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

Ladies and gentlemen, thank you for standing by, and welcome to the WuXi Biologics earnings conference call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Ziyi Chen, Please take over, sir.

Thank you. Good morning and good evening to our global investors. Thank you very much for joining WuXi Biologics 2020 Full Year Earnings Call. This is the Ziyi Chen, healthcare analyst at Goldman Sachs. Before we kick off the session, I would like to highlight that the call is strictly for clients of Goldman Sachs and WuXi Biologics only. And this conversation is not intended for the media and is off the record. Participants will be removed on the call if they cannot be properly identified. And this call is not for the purpose of sharing or receiving nonpublic or otherwise confidential information. Today, we're honored to have WuXi Biologics management team on the call to discuss 2020 full year numbers and also recent business update. Management attending today's call include: Mr. Chris Chen, CEO and Ms. Christine Lu-Wong, CFO; Dr. Michelle Chen, VP and Head of Corporate Development; Ms. Sharon Tang, VP and Head of Communication and PR, Mr. Eileen Wang, Executive Director and Head of Investor Relations. Today's call will be in English. The presentation slides are available at WuXi Biologics website IR section. Chris and Christine will give us an update on the results first. And after that, we're going to open the line for question and answers. [Operator Instructions] Now I'm going to turn the call for the prepared remarks. Chris, please?

