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

Thank you for standing by, and welcome to WuXi Biologics' earnings call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your first speaker for today, Ziyi Chen. Please go ahead.

Thank you. And good evening, good morning to our global investors. Thank you for joining WuXi Biologics First Half 2021 Earnings Call. This is Ziyi Chen, China health care analyst at Goldman Sachs. Before we kick off the session, I would like to highlight that this call is strictly for clients of Goldman Sachs only, and this conversation is not intended for the media and is off the record, and 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 them public or otherwise confidential information. Today, we are honored to have WuXi Biologics management team on the call to discuss the results and also the recent business updates. Management attending today's call include Dr. Chris Chen, CEO; Ms. Christine Lu-Wong, CFO; Dr. Michelle Chen, VP and Head of Corporate Development; Ms. Sharon Tang, VP, Head of Corporate Communications and Public Affairs; and Ms. Eileen Wang, ED, Head of Investor Relationships. And 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 results, and after that, we're going to open the line for questions and answers. [Operator Instructions] Or you can send over your questions to [email protected]. I'm going to help you to answer -- to ask those questions. Now I'm going to turn the call to Chris to get started. Chris, please. Chris?

Sorry, I mute myself. Thank you, Ziyi, for the introduction, and great to meet all the investors online. And I think it's great to have this update again. So I'm going to go directly to my favorite slide, Slide #5, where you see a bridge where you see every year. I use this slide to really highlight the company business. So I always tell investors that if you follow WuXi Biologics, you only need to know the top-left 3 numbers, right? How many total projects, how many new projects and how many late phase projects because all others are basically -- all other businesses are a result of the [ agreement ] by these 3 numbers. So you see incredible progress of all these 3 numbers, right? So we have a number of integrated projects. Same period of last year was 286, now it's 408. So incredible of 42 -- more than 42% increase. The new projects even more surprising that we have gone from 38 to 79. 38 to 79 include about 18 CMAB acquisition. So even if you exclude 18, 61 is still incredible. That probably correspond to about more than 45% of total market share. So our total market share can be reflected in the 408 number. The incremental market share is actually 79 number. And you see a significant increase of late-stage number from -- go from 19 to 32, as close -- more than 68% increase. As you know, late phase project will drive near-term revenue. For the second row, the new projects, each project, on average, give us $6 million in revenue in 2 years. But for late phase project, it's [ $20 million ] in the next 2 years. But it probably can go to as high as $50 million per year in a couple of years. That's why I always share investors, if you understand, WuXi Biologics, the 3 numbers will give you really the best of everything. Because we have those incredible numbers, so we have -- our backlog will grow significantly. I always tell investors, backlog growth is very hard because you consume a lot of them to revenue, right? So this time, we still see a 31% growth of backlog. I will explain later on when we go to the backlog slide. And because of this portfolio, we need 430,000 capacity and then 2,800 scientists, more than 7,600 employees right now. As of now, we already have more than 86,000 people. So basically, between end of June to now, we already added more than 1,000 people as well. So the left side is really the business -- the operational metrics, and on the right side is the business metrics you guys are very familiar with. You see an incredible revenue growth from CNY 1.94 billion to CNY 4.41 billion. And you see the adjusted net profit also increase of more than 163%. I think our gross margin and net profit margin -- EBITDA margin are the highest. This last year -- not last year. This past March, when I talked about the second half number, I said the second half, we almost achieved a steady state margin because everyone is working very hard. All the facilities are fully occupied. And first half of this year is very similar. So the numbers are even more -- even better. So this really showcase our operational improvement, what's the best we can do. So I think if we maintain the current pace, if we don't add any new facilities, if we don't have a very strong dilution of new people, and our margin will be able to maintain that. But to sustain the growth, we need to add new facilities. We need to add more people. So you will see margins coming down a little bit and then go back to this when we get full utilization again. So diluted EPS. This is -- still see more than 130% increase. So all the financial numbers are -- looks great. Page #6. I think this is -- again, this is the same number, it's just different format. So I'm not going to go through those numbers again. But again, both revenue, profit and profit margins are record high. I think that really showcase, what I call, a steady-state margin that -- which [indiscernible]. We don't need to do a significant investment or if we don't need to add too many people. Slide #7, the key financials. I think we have plenty of funds for us to grow. And currently, we have more than RMB 13.9 billion, and we have borrowed around CNY 3.2 billion, and we have another line of credit of CNY 2.4 billion another banking -- bank credit facilities up CNY 2.4 billion. Our operating cash flow also increased very, very fast, more than 85%, so RMB 798 million. And our CapEx spending year-to-date is about CNY 4 billion. We anticipate it will be -- sorry, the first half, first half CapEx spending is CNY 4 billion. We're anticipating we'll double that this year, mostly for all the capacity expansion I talked about. So Slide #8 is a very familiar slide you guys have seen, right? So they're very -- into the final slide. So I also -- the difference this year versus last year, I also put the key numbers for the last year's number for the same period last year. This is the year-over-year growth. You see incredible growth of the entire funnel on every level and, certainly, the 3 numbers I highlighted last time in the first page. I think this is -- I use this funnel to showcase our Follow-the-Molecule strategy. Our Win-the-Molecule strategy, you can also see it, right? We actually won 12 projects, 12 external projects, including 4 Phase II and -- yes, 4 Phase II and 4 Phase III. So I will go to that page when we highlight even more. And we only -- in the funnel, I want to showcase projects with the revenue of higher than 5 -- around $5 million. I mean -- so basically, any project more than $5 million, we consider a key project, a key -- integrated projects. But we also have a lot of smaller projects, sometimes lead to key projects. So we have actually additional almost 700 nonintegrated projects. I just want to give you the context of those numbers. The most exciting development over the past 6 months is, certainly, we added 2 more commercial projects, so one COVID antibody, one non-COVID antibody of the PD-1 from Vir, Tesaro and GSK. The milestone revenue, this reporting period, was slightly less than expected of CNY 24 million. This is mostly because of timing issue. So as you know, this is linked to clinical milestones. So sometimes there's milestone hit at June 30 versus July 1 makes a huge difference. So we still expect a significant growth of milestone this revenue this year. Going to Page #9, where I showcase, really, the pipeline, what are the different modalities given the biologics that we're working on. So overall, you see a tremendous growth of the portfolio, about a 42%. You do see for some area, the more exciting area, that the industry is heading to, right? You see more than double of this bispecific antibody. You see 60% of growth of antibody drug conjugate. And you see 800% growth of vaccines, right? So just add the 3 new areas that we highlighted are also in the past couple of years. So we really set up the trend to be able to handle very tough projects. So the traditional antibody project, we see a slower growth, 27% for 2 reasons. One is that we do see more and more complex projects and also for smaller projects. For complex projects, WuXi is basically -- have achieved -- everyone talks to WuXi, they can do very complex projects. So among the portfolio of 408 projects, we actually have 152 first-in-class programs. So I already mentioned 9 vaccine projects. 6 of them are non-COVID, and 3 of them are COVID. And recently, Alzheimer's drug approval from Biogen attracted a lot of attention. We actually have 5 programs that are focusing on that area from global companies with very exciting potential. And we are -- we have established our capability to manufacture mRNA vaccines. We have already manufactured mRNA vaccine the last scale from beginning to the end. We just have a GMP facility ready. So if the opportunity is right, we should be able to make 50 million or 100 million doses of mRNA vaccine in our facility in Hangzhou, which is a newer facility. With that, I'm going to go to Slide #10, where I will highlight with you more about the Win-the-Molecule strategy. So I mentioned earlier the Win-the-Molecule, we have great results. We have 5 Phase II and 4 Phase III. So this is only half a year, right? So you see -- hopefully, this year will be much better than last year. Last year, we have 6 Phase III and 4 Phase II. Win-the-Molecule strategy does not contradict the Follow-the-Molecule. Actually -- it's actually complementary. So Follow-the-Molecule basically means we'll start from the beginning. You'll take it all the way through, but it takes time for every molecule that goes through its own stages. But Win-the-Molecule is when our global partner find the current -- their current CMO supplier, when they are not happy with their current CMO or when they -- either because of technical reasons [ it's going ] to deliver or because the quality is bad or because the [indiscernible], and so at some point, they need -- just think about switching to an alternative CMO. This is where WuXi come in, we can help you. So we started the strategy late 2018, mostly early 2019. Now it is a program. So we have already won 34 projects, majority of them are actually Phase II, Phase III. So as I mentioned in the introduction, Phase III give us a $20 million revenue in the next 2 years, $20 million to $50 million, versus the Phase I preclinical assets. Win-the-Molecule -- or Follow-the-Molecule strategy give us $5 million to $6 million in 2 years. So you see a near-term revenue boost and also immediate conversion to a CMO to a contract manufacturing if the program is successful. That's why I said the 2 strategy really, really help each other. So Win-the-Molecule will really drive the expanded pipeline, also drive additional near-term growth. So it's a boost of near-term growth. I'm going to Slide #11. Because all those are exciting metrics, our backlog grow substantially again. So I always tell investors, don't expect the WuXi's backlog to grow because you -- from the backlog, you consume a lot of them to revenue every year. So you have -- even maintaining a 0% of growth, you have to fill that gap, right, because of revenue converted you have with them. But over the past couple of years, we are still able to grow backlog, and it's getting harder and harder. And also, if you notice, the backlog is very interesting. So we have about $12 billion worth of backlog. About 82% of them is long term. The near -- the 3-year backlog, it's about $2.2 billion. So that's about 18%. So among the current backlog, 18% of them it will convert them in the next 3 years. And then 82% of them is year 3 to year 10, sometimes maybe even year 12. So this really showcase the stickiness of biologics business. So let me go into a little more details on the backlog. Among the $12 billion backlog, $7 billion is services, and this is almost like guaranteed. But among the $7 billion services, there is one project for $3 billion for 20 years. There's another project for about $1 billion for 10 years. So it's actually -- so a few long-term projects really dominant -- dominated the service business backlog. So again, the $7.2 billion is among 408 projects. But actually, 4 projects is more than half of this. See, that's the long-term stickiness of the business process of the -- our current business. And if you look at the R&D part, it's $5.2 billion, this is about close to 60 projects. Every project we receive, on average, about $90 million milestone payment. Again, this -- we will receive this payment only if the program is successful. So let's say, for the program, this is -- most of the programs that we use are IP. This is our IP, our WuXiBody, our WuXiUP and other IP that we generated. So typically, it's also back-end loaded. So with the approval, we get $10 million, $20 million, $30 million. When they get bigger sales -- when they exceed $1 billion of our sales, we'll probably get another $10 million, $20 million. So the front end is actually very, very