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

2023 Interim Results Announcement. Before we begin, please note the following disclaimer. Members of the meeting and the press are not authorized to be on this call. If you are from the media or the press, please disconnect this call now. Please note that this call is being recorded by attending this event, you agree to all these restrictions. To avoid these option, everyone is muted by default during Q&A. [Operator Instruction]. I'll now pass the line to your host today, Christopher from Jefferies. Please go ahead. Thank you.

Thank you. Good morning, good afternoon and good evening to our beloved investors online. This is Christopher Lui, Head of Asia Healthcare here at Jefferies. It's our honor to host WuXi Bio's First half 2023 Earnings Call. We have with us Dr. Chris Chen, CEO; Dr. Ming Tu -- Mr. Ming Tu, the CFO; and Ms. Eileen Wang, Head of IR. Let me now pass the floor to Dr. Christian, Dr. Chen, please.

Thank you, Christopher. I think it's great to -- good morning, good afternoon, good evening to the global investors. I think it's great for me to share our first half of 2023 results with you. So since most of you read the earnings already. I want to use the same slide that I keep using to summarize the first half. From the number of project perspective, the first half 2022, we have 534 products. It grew more than 16% to 641. So the funnel continue to get bigger and bigger. What's very exciting for us, actually for the first half, is our noncore revenue continues a very high growth rate of CAGR more than 60% compared to the past 3 years. The first half, we added 46 projects. This is a slightly smaller than the previous 2 years, but it's not unexpected because as you see, the global funding challenges, especially in China. What's really exciting for the company is actually -- we actually added a lot more commercial projects, right? So the number of commercial projects grew from 14 this time last year to 22 right now. And this -- as you know, commercial projects drive near-term revenue, there is also very significant revenue, and that's really the basis of a strong sustainable growth for the company. Our backlog continued to grow from last year's RMB 18.5 billion to RMB 20.1 billion, and we added more capacity last year. We added more than 100,000 in the capacity. So now our total capacity is actually 262,000 liter. Because we are implementing WPS, our lead manufacturing system, our efficient system, we are -- we don't expect to add significant headcount this year. So with our total number of employees remained flat. We still have the largest number of development scientists that enable us to execute our CRDMO model. So on the left side is operational metrics on the right side is financials. So our revenue grew by more than 17%, and our adjusted net profit grew slightly. We are still able to maintain very healthy world-class gross profit margin, our net profit margin and also EBITDA margin. I think this is continued multi-biologics continue to deliver to really a very strong financial results despite all the challenges globally. So as I have already shared with you on the financial results, I think that our revenue growth of 17.8%. Our -- if you exclude COVID, our revenue grew almost 60%. Our gross profit still grew modestly our gross profit margin dropped from 47% to 41.9%, about 5 basis point drop. This is not unexpected at all. So as we are investing for the future. So we bring online a German facility. Two facilities in Germany, two facilities in Ireland and one facility in the U.S. and a manufacturing site near Beijing [indiscernible]. So those four new sites actually will probably contribute a significantly a lot of at least 600 bps impact on the margin. So because of WBS improvement, we are able to offset some of those. So you only see about a 500 basis point change in the gross profit margin. Again, while investing for the future, this is totally expected. And then we'll -- this year, we'll probably see the bottom of our gross profit margin next year as the global site, as Germany, Ireland, U.S. and also our Hebei site. Ramp-up production. Our margin will be higher and higher. So we see about 100 to 150 bps improvement on gross profit in the next couple of years -- at each year, each year. So the first reason for the gross profit drop is actually the investment for the future, launching four new facilities globally. And also the second one is a slightly lower number of new projects. That means our R&D utilization is also slightly lower. So we only added 46 projects versus about 60 project last year. We have the capacity to handle 60 projects. And lastly, during the COVID years, we actually will max out our own manufacturing capacity. We have some overdue facility maintenance, which will require us to shut down facility for 1 month or 2 months, as you shut down, you actually lose the revenue. So that actually has an impact on gross profit as well. I think those three factors on investment for the future brand online globally for new facilities -- for new sites and slightly lower number of projects coming in and also catch-up maintenance for our global manufacturing facility. That's the main reason for the gross profit drop. And so as a result, our adjusted net -- our adjusted EBITDA margin, therefore, the margin also dropped accordingly. So Ming will have a lot more details as he goes over his section as well. If you look at the key financials, I think we're still very, very healthy. We have operating cash flow of about RMB 2.7 billion. We -- our total liability and equity ratio is a very healthy 33%. In the first half of this year, we are spending about RMB 2.4 billion. As I mentioned, we are -- as a company, we are going through WBS. We're also looking at spending our CapEx more wisely. So this year, we're reducing our CapEx gradually. Not because we are delaying the projects per se, but we are spending more [indiscernible]. We are saving money on the capital side. So we are reducing our CapEx a little bit to RMB 5 billion this year, and we're