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

Okay. I think we can get started. Good evening, good afternoon, good morning, depending on where you are. Welcome. This is Yang, China health care analyst at JPMorgan. It is my pleasure to close WuXi Biologics 2026 Interim Results Conference Call. WuXi Bio just reported a very strong first half with revenue up 18.4% year-over-year and total backlog increased by 30% year-over-year, and the gross margin also expanded to 46.2. So we are expecting a company give us more color on their strong first half. Joining us today are Dr. Chris Chen, CEO; Mr. Ming Tu, CFO; and Dr. Lina Fan, Head of IR. Following prepared remarks, we will move to a Q&A session. [Operator Instructions] Now I'll turn the call over to WuXi Bio management team.

Thank you, Yang. Good morning, good afternoon, good evening, global investors. The panel of our talk is innovation, execution and global scale driving sustainable high growth. I think I want to highlight all 3 aspects: innovation, our innovation on multi-specifics on ADCs, our execution, our speed to deliver projects, our quality, and we can quickly scale from 200 projects to 300 projects for our programs and the global scale, we see more and more manufacturing coming to our site in global, in Ireland, in Germany, in U.S. So our dual site using China to launch the product and then have our global site as a backup as a secondary supplier now really works for our global clients. So this is following the standard deck that I think I always want to open up the slide with this one page to highlight all the business key metrics. So we see a number of projects. One of the key metrics for our growth is growing 23%. It's an unbelievable number. I think -- so now we actually have more than 1,000 projects, 10 64 projects. When I started the company, I was dreaming if we get 500, 800 projects, it will be unbelievable. So now I have more than 1,000 projects. look at the pace we're going right now, it took us 15 years to go from 0 to 1,000 projects. It probably only take us the next 4 to 5 to 6 years. So next 5 years, 6 years to achieve another 1,000 assets. So the first 1,000 assets took us 15 years. The next 1,000 asset may only be 5 to 6 years. That's the pace of our growth. Look at the organic projects growth from 86 first half of last year to 123, again, a 43% growth. Among them, a majority of them are new modality like ADCs and multispecifics, right? I have always say that the commercial manufacturing will be a key growth driver. We are seeing a 17% growth on the number of projects from '24 to '28. So as we have more and more PBQs Phase III programs and the commercial manufacturing, our backlog also grow very nicely. Historically, I always said our backlog is so big, it's very hard to grow. But our backlog only move when we sign $100 million, $500 million deals that can move the needle because it's so big already. As I mentioned earlier that we actually increased our capacity to 300 INDs a year. This is 5 to 10x the capacity of our peers. This shows we really can scale our business. We can capture all the tailwind from the new modalities from ADCs, from bispecifics, from the new AI-enabled molecules and from mRNA modalities. And on the manufacturing side, we can do 40 PPQs that essentially means 20 BLAs a year. For the past 3 years, we have grown our revenue in the teens without a meaningful addition of headcount. So that's why our productivity increased by about 10% a year as our team are fully booked, both in D and M. I D right now, we are already more than 120% booked. In manufacturing, next year, we'll probably be 100% booked. So as a result of this tight labor usage already, we are increasing our headcount significantly. You see year-over-year, our headcount increased by about 17%. Certainly, a majority come from the XTC business, but WuXi Bio, the other business also adding headcount seriously. So that again show our confidence for our accelerated growth. Our retention rate is still very strong at 98.7%. -- that's one of the key reasons we can scale our business from 200 INDs to 300 INDs in about 2 years. And right now, we want to do -- we can do 20 BLAs. If our industry need us to do 30 BLAs, give us a year or 2, we can scale the business. So as Yang mentioned, we have very strong revenue growth, our revenue growth in RMB terms, about 18.4%. But as you know, the U.S. dollar versus RMB has quite a change this year. Our impact is about 500 bps. So if you use U.S. dollar terms or constant currency terms, our growth is actually 23.4%. For the past 4 years, this is the first time we see a growth more than 20%. And that really shows what I promised to global investors at JPMorgan 3 years ago, I said WuXi Biologics is poised for accelerated growth. We go from low teens to high teens, now hopefully to those 20s. Our revenue growth is significant. Our profit growth is even more phenomenal. When you look at adjusted EBITDA growth, profit growth. What's more striking is actually our margin growth. Our adjusted gross margin grew 280 bps. As I mentioned already, RMB also appreciated 500 bps. That translates into a 300 bps downturn -- downward impact to our adjusted gross profit margin. So had the RMB did not appreciate, our margin growth would actually be almost 600 bps that's how impactful our first half business is. As most of you know, second half of last year, we have a very strong AR growth, that actually make our margin significantly better. But this time, our was actually right on target. So this margin expansion does not come from AR, but come from our execution, come from our business product mix, come from our WBS our more thorough, much better management. I think Ming will highlight all those margin growth drivers in his talk in the next 20 minutes or so. So looking at now, our profitability is already at a record high and near record high of the company history. It's comparable to the 5 years ago when we had a very high utilization because of COVID. But the difference is now we have a global site. We have a site in Ireland, we have site in the U.S. that's actually much more higher cost base. So essentially, this can demonstrate even with carrying the U.S. side, Ireland side and the future German side, Singapore side, our margin can still be as good as our peak time in the past couple of years. So as the company continue to evolve, I also still promise investors our margin will continue to improve by about 100 to 150 bps last year. We promised 100 bps last year, we delivered 500 bps. And this year, we delivered another 250 -- 280 bps despite the 300 bps negative pressure from the currency wind. So I think the company is actually doing very well in terms of managing our