Good morning, everybody, for the people who are dialing in from the US, good evening for everybody in Asia. Thank you very much for participating in today's WuXi earnings conference call. My name is Sean Wu. I cover China Healthcare at Morgan Stanley. Today, it's my great honor to host this earnings conference call for 2022 annual results.
As you can see, WuXi Biologics delivered another very solid results. I think clearly management is going to discuss things in detail, they are also going to provide their outlook. Participating in today's call, Company CEO Chris Chen, Company CFO Min Tu, IR Director Eileen Wang. This company will be conducted in English, it will be followed by a Q&A session. You can put it into your question into the general comment box. Without further ado, I'll pass over to Dr. Chen. You can start your presentation.
Sean, thank you. Thank you. It's really great to be here again to share with you our exciting 2022 annual results. Yeah. This is how I'm going to present. I'm going to cover the annual results. Then, I really want to introduce the investors our WuXi operating system with WBS.
As you will continue to see the benefit from the WBS that we have been implementing in the past 2 years. Then we'll cover briefly ESG. Our CFO will cover the financial review, and we'll end with a summary and growth outlook. To most investors, this should be a very familiar slide. I think I want to use 1 slide to summarize what we have achieved in 2022.
On the left side is operational metrics, on the right side is actually the financial. On the left side, you can see, despite all the headwinds we have last year, I think, 2022, we delivered still incredible results from operational side.
We our number of projects grow from 480 to 588, the largest portfolio. Our non-COVID, we actually the project, non-COVID traditional business delivered 62.8% growth. We added 136 projects and a record high. If you exclude COVID, 127, actually that's, you know, the highest ever for internal number of projects. Our commercial project grow from nine to 17, also very exciting. Our total backlog.
I always advise investors that don't count on us to deliver strong growth in backlog because it's very, very hard. Yet, we actually last year, we delivered, you know, our backlog grow from $13 billion, more than $13 billion to more than $20 billion. It's incredible growth because our CMO, lease-based and CMO contracts.
As a result of the exciting portfolio growth, we are increasing our capacity from 156,000 liter to 262,000 liter. A big, a significant portion of this capacity increase is actually outside of China, in US, in Cranbury, and in Ireland, near Dublin. We continue to be able to recruit and retain best people for our business. On the left side is the operational metrics, on the right side is financial.
You see our revenue on top line growth of 48%, very exciting. Adjust gross profit margin, very stable. Adjust net profit, all right, grow 47% from RMB 3.44 billion to RMB 5.05 billion. Adjust net profit margin, also very stable, 33.4% to 33.1%.
Our EPS still show very exciting growth of 31%. I think we summarize all those results in this slide as well. What I wanna highlight really the adjusted EBITDA margin. I think, you know, we continue to be able to maintain a very high, very similar EBITDA margin of 44.9% last year. Our adjust net profit margin was 33%.
On the financial side, we also have plenty of cash. I think as of end of last year, we have RMB 8.7 billion of cash. Our total liabilities to equity ratio is also very healthy, that's 36.9%. We do have sufficient funds for capacity expansion from our own operations.
As I will talk about later on, that we actually achieve free cash flow positive so that, you know, we have sufficient funds from our internal operations to fund our CapEx and future expansion. In terms of loans, we have a very decent number of loans, RMB 2.8 billion borrowing. Our operating cash flow, a very healthy growth of 61.5%.
That actually enable us to achieve free cash flow positive. Last year, we actually completed about $800 million share buyback, equivalent to about almost 96 million shares. I think those are equivalent to about three years of total RCU issue.
I think that really help on the EPS growth side. In terms of CapEx, our last year CapEx was $5.4 billion. We managed it very carefully for all those capacity expansion in Europe, in U.S., and in China. Continuing forward, we still maintain a very healthy CapEx investment, about RMB 6 billion, I think this year and next year we continue to see the great demand for our business and for our services.
That's why we continue to invest in the capacities. I think last year, if you look at all three segments that we operate in, it's actually showing Our pre-IND revenue grow 45.8%. Very healthy growth considering how much market share we already have, how big our operation is, right? As you know, this is a very exciting growth.
Our mid-phase, basically the program in phase I and phase II, actually delivered a fantastic, you know, results. It almost more than, you know, exactly doubled basically from 2022 to 2021. We attributed this to the program that was affected by COVID now start to resume to activities, you know, clinical activity.
Programs start to move from phase 1 to phase 2, from phase 2 to phase 3. I think this is a very exciting growth. This is also the first time in our company history we see that, you know, this segment grow faster than the pre-IND or this commercial CMO.