maintaining our CapEx guidance of RMB 5 billion to RMB 6 billion next year. As in terms of loan, we're very healthy. And in terms of cash flow, we continue to maintain our free cash flow positive for the first half of this year and also for 2023. So if you look at the segment, we are operating is actually very interesting. So due to the global biotech funding slow down. So we do see a slightly lower growth rate of 6.6% for early phase program for DNA to IND. Typically, this is 30% or 40% in the past, now we're only seeing 6.6%. This clearly not unexpected. This is to reflect the global funding challenges. But very excitingly, is that our Phase I to Phase II program movement is actually very strong. So we see that growth, that revenue growth is actually more than 51% is like the fastest segment. And again, our Phase III and commercial, if you look at the overall growth, it's modest, it's more than 14%. But if you take our COVID, that grow more than 10%. So this is in line with what I mentioned earlier, we are adding more and more commercial projects, and most of them are also non COVID. So overall growth is only 17.8% by the exclude COVID, 60%. But if you look at the different segment, Phase III and compose of more than 130% and Phase I to Phase II grow 50%. Only the DNA to IV was entered into Phase I only grow modest of 6.6%. We hope Biotech Funding will recover and that 6.6% will go back to a normal 20% to 30%. So this slide show in a similar scenario. I just want to reemphasize. We actually accompanied our fundamental business incredibly strong. So if you look at a 3-year CAGR of non COVID revenue, we're actually talking about 60% CAGR for 3 years. So I think WuXi excels in our business operation because we have a very exciting business model [ we call ourself ] CRDMO, R will lead to D, D will lead to M. I think the stickiness part of our business. So R part actually [ shining ] this year because we are signing -- we are receiving more and more milestone payments and royalties from our portfolio. I think we highlighted two deals here. One, the first year is working with Arcus to develop anti-C3 -- anti-CD39 antibody. And then the second deal the mega deal with GSK on 4%, 5% using the WuXi platform. This is -- those two basically highlight WuXi platform can help global company whether in a biotech or it's a large pharma on developing novel and first-in-class and best-class drugs. This R will actually generate -- we help clients generate the candidate and then hopefully, they will develop with us and manufacture with us. As in this very exciting part of our business model. So currently, we have what are 60 programs like this. it's only where we are -- we hope the 60 program will be developed at WuXi and eventually will commercialize at WuXi if they are successful. So for some of the programs, the royalty income come from those programs actually is more than the profit more than profit from 100% of the CMO manufacturing internal profit. I think that's a beauty of our business model. So not only we have R will lead to D, D will lead to M. So we have a full step of revenue, but also our profit actually improved as the program go into commercial, going to the clinic and go into commercial. So this is a very similar funnel, you guys seen. I think on the left side is within the first half, we added 46 projects. If you probably recall that during Investor Day, we highlighted that during January to May, we have only added 25 projects. So month of June alone added 21 projects. We do see a recovery of biotech funding in U.S. and Europe. And so we added 46 projects. We have seen -- we have not seen WuXi lost any project competitor. We think we have seen us maintaining a similar market share. So the reason we are only getting 46 project versus about 60 in the past 2 years is probably because one is that there are a lot fewer COVID projects, number one. And number two, the pie -- because the [indiscernible] funding issue. The pies are getting smaller and smaller. So we are still maintaining a similar market share, but the pie is smaller. That's why we are only expecting 46 projects. But this year, for us, the 46 projects include 11 Win-the-Molecule project. Among the 11 Win-the-Molecule project. And among 11 Win-the-Molecule project 4 are Phase III, 2 are commercial. So secondly, the 46 projects we signed in the first half of this year, if you add up the value, the 46 program bring, it's actually more than the programs we bring more than revenue or more in the contract number from the previous year's 60-plus project number. So although the total number of projects drop, our total contract value added increased because higher proportion are Phase III and commercial projects. So we are very excited. Again, I'm very excited that we are now have 22 commercial projects if you think about it, back in 2019, about 2017, we have 1, back in 2019, we have 2. So now we have just 5 years later, in our 22 commercial projects. This from a basis of our strong growth. That gives us confidence that we can deliver twice the industry growth because we have so many new projects there coming in at the same pace, at a similar pace, and the market share remains the same. Although the pie is smaller and the number of commercial projects explode in the next couple of years. And we now have 44 programs in Phase III to the number of project is very healthy as well. So among the 6 programs we signed for basically in commercial, actually, 4 of them already carry a contact value of more than $1 billion. Again, this gives us the confidence that CMO or manufacturing will drive our near-term growth in a very heavier proportion. Basically we'll be making the most significant contribution to revenue growth in the next 5 years. If you look at our backlog number, it's very healthy. And due to the biotech funding challenges and also due to some of the program terminations, you see our milestone backlog dropped slightly by $500 million but our service backlog remained very stable. This is actually not easy. But every year, we consume a big chunk of backlog, right? So