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

Good evening, good morning, everyone. Thank you for dialing in today's earnings conference call for WuXi Biologics 2024 Annual Results. My name is Sean Wu. I cover health care for WuXi Bio at Morgan Stanley. Today, it is my great pleasure to host this earnings conference call. And joining this conference call, management include CEO, Dr. Chris Chen; the CFO, Mr. Ming Tu; and IR Vice President and Manager, Lina Fan. So, this call will be conducted in English, and the call will be followed by a kind of Q&A. [Operator Instructions] So without further ado, I'm going to pass over to Lina, first.

Thank you, Sean. Good morning, good afternoon, good evening to the global investors. It's really my great pleasure to share with you our 2024 results. So as all of you have seen from the earnings release, I think we had a great year in 2024. I think the key message actually is that we are poised for accelerated growth in 2025. Can everyone see me moving the slide? Ming, can you see -- I'm already on Slide 5; can you see it?

Yes, we can see the slide.

Okay. That's perfect. Yes. So I think our global investors are very familiar with this slide. I want to use this one slide really to showcase WuXi Bio. On the left side, typically is the business metrics. On the right side is financial metrics, right? So at the beginning of the year, we have close to 700 projects and end of the year, our number of projects increased by 17% to 817. This is an unbelievable number of molecules. And with these molecules, if tomorrow you have good news on Alzheimer's, on ADCs, on bispecifics, on rare disease drugs, on oncology and autoimmune, 40% chance WuXi Biologics is behind this. That's how powerful WuXi is part of our mix. So if you exclude the COVID revenue, our growth -- our revenue growth was actually 13.1%. We added a whopping 151 number of new projects. Again, considering the biotech funding, recovery of biotech funding is uneven and considering the noise that we had last year in 2024, I think it's incredible that we are able to add 151 projects. So our global market share actually increased in the number of projects. We also see a very significant increase in number of commercial projects go from 16 to 21, excluding the COVID programs. So our backlog is very healthy, and it's very healthy $18.5 billion. And our number of employees remains stable, but our productivities continue to increase. We also still have a very high key talent retention rate of almost 96%. So on the financial side, our revenue grew 9.6%. Again, if you exclude COVID, then we're growing 13%. Our adjusted EBITDA is actually had a very healthy growth from RMB 7 billion to RMB 8 billion, a 14.4% growth. Our adjusted net profit grew also 9%. Our adjusted profit margin, gross profit margin, adjusted EBITDA margin and adjusted net profit margin are all one of the best in the industry. That continue to showcase really the WuXi Biologics good execution and good technology platform and the global acceptance of the -- from our partners. And then lastly, I think, really, it's an incredible business model. And our adjusted -- our basic EPS is also very healthy. So I want to use this slide to open my presentation, basically showcase in the past 11 years, we have seen a tremendous growth of the company, right? I think the past 2 -- past year, past 12 months, you've seen -- it seems like WuXi Biologics has stopped the growth. But reality is actually it's all because of COVID comp. If you think of the COVID comp, right, if you think of the COVID, we actually have still a very healthy growth. It happened to be the COVID comp and the law of big numbers happening at the same time for WuXi Bio. And that's why we have already -- I think, we have already went beyond the super-fast growth period where our growth CAGR could be 50%. In the next couple of years, our growth will be -- will still be very significant, very fast. We still target twice the industry growth, but our growth may be more like in the teens in the 20s instead of 40s and 50s, and that's simply because of our size, right? So I'm still very excited that our business model continue to work, and I think the global clients still trust us. I think that's why the results will always be given. Again, highlighting last year's result, 2024, but if you look at the overall, our revenue grew by 9.6%, but because we still have some COVID comp, if you exclude COVID, it's 13% growth, it's fairly healthy. Again, if you -- and on the right side, if you look at the different phases, actually, it's very exciting. You see our early phase, basically R and early part of the D, we see a very exciting growth of 30.7%. That basically means globally, when biotech companies or large pharma has a new project for development, the first company they think of hopefully is WuXi Biologics and most likely is WuXi Biologics. In the middle phase program in Phase I and Phase II, we see a moderate growth of 5.5%, and that's the fate of the molecule. So that is determined by itself. There's not much we can manage. And then on the M part, the Phase III and the commercial manufacturing, we see a modest decline, a slight decline. If you take into COVID, non-COVID program, actually, we still see low single-digit growth. I think for our CMO revenue, it's a matter of timing, right? We have -- as I said earlier, if you -- tomorrow, if you see a good news, 40% chance that WuXi Biologics is behind them, that basically means our M will be very powerful. It's a matter of time because currently, we have 21 manufacturing projects. Most of them are in the early stage of their product launch. So the revenue may not be high, but eventually, the revenue will become $50 million, $100 million or even $200 million. So for our M, I think that actually will be the most -- our M growth will be very significant starting next year, starting in 2026, and then that will actually be a growth driver for the years to come. So another way to look at this, for the past 10 years, our success is mostly because of R&D growth. In the next 10 years, R&D will continue to be very strong and dominant position. But in the meantime, our M will deliver a fantastic growth comparing to R&D because our M basis is still very small. And most of our M projects are at the beginning of the life cycle instead of the middle or end of the life cycle for our peers -- for our peer CMOs. If you look at the revenue by geography, that's how usually we summarize the stuff. We do not manage this per se, but it's a summary of guiding WuXi where we should be focusing our energy, where should we be investing more in resources, right? You can see U.S. market, North American market continue to be the largest market for us. It's actually more than 57% last year, and it's growing a very exciting 32.5% for 2 reasons. One, the U.S. large pharma -- U.S. biotech prefer WuXi Biologics, right? They give us a lot of projects. The other reason is actually in the past couple of years, there are many, many projects being out-licensed from China to North America to U.S. I think -- so essentially that convert our China-focused asset into a global asset. That basically means our partners in the U.S. will run more trials that require more batches from WuXi. And when product is approved and hopefully, they will demand a lot more commercial manufacturing. So our R&D revenue for an out-licensed asset, our R&D revenue will increase 2 to 10x, our commercial manufacturing revenue increase -- may increase 10 to [ 50x ]. And that's the benefit of WuXi Biologics in all those global out-licensing deals, right. For Europe, you see a nominal -- you see actually a minus 16% growth, but mostly because we have -- we did a lot of COVID projects during -- in the past couple of years. We have a very high COVID comp, right? So everyone knows we work with GSK, AstraZeneca and other European companies on their COVID programs. So if you exclude the COVID program and some lumpy R&D revenue, then our Europe is actually a low single-digit revenue growth. So it's very healthy. And Europe now actually accounts for 23% of the revenues, which is significantly higher than the past couple of years. China, in terms of revenue now is about 15%. It's slightly lower than previous years. As I mentioned earlier, so because if the program in China gets out-licensed to