Typically, if you look at the three segment, typically the pre-IND grow very fast, and then the late phase grow also very fast, and the middle one typically mediocre growth. This is actually the first time we see very exciting growth in the phase program in phase 1 and phase 2, right? From this, we don't really see the impact of biotech funding. We don't really see you see actually exciting acceleration of the program in phase 1 and phase 2.
I think that basically means we'll have more phase 3 programs and hopefully more commercial programs down the road. Lastly, the phase 3 and commercial program, we see a very strong growth from 39%. If you take out COVID, the growth is actually even more exciting, it's actually 78%. When you look at the right side, you now you see what it meant.
Overall, our overall non-COVID business grow 62.8%. Now COVID, because of very large base in 2021, grew only 12%, right? Most of the COVID program are in the phase 3 and commercial program. That's why you know, go back to the left side again, right? You see if we have three engines, right?
The pre-IND traditionally is very strong growth. We have very high market share already. We still very enjoy very healthy 45.8% growth. The mid-phase, the phase 1 and phase 2, very exciting, you know, double in that period. That will give us more phase 3 programs. The phase 3 and commercial, you know, we do see a very exciting growth as well if you take out COVID.
You have 78% growth in that segment. This slide gives you a similar message, basically saying that our non-COVID revenue actually, you know, will drive the growth with a strong, very strong momentum. On the left chart, you see basically with the number of projects we added and total projects, right?
If you take out the COVID project, we still added 124 non-COVID projects in 2021. We added 127 last year. Last year there were so many headwinds, right? You talk about biotech funding, you talk about zero COVID policy in China, that clients couldn't visit us for the past three years. You talk about UVL, talk about global, and the headlines in our daily lives, right?
Despite all those headwinds, we actually still achieve record number of projects in term of 127 non-COVID programs. On the right side you see our, you know, the growth. In 2021, we delivered a non-COVID revenue growth of 64.2%. In 2022 was 62%.
This year we still expect a 60% growth on a traditional non-COVID revenue business. That basically means our 3-year CAGR of our non-COVID revenue is actually 62%. We're reaffirming that we can deliver 60%, 62% CAGR growth for our non-COVID business.
I think we are, you know, one of the companies that can, you know, benefited from the COVID revenue quite a bit in the past 3 years, but also emerging from the COVID from the post-COVID era with still very, very exciting growth of, you know, of 62% CAGR in the past 3 years. Most of you are already familiar with that WuXi, we call ourself CRDMO, right? You know CMO and you know CDMO.
I think, you know, we start to apply this business model for CRDMO a couple years ago. I think we got another validation, another confirmation that this business model is the right way. Earlier this year, we had a very good deal with GSK, where GSK licensed our platform for four more molecules.
The, you know, if all four program will be successful, we're actually gonna be receiving about $1.46 billion of milestone payment. On top of this, we still have tier royalties. We, you know, we already received $40 million upfront payment for this program. This is a good demonstration or validation of our platform, you know. You know, for those exciting platform, behind it are two key technology.
One of them is a bispecific platform, it's called WuXiBody. One of them is our CD3 molecule that we are, we optimize and develop. Just those platform, it took us probably about 4 years. We started working on those back in 2014.
We had, you know, a very good result back in 2018. In the past couple of years, we keep optimizing, improving it. Finally this year, we get a validation from global MNC saying that our platform may be best in class. They're willing to work with us, you know, pay us a very good business deal for those, for our platform. I think this continues to show our CRDMO model.
For those R, for example, the program is, again, if the all four program are successful, we're actually receiving almost more than, almost $1.5 billion worth of milestone payment. On top of that, I will have royalties. This R will also lead to D. Basically, all the four program would be developed at WuXi, and hopefully some of the program will be manufactured at WuXi.
What's more exciting is actually, if the program is successful, the royalties from this program could eventually be even higher than the profit from the manufacturing. This showcase our business model is really different from a traditional CMO model, right? Everyone knows CMO, very exciting. You know, WuXi partner, the CDMO, very exciting. The D model into M. Our part, we're actually adding another, you know, a growth element into our business.
Basically saying, you know, we'll have continue to see more milestone payment, more royalties down the road. This is a slide I already shared earlier this year at JP Morgan Conference, but I continue to see this, the importance of this. I always tell investors, you know, if you look at WuXi, you only need to know those four numbers, right?
How many projects we added this, you know, last year? 136. Record high, right? You know, how many commercial programs? 17. How many programs in phase three? 37. How many total programs? 588. I think as long as we see decent growth of those numbers, the business will actually follow. Because WuXi, we have already proven ourselves, we can execute, right? Once the project come in, we can deliver.