if we -- if our revenue this year is $3 billion, by end of this year, if we don't sign a $3 billion contract, then our backlog will drop, we maintain a very steady backlog, that better means we are able to sign the contract at the same pace, we are consuming the backlog into revenue. If you look at the 3-year backlog, it's actually even more exciting. If you take on COVID, we actually our 3-year backlog actually grow by 20% -- by more than 20%. So the backlog still remain very healthy. That give us a -- both a near-term and also medium term, are confident on the revenue side. If you look at our portfolio, you see our overall number of projects grow by 16%. But if you look at the ADC almost grow 3x as fast as the overall volume and then bispecific almost 1.5x, the vaccines almost twice. So this, again, shows that on complex modality, WuXi Biologics definitely have an edge comparing to our global competitors companies that are trusting us to give us ADC projects, give us a bispecific projects, give us a vaccine projects. So this program is very [indiscernible] and very healthy. And again, that gives us the higher average contract value as the program goes through. So every bispecific, every ADC, can carry a compact value is more higher than the traditional antibody and that give us a higher ASP as we go. And then if you look at a weighted average of our ASP, it's getting higher and higher. That's what we continue to see every year. It's any our weighted average of our ASP is getting higher and higher because they're working more complex bispecific program more complex ADC programs and also more commercial programs. So we started the Win-the-Molecule strategy 5 years ago, at that time, we believe that WuXi -- for of the melecule study are perfect, but we have to be patient. We have to wait for the program going to disclose a Phase I, Phase II back in 2018, we said we figured we can actually help. In the large pharma convert -- we can -- if large pharma has a need also the program from their own internal portfolio, we can take over them. And that's what we call Win-the-Molecule. Or if our clients are not happy with the current CMO, they can switch their program with WuXi. That's what we call Win-the-Molecule. It does not contradict follow the molecule at all. It's actually a complement, it basically means follow the molecules very steep -- but if you don't do well, the company will switch to a better player and often time, WuXi Biology is a better player. And that's why we have -- over the past 5 years, we actually won 62 projects -- 62 projects. Among them, 26 are Phase III and commercial projects. And that's very exciting certainly, if you look at our portfolio, Phase III and commercial program, almost half of them being patient, waiting for the program going from DNA to IND to Phase I to Phase II to Phase III. And the other half has come from large pharma also directly to WuXi. or Our competitors didn't do well, and our client actually switched the program from a global competitor to WuXi Biologics. I think so this Win-the-Molecule continue to complement and give us a near-term more growth driver. Just want to give you a flavor of a couple of programs on the Win-the-Molecule side. The first program is a European large pharma, and they have a blockbuster program they currently manufacture in-house and they want to transfer to our Ireland site. And the second one is, again, it's a blockbuster drug and with probably more than $1 billion of sales. And now they are manufacturing in-house will also be manufacturing in our Ireland side. The third one is another like U.S. large pharma. It's actually a multibillion-dollar bispecific program. We want to manufacture in China and in Ireland. And the fourth one is the Korean Biotech. They want to have a program that's going to be globally approved. We actually manufacturing in China for them right now, probably most likely will double site and we'll build another site in Germany or Ireland to help them with a global supply as well. So this just gives you a flavor of the Win-the-Molecule success. And as I mentioned earlier, the 4 of those 6 programs actually carry a contract value of more than $1 billion. The capital contract term is about 5 years. That basically means once all those four programs get into a steady state, we're actually getting close to $200 million a year from those Win-the-Molecule projects alone. And that showcase really WuXi Biologics being a premier player in the global CMO space. As most of our investors are very familiar with Amicus already, is that this is a perfect example of Follow the Molecule. We started the program with them about 10 years ago. our average contract average revenue per year was maybe 100,000, 200,000, 1 million. And then a couple of years ago, we're getting to 10 million, 20 million, 30 million. And now that it's getting close to 50 million, and hopefully, eventually in the next couple of years, we'll get 100 million or even more than 100 million per year. This program has already approved the U.K. approved in Europe, I think there hopefully approved in the U.S. anyway. U.S. FDA just completed GMP inspection of our site in May, and everything was successfully addressed. I think this, again, showcase our success of our follow the molecule strategy, showcase our high-quality system and showcase on executing capabilities. With this program alone, most likely will have 5 factories making the drug for them. 2 in China, 2 in Ireland, 1 in Germany. And this -- again, this is a perfect example of how we help a biotech company getting the drug approved. Through the life cycle, and we'll have manufacturer for them for the next 20, 30 years. So as I mentioned a couple of times already, in the next couple of years, the CMO will drive a very steady growth for WuXi Biologics. If you look at my projection for CMO projects, the number of CMO projects back in 2020, I predict by 2025 will be 21 projects. We actually achieved them more than 2 years earlier. So now we already have 22 projects. And then last year, we raised out this number this