U.S., then become a U.S. revenue. If out-licensed to Europe become Europe revenue. That's why you see about a 9.6% lower revenue in China comparing to the year before. That is for 2 reasons. One is the out-licensure I mentioned. The other one is still relatively weak funding of biotech in China. And lastly, rest of the world, mostly Japan and Korea and Singapore, I think you see a very small base of about 5% -- 4.5% revenue, but it's growing very healthy, almost 20%, right? So as I said earlier, this is a result from our last year effort. We do not manage them, but this will guide how WuXi will invest in BD resource, invest in serving our global customers. I think my final slide is the most exciting slide. I think you guys have been seeing this many, many times since IPO. I always tell investors, for WuXi, this is the only thing you need to pay attention to, right? If this funnel is healthy, everything else is a consequence of the funnel, right? I highlighted 4 numbers. One is 151 projects added, a record-high, right, and higher market share and then 21 non-COVID commercial manufacturing programs, and that's a very exciting growth. Again, the 31% growth in overall commercial manufacturing projects and overall portfolio of 817 projects and then 66 Phase III program. So the Phase III program at some point, in a year or 2 years after initiation of Phase III, they will do a PPQ. And once the clinical trial turned out to be positive, and then they will start the commercial launch. So 66 Phase III programs that will probably translate into about 40 eventually commercial programs. That basically means in the next 3 to 5 years, our commercial program will go from 21 to 60 -- to about 60. And that's actually the exciting growth. That's why I said, M the commercial manufacturing will drive our next couple of years -- will drive significant growth for WuXi Biologics in the next couple of years. But in the past 10 years, it's the D part, it's like a snow blowing. Go from one project to 800 projects. And in the next couple of years, is the M part, go from one project to 21 projects this year, eventually to 66 programs in the next -- more than 60 programs in the next couple of years and eventually beyond. And I think that's the beauty of the WuXi Biologics business model. I think this slide really -- I think we added 151 projects, a record-high. Again, if you look at it before COVID, on average, we added about 60 projects a year. During COVID, we captured most of the COVID opportunity. It doubles to almost 120, and last year, with all those challenges, we still achieved record-high number of projects, and that basically means global clients really trusting us, and we have a fairly sticky relationship with the global clients. Among the new projects signed, there's -- a lot of them are follow the molecule, but there are also -- some of them are win the molecule, which is highlighted in the chart below, right? We started the win the molecule project back -- win the molecule effort back in 2018. Then at that time, we signed one late phase program, Phase III and commercial and then overall, 9 early phase programs, overall 10. And last year, when BIOSECURE broke out, what I worry most is actually this part of the business. When our peers could not deliver -- when our peers cannot deliver, when clients look for other CMOs, other CDMOs, do they choose WuXi. When BIOSECURE happens, I think, this is the part I worry that we will not be able to be as successful as we want them to be. But the results actually tells a totally different story. We actually won a record-high number of projects. Again, in the past couple of years, on average, let's say, about 15, 11 -- around 15, we actually won 20 projects. We won 20% more projects than average over the past 4 or 5 years, and among the 20 projects, actually 13 of them, the highest percentage they face. Almost 2/3 of the 20 projects we won actually are Phase III in commercial. That basically means companies globally still trust WuXi to deliver long-term for them despite all those challenges we are facing. I think this is -- I think in a way, this is the most exciting slide, right? Because the number of new projects added means we have more higher market share, more acceptance from the global community and then the win the molecule program is still very, very strong. Very, very strong, and those give us the confidence that the company will be -- will grow faster in 2025 than 2024 and hopefully faster in 2026 than 2025. So that's why my title of my slide is poised for accelerated growth. Backlog is something that I use -- when we IPO-ed, I want to give investor assurance, the business will grow significantly year-over-year. So we created this backlog. But now our business actually changes significantly. Backlog may not be able to capture the real potential of the business. Let me use R&D as an example. If we sign -- if I engage with a company for R today and in 3 months, we sign a deal for, let's say, for $900 million total payment and $20 million upfront. This will not be captured in the backlog at all because in January 1st, it didn't happen. By December 31, it's already revenue, right? This is R. For D, it's very similar. If I signed a D project in January, by October, we created all the revenue, right? So let's say, we signed 10 projects in January on average value of $6 million. So by October, all the $60 million already converted to revenue. So both our R&D now actually are now not in the backlog because our conversion time is so fast, right? And so a portion of our R&D are not in the backlog. That's why backlog does not reflect our full potential anymore and that's why I always said the backlog only reflects a fraction of our potential revenue. But we still -- this still gives you a hint of how reliable, how predictable, how foreseeable and you can see our revenue growth, right? So we announced a couple of months ago that we are selling the facility from Ireland on the vaccine project to MSD. So because of that, we are adjusting our backlog by almost about $3 billion. And so if you adjust that out, we still have a very healthy backlog, about $18.5 billion. And on the 3-year backlog that give you a clear visibility in the next 3 years, we actually still need to do the adjustment as well. So for the past 2 years, you almost need to take about $300 million off. So for 2022, the backlog, excluding the vaccine project, backlog is $3.3 billion. For 2023, it's about $3.5 billion. And then for 2024, it's $3.6 billion. So you still see our 3-year backlog actually with a moderate growth, and that give us the confidence again, right, our revenue will grow and we're poised for accelerated growth. If you look at our portfolio, and this probably represents about 40% of global portfolio already and it's very significant and you can see what -- which industry or which modality represents the best opportunity. You can see a bispecific and multi-specific growing 32%. We now actually have 151 projects that are multi-specific, and we have almost 194 projects with a 35.7% growth on ADCs. So bispecific ADCs are our industry's future and where WuXi Biologics and WuXi XCC have a very high-market share on those. We are recognized by our industry that the tougher the molecule, the better chance that WuXi can help them solve the problem, the higher winning rate from WuXi. So I think both multi-specifics and ADCs are very exciting for our industry in the near future. For bispecifics, we actually now have commercial programs. We have a couple of commercial programs in M. We have a program in Phase III and program in Phase II, Phase I, and we have a higher market share of bispecifics than the overall market share. Another thing of note is actually our 313 first-in-class programs, 313 first-in-class programs and that's very exciting. Basically, overall, right, if you look at WuXi Bio, we are enabling so much innovation into our industry, and we will benefit from that. So again, that's what I said. Tomorrow, when you read a good news about an exciting new program being successful, 40% chance WuXi is behind the scene supporting the program. So be it the autoimmune program, be it the oncology program, be it the rare disease, be it in Alzheimer's, Parkinson's, and be it another immunology program. With that, I'll hand over to Ming to talk about our financials for 2024.