small. And typically, let's say, if we go into R&D, let's say, we get a $3 million. So if the program is actually paused after IND, then out of the $90 million, we'll only get $3 million. That's why for this $5.2 billion, I always -- internally, I put a 30%. I think we will receive about $1.5 billion on milestone payment from this. And this -- last year was about $97 million already. In this first half, as I said earlier, it's $24 million because of the timing issue. And this year, we still hope we can achieve a significant milestone payment. And if you look at the 3-year backlog, we have a $2.2 billion. Among the 3 years, about 70% to 80% of them is actually the next 18 months. So this really gives us a near-term visibility, basically seeing the same -- I'm sorry, next -- 80% -- 70% to 80% actually the next 12 months. So basically, it means the next 12 months, we're actually going to be seeing about $1.5 billion of revenue, and this really gives us a near-term visibility. So I think if you read this backlog, there's a lot of content in this, as I said earlier. So a couple of key messages, right? So the backlog give us really the visibility of long term, right? You see day 7, day 3 and day 10, actually use 80% -- 82% of the backlog is day 3 -- year 3 and year 10. But also give us the near-term visibility that in the next 12 months, we should be able to see $1.5 billion of revenue. And again, this backlog is a contract signed that have not been committed to any revenue. It does not mean, with this $12 billion backlog, some investors said, "Are you a 4? Are you turning away per client or project because you have such a great backlog?" It's actually not related at all. We can take any project. So we can take any project within 4 weeks. So if you have a large-scale CMO project, we can take you in 4 weeks. If you have another clinical program that you want us to develop, we can take it within 4 weeks. So this backlog just show our near-term visibility and also our long-term sustainable growth. So I'm spending a lot more time on backlog. Just more time than the past couple of years because we receive a lot of questions because of the backlog growth. I'm going to Slide #11, where -- sorry, #12. We'll give you an update on the COVID programs. The most exciting thing is really now we have a COVID antibody approval from GSK and Vir, and they -- our other programs are still ongoing. Originally, when I talk to investors, we said 2022 -- we don't think 2022 there'll be significant revenue. So now we have changed our position. And because we added additional 8 COVID antibody project this year, we added another COVID vaccine, we may have another COVID vaccine. So this year, we probably have at least 10 additional COVID program. That basically means, in 2022, COVID will still contribute to a very meaningful revenue for us on both antibody and vaccine. So I'm going to Slide #13. Because of our global portfolio, because our -- WuXi want to be a global company, we are investing very aggressively in the global capacity. So in Germany, the facility is ready to grow for our drug product. [indiscernible] is next year. Ireland, our facility will be ready next year. In U.S., Princeton will be this year. And then Worcester will be a couple of years. So you see our capacity growth, you see the chart there. End of last year, we have 50,000 capacity. Everything is full, right? End of this year, now we have 150,000. So even -- right now, we only have 70,000. So we only have about 100,000 capacity. So we have additional capacity online end of next year. But right now, our capacity is almost 80%, 90%. So that showcase in our profit number, in our profit margin in our growth in there. So we'll continue to invest in capacity to match our portfolio growth. So if we need a capacity, we can accelerate. If we don't need the capacity, we can also put some of those capacity on hold as well, so a very dynamic process. Slide #14. This is always my favorite slide. So last time when I talked to you during the annual results, I said we have 4 engines. We have 2 big engines, North America and China. And 2 smaller engines, Europe and Asia. Asia is mostly Japan, Korea and Singapore. And this time, actually, there's more engine and Europe turned to a big engine. You see Europe, I acknowledge the 22% of revenue, mostly because of the commercial program on the vaccine. Certainly, the original business -- the non-COVID business also grow very well. So you see the balancing nature of our business because we have, currently, in all 4 regions. Some area grow well, other areas may not be that stellar performance. But overall, giving WuXi sustainable high growth. So let me use North America as an example. North America, last year, because of COVID, will only grow 16% but now grew almost 150%. It's incredible. So typically, in the past couple of years, North America grow about 40%. So this time, because of COVID, now it's growing very significantly. And Europe has been growing very fast, typically, about 100% over the -- a very small base. So Europe grew, on average, about 100%. But last year, because of COVID, it only grew 40%. So again, this year, because of the COVID, commercial program will grow 700%, right? And China traditionally has been growing about 40% a year. And biotech in China is just picking up. So traditionally, they're growing 40%. But last year, we have a lot of COVID programs. So we actually grew 80% -- 75%. And so you see the balancing nature. So U.S. grew slower last year, but China grew very strong. And now U.S. and Europe grow strong. China, relatively speaking, grow slower. It's mostly because of the program -- the COVID program in China did not grow in revenue as big as U.S. and Europe. We have many COVID problem in China because there's no market for COVID -- no significant market recognized last year for COVID therapeutics in China. And that's why most of the program is sort of kind of on hold. And this year, we do see additional market again. So hopefully, China growth will pick up. And rest of Asia, rest of world is mostly Japan, Korea, Singapore is actually very interesting as well. So this is the first time we see a slowdown. This is also because last year, we had a tremendous growth of 75% because we are working on COVID program. In this region, also, COVID program didn't par -- didn't grow at all, also par. That led to a reduction of revenue, [ digital ] revenue. Full year, we still expect a growth of -- versus last year. So I'm going to Slide #15, where I will talk about the customer. I'm going to focus on the right side first. And so if you think in -- now the 2 big engine, 2 small engines, there are 2 for client base. China now have more clients than U.S. But China clients are mostly early phase versus the U.S., a lot of Phase III and commercial. That's why in the next couple of years, [ you'll kind ] of see U.S. drive the growth. China growth will pick up. And Europe and rest of Asia, so client base-wise, still about 10%. So still 2 big engine, 2 small engine in terms of client base, but revenue distribution changes a little bit. On the left side, you also see the existing clients continue to give us more projects. Our top 10 clients now, on average, 7 projects; and top 20, almost 6. So what's more exciting is that the current client, there's 80% chance when they have a new project, they'll give it to WuXi. So our brand recognition is already well recognized with the client base. And last year, because our performance in COVID we are getting more and more projects. As I mentioned, our incremental market share was almost 45% because we've got 61 projects globally in the first 6 months of the year. Because of that, we're also expanding our capacity to be able to handle 120 projects, and that's almost the largest capacity ever. So basically, we started this year, we'll be able to take 120 projects and process them through our engine of development. Page #16 is a very familiar number. So I mentioned large customers. We do not count the customer who give us a contract less than $5 million. And so you see a very healthy growth. Our client -- the customer number grew almost 30% in the past 7 years. You see a top 10 customer -- top 10, 20 customer revenue contribution, it's still very diversified. It costs a little bit compared to last year because of the commercial program. So -- but even despite that, the top 20 clients only have 60% revenue. So on average, the -- every client only kind of given 3% revenue. You see -- because of the success of the Follow-the-Molecule, because every client also want to give us more projects, you see the top 10 clients, the average revenue also grows very significantly, CAGR of 49%. Basically, in 2014, our average client gave us RMB 21 million. Last year, it was RMB 230 million. Now this first half is already CNY 215 million. So you see a significant increase in this number, again, because of the commercial manufacturing success, because of Follow-the-Molecule success. So because of that, our average revenue per project also increased because each program moved to late phase, and also, the program is getting more and more complex as the bispecific ADCs, the cost is higher than traditional antibody. On Page 17 is my highlight of this entire presentation. If you don't remember anything else, you remember Page 17. I think, again, for the past couple of years, our revenue growth is incredible, 60%. But if you look at the pre-IND, the revenue we collect before the program going to a patient is a 47% growth. But post-IND, that's including clinical manufacturing and commercial manufacturing, 92% growth. But if you amplify even further going to the late Phase III and the commercial, this year, we'll see 366% growth. So this is the first time that we actually see CMO revenue exceed more than $100 million. So it's 8.9 -- almost RMB 890 million. So this is really -- say, this is really a success of both Follow-the-Molecule and the Win-the-Molecule. So you see the Follow-the-Molecule success is basically the pre -- the post-IND revenue grow faster than pre-IND revenue, right? And then the late phase program grow faster than even pre-IND, right? So you see an acceleration of late phase and commercial revenue. So we'll continue to see the growth. As I mentioned earlier, the commercial manufacturing revenue will drive a lot of the growth in the next couple of years. And I also shared with you last time that our margin for commercial manufacturing is very similar to clinical manufacturing. This is quite a surprise to us. Originally, we expect the margin will be about 500 basis even 1,000 basis points lower. Now we actually can achieve similar margins. This also explains why in the first half our margin is so good because we have a very significant commercial manufacturing revenue, but our margin is comparable to the previously announced clinical manufacturing. That's why we can achieve a 52% gross margin, about 42% net margin and about 54% EBITDA margin because, again, our margin profile now is almost similar, pre-IND, post-IND and the commercial manufacturing. So Page 18. This is a slide that you guys are very familiar with, so I'm going to -- probably not going to spend too much time on it. So we have the track record. Now we have 200 -- 15 molecules in the clinic. Now we have 7 BLAs and MAAs. Our facilities are on -- the ones I want to highlight is that we are bringing 13 facilities online this year, and including 6, we built ourselves, and 7 from the 3 acquisitions we talked about earlier this year. And then so -- all the operational metrics is still from the same number last year. Again, bringing sourcing facility online this year, that will really give us additional revenue next year and the year after. Again, WuXi -- what WuXi promised investors is sustainable high growth. So I'm going to -- with this, I'm going to section -- the second section. During the Investor Day, I shared with you the 6 factors that we have been so successful. I added another factor about technology base. So I think the 7 factors has really led to our success in the past 10 years, will drive our continued success in the next 10 years. So I want to highlight -- I'm going to Page #20, I'm going to highlight the 7 factors again. So when -- from the get-go, WuXi has the right strategy. We have assembled a team of people who are really dedicated, who have a can-do attitude, who are in the business to win. And with these people, we are able to invest in technologies that are state of the art and globally leading. And with those people who have a can-do attitude, who have built a very proud culture, we can execute at high quality and at the speed that the no one can match. And in the meantime, we're still very flexible working with our clients, and we cater to their needs. So with these 7 factors, this really contributed to the huge success over the past 10 years. And it was -- these 7 factors, all of them become a barrier for global competitors who -- competing with WuXi. All of them becomes WuXi's strength. So certainly, in -- let alone all the competitors from regional, from China or from India. So with the right strategy, with the right people, with the best technology with, so far, perfect execution and improving quality, global -- already global premier by improving quality, and with unmatched speed and with the flexibility to cater to clients, I