year, most likely the end of this year, we're raising that number again. Again, this shows the success of follow-the-molecule strategy, success or Win-the-Molecule strategy and combine this to commercial manufacturing will be a key part of our growth. And that's why you see in this year's earning -- this first half earnings result, you've already seen this kind of revenue grow more than 130% if you take out COVID. So as a result of our building our global network, now we really have a robust and diverse node of global network that can help companies to R, D and M. We have three R now, 8 D and 9 M. Those goal give us enough diversity that to meet the need of every client, whether that's Europe, whether the U.S. or whether in China. So I'm going to give you the highlights of our global sites. And certainly, all those sites at are built during COVID. This is really, again, showcase our strong execution capabilities. So far, all the global sites in Germany and Ireland, U.S. are hiring our own track our development our on track. Let me explain to you one by one. Ireland for the largest amount of investment is in Ireland, so our facility for GMP released late last year. And a couple of months later, we received GMP-certificate from Ireland health authorities. Now we already signed more than 7 CMO contracts and the facility almost fully booked. So we just finished the 3 engineering [indiscernible] with 100% success rate, and we are kicking off our first PPQ with another 5 in the next year. So Ireland, we have 6 PPQ in about 18 months' time frame. And if you add, we have another one or two in Germany. So basically, our global site, we actually do 7 to 8 PPQ per year, next year. We'll just give you the context, our China side did 12 last year, and that's how fast we can ramp up our global site. So the WuXi speed is actually evident in how we bring the site online and how we sign the product to those global sites. Our German side where we are getting ready for our first PPQ, the facility is not fully released yet. We are getting the facility finding ready for [ MFD19 ] and we're in ready for PPQ. In TP7, we finished our first PPQ we'll get ready for the second one. In the U.S., where is a clinical site, we have already 300 people. So far, we have been manufacturing 100% success rate. And next year, hopefully, we'll get into a modest utilization rate. So I mentioned earlier that we bring online Ireland, Germany, U.S. and Beijing, to make sure that we can meet the global needs. And this is really the investment for the future. This year, all those sites are losing money. Next year, we'll be losing a lot less money, and they will be coming with significant revenue. And then 2 years from now, they will contribute both on top line and bottom line. And this gives us a sustainable high growth that we have promised investors. We are still building a facility in Boston, Massachusetts. And now we are doubling the capacity in that site. Now it's actually 44,000 liter. The facility will be ready by end of 2025. We are planning a $1.4 billion investment in Singapore, and that's everything is on track. So I mentioned Ireland, I want to use Ireland as an example to showcase how WuXi [indiscernible], how WuXi quality are manufactured in Ireland. So the IDA products, IDA is the Irish government agency who attract business in Ireland. So therefore, the site we're building Ireland is actually the fastest they have seen from construction to GMP operations. Actually, we did that during COVID. So at peak time, we have 1,600 Irish workers or global workers working on our site to make sure the facility deliver on time. So not only we deliver the facility at the fastest speed, but it's also a premium quality. Our facility received ISP facility of the year award. As for those who open on professional, ISP basically is a global kind of engineers from all the global premium organization company like Merck, Pfizer, clearly, they get together every year saying who's facility is the best build. The facility we actually won the facility of the year award for our Ireland facility. Interestingly, back in 2014, our WuXi facility also won us over almost 8 years ago now. So we have -- during COVID, we spent a shorter time to build a facility, and then we build a premier facility as well on premier quality. So as I mentioned earlier, we are just finished the test run near one of the project. Our facility almost 44%. So people have a huge leap of faith in WuXi to deliver on the site. They know our track record in China. They know we can deliver in China. Now they have a leap of faith, we can actually deliver in Ireland. Again, because we haven't run a GMP on yet our facility is almost fully booked. Again, that showcased global client trust us. And really showcase we are a global premier CMO now. The other number also support this. When we designed the facility, we saw 70% of the project will be a dual site franchise. We said we'll be making some in China when transfer into Ireland, give them a second store site. So in reality, only 30% is like that. 70% of the program actually come directly from our clients or from competitors. What's more exciting active for us all, among the 70% project transferred to WuXi. Actually, a lot of them are already blockbuster drugs. Why does the program already achieved 3 million sales. Actually, total program already achieved 3 million of sales. They are transferred to our Ireland site. And so we are initially as a secondary site and most likely in the next couple of years, we may primary site for manufacturing those works. Again, if you look at the diversity of our client including U.S. companies, Swiss company and Japanese companies as well. So large pharma and biotech. So again, Ireland exactly a very good story. If we are successful in Ireland, then we can transfer that success in Germany and then to U.S. and to Singapore. So our competitive strengths we can -- exactly getting installment stronger. So we can replicate our success from China to Ireland, from Ireland to Germany. Germany, the U.S., U.S. to Singapore. That give