Thank you, Ziyi, and good morning, good evening, good afternoon depending on where you are. So really my pleasure to share with you our exciting 2020 results. So the content -- we'll talk about the annual results and then talk about really all the technologies we have to enable us to achieve these exciting results. Christine will talk about the financial overview, and then I'll end by our corporate governance, ESG and summary. Slide #2, if you are investor at Wuxi, you know this is my favorite slide because one slide can tell you really about the story. And this year, we also shared with you the sort of the numbers in both '19 and '20. You can see the very exciting growth of the company. So on the project side, we go from 250 in 2019 to 334. I'm very pleased we added 103 projects. This is unheard of in the industry. And also, this is the first time for WuXi Biologics to be able to add more than 100 projects in a year. So a lot of the smaller CDMO. Their probably entire portfolio is less than 100 projects. So we added that in 1 year. We estimate this will probably account for about 40% of the global market share. We also -- our Win-the-Molecule strategy also works very well. Our Follow-the-Molecule skill continued to be executed. So we actually have more than 75% increase on the Phase III project, now 28. And our backlog, as a result, you see the backlog grow from $5 billion to now more than $11 billion. And because of this, the third in late-phase project, also because of the success of the strategy and the bullish nature of our business, we are increasing our capacity from 280,000 to 430,000. The most increase comes from U.S., Europe and China. So at the end of last year, we have more than 6,600 scientists. And this year, we expect to add another 3,000. So on the right side, you see the financial results. I think I'm not going to repeat them. But I think I want to highlight really the growth of the company with top line growth, more than 40%. Our profit grew more than 42%. And also the -- both the gross margin and also net margin are record high. Gross margin 45%, net margin more than 30%. So if you go to the next couple of slides. I'm going to slide, Slide #6. That's really more details on the slide on the financial results. Again, last year, because of COVID, we lost 2 months of productivity. So our production is very low in February and March and also very low productivity in April. So despite of losing 2 months, we still have record-high profitability. And all the numbers are record high. And our margin, as I mentioned earlier, gross margin achieved 45%, and net margin is 30%. So a lot of investors ask what's the "steady-state" margin rate. So if we don't include future royalties, future more significant milestone payment, this is -- last year, we pretty much achieved steady state, right. Because all the facilities are 100% utilized and everyone worked very hard, but we did lose 2 months of productivity. So you can use this as an indication about our profitability. Slide #7, on the key financials, I think we have more than RMB 8 billion of cash I think we raised $1.7 billion earlier this year to support our facility expansion. You see the announcement already. Invest in microbial and -- microbial and also our viral platforms. You see our investment in the vaccines, certainly, investment in mRNA manufacturing. We have more than CNY 2.6 billion of loan, and our CapEx last year was RMB 6 billion. And this year, we expect CapEx to be more than RMB 8 billion, So we are doing capacity expansion in both Europe, China and the U.S., and that's the increase from 280,000 in capacity to 403,000 capacity -- 430,000. Slide #8 is my favorite slide. I always tell investors. If you monitor Wuxi, the only slide you need to look at is Slide #8. How many projects total, how many projects added, and how many project in Phase III? So we have more than 334 projects. We have 334 projects total. We added more than 100 projects last year, as I also mentioned, and we have 28 Phase III projects. So 28 Phase III project will contribute to a boost of near-term revenue. What I'm most excited about actually last year is the transfer of 11 projects. So this is our Win-the-molecule strategy. So I will elaborate later on. And because of that, our Phase III program jumped to 28. I think this is probably the largest Phase III portfolio of any company with biologics, 28 Phase III. We are also very happy to add another commercial project. This is a COVID-19 vaccine already commercialized in the global setting. Slide 9, talk about our pipeline. Continue to see an increase of our bispecifics ADCs. And this is the first time we highlighted we actually have 4 vaccine projects. So bispecifics, you see a more than 43 project; ADC, more than 40. So both of those represent significant growth opportunities of WuXi Biologics. And among the portfolio, we have 135 first-in-class program. So this is the first -- as I mentioned earlier, this is the first time we have 4 vaccine projects. Two of them are COVID-19. One of them is the one we are building a dedicated facility in Ireland. We already signed a $3 million manufacturing contract and the fourth one is undisclosed. So Slide #10, talk about our Win-the-Molecule strategy. I think this is the same slide I shared with you before. I want to reemphasize that Win-the-Molecule strategy is really a global recognition of our capability, technology and execution of WuXi Biologics. So because of that, we are able to add 6 Phase III projects last year and 4 Phase II. We are going to add 5 Phase III projects every year at a minimum through the Win-the-Molecule strategy. If you assume 50% success rate, that basically means in a couple of years, every year, we'll add 2.5 commercial manufacturing project. That's huge. And that's going to be to fulfill our promise of sustainable high growth because we have such an exciting portfolio. As a result of our success in the funnel -- in expanding the funnel both at adding projects organically and also through the Win-the-Molecule strategy our backlog surged. You can see our backlog by end of last year had already exceeded $11 billion, includes $6.6 billion in service and $4.7 billion in milestone payment. Service as before, service backlog are almost 100% convertible to revenue. And the milestone backlog has -- really depending on how successful the portfolio are, but it's continued to expand. What I also shared with you here actually is the year-to-date backlog. Actually you can see, even just in the first couple of months, we added additional $700 million manufacturing contract -- service contract and also $200 million milestone backlog. So this is -- the momentum actually accelerated even this year compared to 2020. 2020 was a fantastic year, but this year, momentum actually accelerated. So I'll share with you that more details later on when I finish my presentation. Slide #12, where I describe to you our customer base. This is the first time we see U.S. and China almost contribute a similar amount of customers. So what I call our 4-engine approach. We have 2 large engine, whereas U.S. and China drive their customer base and 2 relatively smaller engine, Europe and Asia. So it's pretty much you are thinking about a 40% for China and the U.S. and about 10% for Asia and Europe. Later on, when we go to the revenue piece, it's very similar to this distribution. Go to the left side, you see actually our clients, existing clients keep giving us more projects. So you see our top 10 clients now on average give us 6.8 projects. Even top 20 give us 5.3 projects. So traditional wisdom basically says don't put all the eggs in 1 basket, but for biologics, it's so hard to do, and WuXi Biologics has a clear advantage. A lot of clients are willing to tolerate the risk and give us all the projects. Last year, because of our perfect execution of COVID-19 projects, we believe the bounding between Wuxi and our existing customers actually increased. So we delivered every project with promise even -- despite COVID-19 despite the supply chain, the global supply chain constraint due to shortage of materials, filters, bags, resins, culture media. So our visibility in COVID-19 projects also begun to attract new customers. That's what I attribute to a significant growth of number of projects last year and the continued momentum this year, so -- and that's why we added more than 103 projects last year. It's a record high. Slide #13, if you're investor of WuXi, you've seen this slide every year. So as shown here starting in 2014, the result, you can see a consistent trend. So every year, we're adding new customers. Every customer is giving us more projects. And the client concentration risk is diminished -- is reducing year by year. So over that, the customer number listed here is only a key customer, basically a customer who give us a contract of more than $5 million. So if they only do a small contract like manufacturing one batch or do one testing, we don't count them in this category. So this is a key customer or a large customer. And you see the average revenue per customer grew almost tenfold in the past 7 years, average revenue per customer. So that's because the project go to a later stage following the Follow-the-Molecule strategy and also give us more projects. So because of that, the average revenue per customer actually increased almost -- more than tenfold. Almost 12 -- 11 -- more than 11-fold. And you see our diversification of our client base. Now the top 20 customers only account for 55%. And top 10, only 41%. So basically, on average, every -- the top 10 clients only -- every one of them only contributed 4%. So we have a huge long tail who are contributing to the revenue as well. And this is basically -- a couple of years ago, I have a key account actually accounted for more than 30% of revenue. And then as a company, you worry about what's the company is going to perform -- how the company is going to perform, whether is it going to impact WuXi. But now with this client profile or customer profile, we don't worry about the client risk -- specific client risk at all. So it's an incredibly diversified customer base and very less risky -- very least risky client profile. Slide 14, you also see the clear evidence of Follow-the-Molecule. So our pre-IND revenue grew a CAGR of 47% in the past 7 years, but our post-IND, this including clinical manufacturing and commercial manufacturing, grow 93% of CAGR. And that's usually the Follow-the-Molecule. You can see the Follow-the-Molecule strategy in play. So this year, I will share with you a little bit more -- this year, commercial manufacturing will be a key contribution to our revenue. We're expecting more than $600 million of commercial -- CMO revenue this year. Because of the exciting growth of our portfolio because the funnel continues to get bigger and bigger, we are actually increasing our capacity. So we are adding -- we are converting a small -- relatively small clinical facility in Worcester, Massachusetts into a big commercial facility. So that will be a 16,000 liter in Worcester. We are converting a small facility in China into a gigantic facility, 96,000 liter. So WuXi City will have more than 200,000-liter capacity. And we acquired a facility from Bayer in Germany. So because of those, we actually now -- total capacity will be exceeding 430,000 liter -- 400,000 in total. If you go to Page 16, you can actually see the details. And currently, we have 5 facilities up and running, but we have planned -- a total of 21, and a couple of them will be running later this year. So I highlighted manufacturing 9. Originally, this is a 9,000 -- 6,000 liter capacity perfusion now changing to 96,000 liter. So this is going to be the largest commercial manufacturing facilities using disposable technology. Manufacturing 11, the Worcester used to be 5,500 liter. Now we change it -- we triple the size, triple the scale. Now it's a 16,000-liter fed-batch scale. And manufacturing 17, this is a new facility we'll have in China in Shanghai for clinical and Manufacture 19 as the facility we acquired from Bayer earlier this year. So this will be running end of this year. Slide #17. When I mentioned the customer base, I've already mentioned, we have 4 engines, 2 big engines, U.S. and China and 2 small engines, Europe and Asia. You see the revenue distribution very similar. So about equal revenue among China and the U.S. and also slightly less revenue in Europe and the rest of the world. Except North America, all the growth is actually fantastic, So North America still witnessed the COVID impact, And that's why we are seeing a slower growth compared to the overall WuXi Biologics region. Slide #18, I want to give you an update on our efforts to fight COVID-19. And we have already had more than -- we currently have 12 molecules, all of them are COVID-19 antibodies. These 12 molecules in the clinic. For those 12 molecule, we received 20 IND approvals. We believe that we -- our market share is more than 80% for the COVID-19 antibody development -- not manufacturing, development. For those projects, typically, it only took us 3 to 5 months versus the industry 12 to 18 months. We delivered all 12 IND successfully. Also all those IDs pass the regulatory a single pass. Basically, we filed the IND and then all the regions accept the IND right away and also very high productivity. So this is a confirmation of all the technologies or the execution that we have -- capabilities we have developed over the past couple of years. So all manifested in this COVID-19 antibody programs. Because of this, now everyone recognizes WuXi as a strong player in the global CDMO space. And because of that, I said, existing clients give us more projects, new clients also want to come to WuXi. The total COVID-19-related contract now already exceeded $1 billion for Wuxi Biologics. So this includes antibodies, vaccines and also proteins. So we currently have more than $900 million backlog. Just to give you how fast we move. We have already made more than 800 kilograms of neutralizing antibodies in the past 6 months. This is equal to about 1 million to 2 million patients -- or treatment for 1 to 2 million patients. By end of this year, we expect a total supply more than 1.5 metric tons of antibody. And this is the first time WuXi Biologics is making anybody in the scale of ton instead of kilograms. For COVID-19 vaccines, we also have very exciting news for you. I mentioned earlier, we have 4 vaccines. Two of them are COVID-19. The total manufacturing contract already exceeded $260 million. And we are still in discussion for 2 more mRNA vaccine for COVID. So potentially, we will be making 4 COVID-19 vaccines this year. In terms of -- so COVID product development is so fast that you always hear news, sometimes positive, sometimes negative. But people -- investors always ask what's the impact to WuXi. For all the COVID programs, our revenue is like a take-or-pay. If they sign up for the slot, so even if the programs fail, they need still need to pay for the slot. So take or pay. So the -- if the program is successful, the good news is potently we have more upside. We have more revenue this year and even next year. But if the program failed, all the current contracts are still valid. So our current contracts are still -- will be ordered by our existing clients, but we will lose future revenue. So I'm going to clarify this here. So essentially, what I mentioned here, I still have $900 million backlog for the COVID-19 programs. We will still be able to generate $900 million of revenue for those programs per se. Slide #19. This is the first time, as I mentioned earlier, we actually made close to 1 metric ton of antibody using the technology we pioneered in the industry. Five years ago we IPO-ed, when I tell investors saying disposable manufacturing is disruptive, some of you believe in it. Most people are skeptical because this is not a mainstream in the industry. Now for the past couple of months, we already made a metric ton. We are making -- by end of this year, we'll be making more than a ton of antibody using this technology. And also, the cost of goods is very competitive. Our cost is less than $80 per gram. So I think this truly showcase that the technology we pioneered -- the technology we believe just to be disruptive is already proven in the commodity setting. So that the U.S. FDA, EMA, ANVISA and Chinese FDA will be accepting this technology. We can do this at a very large scale. We're also doing it a very high success rate. So for the past couple of years, we have already made more than 1,000 batches at 98% success rate. So I think this year -- this will be a banner year for WuXi