growth. We have our growth is actually -- we continue to grow very fast with actually improving margin profile. So all our investors are familiar with this funnel. I call this funnel, golden funnel or gold funnel. Today, I'm actually going to call it diamond funnel. So because our funnel already reached 1,000 molecules. It's unbelievable, right? So you see we added 123 projects organically and through acquisition, we added another 46. Among the projects added, actually 2/3 actually come from U.S. and Europe. We are a lot more selective in China in terms of adding new projects. So as I mentioned earlier, our team is already swamped. They are already 120% booked. So as a result, we're actually very selective in China. We're only picking very profitable, very, very promising projects in China. So among the new projects signed, 2/3 come from U.S. and Europe, 1/3 come from China. Among all the projects we signed, actually more than 70%, more than 2/3 are actually new modalities. They are ADCs and multi-specifics where we have higher margin, where they are a lot less competitive, where we actually -- our technology can really help make a huge difference. So our market share on complex modalities are actually much higher than our traditional overall -- overall traditional mAbs or overall portfolio. So as more and more projects are new modalities, looking at the overall portfolio, with 1,000 assets, actually more than 50% are ADCs and multi-specifics. Again, that basically means our per project pricing is higher, our profit margin is higher, and we have a higher opportunity to capture -- to keep the programs in the portfolio because they are much tougher to work on. So the D to M conversion ratio is also high. So our funnel, our diamond funnel is getting healthier and healthier and stickier and stickier. And basically in the project, once they come into the funnel, they don't leave, right? So Win-the-Molecule has always been our strategy. We have seen almost 80% growth of our Win-the-Molecule projects. We won 16 projects in the first half, including 4 late phase and 1 commercial directly, right? I think -- so among the late stage -- among them, 2 of them are actually biosimilars. I will talk about biosimilar later on. This will be a new driver for our manufacturing growth. So overall, with this funnel, now we have 78 late-stage programs, 28 CMO projects is already comparable to the global leaders in CMO. The other reason we call this a diamond funnel now, if you -- we have 500 program, more than 500 program in preclinical, 300 program Phase I, 130 program Phase II. If you do a probability adjust amazingly, almost every line give us about 60 commercial programs when their phase was determined. So essentially for the 525 preclinical program after 6, 7, 8 years, when some of them failed, some of them become approved. So that will give us about 60 to 70 commercial program. For the 300 Phase I give us the same 60, 130 give us 60, 78 with 80% success rate, give us 60. So it's actually amazing. So almost every line here give us about 60 commercial programs. If you add this together, it become almost 280 commercial projects. So that's why I call this a diamond funnel. We only -- currently, we only have 28. But when all those state of those molecules are determined, our commercial project will go by 10x, right? So even if you are -- that's a normal basis, even you assume a worst case, industry failure rate is higher and some projects did not leave us for other manufacturing CMO, will still be at the bottom 200 manufacturing projects. It's unbelievable, right? If you think there's 200 manufacturing projects, if you think every manufacturing project give us a RMB 500 million revenue, which is not very high, which is USD 70 million, USD 80 million. That means this will be RMB 100 billion revenue, RMB 100 billion revenue, USD 15 billion revenue when all the manufacturing are realized. And again, as you know, biologics has a life cycle of 30, 40 years. So the program we're manufacturing today, 10 years from now, when every program, when the state was determined, all the program will still stay. So our manufacturing will go from 28 programs to 200 programs and even 280 programs with the current portfolio. That's how powerful this funnel is. That's how powerful our CRDMO model is. I think that's why -- that's why I have told investors even back in 2017 when we IPO-ed, I said, everything you want to know about WuXi Biologics, you only need to look at the funnel. The funnel tells you everything. That's the beauty of the CRDMO model. So again, I want to highlight this. So with this funnel and with our stickiness of the funnel, we actually can really see a strong, sustainable high growth that's inherent in the WuXi Bio business model. So I already mentioned the project growth, just give you a number, right? During COVID, our project addition is very strong. And post-COVID, it's sort of dipped a little bit, but now it's actually going all-time high, all-time high. So the first half of this year, the overall project grew by 43%, Win-the-Molecule grew by 78%. Why we are so successful with the molecule? Win-the-Molecule is continue very difficult. So biologics manufacturing, biologics is very hard. I use marriage as an example, almost as an analogy. It's almost like getting married. So when someone work with us, almost like getting married because it's a long-term relationship. And we want to manufacture the drug. development takes about 8 years, manufacturing another 30 years. You're talking about 40-year relationship. That's why I use marriage as an example. So the stickiness that's basically the marriage of stickiness. The reason why we are still able to Win-the-Molecule is sometimes our peers actually stumble. And then our clients need to divorce them and then remarry and the new choice they have is WuXi Biologics. That's how hard it is to Win-the-Molecule. But over the past 8 years, we have won more than 128 programs. Win-the-Molecule is also very difficult because it's not your cell line, it's not your format. It's not your process per se. You have to learn about them. An analogy is almost like adopted child. You don't know about they have their own character. You have to be very careful with them. So Win-the-Molecule is actually very, very difficult. But so far, I'm very pleased to share with the global investors. We have won 128 projects. Every project come to WuXi we delivered. So as I mentioned, most of the projects actually -- those are global peers, some they failed the program and then they pick WuXi, WuXi delivered. And some of the other programs are actually large pharma do them in-house, and then they want to find the best home for the program when they have limited