Project will be, you know, once the project come in, we'll convert it to revenue. We'll convert the R into D. We'll convert D into M. I think that's our business model. Follow the molecule, win the molecules. I think it's very exciting. I think what's more exciting actually is our late phase and commercial program is coming in at a faster pace than that we are planning. Right now we, even the first three months of this year, we have already added 3 phase 3 program. We're negotiating another 4 phase 3 program and 2 commercial products. As early as April, we'll be able to sign another 6 programs.
That basically means on the first 4 months of this year, we actually adding 9 programs in late phase. We currently only have 37, right? Cumulative. I think this will show you really our late phase and CMO accelerate. Now will contribute to near term, you know, strong growth. That's why I said, when you look at WuXi, you only need to know on-those 4 numbers.
I have always been very proud of our backlog. As a, you know, you see this, you know, tens of billions of backlog between service and milestone payment. I have always advised that in backlog, actually very hard to increase unless we have a hugely large sum of contracts. Last year was an exception.
You see our backlog actually grow from $13.6 billion to actually $20.6 billion. Our backlog actually grow $7 billion. That's because the program we're signing, a lot of late phase and commercial program we're signing. We are, you know, we are looking at a long-term commitment from our clients. They're willing to work with us for the next five years or even ten years for manufacturing.
That's why you see a huge boost of our backlog. Again, this is a strong evidence, a strong demonstration that our business will continue to grow. You know, WuXi Biologics will deliver sustainable high growth for our investors because you see, you know, again, I have advised you saying the backlog wouldn't grow, but our backlog grew almost 50% last year. It's incredible.
This, you know, this backlog will be a five-year contract, ten-year contract. Even if you only look at three years, our backlog still grow a very healthy 30% from $2.8 billion, $2.9 billion to actually $3.6 billion in there. If you look at our portfolio, it's very exciting. You see a very good growth of our bispecific antibody grow, you know, 37%. ADCs grow amazing, 57%. The vaccines grow, you know, more than 100%, more than double, right. You know, this is the largest portfolio of any company in this space. You know, we have 211 first-in-class programs. We have 99 bispecific programs. We have 94 ADC programs.
For bispecific and the ADC, I think we have more portfolio than any companies, in either as a pharma company or as a service company, basically any company in this space. That both work very well. Basically, if you think this is the industry for the future, if you think this segment will come in more blockbusters, for both bispecific and ADCs, WuXi Biologics will most likely benefit because we have the largest portion of the portfolio.
I just wanna give you one example. Last year, US FDA approved 20 INDs. We actually counted as 8 of them. So 40% market share in the US ADC INDs. It should be very similar for our bispecific, a very high market share.
For those newer modalities, for those more exciting modalities, bispecific and the ADC, we actually have higher market share than traditional antibody or overall biologics. I think that again, that's the additional growth driver for the company to deliver value to our, our investors. Again, last year I mentioned we have so many headwinds, but our win the molecule business continues to do well, right.
Again, if you read the headlines, it actually, you know, make it very difficult for WuXi Biologics to win projects. In the results actually show that we still won 5 late phase and 3 phase I and phase II. As I mentioned earlier, this year actually our pace actually accelerate. The first half of this year, we should've won at least 10 projects.
Most of them are actually phase III and commercial. Win the molecule continue to be complementing our follow the molecule strategy, give us more near-term boost on late phase programs. That will also give us a stronger growth in the near term. Sorry, we have a phone ringing there. If you look at our follow the molecule and win the molecule strategy, it's been driving very robust growth right now as you see.
You know, the number of projects. If you look at our number of projects, we actually, you know, you see before COVID, on average, we are getting about 60 projects a year. Post-COVID, on average, we're getting 120.
During COVID time, we still able to deliver so many COVID projects to our clients at incredible speed at 100% success rate, very good execution. We actually got more trust from global companies looking at WuXi. I think that's why, you know, you're seeing a new project adding, continue to double. Again, last year with all those headwinds.
This year we continue to believe that we will add another 120 projects to the overall portfolio. You know, you see, as I already mentioned, follow the molecule project most likely will accelerate this year. We continue to believe we can add the same amount of projects than the past couple of years on the new projects and our win the molecule will actually accelerate. Next slide.
On the commercial side, this is also very exciting part, right? Back in 2017, we only have 1 commercial projects. Now, last year, we already have 17. This year, we believe we have additional 4 to 6, so that will bring us to 21 to 23. You know, this will give us very obvious growth.