Biologics because I've seen this year an inflection point for our CMO revenue. So CMO typically account for less than $10 million revenue for the past couple of years. This year, hopefully, it will be more than $600 million of CMO revenue because of the success of some of the vaccine programs and also the antibody programs. So I mentioned the disposable technology is disruptive because it's the last bullet point. It's used less capital. It's much faster building the facility. We can actually achieve comparable cost of goods. That's why our ROI is the highest in the industry. For manufacturing 1, we're able to achieve a 10-year ROI of 51%. And so that's why I said this year, it's very -- truly exciting for WuXi Biologics because we see disruptive technology of being truly proven in our industry. Using disposable bioreactors, we can make up to a metric ton or even more than that of antibodies. Slide #20, I talked to -- shared with you some recent capacity expansion. You'll probably hear from us already through the news release, we are opening up a new site in Shanghai, the suburb of Shanghai, it's called Fengxian. And we currently already have than 200 people there. We're building Manufacturing 19 -- 17 there. Manufacturing 5, currently largest disposable manufacturing facility globally, already up and running. DP7, drug product #7 is for we acquired from Bayer. I'm very pleased that the WuXi Bio speed is actually now being manifested in Germany. So all the German engineers and scientists and technicians actually are practicing the WuXi speed. So we acquired this facility last year, now we're actually running media fill. Most likely, the facility will be GMP approved by the regulatory agency in the next couple of months, and we are making COVID-19 vaccines there as well. And then in Ireland, we're also practicing WuXi Bio speed. So our facility are getting close to being finalized, being ready for commercial production. Slide #20. I think you guys are following WuXi. We have recently made some quite some M&A. So from the beginning, we have always been looking for good M&A deals. But there are a couple of criteria that we ask for. If we are buying an asset, I typically ask for at least 60% to 70% discount of the asset. So the asset need to be significantly cheaper than when outbid ourselves. And if we are buying a business, I typically -- I'm only willing to pay about 20x EBITDA. Because we are very selective. And also the facility needs to fit in WuXi's profile, so if someone has a facility for sale, but it's 210,000 bioreactor. That's not a facility that fit into WuXi profile. That wouldn't be our interest. So over the past couple of years, we have always been on the look out for good facilities. Now we finally pulled the trigger. Now we're buying a total of 7 facilities, and so this is both DS and DP. As you guys know, globally, this year, globally, there is a shortage of both drug substance and drug product capacity. So buying this facility also give us really the recognition that the seller trust WuXi can have the best use of the facility. So we bought the 2 facility from Bayer. And the facility will be running hopefully, end of this year. And then the DP7, as I mentioned, first half and. Then the Manufacturing 19, the DS facility, in the second half. We also bought a facility in China. We are buying facility in China. The reason we're doing that is because we have a very large workforce in China, buying the facility, and we can quickly take advantage of the use and generate revenue for WuXi Biologics. So for all the 4 facilities we are buying, for all the 4 sites and 7 facility we're buying, we expect it will be generating $200 million revenue for the first 12 months -- sorry, not this year. This is the typo of here. So the first 12 months in operation, this facility will be generating $200 million revenue, and it will be earnings accretive to WuXi Biologics. Slide #22, the success of WuXi has always been depending on our talent. I think we have been incredibly pleased on how fast we can hire people, train people and retain them. You see this end of this year, we're targeting about 9,500 people, and that's the incredible growth of the talent. And our talent retention rate last year was still incredible, 90% overall. For key talent, 94%. This continues to be a basis of our WuXi growth and execution. So lastly, I want to share with you our quality system. As you know, it's already proven because we have 6 inspections by U.S. FDA, EMA and ANVISA since 2017. This year alone, we're probably expecting 8 of them. So for the past 3 years, 4 years, we have 6. But this year alone, we are expecting 8 of them. So that's why we have potentially been launching up to 8 programs, 8 biologics this year. The quality system, especially FDA-approved quality system become a huge barrier for our local competitor from China, India to copy the business model WuXi and for us to help our clients deliver high product quality. So Slide #24, I want to share with you a lot more about the metrics. I think we'll start getting to more details about our operations. So over the past couple of years, we have already enabled 172 IND. You see that number. Our capacity is to do 80 INDs a year, 7 BLAs a year. And so far, we have already done more than 779, projects including some of the smaller projects, or other companies, called CDO projects. Currently, we have 5 facilities making -- with close to 90,000 capacity, but we're building 15 globally. And look, what I'm -- Manufacturing 3 is one of the newer facilities that we have. We have been operational since April of 2018. So far, every batch in the facility has been successful. We already made 132 batches. So with that, I want to finish the first part of the presentation and go to the second part. We have not really talked about all the technology platforms we have built to enable our growth, to enable us to attract clients. The first technology is certainly bispecific, as you guys know, it. So we launched WuXiBody in 2018. We have 5 clients, 7 projects. Now we have 18 clients, 29 projects. Our first WuXiBody already regulatory approved in the clinic. So hopefully, we're getting clinical data later this year. ADC has become a very exciting field, and you see a lot of ADC investment, new companies working in ADC. But we have been working with ADC for the past 6 years. In 2015, we have our first ADC INDs. We made 4 batches. And this year, we expect to make 100 batches, And in 2019, U.S. FDA-approved 20 INDs, and WuXi cultivated 4 of them. So 20% of the global -- of the U.S. total INDs to work with the very established companies here in ADC showcased in the slide. Slide #28 talk about really how WuXi move, how fast we can move. Before we joined this space, typically, it takes about 2 years to get into IND. Now for WuXi is 1 year, so we cut the time by half. And as I mentioned earlier, for COVID programs, we cut the time even further to 3 to 6 months. So Slide #29, talk about all the IPs we generated to enable our clients. I think you have seen this before. I'm not going to elaborate on this. I'm going to use Slide 30 to really showcase how our strategy has always been working. So we have very proactive investment in the new platforms. We're proactively investing in bispecifics. I mentioned this already. We proactively include -- invested in ADCs. You see this already. And we proactively invest in vaccines. In 2018, when we set up the WuXi vaccine, most of the investors probably don't have any idea of what we planned to do. And in 2019, we signed a $3 million contract. In 2020, we have 4 vaccines. Vaccine revenue -- we started to have vaccine revenue. In 2021, our revenue will be more than $260 million. Not -- again, you show -- this ADCs, bispecific, vaccines all showcase we truly have a very exciting strategy. All the proactive investment we've made in the industry happened to be the industry need, industry want when we launch them. So with innovative technology platform established ahead of the curve. I think WuXi Biologics will continue to seize opportunities to become a global contributor to the global community. So this year, our focus has been mRNA vaccines. We have built full capabilities to make up to even 100 million doses or even more of mRNA-based vaccines. So with that, I will hand over to Christine to talk about the financials.