think our success in the future, I think, is sustainable. So I'm going to pursue them very quickly, each one of them, but some of you, you already have seen this slide. So it's very similar to the last time. So the strategy of success, also, Follow-the-Molecule and Win-the-Molecule has been very successful. A good case study, right, will be the GSK PD-1. We started with Tesaro in 2014. Now 7 years later, the PD-1 is approved. If there is no COVID, we are -- which could get approval in 6th year, right? For Vir's, COVID antibody, GSK as well, now you see approval within 14 months. So the strategy is clearly there, Follow-the-Molecule and Win-the-Molecule. And we also can be -- proactively invest. I'm going to Page #22. So when we get into the vaccine business in 2018, and no one knows what WuXi want to do, now the vaccine business is, this year, probably going to be a $300 million revenue, right? So it's incredible growth of the vaccine business. And the WuXiBody. The investment in WuXiBody in a similar way, I quote a story of WuXiBody overall again. So I'm not going to -- so I think we are in a position to see what the industry needs, and we are investing R&D money to invest in technology so that when the industry need it, we have it. I think that also set up a huge barrier for our competitors because we work with our clients so closely. We know what they need. Slide #23. And as I mentioned, go back to the portfolio slide where I mentioned the highlights for WuXi Biologics will be the vaccines in ADC and in bispecific. So to grow this vaccine and ADC business even further, we actually spun out a separate company. We formed a separate company to allow this company to focus on the vaccines and the ADC. If you count them separately, they are already a global 2020 -- top 20 players and top 5 players in China. So I think we have -- we give them a lot more freedom so they can drive the business even harder, even faster for both vaccines and for ADC. I'm going to Page #24, talk about the people. I think every time I told either employee or investors or clients, I said, "People are really our assets." This is something that not -- I didn't say they likely. I think WuXi's success has always been we have the great people. And you see the growth of the talent is unbelievable. This year, we're adding 3,000 people. We began the year with 6,600. We'll probably end the year with 9,600 and probably even more, right? So we are able to recruit. We are able to attract, recruit, develop, retain them. I think that's the incredible success of WuXi. That also become a huge barrier for our competitors who cover our business model. So our talent retention rate is more than 95% composed the key -- overall employee and also key talent. I'm proud -- I'm very proud that we actually have more than 500 employees working in the U.S. and Europe, mostly in Germany, Ireland and the U.S. I think that will probably grow to 1,000 beginning of next year. So we can replicate our success with the talent in China and in global settings as well. I'm going to spend the next couple of minutes talking about technology. I think WuXi, again, during Investor Day, I didn't highlight our technology, but the technology is a foundation for WuXi to get new projects, get more projects. So with all the background technology we created, the 59 IP, that also drives the $5.2 billion milestone backlog, not only service, but also milestone backlog. So Slide #26, the WuXiBody, I think I've been talking about WuXiBody over and over again. I think now we have additional projects, about 31 WuXiBody projects, 2 of them in the clinic. Hopefully, with some good data, we can even promote our WuXiBody even more. Slide #27. And we also -- not only we are a leader in the industry, now we start to publish a lot of what we learned to share with the industry so that everyone can learn and benefit from WuXi's experience. So on the bispecific antibody alone, we have already worked on 11 formats. We actually published 34 papers alone interpretation. And so this, again, showcase our industry leader position. We actually share with people how we work on developing a WuXiBody purification, our now WuXiBody purification, and how this way others can learn faster from WuXi's experience. Slide #28 and that's on the manufacturing side. This is on the discovery side. How can we develop a vaccine antibody for -- our discovery team also wrote a very nice article. Now everyone -- a lot of people are reading this and are getting insight on how to develop the next-generation bispecific antibody. And besides the bispecific, now we are getting to trispecific or tetraspecific. So we have developed our own technology from scratch. Again, this is from scratch. We take -- we develop a nanobody from either alpaca or llama, and then we assemble them in different formats to cause them a SDArBodY. And we can, again, as I said earlier, we can use this to build traditional antibody bispecific. We can also use it to do a multispecific, a trispecific or tetraspecific. So this is a great progress. Most of those companies have this technology. A spin off -- a company in the U.S. who have $1 billion valuation or $2 billion valuation. I think Santa Fe just bought a similar company for about $2.7 billion with the asset. I think this is a very valuable technology. This will drive additional IP for WuXi in the next couple of years. Slide #30. We have amazed the global community by how fast we can move and how quickly we can do COVID projects and have very high productivity. We actually shared that with the global community as well. We published an article in biotechnology progress. We only have 2 to 3 months to do the project. We still get a whopping average of almost 6 grams per liter. And 80% of the project will get a 5-gram per liter. This is because of our cell line technology, because our WuXi Codon, our overall cell line -- IP cell line platform. So we actually -- again, we share this with the global community. So other people are going to follow. But because we managed -- we're still way ahead of the -- any competitor if someone want to follow us, right? So I think, so far, we have delivered more than 15 molecules using this approach. I think this is a tremendous progress of WuXi's technology, and really a showcase of WuXi technology as well. I'm going to Page #31. Continuous manufacturing. This is not an easy platform for global communities to adopt because most people not use our current platform. I use this analogy versus a landline versus a wireless. So this technology is almost like a wireless. When Motorola already [ proposed ] AT&T, AT&T said, "I don't need your technology." So I think this industry is very conservative. So probably still say -- most companies, still, they say, "I don't need the continuous processing." But I think this is a key to reduce the cost of goods down the road. So we have already had 5 BLAs targeted, 13 projects. Most of those are for emerging markets. So this kind reduces the cost of goods by at least 50%, if not 70% for emerging markets. So we are using this for emerging market first. And at some point, as a global community, we'll take this for global as well when the pricing pressure is there, so in U.S. and Europe. So still a great progress on the WuXi technology, the WuXiUP. UP means ultra-high productivity. So traditionally, people can get a 3-gram per liter, 4-gram per liter. For us, with the traditional technology, I can get 6-gram per liter. We mentioned COVID earlier on. But with the WuXiUP, ultra-high productivity, you can get 20 or even 85-gram per liter. We're going to reduce the cost of growth significantly with this technology. We also -- Page 32, we also published this in a premier journal. Again, this is to showcase our technology, also let others learn from WuXi, what we can do, how we did it. So WuXi's success has never been easy, but one of the key success factors is we actually because we use disposable manufacturing. So the get-go, so I'm now on Page 33. From the get-go, I believe that disposable is disruptive. Now we pretty much showcase to the world now it's disruptive, right? So we can -- we have already shown we can make 1,000 batches of clinical at 98% success rate. Now we can showcase -- we can make up to a metric ton scale. We already made a metric ton scale at a very low cost, 80-gram per liter and a very high margin. So I think this is truly proven. I think through COVID, through last year, the technology we endorse now clearly become a proven technology. If you look at the industry overall, go to Page 34, and this has also already been adopted by other people as well. So in new capacity, there's already 44% market share. So the technology we pioneered, we embraced from the get-go now have 44% market share in new capacity and have 30% market share in R&D already. Again, 10 years ago, when we said we're going to change the -- how a CDMO industry pioneers this technology, a lot of people didn't believe us, now everyone is following us. And Page 35. So I think -- I spent a lot of time talking about technology. And with the right people, with the right technology, our execution has been incredible, right? So I think COVID antibody is an example. [indiscernible] DNA, 14 months ago, now they have approved it. And with this, if we can get an antibody approval in 14 months, globally, there are only 3 or 4 companies have done that, and we are one of the -- in the service space, we are the only one. And the other companies are Lilly, Regeneron. As you know, they bring their own antibody to the market and through this technical -- so very similar approaches. So again, we are -- use this as a case, we're the best in the service industry. We're comparable to Lilly and Regeneron in execution, in bringing COVID antibody to the patients. So our execution is clearly shown here. Next example is actually our facility in Germany. We signed an agreement with Germany during the JPMorgan, with Bayer during JPMorgan. And then in April, we start to take over the facility. And in June, I hired a site head, so we have 3 people in June. And now this past July, we get approval. So this is a tremendous progress. This is WuXi Bio Speed and the quality demonstrated outside of China with implementing -- again, you guys know German culture is meticulous. It's meticulous. It's everything doing right, but we still got it done in 12 months. Another example in Europe would be a facility in -- biologic facility in Ireland. So again, in less than 2 years, we actually get the facility almost ready, almost ready to go. Now we have about 300 people in there. So this is a biologics facility, not the vaccine facility. Vaccine facility is actually right across the street on a smaller plot. And I can also show you how we execute when we have acquisition. So Page #38. We acquired a Pfizer facility, and in 33 days, we actually made one batch. So it will include all the process, including building up the team, including -- do a tech transfer and do the manufacturing themselves, 33 days. We actually replicate that with the CMAB acquisition. Page #39. It only took about 47 days to go from a tech transfer project, get it done. Typically, in a traditional setting, this is 3 to 6 months, and we got it done in 47 days. In the prior setting, typically, it's about 3 to 6 months as well [indiscernible]. So all those reshowcase our execution capabilities. Again, this has become a huge barrier, right? If you can execute -- we do not fear any competition if you can execute. So initially, when we started WuXi Biologics, our quality is always our focus because we want to make sure we do quality better than anyone in the industry, but we will make sure our quality is comparable to the global large pharma in our clients, right? So I think now I can -- very proud to say that our quality is tried and true. So we have already had -- the most recent number is already 15 regulatory inspections. This 6 months -- first -- this first 6 months alone, we have 9 regulatory inspection and we passed all of them. And most of them are with flying colors. So again, this is really -- this is probably one of the best track records in the CDMO space. So we are -- I already achieved what I promised as the best-quality system in the service space. Now this is getting comparable to the companies like Merck, Lilly, with -- like Pfizer. They have been doing a biotech manufacturing for 30 years. Well, we are a 10-year-old company. The quality is something that we used to be picked on, but now I'm very proud of it. Now there's no quality barrier between WuXi and our global economy. So #41, our speed. I've been talking about speed for long. I'm going to skip the slides. And the flexibility. So I think this is the same slide I share with the investors. So every client really appreciate how WuXi help them, and we've been very flexible with them. Again, in the way we are working on -- a lot of times, it is not only science but also art because things happen in projects. So how we work with the clients to resolve the issues, to resolve technical issue, resolve the logistic issue, resolve the business issue is really make -- shown us different from -- we really care, and we are very flexible about the client. And because of that, we have won all the CMO awards every year since 2019. So with that, I will hand over to Christine to talk about finance.