in-house capacity. So they actually come to WuXi. So the 128 Win-the-Molecule program is a strong demonstration of our capabilities. So among the Win-the-Molecule program, we already contributed to 13 manufacturing projects. So we only have 28 so far. Almost half of them come from follow the molecule, half of them come from Win-the-Molecule. Last year, we announced our new cell line, which is truly a revolutionary change for our industry, right? We can do the cell line faster, do the -- make the productivity twice as good as our industry standard. So now our cell line has actually become a differentiator, help us win more programs. So if my client -- if my current client has a program that only get 1 gram per liter or 2 gram per liter or even 3 gram per liter at a competitor, we can tell them they come to WuXi, we'll give you 8 or 10. Your cost of goods manufacturing will be 50% or less. And now your drug will be a lot more competitive in the market. Your margin will be significantly higher. I think that's how technology has really translated in technology advantage now is translating into commercial advantage because we want to use our technology to actually win more programs. So Win-the-Molecule is the same, follow the molecule is definitely the same as well. So now every Follow the Molecule client started with the best technology in the industry. So I want to share with you the overall revenue growth. I mean if you look at the revenue growth of the different segment on the AR and early is actually amazing. It's a 27% growth year-over-year growth. U.S. dollar is 32%. The Phase I and Phase II program in the past 2 years, because a few big programs move from D to M, we see a dip I promised Investor will come back. So this time it has already come back. And then the PPQ and commercial, we grew 11% in RMB and 16% in U.S. dollar terms. The reason the growth is slower is because last year, there were a significant inventory build. The last year basis was very high. And then we only added 2 programs early this year. So as we add more program, as the program move forward, our manufacturing growth will still accelerate. So I still anticipate next 3 years, our manufacturing growth CAGR will be 30%. That basically means next year will grow much faster than this year. The year after in '28 will be even faster. So I think that's the growth dynamics of the company. If you look at the region, it's actually very exciting that we see China and the Rest of the World now have the fastest growth. Traditionally, North America has been very largest market, very strong growth. This year continue to be the same. In North America, about almost 60% revenue or 14% growth, very, very decent. 14% because the base is so big, right? It's already 60% revenue. Europe, 70% of revenue as big as China and with a flat growth this year, mostly because we divested our Ireland site. And China, as I said, in the past years, it is like a flat, sometimes even negative growth, but now we see a 51% growth. This is actually in the condition -- under the conditions we are picking projects in China. We're very selective. We're only identifying high promising projects in China. We work with them. So Chinese market now contribution is as strong as Europe. And as I mentioned earlier, Rest of the World, we see a significant growth and now getting close to 10% revenue. So we have 4 engines all firing at a different rate, and that gives us a very strong balanced growth. So I already mentioned years and years, the backlog -- our backlog is so big, it's actually very hard to grow. But fortunately, as we sign more and more R&D projects, the milestone backlog will grow and we sign more and more manufacturing projects, our service backlog will grow. So for the first time, we see a significant growth of the service backlog and the backlog within 3 years, all because of manufacturing projects. We have 78 PPQ -- 78 Phase III program and 28 commercial programs. So the backlog growth give us more assurance. Again, if you look at the funnel, you know our manufacturing will grow. But the backlog give you more assurance that near term, the growth is already there. So look at the distribution of the different projects. As you see, bispecific growing at very fast at 32% rate, but the ADC growing even faster at 46%. So now bispecific and ADCs are already more than half of the company portfolio. Again, that's -- because they are harder to do, they have less competition. That basically means our project is even stickier. Once they get into the funnel, they don't leave. So I've been telling investors for traditional map, maybe there are 10 companies that are as good as us. But once you go to ADCs, maybe only 4 to 5, but you go to multispecific, only 2 or 3. So the multi-specific ADCs, globally, there are only 2 or 3 -- 2 to 5 players that are as good as us. That's why it's less competition. That's why it's higher premium pricing. That's why it's also better margin. That's one of the main drivers for us to continue to improve our margin because the margin profile for those new modalities are significantly better than the traditional commodity maps or [indiscernible] maps. So mentioned bispecifics. So now this is already 20% of the company's revenue, it grow from a few percent to 20% in about 3 years. And it's still -- last year, we see more than doubling of this growth, more than 100% growth, right? So that's why it grew to about 18% last year. Now this year is almost 20% of revenue and it's still growing 30%. And multi-specifics really show the entire strength of WuXi's CRDMO model. I've been telling you over and over again, we have a very strong CD3 platform that will give us upfront payment milestone royalties. So on our part, our multi-specific platform is strongest. On the D part, we have the largest portfolio. Even in manufacturing part, we have 3 projects already. That's already -- globally, there are only 20 commercial programs approved. So we expect these 3 to be generating -- for all 3 programs to be generating $100 million of revenue for us next couple of years. The earliest one maybe even as early as next year. So one of the bispecifics will achieving $100 million of revenue for us starting in 2027. And hopefully, the other one will be 2028 or 2029. So all the current 3 programs will be generating $100 million revenue for us each. And that to us is a very large volume manufacturing projects. We have 3 PPQs scheduled this year. I think I already mentioned that the multi is very, very hard to do on the right side is all the technical details I don't want to highlight because I already mentioned that to global investor last year. So with that, I'll hand over to Ming for a more detailed financial review.