us, again, a sustainable high growth that we promised to investors. So I think we have always been sharing with you that U.S. has always been our largest market. But this year, very exciting in Europe now actually become our second largest market. So if you look at non COVID revenue, U.S., we see a 40% growth. Europe, we you see a whopping 238% growth. Europe now is at almost 1/3 of revenue surpassing China. China will see a modest 22% growth, it's also 20% of revenue. And then the other part in Asia, mostly Japan, Korea, is the rest of the world. So you see a very diversified engine. So for one area, maybe suffer a little bit, other areas can pick up. So this year, the star is definitely Europe. As you know, Europe is actually the best trend of the stronghold of the global CDMO. We actually have more than 200% growth in Europe. So the growth in Europe actually come from all types, come from R. The R deal of GSK. D the deal with many large pharma and biotech. N deal with a large pharma I mentioned earlier. So the 238% growth come from R, E, and M. and come from a large farm small biotech and come from U.S. camera Switzerland, U.K., Germany and every other country in Europe. So North America continues to be our strong hold. This year, among the 46 projects we signed 60% come from North America, about 20% from Europe and then China and Japan and China and Asia, we remain in 20%. So just again, it's okay that we are a very strong global player. We have a very strong leadership position in U.S. now done a very strong interest position in Europe, the [Indiscernible] in China. Despite the Chinese market, the market challenges despite the funding challenge in China, we still maintain a 20% growth of -- in China or revenue in China. In China, now actually the companies that work with us are the most premier companies. And we did a survey over the past 18 months for all the global partnership deals of a Chinese company for 80% of them WuXi Biologics is the same [indiscernible] supplier. Certainly, we are behind 80% of the deals that the Chinese companies are able to all license to global companies. So you have seen this slide over and over again. I just piled up numbers so that you can actually recognize how well we execute in our R&D track record, our manufacturing track record despite biotech funding slowdown, we actually enabled 55 INDs first half of the year. I just give you the contract, most large pharma is 5 to 10. We -- 5 to 10 for the full year, 2 to 5 for 6 months. We actually enable 55 in the first half, first 6 months. Over -- we have -- over the years, we're already supporting more than 440 programs into the clinic. And we published 23 papers in the first half alone. Total publication exceeded more than 100. If you look at our manufacturing excellence, we finished the 4 PPQ runs 100% success rate. Manufacturing overall, 90% success rate, 2,500 batches, right? So I mentioned earlier that in our China side, we probably have about overall last year, 12 PPQ. Now on Europe side next year, we would do to 7 to 8. And in a couple of years, we are connected to the same number of PPQ runs in Europe and compared to China. And that shows the success of our global expansion show really a replicate of success of our manufacturing in China into manufacturing excellence in Europe, especially in Germany and in Ireland, right? So we use disposable technology, but we can make a very large scale manufacturing. So first half alone, I mean 68 batches and 12,000 liter scale, 100% success rate. This is a beauty of disposable technology. If we have a certain steel reactor the best industry record is probably 95%, 98%. People barely get 100% success. But disposal [indiscernible] can do it. So -- during our portfolio, the presentation file that bispecific and ADC and the vaccine are the strongest growth, right? We actually have our own bispecifics platform called WuXi body. Over the past years, now it's become really globally accepted as one of the premier bispecific platform. Now we have 25 clients, 42 programs. We have 4 programs in Phase I. We have some programs already seen very exciting clinical data. We've seen very good PRCs for patients using our platform. We are spending of SDC as a separate company because we believe ADC has enjoyed very fast growth. And our ITC actually now working on 110 ADC programs. So this is the largest portfolio of ADC. In terms of number of programs, ICC has the #1 number of programs, revenue #2, but number of programs, #1 already. So I think that XEC joined the premier quality system, premier execution from both Bush Biologics AppTec. Now they are able to -- we are able to build world-class ADC platform and that support a global client. So I think this goes back to our strategy has always been perfect. When the global companies need ADC, we actually have a PC. When the go commissioning, we have bispecific. So our timing has always been perfect in that sense. I mentioned vaccines already. I mean vaccine is the fastest-growing segment. So now we are working with 21 companies or 48 vaccines. One of the leading program is getting -- hopefully getting to product approval in the next couple of years, which enjoyed $150 million revenue probably 3 year in peak time. We hope other program will be as successful so that we vaccine can enjoy a very healthy revenue as well. The reason we are so successful with our CMO business is actually underlying principles our quality. So back in 2017, we have one CMO project, we have one FDA inspection. So to now totally, we have 30 inspections from FDA, from EMA, from China, from other agencies. Now we also have 22 projects. So this quality the commercial quality is our competitive advantage and become a barrier for other entry expected in China. So, so far, we are the only CMO in China that received FDA and EMA approval. No other CMO in China has received -- no other CMO of in China has received either FDA or EMA approval on their [indiscernible] program. This has become a huge barrier. That's why I said earlier, 80% of the program, Chinese company partner with global, WuXi