Thank you. Thanks so much, Chris, for your detailed explanation and further explain our business model. Very exact. Thank you. For me, I would just turn to the financial and talk about our performance in 2020. Let's turn to Slide 32. Our revenue reached RMB 5.6 billion with an increase of 40.9% year-on-year. The increase was mainly attributable to leading technology platform, best in industry time line and excellent execution record, contributing to a significantly higher market share of newly integrated projects. We have also successful launch of Win-the-Molecule strategy, adding considerable late-phase pipeline and near-term revenue. We also accelerate and have efficient execution of more COVID-19 projects to support and enable the group's global customer in the second half of 2020. And we have strong growth of milestone revenue generated from group's various technology platform. So WuXi Biologics has achieved an excellent financial result in 2020 and we turned challenges into opportunities despite we encountered the global COVID-19 pandemic. On gross profit, we increased by 52.7% year-on-year to approximately RMB 2.5 billion. Gross profit margin increased from 41.6% in 2019 to 45.1% in 2020. The increase in the gross profit margin was primarily attributable to group's robust increase in the number of integrated projects. Significant improvement in capacity utilization of our existing manufacturing facilities which enable deliver of more production batches. Continuous operational efficiency enhancements driven of development business, which minimize leading time and enable delivery of more key IND projects under severe time stress. Strong growth of milestone revenue with higher gross margin generated from projects progressed along the value chain and more unlicensed new projects. And lastly, our full year impact from our newly acquired higher-margin business in the fourth quarter of 2019, now was already turning to full year of 2020. So that was the main reason for our gross profit margins increased, which was also partially offset by the ramp-up of our new facilities. On adjusted EBITDA, increased by 47.8% to RMB 2.5 billion during the reporting period. The adjusted EBITDA margin was 43.9%. Net profit increased by 67.5% year-on-year to RMB 1.7 billion. Net profit margin improved 480 basis points to 30.2%. The increase in net profit margin was primarily due to: one, the group's robust increase in number of integrated projects and as a result, strong growth in revenue; two, continuously improved capacity utilization and operating efficiency, leading to the growth in gross profit; and three, growing gains from investment in listed securities, which was partially offset by the increases in administrative expenses, impairment losses on the group's financial assets and income tax expenses. Excluding the impact of foreign exchange gains or losses, share-based compensation, fair value gains on the group's investment portfolio, our adjusted net profit increased by 42.8% year-on-year to RMB 1.7 billion in 2020, and adjusted net profit margin went up 40 basis points to 30.6%. The reconciling tables can be found in Slide 49. Diluted EPS reached RMB 0.40 with year-on-year growth of 60%. After our placement in February 2021, our full year share numbers -- our share count number to be expected at basic shares, approximately 4.1 billion shares. Fully diluted shares, approximately 4.4 billion shares. Let's turn to Slide 33. This slide shows that we also achieved an extraordinary financial results in 2020 in terms of net profit, profit attributable to shareholders of company and EPS. As mentioned in previous slides, net profit increased 67.5% year-on-year to RMB 1.7 billion. Net profit attributable to shareholders of the company increased 66.6% year-on-year to RMB 1.7 billion. Diluted EPS improved 60% year-on-year to RMB 0.40. Adjusted diluted EPS improved 36.7% year-on-year to RMB 0.41. And let's turn to Slide 34. This slide shows our revenue growth by region. North America remains our largest market and accounted for 44.2% of total revenue in 2020. Due to the COVID-19 impact on overseas countries, regulatory inspection and some global clinical trials were delayed. So the growth of North American market temporarily slowed down, but U.S. market contributed 44 new projects in 2020 despite the challenges for business development. We continue to deploy more local capacities to enable North America customers. China market made an outstanding growth of 75.1% and contributed 43.9% revenue in 2020, which was benefited from the fast recovery from the pandemic and searching new projects on COVID-19. In 2020, we have brought 41 new projects from China market. We expect to see continued favorable policies and environment in China for biologics innovation. EU and the Rest of the World markets, including Korea, Japan, Singapore and Australia, achieved fast growth of 43.4% and 75.1%, respectively, in 2020. Although there is a keen competition in these established markets, we continue to leverage our industry-leading technology, track record, best time line and execution to gain market share and enable customers. Moving to Slide 35. In 2020, our gross margin was improved to around 45.1%. Overhead costs were 17.4% of revenue. Direct labor costs were 20.5% -- 20.7%, and raw material costs accounted for 16.8% of revenue, respectively. Now I will pass the microphone to Chris for next slide.