Thank you so much, Chris, for your exciting presentation on our business update. I will go through the details of our financial performance in first half '21. Let's turn to Slide 44. WuXi Biologics achieved an outstanding financial result in first half of 2021 by extraordinary efforts devoted on enhancing utilization of existing resources and seized more opportunities from the booming market as well as the global COVID-19 pandemic. Our revenue reached RMB 4.4 billion with an increase of 126.7% year-on-year. The increase was mainly attributable to 4 factors: first, the group's acceleration to undertake promptly execution and generate revenue from existing and new COVID-19 projects; two, leading technology platform, best in industry time line and excellent execution track record, contributing to a significantly higher revenue and market share of new integrated projects; three, successful execution of Win-the-Molecule strategy, adding considerable late phases and near-term revenue; and number five, our relative low base of first half last year was disrupted by the pandemic. On gross profit. Our gross profit increased by 191% year-on-year to approximately RMB 2.3 billion. Gross profit margin increased from 40.5% in first half 2020 to 52.1% in first half of 2021. The increase in the gross profit margin was primarily attributable to the group's strong business growth as the rapid -- as the result of the rapid increase in the number of integrated projects, and we have greatly enhanced utilization of group's existing resources to undertake and complete more projects. The group's deployment to fully utilize existing manufacturing facilities for COVID-19 and other late-phase projects and the group's cost-saving efforts in material, labor and overheads, I'll elaborate more on Slide 46. On adjusted EBITDA, increased by 163.9% to RMB 2.3 billion during the reporting period. The adjusted EBITDA margin was 52.6% compared with 45.1% in the same period of last year. Net profit attributable to owners' company increased by 150.3% year-on-year to RMB 1.8 billion. Margin of net profit attributable to owners of the company improved 390 bps to 40 point -- to 41.8. The increase in margin of net profit was a combined result of the strong gross profit increase, as mentioned above; and two, undertaking a large number of new development projects with very limited human resources added in the first half of 2021; and three, the successful execution of operational efficiency improvement program. We exclude the -- if we exclude the impact of foreign exchange gains, share-based compensation, fair value gain on the group's investment portfolio, our adjusted net profit increased by 163% year-on-year to RMB 1.8 billion in the first half of 2021. And our adjusted net profit margin went up 550 basis points to 40.1%. The reconciling table can be found in Slide 62. After our placement in February 2021, as of June 30, 2021, our full year 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 45. This slide shows that we also achieved solid financial result in first half of 2021 in terms of net profit to shareholder of the company, net profit and EPS in the first half of 2021. As mentioned in previous slides, net profit increased 150% year-on-year to RMB 1.8 billion. Net profit increased 157.7% year-on-year to RMB 1.9 billion. Diluted EPS improved 133.3% year-on-year to RMB 0.42. Adjusted diluted EPS improved 150% year-on-year to RMB 0.4. Let's turn to Slide 46. I will go quickly because this slide -- Chris has already went through quite thoroughly just now on our revenue growth by region. In short, North America remains our largest market, accounted for close to 50% of total revenue. And among our 79 newly added integrated project in first half 2021, 36 of them are from North America, showing the strong business momentum we continued. On the China market, we also made sustainable growth of 42.3% that contributed 26% revenue in 2021 first half, which was benefited from the favorable macroeconomic environment with search and R&D investments. In first half of 2021, we have brought in 26, 26 new projects from China market. We expect to see continued, favorable policies and environment in China for biologic innovation. On the EU market, Chris has already spent quite some time explaining. The EU market achieved robust year-on-year growth of 707% and accounted for 22.5% of total revenue, and that substantial growth is attributable to COVID projects. On 47, last slide on the financial, Slide 47. In first half 2021, our gross margin reached to around 52.1%, a historical high number. Overhead costs were 12.4% of revenue. Direct labor costs were 15.9%, and raw material cost accounted for 19.6% of revenue, respectively. Local -- labor, labor costs and overhead as a percent of revenue were lower than that of the same period last year. It is primarily due to significantly enhanced utilization in both capacity such as facility overhead and human resources, but at the same time, we undertook much more projects than the same time last year. In the meanwhile, material cost as a percent of revenue was relatively higher than the same period of last year because much higher number of late phase and commercial projects were undertaken in the first half of 2021, which have more material consumption by nature. The group delivered outstanding performance in all financial metrics in 2021 first half by accelerated business momentum and extraordinary efforts devoted on enhancing utilization of existing resources. To deliver sustainable, high growth, we will add around 2,000 people and bring online additional 8 facilities in second half to support the business growth for our next 2 years' growth. In summary, we delivered incredible performance in first half of 2021 and remain very positive for our future. I'll turn the mic back to Chris. Back to you, Chris.