I think FDA is coming to visit us in a couple of weeks, we are actually doing, expecting 2 product approvals, you know, once following those inspections. I think so in all those, you know, rapid growth of the commercial manufacturing will really drive us near-term growth, give us near-term growth. Right? We're expecting our commercial program will also almost double from here.
Last year was 17 programs, and in 2025, we're expecting 32-38 programs. Very exciting. To win the molecule and follow the molecule, both of them are actually driving the CMO growth. If you look at, you know, this is the really the customer, a deep dive on our customer data looking at the past 8 years, right?
You know, you see with every year we're continuing to add new clients. Even at the current pace, we're still adding more than about 130 clients a year. Again, with all those headwinds, right? You know, if you look at our new clients added every year, now almost equal to our total clients back in 2015.
The average revenue was from top 10 customers continue to improve because every program, the program is going to a later phase, and the client is giving us more projects. Our clients diversification is very good. Top 20 clients only account for 52% of revenue. Average revenue from every project also increased because the complexity of the project, also because program move to late phase.
I think all those metrics continue to do well. I think, you know, that again, that is showing the right business model we have been implementing. During COVID, we are very excited to announce that. You know, COVID actually did not disrupt our supply chain, so we are able to deliver all those revenue, COVID or non-COVID, right? What's the reason behind that?
Because we have built a very robust global network. We have two research centers globally. We have eight development center globally, we have nine manufacturing. When Shanghai was locked down last year, our business was not affected at all because we have seven other development centers we can move the business to.
We can move business from Shanghai to Wuxi City, to Hangzhou, to Suzhou, or even to Cranbury, New Jersey. Commercial manufacturing, we're building nine of them, including Ireland, Germany, and U.S. I think that will, and basically Singapore. That will give us enough diversification to mitigate the risk that, you know, all of us are facing in this current environment.
I'm very pleased to share with you that, during COVID, in the past three years, we actually built an end-to-end supply chain in U.S. and Europe. If a client wants to do a project with us, and if they, We can actually do it without operations in China at all. You know, we can start the project in Cranbury, New Jersey, where on the first, on the first segment, it's called MFG18, where we can start with DNA to IND.
We can move the project to Ireland or Germany for manufacturing. Ireland, I want to start with the MFG18 first. MFG18 is a clinical manufacturing facility with R&D. We, you know, started the operation about three years ago when we acquired a facility. We built a lab.
Actually, last year, we already attracted 10 new clients to WuXi Bio. Operational-wise, we're progressing very well. We already achieved almost a breakeven at GP level. I think we're expecting very strong growth in 2023, this year and next year. We're building a commercial manufacturing facility in near Boston, called Worcester, Massachusetts.
I think this facility will be ready in 2025. This, you know, again, eventually we'll be able to do end-to-end in U.S. by 2025. Right now, we complement the early phase R activity in U.S. with late phase and commercial program in Ireland and Germany. Ireland, we make a big investment in Ireland with building 2 manufacturing facilities in there.
I'm very happy to report to you that we actually have 5 late phase programs signed in Ireland. We're probably targeting another 4 next year. It's a very strong endorsement from the global community. I think the 5 programs, you know, 3 of them are actually, is a dual source within WuXi. Basically, we already have manufactured both of them in China, and we wanna double, basically cover 100% of the volume by supplying them from Ireland as well.
The 2 additional program actually is to win the molecule from client directly. The remaining 4, all of them are win the molecule program. Clients actually come into WuXi for the first time with a new program, either in-house or from another CMO. The plan.
Right now we're looking at probably at 60% utilization by 2025 and about one year earlier than we have budgeted and planned. Once we fill the Ireland facility, we also, you know, shift the focus to Germany, where we're building. We already have a 12,000 in the capacity. We'll double the capacity to 24,000 in by next year.
I think we already have an late- stage program started, and we'll be doing that in year one next quarter. Once we are, you know, that's the drug substance and our drug product facility in Germany is already fully licensed. We actually have multiple projects ongoing. Again, you know, during COVID, we actually achieve a lot.
We actually build end whole, entire end-to-end supply chain during COVID in U.S. and Europe and now start to benefit from those. This is the most exciting slide I wanna share with you, I think, among the entire slide deck, right? I think, you know, if you look at, look at last year, we have, you know, sustainable, sustained high growth in every region.
North America, we actually, our revenue percentage is higher than last year and higher than probably than last two years. We achieve 55.6% revenue. Our growth is fantastic, 62.5% growth, right? When you look at this number, you don't see biotech funding slow down. You don't see the impact of UBL, right? You don't see the headline differences between China and the U.S., right?