Okay. Thank you, Chris. So now I'm going to talk about our financial performances. Slide 14 gives us the highlights of our financial metrics for the fiscal year 2024. First, revenue, as Chris mentioned, despite of the geopolitical headwind, post-COVID industry slowdown and also uneven biotech funding recoveries across the globe, our revenue continues to grow at a solid pace. As you can see that our revenue exceeded RMB 18.6 billion last year, 9.6% increase within striking distance of a double-digit growth. Excluding the $0.5 billion of the COVID revenue in the baseline of 2023, our non-COVID revenue grew over 13%, continuing our journey of solid growth over the past 5 years and proved our resilience under such a tough macro environment. Our revenue growth last year was primarily driven by the following factors. First is the successful execution of our Follow and Win the Molecule strategies as more and more projects are advancing through our funnel toward the later stages. Now excluding the COVID projects, we have 66 in Phase III and 21 non-COVID projects in the commercial manufacturing phase. Win the molecule strategy also added 20 projects to our portfolio with 13 in the late phase. Excluding COVID impact, overall late phase and commercial manufacturing revenue grew close to 4% and represented over 40% of our total portfolio during this reporting period. That's why Dr. Chen mentioned earlier that our success of the next 10 years will be driven by our success in commercial manufacturing. On the development side, the improved biotech funding environment in some parts of the world, together with our share gain in the pre-IND space created significant revenue growth year-over-year at a rate over 30%. If you recall, in our first-half earnings release, we talked about how biotech funding constraints in the first half of 2023 created some headwinds for our revenue conversion in the first half of 2024. Well, we saw a significant rebound in the pre-IND revenue in the second half of last year, thanks to the 151 new projects we scored last year following a record 77 projects in the fourth quarter of 2023. We had a 30% sequential revenue growth in the pre-IND space from the first half to the second half last year. At the same time, our early phase revenue still grew at a steady 5.5% year-over-year, all enabled by our competitive strength in D, development of our unique CRDMO business model. In R, our discovery services, we have also seen significant growth in the second half of last year. You might recall that during our first half earnings release, we talked about the difficult comparisons year-over-year due to the timing of the mega licensing deals under our discovery services. As we promised, we had a full pipeline of discovery services deals that yielded fruition in the second half of last year, thanks to our strong innovative technology platforms on CD3, CD19, bispecific, multi-specifics, and ADC. Altogether, we announced 7 molecule licensing deals with about $140 million of upfront payments. Half of the revenues were recognized in 2024 and the other half will be recognized throughout 2025 with potentially $2.3 billion of the milestone and royalty incomes in the future years to come. Also the new exciting growth platforms such as ADC, bispecifics contributed significantly to our overall revenue increase during the reporting period. Lastly, with our capacity expansion globally, we had Dundalk, Ireland, Leverkusen, Germany, and Cranberry, New Jersey contributing over $100 million of incremental revenue to our commercial and clinical manufacturing sector. Now moving over to gross profit, which increased about RMB 900 million to approximately RMB 7.7 billion last year. The 12.1% increase in gross profit also gave us a 90 bps of margin expansion year-over-year. The margin improvement was primarily attributed to the following factors: First, the solid growth from R, research sector, which gave us a positive mix impact. We reported that we inked 7 licensing deals in the second half of last year with upfront payments of $140 million, and half of them have been recognized as revenue in 2024. The margin associated with these upfront payments were close to 90% as the related R&D costs have been expensed during the past years. The margin rate for the development sector remained stable, while profitability from the late phase and the manufacturing sector continued to meet or exceed our expectations. The plant utilization rate in China remained stable compared to that in 2023 post-COVID. Globally, we are still in the ramp-up phase at our new facilities in Ireland, Germany, and the U.S. The overall financial impact from facility ramp-up has been reduced compared to that in the prior year. The efficiency improvements from WBS, our lean manufacturing implementation also gave us 1 point of the margin lift. Excluding share-based compensation, our adjusted gross profit margin stands at 45.4%, 10 bps improvement year-over-year, and is still one of the leading positions in the industry. Adjusted EBITDA, which is a proxy of our operating cash generation capability, increased about 14.4% to just about RMB 8 billion during the reporting period. The adjusted EBITDA margin rate increased 170 bps to 42.8%, which is also one of the highest in the CDMO industry. Adjusted net profit is the IFRS-based net profit, excluding the impact of foreign exchange gain and loss, share-based compensation, fair value gain and loss from our investment portfolios and also XDC's IPO-related one-time listing expenses. This is a proxy for our business profitability under continuous operation. As you can see, that adjusted net profit reached RMB 5.4 billion last year, a 9 percentage points increase. The growth in adjusted net profit was slightly less impressive than the growth in adjusted gross profit. That was largely due to the SG&A increases as we continue to build the stand-alone capabilities for XDC, which is now a publicly listed company, and also continue to invest in our global footprint in business development for our future growth. Chris, next page, please. Page 15 here gives us the key profitability metrics. You can see that IFRS-based net profit, net profit attributable to owners of the company, earnings per share, and also adjusted earnings per share. You can see that our net profit has grown at a CAGR of 31.3% between 2019 and 2024, and approached CNY 4 billion last year. The 10.5% growth is largely driven by the 12% of the IFRS gross margin increase year-over-year, partially offset by the CNY 300 million of increases in SG&A expenses as we continue to invest in our global footprint and building XDC's stand-alone capabilities as we talked earlier. Net profit attributable to owners of the company was flattish at about 1.3% negative growth year-over-year compared to the IFRS-based net profit. The 10 points of the negative impact was largely driven by the minority interest pickup as XDC just completed its first full year operation as a public company versus in 2023, this dilution impact from IPO was less than 2 months. And also XDC's net profit increased a whopping 277% in the reporting period. The minority interest exclusion between consolidated net profit and net profit attributable to the owners of the company amounted to over RMB 580 million. Basic earnings per share moved in tandem with the IFRS net profit attributable to the owners of the company stayed flat at RMB 0.82 per share. If we exclude share-based compensation, investment gain, and loss, foreign exchange translation impacts, our adjusted EPS was about RMB 1.17 per share, 3.5% increase over that in 2023. Again, the most important metric here is the adjusted EPS as it strips out the one-time noncash impacts, and it is a better profitability indicator of our continuing operation. Next page, please. Slide 16 gives us more insights into our gross profit and the cost of sales. Last year, our gross profit margin was about 41%, 90 bps improvement over that in 2023. Excluding share-based compensation, our adjusted gross margin was about 45.4%, 10 bps expansion year-over-year. Compared to earlier years of 2022, our GP margin had roughly 3 to 5 percentage points of compression last year, largely due to the ramp-up impact from our new manufacturing facilities in the U.S. and Europe. As we disclosed in the past, the fed batch and perfusion facilities in Dundalk, Ireland, the drug product facilities at Leverkusen, Germany and also the clinical manufacturing facilities 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 such as labor and overhead hit ledger at once, but the revenue increase are usually linear. Hence, most of our biologics facilities will incur a loss at the initial start-up stage and turning a profit as the utilization gradually improves towards the steady state. In 2024, this new facility ramp-up created about 3 points of the GP margin compression compared to our normal operations. The good news here is that the negative impact from ramp-up was smaller in 2024 as the new sites improve their operations and utilization, and also WBS, our lean manufacturing and productivity improvements also provided partial offset. You can see the composition of the cost components in the stack bars below, which is roughly 18.7% in labor costs, 19.5% in material and 20.8% in overhead, which includes maintenance, utility and depreciation of the manufacturing facilities. The higher overhead costs were primarily driven by the new facility coming online as we expanded our global capacity from 150,000 liters at the end -- at the beginning of 2023 to over 300,000 liters at the end of last year. The new capacities brought on more depreciation, utilities, maintenance and also other fixed overheads. The labor components were smaller last year than the previous years, largely driven by our productivity improvement and also because of the higher R&M, the mix in our portfolio. Next page, please. Page 17 is about liquidities. At WuXi Biologics here, we have a strong balance sheet and solid cash position. At the end of last year, we have about CNY 10.7 billion cash, sufficient funds to support our rapid global expansion. As a result of our long-term conservative funding strategies, we only have about CNY 2.6 billion of debt, 30% of which are working capital facilities. And our gearing ratio, which is defined as the interest-bearing debt over the equity is nearly 5.8%. At the same time, we have close to CNY 6 billion of the bank credit facilities to tap into if we need to. Our debt level increased about CNY 300 million last year was largely for the onshore/offshore funding balancing to take advantage of the lower borrowing cost in China, while keeping enough dry powder for our global expansions in Singapore and the U.S. Our CapEx spending last year was about CNY 3.9 billion, mainly for our capacity expansion in Singapore for both biologics and XDC, and also XDC's map and the DP capacities enhancement in China. Our CapEx is much lower than the CNY 8 billion adjusted EBITDA number we generated last year. So adjusting for working capital occupation, tax payment and also free cash flow in 2024 was about CNY 1.3 billion positive. This is our third year in a row delivering positive free cash flow, but this time in a much more meaningful way. For 2025, because of the continuation of the Singapore expansion by both WuXi Bio and XDC, and also the investment in Worcester, Massachusetts, our CapEx will be about CNY 6 billion. But our goal here is still to continue to deliver positive free cash flow in a measurable way for the years to come. Now I'm going to pass the baton back to Chris to share more insights into our business operations.