is behind us, which is our quality. As I missed earlier, we are implementing a lean manufacturing, a lean development approach as the company is going for operational excellence. We don't expect to see a more and more significant [indiscernible] growth you only see modest about 10% [ talent ] growth this year. And our attrition rates remain very incredibly low as in this year. So we are able to attract, develop and retain all the key talents, which is crucial for our success. Now we are able to transfer a lot of our SMEs, something that expert to Ireland to Germany to help the global community to help us replicate the success from China. So most of you are already aware that we proposed a spin-off SBC as a separate entity to really enjoy to ask the team to focus on to have a dedicated team focused on SBC and drive the business as fast as they can. I think this is very obvious. But the key part here is that WuXi Biologics will still benefit from all the XTC growth because we are the controlling shareholder. We are -- we are able to basically consolidate on the books all the top line get it consolidated into WuXi Biologics top line, and we are only sharing the profit with the minority interest holders in there. So I think we believe WuXi SBC proposed spin-off listing is a benefit of both SBC and WuXi Biologics. So that's a very high-level update to the global community about WuXi Biologics in the first 6 months. I think I mentioned WBS many, many times. I want to use this 5 minutes to talk about WBS, what's our operational culture and what's our operational excellence. WBS referred to WuXi Business System. Over the past 10 years, we have very fast growth, but our growth every time we want to improve is also almost sporadic. It's more grassroots. So I think about 2 years ago, we said we really want need to have a very lean system holistically approach to look at how we operate. So that's why we learn from Toyota, we learned on General Electric. We learned from [indiscernible]. To see what's the best way to go for a lean operation and management system. We want to do everything cheaper, faster and better. We want to have tools and methodology. We want to build a mindset and we build a system and eventually we want to build a lean culture that's something we started 2 years ago. I think timing also couldn't be better, right? 2 years ago, when we started this, we didn't anticipate, there was a downturn. We didn't anticipate we'll have challenges on the biotech funding side. So with this improvement, we are able to combat our top line and the bottom line. So I just want to share with you the highlights we have in the first half of this year. We are on target to achieve the full year savings. We actually worked on more than 350 projects this year already. Just to give you a couple of examples. On the inventory side, we're working with WPS, we actually save about RMB 630 million of inventory. We are able to save 340,000 hours of labor by doing kaizen means improvement, improvement projects. So we're looking at every aspect of the saving, look at it from the quality improvement side, from material savings, for labor efficiency and eventually also for ESG. I think our goal is eventually WuXi Business System is for every employee of WuXi Biologics is not a campaign, is not a movement. It's actually in our genes. it's how we work. It's how we drive business success. I think by then, we hope to be able to achieve a lean culture every time we go into a new site. ESG, has always been an important part of our business strategy. So I want to also highlight ESG in this call. So just a couple of highlights. Again, as a company, 53% employee out women, 47% of managerial position in our women and even at the executive level, 30% are female there. So I think we -- in China, we said women are half of the world. At WuXi Biologics, we are seeing that. every time we build a new facility, we also ask our new team saying, how can you do it better? How can you business greener, every new facility greener than the previous one. So we're actually very happy to report to the global community. We may have the greenest biologic facility in this site at our facility in Ireland. So now with the facility in Ireland, we are using 100% renewable energy in terms of electricity. We are a disposal manufacturing. So we reduced a lot of water [indiscernible] detergents. So our Irish manufacturing facilities, it could be the greenest biology manufacturing facility global. This year, we're also committed to a science-based target initiatives. [Indiscernible] our carbon emission and make a commitment to reduce that. So we are part of a global committee to help fight the climate change. On global -- on emission alone we mentioned that internally along last year, we actually achieved 21% year-over-year reduction. If you are interested in our ESG highlights, we actually have a report. So we're looking at how we enhance governance, how we enable our client community, how empower people, how we bring our business. I think we have a lot more details in our ESG report. So I want to highlight only two points. Again, the first one is SBTI initiative. I think this is a great progress. We really wanted to reduce our carbon target by 50% by 2030 and net 0 by 2050. And again, last year alone, we see emission reduced by 21%. So every facility built need a bit greener as we progress. So our greenest facility in China is that facility near Hebei, near Beijing is called MFG8. And going -- if you visit the facility, as you go into the tool, you can actually see every batch we make. What's the carbon emission, how much electricity consume, how much water we consume, how much discharge we have into the environment. So we have a very green mindset in that facility. Again, Ireland side is actually the greatest biology manufacturing facility, we have ever built. So our effort also well recognized by our global community. So we received all those recognition from our global peers. So with that, I'll hand over to our CFO, Ming, who is going to talk about the financial in details.