Yes. Thank you, Christine. I would briefly go over our ESG effort as WuXi want to be an ESG leader. So we want to share with our investors, who've opened a concern in our ESG effort. So I'm on page number -- Slide 49. Our ESG efforts are already well recognized by the global ESG rating agencies. The technology we use from get-go is actually -- just [indiscernible] of the nature of our business is actually ESG-friendly. And it's a lot less water, less energy, limited 100% detergent. As a company, we now set up a goal every year how much revenue -- per revenue -- per dollar revenue. We want to reduce our consumption of electricity, reduce our water consumption. We want to lower emission on carbon and also on nitrogen, produce less waste. So we set up a goal, and management team will be ready on those goals as well. So I think, again, all our ESG rating has been well received. In COVID, COVID itself, that's why ESG efforts as well. So now we still have more than 300 people working on COVID programs, those including vaccines and antibodies. So we'll probably be making vaccines for 200 million people and then antibody treatment for 1 million patients globally. So we're making a huge impact to this effort. And go back -- go to Page 51. So technology, I mentioned, it is -- the disposable manufacturing technology itself is consuming less water, less energy. It's more ecosystem-friendly. It's [indiscernible] human health and it definitely -- it has a lot less impact to the climate change. So from the get-go, we use a technology that is really better. It's a [indiscernible] business but also better on ESG side. I use water as an example. So every year, just based on -- because we operate -- we already saved about 120,000 tons of water in the last year using our metrics. Page 52 is we'll talk about -- we set up a -- management team now have objectives, so we have to reduce our electricity consumption, water consumption and reduce our green gas emission and total -- our nitrogen oxide emission. And Page 53. When Henan has a flood, we actually act very quickly. We helped with a donation. We also helped our employees who originally work from Henan Province. On Page 54. Our diversity and inclusion efforts have been well communicated. So I'm going to skip through this time. So in summary, I'm very proud of the 5 themes we have achieved in the first half. The first one is really the Follow-the-Molecule success and, again, the CMO commercial success, right? You see the GSK Tesaro PD-1 approval, GSK Vir's COVID antibody approval. So all of those will drive the near-term commercial manufacturing success. And second one is we can do deals. We actually did 3 deals almost at the same time. Now we integrate them into the company. We also start -- all the facilities in China start to get -- be operational. I used an [ execution ] example in the past -- in a couple of slides ago. And then I'm very bullish, very excited about the next couple of years with our XDC business, our vaccine business and our new modality. So I think if you -- I mentioned the late phase revenue growth, 366%. That's the most exciting slide. This is the second exciting slide that you can remember. And Page 57. We are a global leader in CDMO. We actually pioneered all the trends. Now global CMO is Follow-the-Molecule concept, fully integrated service, disposable manufacturing. Continuous process is the only one that industry still looks for. Hopefully, at some point, it will pick up. And Page 58. I use it as a summary slide. So I think this has been incredible 6 months for us. Again, I think I'm very bullish on the full year. I think certainly will be the message -- same message I delivered to investors: sustainable, high growth. So as I mentioned earlier, we are expanding our capacity to 100 projects -- 120 projects a year. Last year, our capacity was 80. So we've seen the growth. So we were able to handle 80 projects last year, but first half of this year, we already got close to 80. That's why we have to increase our capacity. So now we are targeting 100 projects this year instead of 80. And the Win-the-Molecule, we hope that will continue to be more successful. First half, we signed 4 late phase program. Our full year was still more than 5. We -- I already mentioned mRNA technology, SDArBodY technology, continue to invest and to meet the industry needs. We want to continue to be good for -- on ESG. And COVID, originally, we expect COVID revenue in 2022 to be less significant, likely to be very significant. And lastly, I want to mention that we're bringing 13 facilities online as we -- those sourcing facility will generate additional -- when they're all in peak, will get an additional $1.2 billion opportunity for us. I think, again, all the key messages I have for investors is really sustainable, high growth. With that, I would like to thank you for your attention and go back to Ziyi for the questions.