Certainly, without the China, U.S. tension, we could even do even better. Despite all those headwinds, we actually deliver 62.5% growth in North America. Europe now account for a bigger percentage, 16.7%. Previously it's always around 10%, now it's getting to, you know, 17%. If you look at overall Europe growth is now very exciting, 11%. 2021 was a big base 'cause we delivered hundreds of millions dose of vaccine for AstraZeneca. If you take out COVID revenue, our Europe growth is actually 150%. Basically Europe exactly, we will continue to see strong growth in Europe.
Our non-COVID revenue grow 150% last year in Europe. Our number of projects we signed last year versus the year before is actually 3x growth. Now Switzerland become our third-largest market, and the UK is our fourth-largest market. I'm expecting Switzerland actually will soon overtake China to become our second-largest market.
That's how exciting it is from Europe to WuXi Biologics. We expect we'll continue the strong performance in Europe from the European market. China. Last year, we delivered a fantastic 48% growth. It's mostly because of COVID vaccine revenue. Rest of the world very small, 3% revenue, but we see a very strong growth also because of CMO projects and in Japan.
We have another CMO project in Korea, so we're expecting this year our international, basically rest of the world, Japan, Korea will also continue to grow, very strong growth. That's why I said, you know, this is a very exciting slide. If you look at almost every segment, right? You know, we see a shining point, a highlight in every segment.
You don't see all those headlines in those numbers, and you don't see the impact of biotech funding. You don't see the impact of, you know, the COVID policies in China, the COVID lockdowns in China impacting our clients and so our revenue growth. Very exciting. We believe this will continue. U.S. market will continue to be very strong. European market will grow faster than every other market.
China will be strong, but will probably be slowest among all the segments. Japan and Korea, as I mentioned, we continue to have more commercial projects from Japan and Korea, and that segment will grow as well. Exactly all four engines are firing, you know, although US and Europe are actually firing at faster rate than the other regions, you know, this year. If you look at the past, you know, five or six years, very exciting for WuXi Biologics. Let's look at the right side first. You know, we started with about 2.4% market share when we IPO in Hong Kong back in 2017.
You know, 6 years later, right, 5 years later, we are already, you know, our market share increased 5 times, almost 5 times, more than 5 times to 12.8%. We've become global number two, I think in term of the biologics market share, right? When we IPO, the top 6 company probably only account for about 30% market share at that time.
We see a huge consolidation towards top players. Now last year, you think the top 6 players already account for 66% market share. We're expecting the top 6 will contribute to 80% market share in the next couple years. This is a winner-take-all market. I think You know, top 6 players eventually will take 80% market share in the next couple of years.
That bodes well for us, you know, for us, for WuXi Biologics, for all those companies in top six. Basically all of us will be gaining, continue to gain more market share from the market. If you look at the operation, if you look at every metrics, it's as exciting last year as the year before. It's probably more exciting in many ways, right? Last year, we actually delivered 123 INDs. That basically means 123 new drugs was moving to the patient because of WuXi Biologics. If you look at the global competitors, a lot of them couldn't even deliver 23. Basically, you know, we deliver 123. Most of our competitors deliver less than 23.
That's the how strong we are in the D part, in the CD, CRDMO or the D part, you know, we are the strongest in that, in that segment. You know, we delivered more than 3, you know, 3,000 kilograms of COVID antibody, I mentioned already. That's a treatment for 3 million patients. You know, we, you know, all those metrics you look at on R&D part is actually very exciting.
In the manufacturing part, it's as exciting, right? We deliver so many campaigns at a 100% success rate. That's why, you know, despite all those headwinds, WuXi Biologics continue to win business is because of track record, right? If you look at this page, you know, no other competitor can have this track record.
Because of this track record, you know, client feels WuXi Biologics because despite the risk, WuXi Biologics is still the preferred partner for biotech companies and for large pharma. I think Morgan Stanley did a survey earlier this year, you know, we come out as top choice for biotech companies. We come out as, you know, top four choices as large pharma.
We continue to believe that our position in large pharma will continue to improve because of, you know, we've been only working with large pharma for the past couple of years, most significantly. I want to give you a couple of updates on, you know, very exciting growth area. I mentioned bispecific, very exciting growth, and WuXiBody play a key role in that. Again, we launched this WuXiBody platform back in 2018.
We have 39 programs in this. I think GSK are part of this WuXiBody platform. You know, this go back to our strategy and always been right. When the industry needs a new technology, we have it, and we have it at right timing. As you just go back to our strategy, go back to our execution, go back to our investment.