Thank you, Chris. So now I'm going to talk about our financial performance. This slide here gives us highlights of our key financial metrics in the first half of 2023. First, revenue our revenue continued to grow at such a big scale. As you can see that in the first half of 2023, our revenue reached roughly about RMB 8.5 billion, a 17.8% increase over the same period last year. Continuing our journey of rapid growth over the past 9 years. Although compared to our prior year's CAGR, 17.8% might be a little [ bit tail ] but compared to our peers globally it certainly stood out as a leader. And the scale of the growth, 1.3 billion was extraordinary under such a tough micro environment. Our revenue growth in this reporting period was primarily driven by the successful execution of follow and Win-the-Molecule strategies with more customers, more projects and more revenue per project as more and more projects are advancing to the later stages. Now the late phase and commercial manufacturing revenue represents about 42% of our total portfolio. The second growth driver is the 52% increase in our early phase revenue, a continuation of the growth from pre-IND phase, enabled by the R&D of our unique CRDMO model. Due to the biotech funding constraints, especially in China, our pre-IND revenue only increased about 6.6%. However, with signs of recovery in the U.S. and Europe, our pre-R&D revenue is expected to regain its momentum in the near future. Although COVID revenue diminished to only about [ 0.5 ] billion in the first half, the 60% revenue surge from the non-COVID sector more than offset the decreases from COVID. Also, the new exciting growth platforms such as ADC, bispecific contributed significantly to our revenue increases in the first half. At the same time, the growth of our licensing income generated from group's various leading-edge technologies, added over $16 million of the milestone revenue to our top line. Lastly, our capacity expansion and the associated utilization are the key enablers for us to achieve the solid growth on our top line. Moving over to gross profit which increased about RMB 150 million, approximately RMB 3.6 billion during the reporting period. The increase in the gross profit was primarily attributed to the robust revenue increase. the profitability from the late phase and commercial manufacturing continue to meet and exceed our expectations. However, due to the ramp-up impact from new facilities in Ireland, U.S., Germany and the Hebei province in China, we have seen about 6 points of the margin compression. Also, the lower number of the new projects due to biotech funding slowdown in China and the required maintenance shutdown of the existing facilities also created some challenges for us. But these challenges were partially offset by the 100 basis points of efficiency improvement from the WBS implementation. Excluding share-based compensation, our adjusted gross profit margin is standing at 47%, one of the highest in the industry. One thing I would like to mention here is that the first half of 2022 is a special period with the COVID lockdown in Shanghai. We had 1/3 of the workforce delivered 100% of the revenue during that period. Hence, it is a very difficult GP margin comparison year-over-year. But excluding the ramp-up margin compression, and the nonrepeating COVID lockdown impact, our adjusted GP margin of 47% in the first half is still solid compared to our average historical GP margin percentage. Adjusted EBITDA, which is a proxy of our operating cash generation capability, increased by more than about 3.6% to revenue -- to RMB 3.8 billion in the first half. The adjusted EBITDA margin reached 45% lower than the same period last year due to the new capacity ramp-up and also the onetime COVID lockdown impact, as I mentioned earlier. But it is still one of the highest compared to those in the past 9 years, and it is certainly one of the highest in the CDMO industry. Adjusted net profit is the GAAP-based net profit, excluding the impact of foreign exchange gains, share-based compensation, fair value gains from our investment portfolio and also XTC spin-off related onetime expenses. This is the proxy of our business profitability and continuous operation. As you can see that the adjusted net profit increased 0.4% to RMB 2.9 billion in the reporting period. The increase in adjusted gross profit was partially offset by the increases in SG&A and R&D expenses as we continue to invest in our global footprint and technology for the future. Chris next page, please. Slide 41 shows our sustained profitability over the past 9 years. On a GAAP basis, net income, net profit attributable to owners of the company, earnings per share and also adjusted earnings per share. You can see that our net profit has grown more than 108x between 2014 and 2022 and exceeded RMB 4.5 billion last year. During the first half of 2023 our GAAP-based net profit exceeded RMB 2.3 billion, roughly 300 million lower than the same period last year. Largely due to the RMB 200 million of SG&A increase as we continue to invest in our global footprint, build business development resources and also enhance our digital capabilities. We also had a RMB 200 million onetime valuation swing year-over-year from our investment portfolio due to the capital market turmoil in the first half of 2023. The increase in SG&A, R&D and also the onetime investment portfolio valuation fluctuation contributed to about 10.8% decline in our GAAP-based net profit line. Net profit attributable to the owners of the company and the diluted earnings per share moved in tandem with the GAAP-based net profit. However, if we exclude share-based compensation, investment gain loss and also FX hedging impact, our adjusted EPS on a diluted basis is still on par with the first half of 2022. Again, the most important metric here is the adjusted earnings per share as it strips out the onetime noncash impact, and it is the true indicator of our continuing operating performance. Next page, please. So this slide here gives us more insight into our gross margin. In the first half '23, our gross margin was about 42%. Excluding share-based compensation, our adjusted gross margin reached 47%, one of the highest compared to our global peers. As I mentioned earlier, first half of 2022 is a rough -- tough comparison due to the COVID lockdown. In the reporting period, we had the Dundalk, Ireland, a 48,000 liter facility and the Shijiazhuang, Hebei province, another 48,000 liter capacity coming online. The drugs product facility at Leverkusen, Germany and the clinical manufacturing facility at Cranberry, New Jersey were in various stages of ramping up. In the ramp-up phase, we usually have the step changes in manufacturing costs, but linear progression in revenue increase. Hence, most of the biological facilities would incur a loss at the start-up stage and turning a profit as the utilization rate gradually improve towards a steady state. In the first half of 2023, this new facility ramp-up created about 360 million of the headwind or 6 points of the GP margin compression. This being said, the 47% of the adjusted gross profit margin is still represent a solid improvement over our historical average. You can see the composition of the cost components in the stack bars below, with roughly 18% in labor costs 19% in material and 21% in overhead, which includes maintenance, utilities, depreciation of the manufacturing facilities. The high overhead costs were primarily driven by new facilities coming online as we expanded our global capacity from 156,000 liter at the beginning of 2022 to 262,000 liter in the first half of 2023. The new capacity brought in more depreciation, utilities, maintenance and other overhead charges. Labor and material costs as a percentage of revenue were lower than the average of the past 3 years as we started to see some fruition from the efficiency improvement driven by the WBS implementation. Next page, please. This slide here is about free cash flow. Last year, at the WuXi Biologics, we achieved a positive free cash flow, a critical milestone in our company's history. Ever since our IPO in 2017, we have been consistently investing in our CapEx to build a world-class CRDMO. Cumulatively, we have spent over RMB 28 billion on CapEx during the past 6 years to support our global expansion. At the same time, we grew our operating cash inflow 14x to reach RMB 5.5 billion last year. For the first 6 months of this year, our operating cash inflow reached RMB 2.7 billion, less than the RMB 2.4 billion CapEx spending. So we generated about RMB 300 million of the free cash inflow. Our goal here still continue to deliver positive free cash flow in the near future -- in the future, using the operating cash inflow to fund our global capacity expansion. So now I'm going to pass the to back to Chris to summarize our presentation.