Thank you, Chris. And also, thank you, Christine, for the very thorough introduction of the results. So now we're going to open the line for question and answers. [Operator Instructions] Or you can send over your questions to the [email protected]. I'm going to help you to ask those questions. While we are waiting for the questions, I probably got 2 common questions from investors. Number one, "I think recently, there have been a lot of concerns on the policies of the China health care sector and also on the U.S.-China tension or geopolitical uncertainties. How will that going to affect WuXi Biologics business? And what is your view or your thoughts on the overall innovation sentiment amount to China biotech, your clients?"

That's a great question. I think my personal opinion is that all this -- the guidance from Chinese government actually is beneficial for the industry in the long term. Near term may be painful. I think long term is reducing the waste in the system. I think really encourage innovation. Innovation, both in first class -- first-in-class and also a quick -- fast follow-on. I think the innovations like PD-1 is still absolutely necessary. It will be the majority of the innovation globally as well. But I think that -- all the policy are really -- guidance. I think in the near term, the overall service sector may be impacted a little bit because there will be less projects. But the top companies, the top companies like WuXi Biologics actually potentially will benefit from this even near term and long term because all the companies in China need to work on premier assets now. They couldn't just do another routine or me-too or even new work assets. So I think the quality now becomes -- the quality of assets now become hugely critical for the success of all biotech company in China -- and biotech and pharma company in China. So I think it's the right time. It's basically -- it's actually the same trend that global companies is going through.