Thank you, Chris. So now I'm going to present our financial results for the first half of 2026. This slide here gives us the highlights of our financial performance in this reporting period. First, revenue, thanks to the strong biotech funding environment and also our share gains, our revenue continued to grow at an accelerated pace. As you can see that our revenue reached RMB 11.8 billion, 18.4% increase over the prior reporting period. The average U.S. dollar to RMB conversion rate declined from the [indiscernible] in the first half of last year to about 6.83% in the first half of this year. If we adjusted the 5 points of the FX impact, our revenue growth on constant currency basis reached 23.4%. Our revenue increase in the first half was driven by RDM, all the 3 cylinders. Our research and discovery services segment, we were able to sustain the momentum from last year, continue to reach the fruitions from our innovative platforms after bispecific, multispecific and ADC. Milestone income from the past discovery projects almost reached USD 40 million in the first half. At the same time, our research protein production services delivered 40% of the growth year-over-year. We also have a full pipeline of the new discovery projects ongoing. The momentum of our will accelerate in the second half of this year and continue into the foreseeable future. On development side, thanks to the strong biotech funding environment and also our share, we achieved a revenue growth for about 32% year-over-year on a constant currency basis. Thanks to the 123 new projects we scored in the first half, among which 107 were the pre-IND phase. This is a new record for any of the half year reporting period, representing over 60% of the global presence in the space. Our process optimization and the productivity improvement also enabled us to shorten the DNA to R&D conversion cycle to about 6 months. The early phase revenue also increased 15% year-over-year on a U.S. dollar basis as more pre-R&D projects are moving through the Diamond funnel at an accelerated pace. On manufacturing side, with the successful execution of our solo and Win-the-Molecule strategies. More and more projects were advancing into the later stages. Win-the-Molecule strategy also added 16 projects to our portfolio with about 5 in the late stage, including 1 CMO project from a global bipharma and also a couple of the biosimilar projects. Now we have 78 projects in Phase III and 28 in commercial manufacturing stage. And the volume of these late-stage projects are ramping up steadily with the growth of our clients' drug sales. Overall, late phase and the commercial manufacturing revenue grew over 16% in the reporting period and now representing over 40% of our total portfolio in the first half. From a modality perspective, bispecific, multispecific and ADC continue to be the key growth pillar in our portfolio, contributed 55% of our overall revenue in the first half and over 70% of our new orders. Moving over to gross profit, which increased about RMB 1.2 billion to over RMB 5.4 billion in the first half. The walking 28.1% growth in GP also gave us 350 bps of the lift in the IFRS GP margin and also 280 bps expansion in the adjusted GP margin. We have been talking about the FX headwind since the second half of last year. U.S. dollar continues its precipitous fall in the first half of this year. For every percentage point of the U.S. dollar devaluation will see roughly about 60 bps of the gross margin impact. So we absorbed roughly 3 points of the FX headwind. So on a constant currency basis, our GP margin could have extended over 6 points in the first half. The key drivers behind the GP margin expansion were from volume leverage. As we increased our top line by 23.4%, while we still keep our head count increase at a slower pace. And we continue to tap into our existing capacities with much improved utilization in the first half. The 4 points of the volume leverage here more than offset the 3 points after FX induced the margin compression. Secondly, the productivity improvement from WBS, our lean manufacturing implementation also gave us about 150 bps of the margin improvement. The moderate from development sector also expanded 1 point, largely driven by the productivity improvement and also the higher margins delivered by the complex modalities as a bispecific and ADC now represent more than half of the pre-IND portfolio. At the same time, the profitability from rate base and manufacturing sector continue to meet or exceed our expectations as the overall plant utilization continued to improve throughout the first half of 2026. Excluding share-based compensation, our adjusted gross profit margin stood at 48.4%, 280 bps improvement year-over-year, define the 3 points of the FX headwind, retaining our leading position in the global CDMO industry. Moving on to adjusted EBITDA, which is a proxy of our operating cash generation capabilities, increased about 24.9% to about RMB 5.4 billion during the reporting period. This, together with our working capital and CapEx management, enabled us to generate $1.5 billion of the positive free cash flow. The adjusted EBITDA margin rate also expanded by 230 bps to 45.6%, one of the highest in the global CDMO industry. Adjusted net profit is the IFRS base net profit, excluding the impact of foreign exchange gain and losses, share-based compensation, fair value gain and losses from our investment portfolios. This is a proxy for our business profitability under the continuous operations. As you can see from the chart that our adjusted net profit increased a walking 38.6% year-over-year, exceeding 3.9 billion which also give us a margin expansion of almost 5 points to 33.4%. The adjusted net profit margin expansion was largely driven by the $1.2 billion of the adjusted GP increases, partially offset by the increase in SG&A as we continue to expand our global coverage in business development and also invest in R&D and digitization. Chris, next page, please. This slide here shows our strong profitability growth over the past 5 years and also in the first half of this year. As you can see that all these financial metrics are improving year-over-year despite of the unprecedented FX headwind. Our IFRS-based net profit has grown at a CAGR of 13.1% during the past 5 years and now exceeded CNY 5.7 billion in 2025. In the first half of this year, IFRS net profit increased 5.8% to reach $2.9 billion. There are several cross currency