Yes. I want to give the global investors and R and D and M, a quick update. On R part, really, this is using our proprietary platform to help global community developing novel drugs. So I want to highlight here is actually mostly the bispecific platform, the anti-CD3, anti-CD19 bispecifics, and this is a collaboration we had with a biotech company called Curon and Curon was acquired by Merck, right? And then GSK, we -- had a 4-program deal with us. We help them develop best-in-class bispecifics. And then most recently, Medigene, we work with the best TCR company to develop bispecifics for TCRs. I think all of those showcases really a strong -- very strong platform that WuXi Biologics developed. Just to share with you that we started to plan the bispecific platform back in 2014, our CD3 platform, our WuXiBody platform. So as of now, now we actually have more than 50 programs that incidentally, our IP was shared with the global companies. And then as a result, we received upfront payment, milestone payment and royalties. I think we highlighted already that -- we highlighted already that we have -- last year, we have signed 7 global programs with about $140 million near-term payment and actually more than $2.3 billion of potential milestone payment. I think that's a very unique aspect of WuXi Biologics business model. I think this R will help global biotech companies, pharma companies develop better drugs and eventually R will lead to D, D will lead to M. So we started to engage with clients 5 to 10 years earlier than most of our peers. If you look at detailed breakdown of the 50 programs, some of them are already on the market, mostly the PD-1 and PD-L1 from China, we are eligible to receive low single-digit royalties. And in the program in Phase III, for example, Gilead PD-1, we actually received up to 10% royalties on product sales. So PD-1 is not -- PD-1 is -- PD-1 probably #7, #8 in the U.S., but PD-1 franchise is still very valuable. So we may receive a very meaningful royalties from Arcus and Gilead. And then for example, in Phase II, the program with duality and in Phase I program, the Curon, the GSK programs. I want to highlight the Curon-Merck program, actually, we are able to receive royalty up to 10% of product sales. So this is very significant, right? If you think this is a $5 billion drug, Merck will pay us up to $500 million a year, right? If it's a $10 billion drug, Merck will pay us $1 billion royalty. I think this is the beauty of our IP. And $1 billion royalty is actually almost -- is even higher than the total profit for the company -- entire company this year. And that's the beauty of the program. So among the 50-plus programs, we actually more than -- almost half of them are actually sponsored by the global client. Some of them are large pharma companies like GSK, Merck, some of them are Gilead, some of them are biotech companies. I think those have really a big potential for us. So I think this gives us the confidence we'll receive higher and higher revenue on milestone payment and royalties and that will actually help improve our gross margin from the current 45% range to more like close to 50% range, and maybe even beyond 50%. And that make our profitability probably the best in the industry, if not -- one of the best in the industry, if not the best. That's the progress on our side. On the D side, I mentioned we actually -- we do everything ourselves, try to improve ourselves to make sure we offer a very competitive time line. Before we get into this industry, average time line from DNA to IND, if you look at the bottom left chart, before we get into this industry, average DNA to IND time line is 24 months. It's 24 months. So every year, we push ourselves and say, how can we do better? How can we do better? I think -- and now last year, the average is 9 months. If our partners are willing to pay a premium, they pay us $1 million or $2 million more, we can actually cut the 9 months to 6 months. If you are a biotech company, right, 9 months' time line versus the industry average of 12 months or 15 months, that saves them a lot of money. That's why this formed a very sticky relationship between WuXi Bio and Biotech company, because we help them deliver the next milestone much faster than the global peers. I think this is also one of the reasons I mentioned a lot -- a significant part of our D contract is not in the backlog because, again, back in the old days, when the product -- if we sign a project program for $6 million, it takes us 2 years to deliver, let's just do an even distribution, then $3 million will be in the backlog by end of this year, right? But now we signed a $6 million contract in January of this year and by October, it's already all gone, it's already all revenue. So that's why our backlog actually now does not capture a significant chunk of the revenue. I think this is -- we actually help -- we continue to improve ourselves to make sure that we save every week of clients' time. And in the meantime, we have 100% delivery, very high, very strong technology, the fastest speed, almost 100% delivery together with the technology, that form the basis of the stickiness between WuXi Biologics and the global community. And that's why our market share actually increased in the tough time of 2024. So as every one of you have seen, right, in the global community, Biotech get acquired by large pharma. Now recently, Chinese assets now licensed to global. Both of them are actually benefiting WuXi. This is our analysis. So on average, once the programs get acquired or licensed, we actually get $30 million more revenue from each program, $30 million more revenue. And then once the programs get acquired either by MMC or Biotech, they actually kept all the program out of WuXi. So we are able to keep all the program, but the benefit is actually from a small biotech investment program to a multinational, the R&D revenue will increase, the commercial manufacturing revenue will increase. From a China asset to a global asset, the same way. So as the global community has more and more M&As, this is actually a music to our ears because as there are more M&A, more and more out-licensure, all of those are good news for WuXi Biologics. Let me use the example of in the past 2 years, China out-licensed assets global. We actually, we are behind 70% of the deals when there's a CMO involved. And so that's really a strong tailwind for us for the next couple of years as