Got it. And also, the second question is really regarding the expectation of the contribution from COVID-19 projects. "So as you just mentioned during the prepared remarks, you highlighted that your view probably going to change 2022 or even going forward, there's going to be still some of the significant revenue coming from the COVID-19 project. So how will that affect your assumptions for the future years' growth? And are you going to change the guidance?"

Yes. Right now, based on most of our discussion with the clients, most people now start to think that COVID will be there for the next 3 to 5 years. It wouldn't go away this year or next year. So that basically means our revenue will be -- will likely be there. But how big the revenue is or how much will come to WuXi remains to be seen. That's why I still treat it as a bonus, but I will update you as long as I have any information that can help make the future guidance a little bit clearer. Right now, I will still treat it as a bonus. But you do see me -- we're adding 3,000 people. We're adding a very significant number of people. So that's another hint that I think the COVID revenue most likely will be there for the next 2 to 3 years.

Got it. I think -- we -- I actually got a couple of questions from e-mail. But I'm going to turn to operator to see if there's any questions online first.

Your next question comes from the line of Bernd Deeken of Berenberg.

Yes. I have actually 2 short ones and one longer one. On the margins, you're saying, okay, you're expecting like higher investments on the short term because you need to invest in capacity. So what is your view? How should we think that about margins, one side on the shorter term, like where to send then -- really then the bottom level of margins and then like on the midterm when you're saying, okay, you're coming out of a maybe higher level? And then I have a follow-up after this.

Yes. I think -- so as I said earlier, so this -- the first half is almost like a steady-state margin. So if we don't bring in a big facility or bring in many big facilities or hire too many people, so we will be able to sustain this type of margin. But again, as I said, we're bringing 13 facilities online this year. We're adding 3,000 people. Most of them are hit on the second half. So I think our margin will -- if you look at the past couple of years, we -- our gross margin will continue to trend higher as we continue to improve efficiency, as we continue to improve efficiency and be more -- achieve more economies of scale. But on the other hand, if we bring too many facilities too fast, fast enough, and the margin may be -- may occasionally have a flat or even a slight drop, but our goal is to improve our margin over the years and to achieve this type of margin in a steady state in a couple of years.

Okay. And then on this Win-the-Molecule kind of topic as this is extremely impressive, from your perspective, if you like, from what kind of CDMOs are you typically winning the molecules? And then also another question, like, as you're sustaining the [ 60% ] revenue growth kind of guidance and then compare this with currently above 100%, is revenue like falling off? Or what are you seeing, especially in the last 2 months of the year?

So the Win-the-Molecule actually went about 80% of the global top 10. So it's really our competitors, our peers and then only about 20% of them from China. The majority of them from global setting. And on the revenue growth side, you see a very impressive profit line growth first half. Second half will still grow. But because there are still uncertainties in hiring so many people and getting the facility online in supply chain, as you know, this year, supply chain has been incredibly tough. Some of the materials you have to wait for 6 months or even the more longer ones, you have to wait a year to get the material. So there's still some uncertainty. I don't want to raise guidance. I want to more deliver step by step. So if in October, if we could see clearly, then we can execute better, and we don't have any -- we don't see -- we see a lot less risk, we can talk in October time frame.

[Operator Instructions] So I'm going to read some of the -- a long list of questions from e-mail. The first one is, "How is the 20-year vaccine contract value of $3 billion captured in the backlog? Is there a part of the service backlog of $7 billion? Any more details that can help us in forecasting revenue for this contract?"

Yes. It's in the $7 billion service -- $7.2 billion service contract, that's what I mentioned. That, among the $7.2 billion service contract, the big one is a $3 billion vaccine contract, and this is in 20 years. So next year, we're probably getting close to $50 million, and then the year after, maybe $80 million to $100 million. And then after that, it's about $100 million, ramping up to $150 million. Starting next year, we're getting a fairly significant revenue from that.

Sure. Sure. And second one is, "In the first half, were there any milestone payments? And if so, how much? And also what's going to be the trend for the milestone payment?"

Yes. I mentioned the first half, milestone payment is USD 24 million. Last year, it was about $97 million total. And so this is -- we think this is purely a timing issue, a milestone much harder to predict. So last year -- if you look at our last year, most of the $97 million milestone will also happen in the second half.

Sure. And the third one, "Can we have an idea of how much of the plant capacity are backed up with contracts already? Am I right to say that DP facilities produce the drug products, while MFG facilities produce different products? So those production are not interchangeably -- interchangeable between those facilities."

Yes. MFG means mostly DS, so that's how many liters of capacity. DP is for making bio -- drug product facility. The MFG and DPs are not interchangeable. But among MFGs, they are interchangeable. Among DPs, they are interchangeable.

Yes. So the first part of the question is, "Can we have an idea of how much of the plant capacity are backed up by -- with contracts already have in our -- had on hand?"

Yes. About 80% of them is backed up by normally a contract. It's a contract, could also be a goodwill because there are -- so every company has a style. Some companies decided to sign the contract very early, for example, the 20-year vaccine contract. Other companies decide to do it the last minute. So every company has a different style of signing the contract. So that's why if you look at our backlog, our backlog of $7 billion is only the signed contract ones. If you put all the potential projects, we'll have 32 Phase. III. If you put -- among the 32 Phase III, we expect -- now we expect 20 approvals. If you put all the 20 approvals in the backlog, in potential backlog, you can probably add another 20 -- another 20 -- another -- even $20 billion for 10 years. So that's incredible. So again, the current backlog means the client already has legally signed the contract. That's why it's only a snapshot of the -- for the total future revenue.