Looking back, you know, we made it right bet that the bispecific will be a key modality for new projects. You know, the same thing for ADC. You know, we made a bet a couple of years ago to invest in ADC capabilities. As I mentioned earlier, last year, we have 40% US market share on the US IND. We have 94 programs total.
We're working with 265 companies globally. On ADC, on Conjugate, we are actually the global premier leader in the space. On vaccines, we continue to do well. As you know, vaccine, back in 2019, we have one project. Now we are working with 21 companies on 44 projects. I think very exciting growth. Certainly, you know, I already mentioned that we deliver hundreds of million doses of COVID vaccines for AstraZeneca.
With all the previous success, including in following the molecule strategy or with the molecule strategy for our global clients on CMO, quality is actually the baseline, it's the foundation. We have already passed 27 regulatory inspections. As of now, we already passed 28 because we have one inspection from China earlier this year.
We're expecting 2 more in the next couple of weeks. By end of this year, this number hopefully will grow to more than 30. I think this form a strong foundation for us to attract new business for, on CMO. It, you know, those quality track record take years to build. For us, on the CMO part, it took us 5 years to get here today.
zFor new companies in the space, probably take even 10 years to get to where we are today. Quality become a huge barrier for our competitors. You know, that's why I say this market is the winner take all, because the top companies has access to clients, have access to capital, have access to talent, and have strong quality barriers for others to follow.
If you look at the, you know, talent has always been a key prerequisite for our success. You know, we have been very pleased, you know, you know, when, you know, when WuXi first started 11 years ago, we have 70 people. Now we have 12,000 people. Our retention rate, overall retention rate is 91% overall, and 95% for our key talent.
We have, you know, we really have the culture to recruit, develop, and retain top talent. I think that's the foundation for our future success. Lastly, I wanna give you an update on the UVL. I think every one of you know that, you know, we were put on UVL on February, 10 months later, we were successfully removed both entities.
I think through the process, we actually established a mechanism to have direct dialogue with the BIS. I think this is something we did not have before. This is probably, you know, one of the good results coming out from the UVL. I think the successful delisting from UVL also demonstrate that WuXi Biologics does have global standards and a global practice.
Our compliance system is very strong. It's the reason we are on UVL is because, you know, the US could not inspect us because of COVID. That's the update I want to give it to you. I want to introduce you a very exciting business system that we have developed over the past two years. It's called WBS, WuXi Biologics Business System.
I think as a company grow from 70 people to 12,000 people, we have always been looking at how can we improve efficiency. You know, we are a decent sized company now. How do we learn from the company with a good operation, right?
We learn from Toyota, we learn from General Electric, who has a pioneer lean culture, and we learn from Danaher, you know, who is a DBS. Danaher Business System is really the world leader. We learn from all those pioneers in the industry to develop our own system called WuXi Business System. Really looking at every area to be lean. Lean culture, lean mindset, and with all the toolbox to improve our operations.
I think the toolbox, you probably, you know, most of you probably know some, know about those. Is a Kaizen, it's a value stream mapping, it's a, you know, standard work, it's 5S. In the end, I think what we want to do is actually we wanna stimulate every employee's potential. We wanna deliver on value. We want really be good at everything we do, being efficient, being lean.
We have only been doing this for about 1.5 years, we actually achieved incredible results. We've probably seen about 100 basis point improvement on our P&L last year because of WBS. This year we have even more ambition. We actually wanted to deliver 300 basis point improvement by our own operation. I think, you know, this.
this is a very ambitious target, but I think, you know, WBS to WuXi Biologics, I tell every employee at WuXi Biologics that WBS is not an option. It's our way of working, it's our culture, it's how we work to improve our, you know, and drive business success. I think this year we hope to achieve 300 basis points improvement on our baseline, on our P&L based on WBS.
Next year, in the next three years, we hope to achieve at least 100 basis points every year on top of this. By 2025, hopefully we'll be very lean or we'll be one of the best companies, you know, people can be very proud of.
Our operations are very lean in efficient. The next segment I want to spend a couple minutes on ESG. ESG is very important to us. I think we wanna be a global leader, and we also need to be a leader in ESG. I think if you look at all the 2022 deliverables, we are, you know, I think we are making great progress, and that's recognizing all the award that we receive from global communities, right?
You know, we have improving our governance, enabling clients. I'm not gonna spend too much time on it. Empowering people. 47% of our manager positions are already female in the company. A comparison of about maybe 25% a couple years ago. You know, 53% of the employee are female.