well. So now let's move on to the track record for R&D, right? So overall, now we have already finished more than 600 INDs. It's an unbelievable number. Last year alone, we delivered 124 INDs, again, at 100% success rate. So if clients sign a contract with us, we assure them it will be delivered, will deliver by the deadline, will deliver on budget and we will deliver with 100% success rate. And that's how powerful our track record is now. And then again, our capacity is 150 INDs and 12 BLAs per year, and that's also unbelievable number. So as a result, now we are building a global network of R&D&Ms to help the global community. I think this is also a very good way to mitigate the geopolitical risk. So now let me give you a very high-level update of our global site, right? So everyone is watching how we do in Ireland, right? Once Ireland is successful, we can replicate the success in Germany, in U.S. and in Singapore, right? I want to share with you, we are doing very well in Ireland now. So Ireland facility, I mentioned, we built it during COVID. It's one of the fastest facility built and also one of the fastest to get HPRA, basically local regulatory approval. Now we actually finished -- already finished the 2 PPQ campaigns last year and with 100% success rate. So we are doing commercial batches right now. So I think Ireland, we've also proven in Ireland, we can do a 16,000-liter scale and at a cost comparable to stainless steel. I think that's very, very important to us, right? Worcester, we paused the facility for about a year. We want to redesign the facility to increase more capacity. So previously, it was more about 20,000-liter capacity. Now we're changing to 36,000 liters. So we increased the capacity by about 80%. In the meantime, we also designed to be the most advanced facility in this community. So we put a lot of automation, put a lot of digital efforts into this. So really, this will be a lighthouse project for WuXi Biologics. It will also be one of the best biologics manufacturing facilities in the global community. Moving on to Singapore, WuXi Biologics continue to finish the design and we will build a facility. WuXi XDC has actually started the piling of the facility last March. And the facility now is almost weather-tight. By end of this year, we'll run. So in about -- essentially, in less than 2 years, we are able to build a GMP facility and get it run. And that's an unbelievable speed. So that's why we put most of our future efforts in Singapore because we believe in Singapore, we can have a global site, mitigating geopolitical risk, but in the meantime, has close to China's track record in quality, in execution and in delivery. Now let's move on to M. As you know, one of the part for the program in Phase III, you start the Phase III trial and if the program looks promising, you start the PPQ and you file the PPQ to FDA and FDA approve, you can start to sell the drug. So PPQ is actually almost leading indicator of our CMO revenue growth. That's why we share with you how many PPQs we are doing right now is actually -- so this year, even based on the contracts signed today, is actually record high already. And most likely, we'll sign a couple more later this year. So that will make 2025 the highest number of PPQs. And PPQ is also very, very technically challenging. And you probably hear quite a few companies tell CMOs failed to deliver PPQ for certain projects. And at WuXi Biologics, so far, we only failed one out of more than 50 projects we delivered in the past couple of years. So our PPQ success rate of 98% is almost like our IND 100% success rate. So this -- both our early phase IND success rate and late-phase PPQ success rate are the best in the industry. That's why clients still trust us. That's the stickiness we build between WuXi Biologics and the global community. Besides the PPQ execution, quality is absolutely requirement -- absolutely critical, right? When companies select CMO, number one, they are looking for is track record, what I mentioned before, the 98% success. Number 2 is quality. Number 3, probably price, right? So track record and quality are more important than pricing. I think we delivered the best track record in PPQ delivery. We also now have the best track record in BLA approval. In the past couple of years, every year, you probably hear one or 2 companies, they get a letter from FDA called CRL. Basically, FDA said, I cannot approve you because your facility has an issue, right? You heard that a few times in the past couple of years. And so far, WuXi Biologics, 100% success on our interaction with FDA. Every BLA we filed get approved in the past, and that actually become the best results of our industry. I think last year, we actually have a very, even more exciting news to share. A large pharma's commercial manufacturing program filed EU for approval. EU because they had an inspection of WuXi back in March, they inspected 10 products. Inspected 10 products. And every one of them was successful. And EU was so happy they actually waived the inspection for this large pharma, right? So as a result, we're saving this client millions of dollars of money and also 6 to 9 months of time for product approval. And this shows how WuXi can help our peers, help our clients. One of the main efforts we are also embarking right now is actually making ourselves ready for the future. So we're doing a digital solution to accelerate everything we do from the way we interact with the client, we are designing a DaVinci client portal. In the future, our clients just log into this DaVinci, they can get everything they need, the bill, the data, the progress of every project, and they don't need to contact our PM for any information. And then we are also putting all the data in one system. It's called biofoundry. And this way, again, this will internally help our science be more efficient. And in manufacturing, we're going paperless, and we're also using advanced planning to ensure that we can take advantage of every slot in manufacturing to make us more nimble. So I think in 2 or 3 years, when all those are done, we are actually much more efficient than where we are now today. So as in my first slide, I mentioned our head count remained very flat, but revenue grew almost double-digit growth. That basically means our per-person productivity improved 10%. I think that's on average, we have been doing that for the past 5 years. On average, every year, our