Got it. And here's a question on margin. "Since management has mentioned that gross margin, operating margin, will potentially be dropping, so -- but is there any portions that is sustainable and how we should be looking at the margin trend going forward?"

The margin is dropping from this first half level. In the first half, again, that's incredible, right? So basically, the first half, I already emphasized, every facility is [ 4 ], and we're trying to squeeze everything out of it, and every person is running at 120%. And so this is not sustainable. That's why we are adding 3,000 people. We're bringing 13 facilities online. So once you bring a new facility online, once you hire new people, anyway new people probably need about 2 years to go to full productivity. And every new facility also need 2 to 3 years to ramp up to full potential. So that's why the -- so margin will drop from this first half historical level. But I think year-over-year, we still -- our goal is to -- hope to achieve a steady margin and hopefully improving margin as well.

Great. Last question from this client is, "What is the management's target capital structure in terms of debt to total assets? Any plan to raise more capital through equity?"

Currently, we don't need to -- unless we do a big M&A, we don't need to use equity to raise more cash. I think we want to probably use a little more of debt. At least now, our debt ratio is very, very low. So this is something that management teams are very much aware of. So we don't have any plan to raise equity. If we need to use more cash, we'll use debt near term.

Yes. That's -- as Chris mentioned at the beginning of the call, we still haven't tapped into our facility that much yet. We still have potential on reaching out to the debt side. That's right.

Sure. Here's a question from another investor, "Can you confirm what is the COVID-19-related revenue for -- in the first half of 2021 and how much coming from COVID-19 vaccines, how much coming from neutralizing antibodies?"

We -- I actually don't have that number because the COVID revenue come from everywhere because we have a development. We have manufacturing. On the manufacturing side, COVID revenue will probably be around -- more than -- close to 100 -- more than $150 million revenue. But on the development side, it's probably a lot more as well. So I don't have the total COVID revenue. Eileen, I think you have a number in -- I think in the first half, around -- total maybe 33% revenue come...

Yes. 33%, about 1/3 of our total revenue is related to COVID.

In the first half.

And about 40% come from vaccine. Yes, in the first half.

Got it. And here's another question. I think it's more on your mRNA technology, the new platform you have been investing. "So any progress on that in terms of the capacity ramping up, in terms of technology preparation, talent recruitment? So is there any potential partnership with -- we should be expecting towards the end of this year?"

Yes. We have already made mRNA vaccine from beginning to the end, so -- in the lab. We already have the team to make it a large scale. Right now, we are negotiating with a couple of partners, and hopefully, we will have good news by the end of this year. But this is something we're working very diligently on, not only in COVID mRNA vaccine, but also other mRNA programs. So we're serving the mRNA community, not only the vaccines, but also -- not only COVID vaccine but also other vaccines and other mRNA technologies. So it's, again, a much broader mRNA platform. Also, it's end-to-end, so basically from plasma DNA to -- basically, someone give us a sequence -- from sequence to bio, the same concept. Everything WuXi does is end-to-end services.

Great. [Operator Instructions]. Here's another one -- is on the commercialization progress. "So we're going to have a multiple project towards the end of this year. So going forward, over the next few years, is there any expectation on a number of commercialized projects -- projects moving to commercialization stage?"

Next 2 years, we probably expect at least 3 to 4 per year, at least 3 or 4 per year. And then around '24, '25 will probably be 4 to 5 per year. So this is an incredible growth.

Got it. I see there is a question online. Operator?

Your next question comes from the line of Jingyi Li of Harding Loevner.

Two quick ones. One is you mentioned your mRNA capability. There are lots of, call it, ingredients or [indiscernible] that's right, needed. So you say that you are end-to-end. So I'm surprised. I just wanted to double check that you're able to make all these materials along the supply chain, so you will not be subject to any constraints on that. And let me get this...

[indiscernible] Yes. Yes, [indiscernible], what I meant is actually manufacturing. So we buy those ingredients from companies like [ WuXiUP ] tech or other companies, yes. So we don't -- we can manufacture mRNA from beginning to the end but not the raw materials. We're not a raw material supplier for mRNA. Let's clarify that.

Okay. Okay, got it. Another question is on your capacities overseas. So if we fast forward 3 to 5 years, how much of your capacity will be overseas versus Mainland China? And do you feel that there's any constraints or considerations when you expand overseas capacity like the speed of construction or the capability to recruit local talent?

Yes. The overseas overall cost is higher. Margin is lower. That's why it's the balance of -- basically, it's what percentage. So we have -- currently, we're planning about 30% overseas. 70% is still in China because in China, we still have incredible financials. We have very good execution. And overseas, the cost is significantly higher. So the margin wouldn't be comparable at all. So we're balancing the sort of the clients' needs, the potential geopolitical risk and then versus what -- how much we can convince client to leverage our China facility. That's why even -- so I think currently, our strategy is -- so for every client, our proposal is to make 70% of them in China and 30% of them overseas. That's why it's 70-30. So we want to -- if there is a trigger event, they kind of switch, go from 30% China, 70% overseas. But overall, I think we want every client to make majority of them in China. They enjoy lower costs in China as well. So for the same services, overseas will be 15% more expensive than China.

Okay. And maybe one last question. To the extent that you can, when you interact with the pre-IPO investors, so do you have any understanding on their strategy or schedules and how much they want to own or how fast they want to exit their holdings in WuXi Biologics?

Yes, they are my shareholder, I -- they don't share with me their plan, just like you do.

Great. I think our call already run for about 1 hour and 22 minutes. So given the time limit, I'm now going to turn the call back to Chris for any closing remarks. Thank you.

Yes. Thank you, Ziyi. I think, again, it's an incredible year. I really appreciate all the support from the global investors. I think from WuXi's side, what -- we have set up an incredible platform. So I mentioned the 7 factors that contribute to our success for the past 10 years. It will drive our sustainable, high growth in the next 5 years as well. So I think the commercial manufacturing revenue will be very significant, and we expand our capacity to 120 projects. That's unheard of in the industry, right? Most of my large pharma clients have 10 projects capacity per year, and we can do 120 this year. So I think -- again, sustainable, high growth. Thank you.

Great. Thank you, Chris. And thanks, WuXi Biologics management team, for attending this call, and thank you, everyone, for dialing this call. We're going to wrap up with the call now. Thank you. Have a good day.

Thank you, everyone. Thanks for your time.

This concludes this conference call. You may now disconnect your lines. Thank you.