here. First, we recorded $600 million of the gain from our investment in a biotech company, [indiscernible] IPO in April last year. This gave us a very difficult comparison year-over-year. Secondly, we also had about $0.5 billion of unrealized FX loss in the first half due to the U.S. dollar devaluation, which negatively impacted the translation of our U.S. dollar cash and also U.S. dollar-denominated accounts receivable. On the flip side, our gross margin increased $1.2 billion year-over-year, more than offset the negative comparisons on the investment gains from last reporting period and also the unrealized FX translation losses and still enabled us to deliver 5.8% of the IFRS net profit growth. IFRS net profit attributable to the owners of the company grew by 4.3% in the first half, slightly lower than the net profit due to the minority interest pickup from FCC and also our 51% subsidiary, [indiscernible]. Basic EPS grew from $0.58 to $0.60 per share, 340 bps increase, largely in line with the IFRS net profit attributable to the owners of the company. The quantum leave here is in the adjusted EPS, which grew 37.3% year-over-year from $0.59 in the first half of last year to $0.81 in the first half of this year. After we excluded share-based compensation investment gain losses and also unrealized FX translation impacts. Here, the most important metric is the adjusted EPS as it strips out the onetime noncash impact and it is the best profitability indicator of our continuous operations. Next page, please, Chris. This is here gives us more detail into our gross profit and the cost components. As we talked about in the first half of this year, our gross profit margin was 46.2%, a 350 bps expansion from the same period last year, a multiyear high post-COVID. Excluding the $300 million of the share-based compensation, our adjusted gross margin stood at 48.4%, 280 bps improvement year-over-year. All these gross margin metrics were reported on an R&D basis with 3% of the FX headwind fully absorbed. In other words, our GP and also adjusted GP margin could have expanded by 6 points on constant currency basis. As we discussed earlier, the remarkable gross margin expansion in this reporting period was primarily driven by the operating leverage from the 23.4% top line growth on a U.S. dollar basis, improved capacity utilization and also the ongoing productivity gains through WBS and digitization initiatives. You can see the composition of our cost components in the second half below with roughly 16% in labor costs, 19% in material and 18.8% in overhead, which includes maintenance, utilities and also depreciation of the manufacturing facilities. Labor cost component continues downward trends as -- was a couple of percentage points lower than our historical average as we focus on labor productivity improvement. For capital, revenue generation has been a crucial KPI for all our business units. As I mentioned earlier, the total number of the employees increased at a slower pace in this reporting period than our top line growth year-over-year. The material cost as a percent of revenue also improved 60 bps due to the productivity gains, yield improvements and also the mix impact from the higher growth from the development sector in our portfolio. The composition of our overhead component decreased about 240 bps year-over-year, largely due to the impact of the volume leverage as we grew our top line by 23% by tapping into our existing capacities with a much improved utilization rate. Hence, the overhead composition within our revenue decreased year-over-year. Also in 2025, as part of our ongoing initiatives to optimize our global manufacturing footprint to improve the return on our assets. We divested our vaccine facility in Ireland and also our DP facilities in Germany. These divestitures also helped us to reduce the fixed overhead costs in the first half. Next page, please, please. Page 18 here is about the liquidity. At WuXi Biologics, we have a strong balance sheet and a solid cash position. As of the end of first half, we had about RMB 13.7 billion cash on hand sufficient funds to support our accelerated growth globally. Compared to the beginning of the year, our overall cash balances decreased about RMB 2 billion in this reporting period, largely due to the RMB 1.3 billion of the share buyback program as a return for our investors. XDC's acquisition of filed leading for RMB 1.2 billion and also XDC's retirement of RMB 700 million of the onshore loans. All these cash outflows were partially covered by our RMB 1.5 billion of the free cash inflow from the operation cycle. In the second half of this year, we're going to have more cash inflows from our balance sheet optimization, such as the divestiture of the [indiscernible] that Dr. Chen will present later. So all these cash inflows here will also let us focus more on our core CRDMO business to support our global capacity expansion, share buybacks and potentially M&A activities. At WuXi Biologics, we always have a conservative funding strategy. For our RMB 65 billion balance sheet, we only have about $700 million of the debt, most of which are working capital facilities. And our gearing ratio, which is defined as an interest-bearing debt over equity is nearly 1.2%, 80 bps lower than the end of last year. At the same time, we have closed 7 billion of the bank facilities to tap into if we need to. Our CapEx spending in the first half was about RMB 2.8 billion, mainly for our capacity expansion in Singapore and in the U.S. and also WuXi's new facility in China. Subtracting working capital occupation and also tax payments. Our free cash inflow in the first half was RMB 1.5 billion, a new record in our history in the first half of the fiscal year. Overall, our capital projects in this year are still on track. With some optimization here, our CapEx spending for the fiscal year 2026 will be about RMB 7.1 billion. But to meet the surge in demand, we will allocate more capital to capacity expansion next year. So our CapEx projection in 2027 will be approximately RMB 8 billion. With our operating cash generation capabilities from the business growth, our focus on working capital management and CapEx prioritization we are committed to delivering positive free cash flow in a meaningful way in 2026 and also in the foreseeable future. Now I'm going to pass the stage back to Chris to share more insight into our business operations and technology innovations in the first half.