Thank you, Christine. I think WuXi Biologics want to be -- WuXi Biologics is a global company. We want to be a great company -- from good to great. So we have been spending -- putting some emphasis on ESG. For the -- this week's Board meeting, we just established an ESG committee led by myself and 2 industry veterans, former role was executive and a former banker from Goldman Sachs. Certainly, the technology I mentioned to you a while ago, the disposable manufacturing technology is very exciting for us. It's also proven to be very environmental friendly. For every batch we produce, we're using a lot less water. Last year, we estimated we used less than 100,000 ton of water. We saved 100,000 tons of water. As we scale the business, we'll probably 0.5 million ton of water. That's hugely important for the environment. And also because we don't need to use acid or base or detergent to wash the stainless steel, we're using a lot less chemicals as well. Actually, it's not only efficient, not only disruptive but also environmentally friendly. And certainly, we have been rated fairly high with MSCI, with institutional investors, and with all the other agencies as well. So corporate social responsibility is also good efforts. WuXi is also promoting all the employees to pay -- to focus on corporate social responsibility. We want to make contributions in the local community, we operate, whether it's Ireland, Germany, U.S. and China. We have an employee volunteer association. We want to educate employees on rare disease, want to educate employees to contribute to the local community. Diversity is also a very important topic for WuXi Biologics. So we're actually very happy to report. This is the first time last year, we have more female employees than male in the company. And we have certainly equal compensation policies from executive all the way to scientists and engineers and any-level people. So we have -- we just identified a female Board member who is going to join our Board, hopefully, in June, and we'll have a proposal for that. So diversity continues to be a focus of the company as well. So that's all the efforts we have on the corporate ESG side. And also, as the company grows, the risk -- risk management and the compliance become very important for us. So we actually formed a dedicated group to look at risk management and compliance. So it's different layers organization. We look at -- identify where our risks are, how do we evaluate them, how do we mitigate them and how do we monitor and reporting them. So the risk -- basically, this group is to ensure we apply for all the local regulations and the global regulation. So in Ireland, what are the Irish laws that we have to apply. In China, what the Chinese laws. But globally, FDA agencies import, export. So we continue to improve our ESG, want to be a good corporate citizen. In summary, I think for the past 10 years, has been incredible journey for WuXi Biologics. So we believe the next 10 years will be even more exciting because over the years we have already developed such an exciting technology. We have -- with a very good team, we have now have the best time line. I may already mentioned the time line. Now we have excellent track record, right? COVID-19 projects give us really a global recognition. If you look at the -- all the new antibody programs globally, besides Lilly (sic) [ Eli Lilly ], Regeneron and a couple of companies, almost every other project is done by WuXi. So -- and also at record speed and incredible efficiency. And as we grow, we also are developing additional capacities. So we don't want our client to wait. So every year, we can take 80 molecules to the clinic. Every year, we can launch 7 products, the biologics. So this year, we'll probably need to take 100 molecules to the clinic. If we need it, we can increase the capacity from 80 to 100, even 120. And this year, if we are lucky, we may be launching 8 products. We're launching between 4 to 8 products this year, and that's a huge. And that's why I said this year is going to be a banner year for our CMO. So as you see the results from 2020, it's incredibly exciting. Every measure is record high. But our business momentum -- continues to be strong continues, actually. It may be even stronger in Q1 of this year. And traditionally, Q1 is a very low season because we push very hard on Q4 to make sure we sign all the contracts. Some companies also have Christmas wish. They want to deliver -- sign the contract with us before Christmas, right? And also Q1 happened to be Chinese New Year. So typically, contract signed revenue, Q1 tend to be lowest and Q4 tend to be the highest. But this Q1 turned out to be extraordinary. As of now, we already signed more than 20 -- already signed 28 molecules. And among the 28, 7 of them actually Win-the-Molecule strategy. So we added 3 Phase III, 3 Phase II and 1 Phase I from global competitors and additional 21 programs from our clients directly. We added 28 molecules in just less than 3 months in this Q1. And so if you add all the service revenue we signed up early this year, basically in Q1, it's more than $720 million. It's incredible. We're already showing you the backlog a while back, right? So this is 5x when we signed up the same period last year. And that's why I believe the business momentum in Q1 of this year is even stronger, and that's a great sign for our 2021 delivery. So Slide #44. My last slide is basically -- that's why I titled, Strong Momentum Continues, and maybe even accelerate. So we'll continue to target at least 80 molecules to get into the portfolio. Our Win-the-Molecule strategy, we want to deliver at least 5 late-phase programs. As I mentioned earlier, that equals to about $250 million revenue every year on the peak years. We continue to invest in next-generation technology such as mRNA. As I mentioned earlier, now we're able to make 100 million doses of mRNA vaccines. The company, our philosophy, is from good to great. We want to be a great company. So we're focused on -- continue to focus on ESG. This year is going to be an exciting year for CMO because our revenue will probably getting close to -- getting more than $600 million because we're launching 4 to 8 products. We'll be making more than 1.5 metric tons of neutralizing antibodies, again, proven our technology, proven our execution, proven our CapEx. Currently, we have 7 manufacturing facilities running. And the peak revenue from the 7 facility is about $400 million, $500 million. This year alone, we're adding 14 facilities. So we go from 7 to 21. Certainly we're quadrupled, and we are tripling our number of facilities. And our peak revenue also tripled. So the facility -- the 14 facility we're adding this year will generate $1.2 billion peak revenue, and hopefully, in a couple of years. And that's really the promise we want -- we share with the investors. We want -- WuXi Biologics want to deliver sustainable high growth. And this basically is the enabler. We have the -- 14 facilities will be online this year. This 14 facility will generate 1.2 billion our peak revenue. Among the 48 facility online this year, 7 of them we'll build it ourselves, and 7 of them we acquired in Germany and in China. And that's why I said the strong momentum continue and even accelerate. Thank you so much for your attention.