Our company now have 49 nationalities. You know, essentially, the DEI is actually hugely important to us, empowering people. Growing our business. You know, we continue to see, you know, 18% of we continue to target 18% reduction of our water intensity, 50% reduction of our green gas emission, and 10%, you know, reduction of our waste.
All those are, you know, in the end, our business goal is to green our business. We also set up a net zero policy. By 2025, we achieve our target. You know, if you ever spend time in China or in Ireland, I strongly encourage you to visit our facility. Our facility near Beijing is our newest facility in China.
Our facility in Ireland is our newest facility globally. At WuXi Biologics, we have a philosophy. Every new site will be greener than the previous site. That's why I wanted you to visit. Some of you investors already visited our facility near MFG8, in Hebei. Some of you already visited the Ireland facility. You'll probably be very amazed.
It's state-of-the-art technology, very good people, very good execution, but also it's greener. Our Ireland facility is probably greenest among any global facility in terms of... Ireland, we're already using renewable energy. Well, you know, because of facility design, we use a lot less water, a lot less detergents, a lot less chemicals. You know, our output is great.
Our Ireland facility should maybe is the greenest facility, greenest biologic facility you can ever see. When you tour our facility, near Hebei, in Hebei near Beijing, you'll see every batch we produce. We can actually show you what's our emission, how much carbon emission we have, you know, how much electricity, how much carbon emission, and how much waste we put, we actually, you know, generate through every batch.
Lastly, we're very happy to report to you that we actually achieved a bronze medal in EcoVadis score. EcoVadis essentially is a, is a, you know, a couple of large pharma. You know, they form alliance to say, you know, to help ESG, to help green the community.
How do we what do we ask from our supplier? Essentially, this is a minimum requirement for all the partners who work with large pharma, and this is what we need to do. If we fail EcoVadis score, we will not be able to work with all those companies listed below, right? This actually become a huge barrier for a lot of new CMOs because EcoVadis has very high standard.
We're very happy that we actually achieved EcoVadis bronze medal. That basically means we already met the minimum criteria to work with all those companies in terms of ESG. We'll continue to improve, hopefully we'll become a silver medal and eventually gold medal.
I think this is a, you know, this, you know, this actually become a barrier for new entries, also, you know, a very good incentive for WuXi Biologics to continue to invest in ESG. With that, I'll hand over to Min to talk about our financials.
Thank you, Chris. Now I'm going to talk about our financial performance. Our revenue and profitability continue to grow into the record territory. Page 40 gives the highlights in financial highlights in 2022. First, revenue. As you can see that, last year, our revenue exceeded $15.2 billion, a 48.4% increase over the fiscal year 2021, continuing our journey of exponential growth over the past 9 years with a CAGR of 61.4%.
The 48.4% revenue growth last year was primarily driven by the successful execution of our follow and win the molecule strategy with more customers, more projects, and more revenue per project, as more and more projects are advancing from the early stage to later stages, and also the early stages becomes more complex.
Secondly, the significant growth of revenue from the late phase and the commercial manufacturing contributed significantly. Now they represent almost half of our portfolio. The 46% increase in our pre-IND revenue enabled by our unique CRDMO model. The 100% growth in early phase revenue powered by our biologics development activity. The 63% revenue surge from the non-COVID sector, while the demand from COVID sector is still strong, albeit growing at a decelerating phase.
Also, the exciting new growth platforms such as ADC and bispecifics also contributed significantly to our robust growth in 2022. Of course, our capacity expansion and the integration of the acquired assets are also key enablers for us to achieve this significant growth on our top line. Gross profit increased by more than 39% to approximately RMB 6.7 billion.
The increase here in gross profit was primarily attributed to the robust revenue growth, the high utilization of our existing and the new manufacturing facilities, the high productivities from our development sector despite of the COVID constraints, and of course, our constant improvement of the operations efficiencies with WBS as our lean culture.
The group's revenue growth exceeded the gross profit growth in the re-reporting period due to a higher CMD-related items such as share-based compensation, material inflation, and also new site ramping up impacts as we continue to invest in talent acquisition and retention, capacity expansion, R&D, and also global footprint expansion to assure the long-term sustainable growth. Excluding the share-based compensation, our adjusted gross profit grew about 47% in line with our top line growth.
Adjusted EBITDA, which is a proxy of our operating cash generation capability, increased by more than 49% to RMB 6.9 billion. The adjusted EBITDA margin was just shy of 45%, a 30 bps extension year-over-year. Adjusted net profit is the GAAP-based net profit, excluding the impact of foreign exchange gains, share-based compensation, and also fair value gains from our investment portfolio.