Yes. Thank you. Really, I want to give a global investor an update on our D&M. The most exciting part of business is essentially is the out-licensing business, where we receive upfront payment, milestone payment and royalties. I think this total payment already reached more than $100 million last year. We probably -- it will still be more than $100 million this year. And I also mentioned that this was one of the main reasons our margin improved significantly in the second half of last year. But the first half of this year, margin improvement come from the product mix come from the better utilization of the asset and come from our own management, WBS, right? So look at the potential exciting milestone payment and royalties down the road. All the key programs are listed here. I think in terms of the milestones, quite a few CD3 bispecific program from GSK, the Merck CD3 CD19 programs, the BioNTech B7-H3 ADCs, those are near-term catalysts for receiving payment, both on milestone payment and eventually on royalties. I think we continue to work on more and more programs. I think every year, we want to license additional programs to global large pharma, to biotech companies so that we can receive them. So these programs 50 program, 50 royalty-bearing programs will generate a significant amount of royalties potentially in 2030 in the range of $100 million and eventually maybe even more than $500 million. So this will be a significant profit booster for us down the road. So as I mentioned, WuXi has a very exciting CDMO model, our funnel, our diamond funnel tell you everything about WuXi. Our economics at WuXi is also very different because we have the R component, we have a royalty component. So our profit margin from the assets is significantly better than the traditional CMO. So even on the manufacturing alone, because we have a cell line -- we have very high pro cell lines, tell cell line royalties. So our economics are also better than traditional CMO. So the R part will bring us a significant royalty component. The D part, even the D part give us a very minimal cell line royalty. So I think what I listed here are different scenarios that you can see the profitability of WuXi versus our peers. So again, I use a big product as an example. If the royalty is 5% then actually, this is for Merck, BioNTech, Vertex, Lilly, Gilead, GSK, for all the programs, when they receive $1 billion sales, they actually give me $150 million next year right away, right? And then if they give us 100% manufacturing, my manufacturing revenue is also $50 million. So basically it means the profit come from the royalty is actually 3 or 4x higher than the profit from manufacturing, 100% manufacturing, right? So certainly give us less manufacturing, the profitability is even higher. This again showcase the greatness of the WuXi CRDMO model. If we have AR for $1 billion sales drug, our net profit is actually $53 million. right? I mean versus traditional CMO, right, most of our industry peers, traditional CMO, their profit is actually $13.2 million. If you look at the bottom, the lightest column to the right column, the bottom, $13.2 million for traditional CMO for $1 billion drug. But for WuXi, our profit could be as high as $53.2 million. So maybe 4x higher in terms of profitability. That's how exciting our business model is. So even if the program is 100% manufactured by someone else, my profit margin is still 3x higher than a traditional CMO. That's the beauty of WuXi CRDMO model. So even if a worst-case scenario where someone decided not to manufacture WuXi, our cell line royalty still give us about 30% of the profit of manufacturing alone. I think this is, again, all those are the beauty of our business model. That's a very quick update on. On the D part, I think the most significant message I want to share with you is that we increased our capacity from 200 to 300 in just 2 years. Again, last year, our capacity was only 150, right, last year -- last year, 2 years ago, it was only 150. Last year, we increased it to 200. Now we're going to increase to 300 because we see the pie is getting bigger and bigger. We also get a bigger slice of the pie. And also with AI-enabled molecules, we plan to see more and more molecules coming to our way. And we are getting ready for a new wave of more and more projects. That's why we increased the capacity by 50% in 2 years. This again shows our strong execution. If you ask do manufacturing for you, you almost like you got an insurance policy. Look at our success rate, 99% for the past -- this is the past 8 years. But for the past 10 years, it's almost the same number, right? So that's why company trust us despite all those noise about the geopolitics, about tariff, about trade issues, right? And then if you look at the number of PPQs, which is a leading indicator of manufacturing growth, right, we have our PPQ number grow significantly in the past couple of years, right? If you -- 2022 was a local peak was a peak because of COVID. We have many, many COVID projects. So half of them are COVID project. If you take -- if you divide -- if you remove the COVID project, 2022 was only about 10, 11. And then '23, 16, '24, 16. But '25 become 28. And this year, we are already doing 34. As of now, next year, we're doing 30. And you know we have another 18 -- another 14 months to sign new projects. So most likely next year, this number will be record high as well. So this number of PPQs really give us, again, a strong evidence of manufacturing revenue will grow substantially will become a bigger contribution to the company. The other amazing fact is that 100% of the PPQ so far are successful. That's our execution. That's our track record. That's our quality. I think I mentioned to investors last time, every PPQ, if you look at the next 10 years, the total contract from the PPQ could be $100 million, could be even $200 -- and if you look at the 30 PPQ, that basically 34 PPQ down this year, that basically means about $3.4 billion backlog or $3.4 million to $6 billion backlog once those PPQ programs become successful and once then they become a commercial product. That's why we are so confident about our manufacturing growth because all the leading indicators tell us it's going to be a hockey stick growth for manufacturing. Last year, I mentioned earlier that our technology leadership now start to translate into commercial leadership, commercial success, higher winning rate of the projects. So our cell line technology now proven to give us even a much stronger opportunity in biosimilars Traditionally, biosimilars was not a big chunk of our business. Among the more than 1,000 projects, we have 17. So it's less than 2%. But this 2% will probably become 5% in 2 or 3 years and maybe even become 6% or 7% in the portfolio in the next couple of years, right? That's because with the new cell line, we can develop a product that's 30% to 50% less costly compared to our peers and then maybe half the scale. So traditionally -- previously, if you need to use a 12,000-meter reactor, stmlesssteel reactor, now you can use a 5,000iter disposable bioreactor. So this actually become -- make our disposable bioreactor more and more competitive. So I already mentioned that we have less than 20 programs right now, but we already have 20 programs committed over the next 3 years. We're talking about additional 10. We have opportunity -- additional opportunity of 30 -- so essentially, we have 20 program right now. Next 5 years, we may go in for 16, and that's a 3x increase. So the biosimilar segment in a couple of