per-person productivity improved by 10%. And in the future, this will be enabled by this digital solution, we may even be able to be more efficient than what we are in the past couple of years. So every year, when I share with investors, I also want to highlight really the technology platform because that's one of the differentiating factor of WuXi Bio. I mentioned for complex modalities for ADCs, bispecifics, global community like us because we have innovative technology, we help them troubleshoot the problem. We are more technical than some of our peers. I think I already highlighted the CD3 bispecific platform, but that's only one of them. We have the gamma delta T-cell engager. We have NK engagers; we have macrophage engager. So we have a lot more platforms we're building now for our industry's future needs. Again, go back to CD3 platform. We started to build that in 2014. And in 2018, we have it ready. And in the past couple of years, we have multiple clinical programs. And then last year, it was closely recognized as one of the best. And that's why GSK's coming in 4 programs, other large pharma a couple of programs and Merck acquired one of those assets for almost $1.3 billion of cash in 2 tranches. So that's the bispecific. I think as I mentioned, ADC is also a very exciting part. So now we are also enabling a kind with cutting-edge conjugation and also payload linker technologies. I think, again, we always want to anticipate what technology our industry may need in 5 years. I think we started to work on bispecific and ADC back in 2014, 2015. Now we are working secretly on some of the technologies our industry may need in the next 5 years. I think that's always make us always ahead of the game in terms of industry technology need that make us well prepared to serve our global community. I think I have talked about this many, many times. When WuXi Biology started, we bet on single-use technology to be the mainstream. Now 10 years later, it's already a fact. I think we believe, we have already, in the early days, most people believe single-use can only do small batches. So we said, why not? Why not multiplex them? Why don't we combine 2, 3, 4, 5, 6 of them together. So as a result, in the past couple of years, we have already made 300 batches using this approach in 5 manufacturing facilities in China and Ireland. We are able to do a 97% success rate and overall, and 99% success rate in the past 3 years. So we have already proven single-use technology is the best of technology in manufacturing. It gives all the flexibility you need. It's lower CapEx, it's faster delivery and it's also actually environmentally more friendly. It's more ESG friendly. So we demonstrated over and over again, single-use can offer the same cost of goods at large scale, both in China and in Ireland, when I mentioned Ireland, right? We can do a 16,000-liter scale comparable to someone else's 15,000-liter scale standing still in terms of cost. I think WBS and ESG are key component of our business strategy. So I want to share with you that as well. Ming already mentioned, the WuXi business system. This is something we're learning from the Toyota, the Danaher on how do we improve business. Basically, every employee, how do they identify waste in the system, how do they improve on themselves, improve the business process, improve the technical aspect of the projects. As a result, we have already achieved about a 1-point improvement in gross margin. Last year, we did more than 260 Kaizen projects. Kaizen means improvement. So that's why I said the WuXi Biologics culture now is a continuous improvement. From a bench scientist to a VP to the CEO, every year, we're driving for improvement. We want to commit enough time to make sure that everything we do is better this year than last year and the year before. I think we also want to be a green CDMO from the R and D and M. So as I mentioned, the technology we use, the disposable platform and coupled with our processing technology, we can actually reduce our carbon footprint by up to 80%, right? So this is not only the best technology, it's actually also ESG-friendly technology. So as a result, we won so many awards from ESG community, right, on Dow Jones Sustainability Index, MSCI, AAA, EcoVadis, you name it. So I want to summarize, I think for WuXi Biologics, I think the best thing we have is our business model. R will lead to D; D will lead to M. R improve our profitability as we receive more and more milestone payments and eventually royalties. D is our strongest segment, really generating a very strong cash flow and also a very high profit margin. M, give us a couple of years, our M will be as strong as anyone in this community. So looking back to 2024, we believe this is 2024 is a post-COVID normalization and transition year for us. Despite that, we still achieved a 13.1% growth in non-COVID revenue. Adjusted net profit increased 9%, EBITDA increased 14.4%, right? Our R&D revenue actually has a 30% growth last year, right? So looking forward to 2025, we'll see accelerated growth and also improved profitability. So I already mentioned the R, right, plus 50 programs that we're collecting milestone payment. The D part, we continue to make our time line more competitive, continue to win more market share, continue to have win the molecule programs, right? In the M part, we have more PPQs than ever in our company history. We also have several mega blockbuster drugs that we will initiate. So when we look at our portfolio, we actually now see 10 programs potentially with $5 billion sales and the 5 programs potentially will be $10 billion sales. And so those -- when those M manufacturing are hit, our manufacturing will be as big as some of our peers, right? As the company continue to embark in WBS and digital, that will drive increased efficiency of the company. So overall, I want to guide our 2025 revenue growth will be in the range of 12% to 15%. We are actually baking in some uncertainties of the geopolitical environment. And if you look at the continuous operation, basically, excluding revenue from vaccine Ireland, we actually expect a 17% to 20% growth. So this is one of the fastest growth of the CDMO space. As I mentioned earlier, we're doing everything we can also to try to improve profitability in 2025. So with that, I want to thank everyone for investing in WuXi Biologics. I think you will be very, very excited following us in the next couple of years.