Thank you, Chris, and thank you, Christine, for the very comprehensive update. And this is really exciting results. So operator, we can open the line for Q&A.

I'm going to raise some of the questions on behalf of some of the clients. [Operator Instructions] I've actually got 3 questions coming from investors. The first one is for the Win-the-Molecule strategy. What key competitive landscape changes does the management observe so that you are so confident that you're going to have 5 Phase III projects inflow every year? So this is the first question. And second is in terms of the capacity acquisition. So in view of the tight supply of DS and DP in the biologic outsourcing market, how is WuXi able to secure deals with Pfizer, with CMAB at such a reasonable valuation? This is the second question, which is at your target like 20x EBITDA or 3% to 4% of the restructuring cost. And the third question is still on the COVID-19-related projects. So what is the number of projects and the breakdown by stage: early phase, Phase I/II or Phase III, commercial for the COVID-19 neutralizing antibodies and also COVID-19 vaccines, respectively?

Thank you, Ziyi. Let me ask -- let me answer the question one by one. First, how can we -- how are we confident that we can have 5 Phase III programs per year, right? So the first year we launched, we actually have 6. And this year, we have already had 3 in the first half. So the CDMO market overall globally is still fairly fragmented. We believe as WuXi become more and more influential, become more and more globally recognized, we believe we can take over those projects from both global competitors and other from China. There's still a lot of small competitors in China. So I think that's why we are confident we can deliver 5. So far, every promise I give it to investors, we have already delivered. So we'll see. The second one actually is a very good question. Globally -- that's why I said DS and DP facility are coveted. So everyone are eager to have additional capacities. So why would those companies are willing to give it to us. It's the trust. It's believed when they give the facility to WuXi, it's in good hands, right? Because they are selling the facility at a huge discount, so they want to make sure the facility is adding value to the global community. So for example, for Pfizer, right, it's very critical for them because -- so WuXi take over the facility. We can add a lot more job to local community. We can make -- use this to make COVID -- antibody COVID vaccines. So those -- the companies who are working with us who are giving us the facilities or who have been acquired believe that WuXi can really help that facility achieve the best. And that's why they are willing to give it to us at a very reasonable valuation. Lastly, on COVID projects, what's the state? So far, 3 to 4 are in Phase III trial. One commercial -- 1 COVID vaccine is commercial, as I mentioned earlier. The other COVID vaccine is still in Phase I. And for COVID antibody, we have 3 in Phase III, and all other they're Phase I. So we have total about 20 projects total.

The next question?

We have a question coming from the line of Andy [ Wilson ] from BlackRock.

Chris, congratulations on the results. I just wanted to check something. You mentioned you're looking for $600 million of CMO revenue this year. I wanted to check that, that's right. And then, of that, how much is COVID? How much is take or pay? How confident are you in realizing that number?

Andy. Yes, it is -- a majority of them is COVID. So I mentioned already. So first of all, all $600 million are take-or-pay, and the majority of them are COVID. So I already mentioned to you that the vaccine alone already $260 million. And we are making another 1 metric ton -- 1.5 metric ton of antibodies for COVID-19. So if you add all the math, $600 million actually is fairly easy to achieve. That's why I said this is a banner year. This is a huge year for us in terms of CMO revenues.

And then I've got one just on mRNA. Could you talk about -- the technology is not quite the same as what you're used to. Medium-term plans in mRNA just in general.

Yes, so we have a -- this is also another technology we have invested for the past couple of years. So now we have 4 capabilities to manufacture mRNA vaccines, so from DS to DP. We are negotiating on 2 contracts as we speak. So we -- potentially this year, we can make even up to 100 million doses of mRNA vaccine. This goes back to all the pre-investment we made in the past couple of years.

And I guess you plan to kind of move that forward out of the vaccine area, and you can do this for anyone?

Absolutely, yes.

We have the next one coming from the line of Jingyi Li from Harding Loevner.