years can give us $1 billion revenue, $1 billion revenue, and that's actually comparable to our total size as of today. So this new segment will give us almost double our manufacturing revenue in the next couple of years, right? I think that's how exciting our technology leadership translating into commercial success and is very, very meaningful. So as you know, a novel product go from D to M to commercial is 8 years. For biosimilar, it's probably 4 years, in half. So that's why our manufacturing growth will be faster and faster. So since we're talking about manufacturing, we think we have 4 key pillars that can really give us a strong conviction that our manufacturing will grow. Follow the Molecule, starting next year, every year, we have more than 5 programs get approved. And that's a program, novel molecules that will treat different disease, cancer, autoimmune, CNS, right? So if you add next 3 years together, will be 20 approvals. So we only have 28 programs so far. So next 3 years give us about 20. So that basically means by 2029, we actually have almost 50 commercial programs. By 2030, we may have 60 commercial programs. So the number of programs will double in the next 4 years. That give us evident revenue growth. Our Win-the-Molecule, as I already mentioned, with the molecule is stronger and stronger. With the new cell line, we can even accelerate with the molecule. With molecule already contributed half of the commercial programs. almost half now and will continue to play a big factor. biosimilar. So each segment can give us $1 billion revenue growth in the next couple of years. That's why our manufacturing is so meaningful, right? And lastly, our drug product. Our drug product currently account for about 10% of the company revenue, but it's growing at a CAGR of 40%. So it will become a $1 billion franchise in the next couple of years. And that, again, adds to our biosimilar manufacturing growth. So just the last line on the drug product side, our DP lines will increase -- our DP capacity will increase by fourfold in the next 3 years because we have so many programs, so many demand in there. DP -- so cell line is a good technology. DP is another technology that we have technology leadership that it will be converting to a commercial success. We cannot talk about the manufacturing without a very powerful quality track record. So far, every time FDA comes to WuXi, every agency comes to WuXi, every inspection will pass. As I mentioned to global investor, FDA actually waived 4 PLI inspection for us. EMA waived more than a dozen. So we have 20 -- 2020 scenarios when FDA and EMA actually cross our data, they actually don't even inspect us, where, as you know, some of our peers are already getting in trouble with FDA on [ 483s ] on warning letters, right, on the inspection delays. So, so far, we are the best student in the class with 100% success on every regulatory inspection. We hope to keep it this way and then quality will become a competitive advantage will become a moat for the WuXi Biologics business. So as over the past 5 years, we have built an incredible network of 5 research centers, 10 development centers, 18 manufacturing centers globally, very diversified. And if you look at the manufacturing, in the next couple of years, 50% of manufacturing capacity will be outside of China versus development, 95% of development capabilities are in China, 5% are in the U.S. Talking about the U.S., we already have a full supply chain scenario in the U.S. We have clinical manufacturing, commercial manufacturing, DES and DP. I think our first PPQ is ongoing in the U.S. right now. And as we finish the PPQ, we have our first commercial facility in the U.S. Hopefully, the product will be approved. It's a bispecific as well. Hopefully product will approve in the next year or 2, and we'll have a first commercial product in the U.S. As you know, our focus has been in Singapore. XTC has already opened the running -- TC already turned the GMP facility into GMP operation for both conjugation and drug product. So this is our global site, fastest global site readiness. From beginning to now it's only less about 2 years. So we're doing the same for drug product. As I mentioned drug product is going to be a big business for us. We invested about a couple of hundred million dollars in Singapore to build a drug product facility with 5 lines that will eventually give us maybe around $500 million revenue from Singapore alone. As I mentioned drug product could be a franchise of $1 billion. Singapore alone could contribute to half of that. So as the number of projects come in very quickly, we are also looking at buying additional facility in China for -- if we can because as you know, buying a facility actually cost only $0.50 for dollar. But if you build one, it costs $1, but it also takes 3 years. So buying a facility and retrofit typically take a year. So you're saving 2 years of time and also saving 50% of CapEx. So whenever possible, we're buying additional capacity in China. And if there's no high-quality facility in China, then we'll build. So we'll both be building and buying in China. That's why we're going to be spending RMB 3 billion in the next 2 years in China to build and buy facilities. The [ Chengdu ] facility, microbial is actually going to be ready next -- end of this year. We already have a commercial program. This also set us very well for GLP compound. So if some companies want to use fermentation to make GLP, we are ready for that as well. So that's the GMP facility in Chengdu. So I already mentioned that WuXi has invested in digital and AI in the past couple of years to make sure we leverage all those tools. So all those actually -- we are building the industry most advanced digital platform to capture -- to improve our efficiency, to capture all the data in one place, and this including our client portal, our digital twin of the lab and digital twin of the manufacturing process. So our Pro Lab is our digital tin manufacturing process. At one point in the next couple of years, we may be able to ask AI to run the facility on our behalf instead of running the facility with the human. So as I mentioned, we want to focus our capital. We're actually diversifying best [indiscernible] is eventually backup supply chain we did 8 years ago. We did acquisition 7 years ago. And we -- now with the global supply chain fully established, we don't really need this business anymore. That's why we're divesting it and we get a very good return of investment. And this investment can then be channeled to up build our new facilities, buying facility in China or even buy back shares. I think every time I share with investors, I'm thrilled to give you an update on our technology. We are talking about the cell line formulation technology in the past. Today, I want to update you on the ADC technology. I think Jim may have already updated you on the -- from the ADC teleconference. As ADC becoming more and more important, I think so the conjugation technology is very important. We have called WuXi -- we use elegant chemistry. This is actually very, very elegant. We use a simple chemistry. We don't need to use enzyme. We don't need to engineer antibody. We can actually do a site-specific conjugation. It's called [ WuXi DAR ]. We can do [indiscernible] mostly for ADC. D1 is for antibody oligo conjugate and DAR8 can be for ADC as well. So this is our own platform technology we have applied to more than 10 projects, 8 of them are already in clinical development, right? We also have developed our own payload