Thank you, Chris. Thank you, Ming, for this very comprehensive presentation and congratulations on another year of very good achievement in face of all those pressures. And so now we will start the Q&A session. So let me ask a couple of questions and actually I have to get off, the other one will be managing the Q&A. So I guess people would say clearly, there's some kind of impact from BIOSECURE Act over last year. So what's the overall kind of impact you can tell us, but for that, how much fast we can grow in last year? And also, this year, of course, people were expecting kind of lower interest rate. But given the situation in the U.S., the rates are not going down. So about funding still to be difficult, how do we expect the funding environment in the U.S. would affect our business? I know like our guidance is still quite bullish. And clearly, your provision this acceleration of growth is well underway. So those 2 questions.

I think it's very -- if you ask us to estimate what's the impact of BIOSECURE Act to us in terms of revenue last year versus this year, I think last year, we grew 9.6%. Even there's no BIOSECURE, probably grow more than 10%. So there may be 1% differences last year, and this year, probably only 2%. So instead of 12% to 15%, it was -- if there were no BIOSECURE, maybe this year will grow 14% to 17%. But I think so it's still -- in terms of the extent it's still manageable in terms of BIOSECURE. We hope BIOSECURE will be a past tense and we are moving on in terms of serving the global community. In terms of funding environment, right, so if you look at the WuXi Bio, I always mentioned, I'm very proud. We are the last to feel the pain. We are the first to claim victory, right? So the biotech funding really only impacted us first half of 2023, right? We have -- we only have about 40 projects versus a typical 60 projects. I think that translated into revenue challenge in the first half of 2024. So now I think we already moved beyond that. So I think global community, I already noticed from the global community. So whenever they have money, the first company to think of for WuXi Bio. And that's why even with uneven biotech funding recovery, we have seen the highest number of new projects and seen more higher winning rate from our global community.