Thank you, Ming. Despite the -- currently, we've seen the global funding challenges, and you see sort of our industry has some short-term turbulence. But overall, biologic CDMO industry continue -- will continue to grow. The drivers are very clear. Multinationals are moving to outsource rather than built in-house. But if they have one, rather invest in R&D or business development instead of building manufacturing site, because CMO now is a very reliable partner for them. The surging demand from Alzheimer's drug from the other cancer drug, autoimmune drug continue to drive the classic for the CDMO. And lastly, biosimilars and ADC are also the strong demand drivers. So this year, our industry may only see a high single-digit growth. But overall, I think we believe the average CAGR should still be around 14%. And as a result, WuXi Biologics want to grow twice the industry. We want to make sure we kept the opportunity to grow twice the industry. So we believe our business model is very unique. We have built this model that the CRDMO will really give us a sustainable long-term growth. So this actually we plotted before 2023 is actually a real number of our revenue. So for the past 10 years, a majority of our success comes from R&D. And then in the past couple of years, M start to play a very significant role. So as an example, this year, manufacturing revenue, if you include Phase III already account 40% or 42% of total revenue. And the growth, if you take on COVID in 130%. So in the next couple of years, our deal will continue to be to sign. Our D is already more than half of the global market share, and we will continue to shine. R will shine, you'll see more deals like GSK deal and Arcus deal. And our M actually will be key to see revenue growth. So as I mentioned earlier, our M project in 2017, you have one in 2019, 2 in 2022 -- 2023 now have 22. So we hope we'll continue to drive loan long-term manufacturing target and also the blockbuster deals that we have in is also very significant. So we have -- that's why for the first -- for the first 6 months of this year, 4 manufacturing contracts alone already summarized already added up to about $1 billion in contract. So we believe the street line are very clearly aligned that give us sustainable long-term growth. If you then go into details, we want to actually go into really the RDMO model. With R clearly we have RMB 6.5 billion, $60 million backlog already. And we now have more than 50 programs with a low single-digit royalty. So the milestone will come to attract more milestone revenue, but royalty will also be very significant. The first half of this year, the R part already contributed more than $60 million revenue. The D part, we're a global leader. We don't believe we lost any market share during the downturn, but the number of projects smaller. We continue to maintain, and we'll be able to get 80 projects a year in -- despite the global downturn or money challenges. So those programs, we continue to see the panel getting bigger and bigger. Historically, R will also -- 95% converting to a D. Our D is more than 90% conversion into M and that stickiness our CRDMO model, right? With the M, I already said earlier that our -- M will continue to shine and will be a strong basis for our sustainable growth. So to summarize, I think we believe our business model is very unique, the CRDMO model, it's very hard for a company to follow and to copy and our CRDMO model [Indiscernible] Win-the-Molecule strategy implement together really give us continue to drive the sustainable high growth. That's why despite all those challenges in the first half, if you take out the COVID, we actually deliver 60% growth. So in the next 6 months, we'll continue to foresee some challenges in the short term, but as in medium and long term, we remain very, very positive for our long-term growth. On our side, we continue to hope that we'll have similar deals like GSK, like Arcus, and we will continue to see more and more milestone revenue, more and more royalties coming to WuXi. As I mentioned earlier, for some of the programs, the royalty revenue actually may exceed the profit from the total manufacturing from CMO and that's the beauty of our business model. So on our side, we continue to want R to shine. On the D side, we are already a global strong leader. We've maintained similar market share despite the downturn, and we will want to add at least 80 projects a year during the downturn to continue the momentum to make a far bigger and bigger. And M a near term is definitely strong, right? That's why we see 130% growth of our revenue, if you exclude COVID, the number of -- in the first half of this year, the first 6 months, we already signed more late-phase projects and so project than previous years. So we hope we can continue to sign more projects in the second half. I mentioned earlier also on 4 programs alone, the contract value already exceeds $1 billion. And actually, the top program, they are all blockbuster already. So there's no risk. The program is already on the market, the drug is already on the market. And so to us, a very, very, very few risk. And lastly, WuXi Biologics continue to invest in new technology and platform that drive our future growth. So if you -- our industry need ADC, we have XDC. Industry need bispecific. We have our [indiscernible] platform. I think we are always positioned to support our industry to become a key player to enable a global community to develop more drugs for the patient. Thank you.