linker. This is the WuXi [indiscernible], the WuXi [indiscernible], a novel payload, the DDR, the immune agonist, I think all those payload. So I think TC traditionally has been mostly focused on D&M. Now that our partner TC will also becoming -- the royalty bearing component of TC business will start -- has already started last year will becoming hopefully very, very meaningful in the next years to come. cell line, I already updated you a few times. What I really want to show you is this is really, really cool. And again, with this cell line, we can be another couple of months faster on the process development, and we can make our partner cost of goods about half of the industry, right? And then that's why biosimilar turned out to be a perfect case, case study for those new cell line. And this cell line is also a good case for us to win more projects, win projects. Again, if someone else develop a cell line a couple of years ago for a company, we can go in and tell them that I can help you do a new cell line, which is you make your cost of manufacturing half. So they're investing $10 million, you're going to get $100 million back in the next couple of years. That's a very good return on investment. So Ming already mentioned the WuXi Business System, essentially our way of lean manufacturing has already contributed 150 bps. I think that is one of the main reasons we said we can do 100 to 150 bps improvement every year. Even though we are already very good in every aspect, but we can still improve. This is the powerful nature of the WBS, WuXi Business System. We look at the material savings, look at labor efficiency, look at the cost savings, look at how do we get higher revenue, how do we improve quality with the WBS. As a global company come out of China, we are very proud that our ESG ratings continue to be very high. We rank always top 1% in most -- almost best rating in almost all the rating agencies, right, Dow Jones, EcoVadis, we are all global 1%. MSCI is AAA. I think so Sustainytics is also the best rating as well. So in summary, I think if you divide the Bio business into 3 segments, by multispecific where the RDM's very, very clear. That's the best segment for us. AEC, you can see the FC growth. mAb, although it's antibody, but we've been doing this for 10 years, a lot of them getting into manufacturing. So FcRn programs, IDM-1R,D19,1S, IL-23, IL-17, TL1A, TR, IgAN. So all those manufacturing programs, some of them are going to be blockbusters or even potentially mega blockbusters. This, again, all 3 segments will give us a very exciting growth in the years to come. So to summarize, I think the first half, for the first time in U.S. dollar term, we see actually 20-plus percent growth, right? Our GP margin growth is actually 350 bps. But if you look at the currency, give us a 300 bps downturn. So our margin actually grew almost 650 bps, and that's unbelievable. And again, that's where the normal, right? Our contribution is normal. It's mostly through our product mix, utilization and WBS. I think this profitability is also sustainable. That's why not only our margin will maintain this next year, we actually wanted to improve by another 100 or 150 bps next year. So because RGM are all doing very well. And looking at forward -- looking forward to later part of this year, we're actually raising the guidance in dollar terms -- in constant currency terms, we raised revenue guidance to 20% to 23% from 16% to 20%. So it's actually a very significant raise. And in R&D term, we're raising it also to 15% to 18%. The reason we are so confident because we see a profitable growth, we see a stronger demand. We see a technology differentiation becoming increasingly commercial. We really see visibility in manufacturing growth. And lastly, we are well positioned to capture all the incremental demand from AI and from mRNA, the next-generation therapeutic platform because we have been incubating those platforms for years. I think we incubated bispecific ADC in 2017, 2018, now it's paying off. So we have incubating AI-enabled molecules and also mRNA platform for the past 5 years. I think this will be beneficial for us in the next couple of years. So again, we continue to see a 20% revenue CAGR over the next 3 years. Our manufacturing revenue CAGR will be even as high as 30%. And we'll see more and more programs that can generate $100 million of revenue for us, even including bispecific next year. So thank you.

Thank you for Dr. Chen and comprehensive introduction and remarks. Now we are going to start our Q&A session. I want to remind you, please take your questions in our Q&A box, and then we'll read your questions. Our pause for 10 to 20 seconds. And I say we already have a question in Q&A. Jan, are you going to announce the question? Yes. I will read questions Yes. So first question is all from Laurence Tam from Morgan Stanley. So as like to understand what's kind of a difference between biosimilar contracts versus those branded drug or novel drugs biologic contracts?

That's a great question. So Laurence, as I mentioned earlier, we won those product by technology, not by discount. So the terms are almost very similar to novo programs. So in terms of the revenue, it's actually higher because for Novo, you just develop your cell line, that's it. For biosimilar, you have to tune it to match the original program. For development revenue, it's actually 20% to 50% higher than traditional manufacturing. But for manufacturing, it's almost the same. So that's why I was saying for 20 biosimilar program we're signing in the next couple of years. If each program give us a $60 million revenue, that's $1 billion manufacturing revenue. And that also come sooner because it only takes 4 or 5 years, so to get approved instead of 8 or 10 years. So the 20 program we're signing this next 3 years will give us $1 billion revenue when those programs become commercial. So that's another 4 or 5 years down the road. I think that's how powerful this biosimilar become really a strong driver for our near-term manufacturing growth.

Okay. Understood. Okay. Understood. And actually, I also have a question from my side. So it looks like the company is going to have more and more commercial projects, and it's also very likely we are going to see continued growth acceleration for the next few years. So if -- and the company just give us a guidance for the 2026, I know we are still away from next year and 2028. But I would like to kind of understand how should we think about those kind of magnitude of potential growth acceleration in the next few years?

Well, that's why we said our growth CAGR on the top line side will be at least 20%. On the margin side, we want to expand our margin by 100, 150 bps a year. So at a minimum.

Is that sailing we have given to the investors we give a bottom number, right?

This is the bottom. This is a baseline case. I think, as you know, if you do a model, if you see our manufacturing growth will really accelerate, I think the growth will probably be in the mid-20s next couple of years. So growth actually will accelerate. So truly, you see growth acceleration. Basically, '26 is better than '25, '27 is better than '26 and then '28 is better than 27%. So every year, we hope our growth pick up a couple of points.

Yes, understood. And here we have Chris Tan from Goldman Sachs team. He would like to ask about AIDD projects. So for AIDD projects, what type of service the company is providing? What -- who are the clients for those AIDD projects from biotech or tech companies or pharma companies?