-stage plus CMO is over 40% in the first half. But if we only look at CMO, how much was that. And out of the 24 commercial projects, how many are global projects? And also, we try to understand a bit more about for those global commercial projects, what kind of wallet share WuXi Biologics have been -- gotten in the past few years? My last question is on -- Chris, you mentioned about the milestone payments contributing about 10%, 15% of the profit last year. And also you illustrated a very promising IP-based income model. So we try to understand a bit more in the longer run, what will potentially be the contribution from those IP-based income to the earnings, including milestone payment, upfront payment for our project, cell line royalties for the project?

Thank you, Ziyi. Yes, to go back the CapEx, I think, as I mentioned earlier, now WuXi is improving everything, including also the CapEx timing. So if we can buy the equipment next February, we don't need to spend money this November. So we're trying to compress the time line of our own projects. So the CapEx reduction is a deferral, it's not really a reduction. So we'll save $700 million or defer $700 million -- RMB 700 million this year, but they will be spent next year. So it's -- we're continuing to optimize the CapEx process. So it's really not really a CapEx reduction, it is a CapEx deferral. That's the first question. The second question on your CMO, among the 24, I think about 20 are for global. So this included bispecifics, bispecific ADC components and antibodies, enzymes. So I think it's several of them are very high potential as well. I think -- what's the other question on the M part?

On M part, what has been the percentage of the revenue contribution coming from fewer CMO projects?

So for the Follow the Molecule, it's actually 100%, Follow the Molecule. For Win-the-Molecule, so we have a few wins, it's actually Win-the-Molecule. So far, large pharma in-house is a primary supplier, but they will intend to transfer -- make us primary supplier as well. So that's why we believe our M will continue to grow. So for the Follow the Molecule, so far, we are able to keep 100% of volume. Again, this is what a lot of investor fears is actually once the M come over, they will switch to other companies. So far, that hasn't been happening. So I think we are able to retain 100% of the volume for Follow the Molecule. I think Amicus is a good example, we were manufacturing in China first. Now manufacture in Ireland. And GSK, PD-1, we manufacture them in China, and -- so for the other global program, it's the same way as well. So for Follow the Molecule so far, we are able to keep 100%. For Win-the-Molecule, we are the secondary supplier right now. And in several years, once we have a steady supply, hopefully, we will become primary supplier. We have a couple of examples like that.

The last part of the question is around IP-based income, what could potentially be a longer-term contribution.