One question I have is looking at your capacity distribution is still very much concentrated in China even with a handful of sites outside. Going forward, do you need to -- or do you plan to build more commercial production capacity outside China to further mitigate any geopolitical risks? One or 2 sites are pretty small, to be frank, for different purposes. So it may not be enough, I would say, geographically speaking. That's one. And second, you mentioned that you acquired several facilities recently. I'm just curious. So from your perspective, what's the difference between the facility you acquired versus you purchased? Obviously, it's different, but in terms of capability, in terms of operational style, what are the differences? And do you need to do any kind of upgrade in the hardware or in the operational software or operational framework side to tweak, to integrate into the WuXi Biologics operational framework?

Yes. Thank you. So first of all, I think we have a fairly significant amount of capacity plant outside of China already. About 25%, 100,000 liter. So it's not small -- but it's not huge, but it's also not small either. I think overall, purely financially driven, I think making -- investing in China will have the highest margin. That's why we're trying to balance mitigating the risk versus having the highest margin. So we'll continue to observe how the world will play out in the next 5, 10 years. But near term, we continue to believe that we can supply the global market from China. That's on the first question. Second question, we only acquire facilities that fit our need. So I think I mentioned that already. If someone has a facility with 5 -- 20,000 liter stainless steel with a traditional biotech facility, a large pharma facility, I'm not going to buy it because it doesn't fit into our network. It has to be a disposal facility. It has to fit into our network. And typically, if that's the case, and then it will only take us 3 to 6 months to get it up and running. And so that's the -- if you look at all the facilities we buy, it's fitting into those criteria, right? The Bayer facility, we actually take out the stainless steel reactor put the disposable in there. But the drug product facility, it fits right away, so we'll run it. So we only buy the facility that fit our needs. And because -- as I said before, buying is still much cheaper than building it internally. So if there is a facility that fit, we'll buy. And it take us 3 to 6 months to upgrade it or to align it with our network and this is still much faster than building it in-house. So you need it faster, it is cheaper, but it's an opportunity that doesn't come often.

Maybe one quick follow-up question. You talked about the RNA vaccines. So 1 bottleneck -- there several bottlenecks. I heard one of them is different nano particles. Are you going to manufacture anything along that line, if that's the bottleneck of the global value chain? And there are a few other recede -- bottlenecks. Are you going to address that?

Yes. Yes.

Otherwise, you can make all RNA you want -- vaccine you want, it's not going to reach the end user.

Absolutely. That's why I said we have 4 clinicals make 100 million doses of vaccines in our network in every steps from plasmid.

Okay. Given the time limit, probably, we're going to take 1 or 2 questions. [Operator Instructions] So I'm going to chip in with the questions coming from e-mail. And this question -- this investor is just trying to understand the milestone payment actually get accelerated this year. So if we're looking at milestone and potential royalty fees, how should we forecast the milestone royalty fees over the next 2 years? And also, Chris, you mentioned that this year is going to be the banner year for commercial manufacturing, $600 million, so -- but after the COVID-19 -- because this is pretty much coming from COVID-19. Post-COVID-19, what's going to be the manufacturing contribution over the next 3 to 4 -- 3 to 5 years? And particularly, with capacity expansion accelerating, with the new projects coming into the pipeline accelerating, are you going to raise your guidance for the 2021 and 2022? Those are the questions.

Yes. So currently, we have the capacity. We have the facility. So we have the contract, basically, we have the need from clients. We have the facility. And the only factor that right now is -- may slow us down is actually experienced people. If you look at it, we try to add 3,000 people. Basically, every 2 employees were going to add 1 new employee. So I'm not -- we're not going to raise guidance this time. But I think if we are able to hire the people, if we're able to get them trained quickly, we'll definitely deliver much better than what we promised before.

Milestone?

And milestone revenue is, by definition, it's hard to predict. But because we have so many programs. We have now -- we have close to 60 programs collecting milestones, so that's why you see every year it grows. But sometimes it grows 30%, 40%. Sometimes it grows 70% or even 90%. So I think this year, we're expecting 20% to 30% growth, still. We're expecting, I think, $120 million to $130 million in milestone payment. And next year, probably on top of that additional $20 million to $30 million. And starting next year, hopefully, we'll have some royalties as well. We have 2 programs that will be collecting royalties starting this year. Royalty, depending on how much the sales. So they can be very significant. So I think if you -- because as we have -- every year, we're adding more programs with milestones. So milestone will continue to grow at a minimum at 20%, 30%.

Yes. And also the commercial manufacturing potential contribution over the next few years, percentage-wise.

Yes...

That's actually after excluding the COVID-19 projects.

Yes. I think I give that guidance. I think in 2025, the CMO will be at least $700 million if you exclude COVID-19. COVID-19 basically dropping additional $500 million, $600 million on top of that.

Got it. Let's check on the queue. Operator, is there any questions left in the queue?

[Operator Instructions]

Okay. If there's no more questions in the queue, I would like to say thank you to Chris. And I'll turn it back to Chris if you have any wrap-up comments. Thank you.

I think, I really appreciate all the trust from the investors. So I think, as I said, in the news basically, the past 10 years have been incredibly exciting. The next 10 years are even more exciting. So keep tuned. Thank you.

Thank you very much.

Thank you very much, Chris, and thank you, everyone, for dialing in the call today. Thank you.

Thank you, sir. Ladies and gentlemen, that does conclude our conference call for today. Thank you all for your participation. You may disconnect now.