Thank you very much, Chris. So maybe we can take the next question. We have questions for next…

The next question comes from Huang Benchen at CMBI. The question is, did we book additional milestone payments in the first quarter of 2025 so far? And how do you expect the total milestone payments can reach in this year? This is the first question.

Yes. As everyone expects, milestone payment is very hard to estimate, based on the program moving to the next phase, next stage. But because now we have so many programs, we think we have a range. I think basically, I think this year, our milestone payment is expected to be maybe between $40 million to $80 million. So I think combined with upfront, so actually it's a very meaningful part of our business and make our profitability -- improve our profitability because of the milestone and upfront payments.

The second question is last year's CapEx is actually lower than the previous guidance. Is there any reason behind? And does the increase in 2025 CapEx contained any delayed payments from last year?

Yes. I think mostly because we are redesigning the U.S. facility. So we could have spent about $100 million last year in U.S. in Worcester, but we delayed that to this year. And that's why this year, you see a higher number. And then last year, you see a lower number. So if you -- even now, then every year it's about $5 billion, right? So I think that the difference is mostly because we delayed the U.S. facility to make it more competitive in the global community. We make it more highly automated. We make it bigger, and we make it more like a model facility or a tower facility in the global community.

The next question comes from UBS, Chen Chen. In last year, pre-IND revenue growth outperformed post R&D. Do you expect pre-IND to decelerate and post-IND to accelerate in this year? And in post-IND, do you expect the Phase III and commercial projects to outperform the early-stage Phase I.

Thanks, Chen. I think because last year, the R&D growth -- R&D growth was already so significant, right? It's a very high base. So I think I don't expect them to grow that fast this year. But we see -- we hope to see continued growth in the R&D part. And then I think the M part will certainly be, see meaningful growth. And that's why we are bullish on this year. We can expect to see a 12% to 15% growth. If you look at the normal continued operation, actually 17% to 20% growth because we expect RD&M all grow. RD&M and XDC, right, if you look at the 4 big components of WuXi Biologics business. So all of them are growing.

The last question from Chen Chen is what's your current market share in global biologics CDMO in terms of RD&M? And how do you expect the share to become 3 years from now?

Yes. I think our D market share is already more than 50%. I think we'll be very happy if we can keep it this way. I think it's very hard to gain more market share. That's why the D will probably grow with the industry. But we expect our M to grow faster than the industry. That's why we said overall, we can be twice the industry growth. Our M market share is hard to estimate, but I think it will probably be less than 10% or around 10%. But hopefully, we go from 10% to 20% to 30%, even to 40%.

The next question comes from [ Chris Chong ] from Goldman Sachs Ziyi's team. The questions are about the margin improvement. First, what is the gross profit improvement expected from Ireland breakeven in this term? And is the utilization rate ramp-up on track? The second question is, what was the margin profile for the discontinued vaccine site?

Ming, do you want to take that question?

Yes, sure. From Ireland standpoint, this year's breakeven is going to give us about 0.6 GP margin of the expansion. The reason here is that it comes with about doubling the revenue from 2024 level and also generate moderate profit in 2025. And then the second question here is -- I'm sorry, can you repeat the second question?

Sure. What was the margin profile for the discontinued vaccine site?

Yes. From the discontinued vaccine site here, the margin is about 15% to 16% GP. So overall, by excluding the vaccine Ireland from our portfolio here, we can see roughly about 90 bps of the margin expansion.

I think that's all the questions for the Q&A session. So okay. Thank you, everyone, for joining today's meeting with us. If you have any follow-up questions, feel free to contact MS team or our WuXi Bio company. Thank you.

Thanks so much. Bye-bye.