This is a proxy of our business profitability under continuous operations. As you can see that, the adjusted net profit increased 47.1% from RMB 3.4 billion in 2021 to RMB 5.1 billion in 2022. The increase in adjusted net profit margin was primarily contributed by the surge in gross profit and was partially offset by the increases in R&D, SG&A, and the tax expenses. Next page, please.
Slide 41 illustrates our consistent growth over the past nine years on GAAP-based net profit, net profit attributable to the owners of the company, earnings per share, and also adjusted earnings per share. You can see that our net profit has grown more than 108 times between 2014 and 2022 and exceeded RMB 4.5 billion last year.
The RMB 1 billion increase was about 30% year-over-year. Net profit attributable to shareholders also increased 30.5% during the reporting period to reach RMB 4.4 billion. Diluted earning per share increased by more than 31% year-over-year to exceed RMB 1 yuan per share. Adjusted EPS on a diluted basis increased to 50.7% to RMB 1.13 yuan.
Again, the most important metrics here is the adjusted earnings per share, as it strips out share-based compensation, foreign exchange hedging results, investment gains and losses impacts. It is a true indicator of our sustainable operating performance. Next page, please. Slide 42 gives you more insight into our gross margin. In 2022, our gross margin was about 44%.
Excluding share-based compensation, our adjusted gross margin reached 50%, one of the best in the industry. You can see the composition of our cost components in the stack bars below, with roughly about 20% in labor costs, 21% in material, and about 15% in overhead, which includes maintenance, utilities, and depreciation of the manufacturing facilities.
Compared to 2021, labor costs as a percentage of revenue increased by about 3 points, largely driven by the increase of the share-based compensation due to the RSU, restricted stock units amortization cycle. Our COGS as a percentage of revenue improved with the productivity gains throughout the year. Material costs as a percentage of the revenue decreased 1.6%, largely driven by the project mix at different life cycle.
With the early phase projects growing a little bit faster than the late phase ones. The continuous material usage improvement, near perfect execution in our batch success rates also contributed to the reduction of the material costs and offset inflationary impacts. Our overheads increased 1.3 percentage points due to the new capacity coming online and also the depreciations associated with the capacity expansion.
With the ramping up of the utilization rate at the new facilities and also the weight of the depreciation in our cost structure will gradually decrease over time. Next page, please. Page 43 presents us the evolution of our return on equity over the past six years. In 2017, our year of IPO, our return on equity was only 6.3%.
Over the years of improvement, our ROE reached 10.7 in 2021 and further surged to 12.6 last year. On the right-hand side of the page, you can see the reported ROEs of our three global peers in the CDMO industry. As you can see, at WuXi Biologics, with an ROE of 12.6%, we're leading the industry now.
The reason our ROE historically was in the upper single digits range was because the consistent, or I should say persistent in-investment in our people, capacity, technology, and the global footprint. Take a drug substance capacity as an example. We increased our capacity eightfold from 35,000 liter in 2017 to 262K by the end of last year.
The biologics industry is such a long cycle business that it could take 8 to years to go from DNA to BLA to commercialization. Similarly, building a world-class biologics facility is also a journey. From engineering study to construction to mechanical completion to GMP certification, it can take 2 to 3 years. After that, commercial arrangements, custom acceptance, quality certifications, and gradually climbing the utilization curve could also take another 2 to 3 years or even longer.
That's why our ROE was lagging our investment when we were expanding. The good news here is that now with our profitability continuing to surge, while our CapEx stabilizes, we can reap the fruitions of the past investments and see our ROE surpass our peers and maintain at a range of 12% to 15%. Secondly, as we all know, ROE is also a function of a leverage ratio.
Ever since our IPO, we have been following a very conservative funding strategy with very limited debt funding. Hence, our ROE might appear lower without leverage, but it brings us more financial stabilities and flexibilities in the long run. Next page, please. Page 44 is about free cash flow. Last year at WuXi Biologics, we achieved a positive free cash flow, a critical milestone in our company's growth.
As we just talked about, ever since our IPO in 2017, we have been consistently investing in our capacity to build a world-class CRDMO. At the same time, we grew our operating cash flow 14 times to reach $5.5 billion last year and financed our $5.4 billion CapEx with our own operating cash flow. Cumulatively, we have spent over $4 billion on CapEx during the past 6 years to support the business growth.
As Chris mentioned earlier, we will continue to strengthen our global manufacturing footprint in the US, Ireland, Germany, and Singapore. Our targeted CapEx for 2023 and 2024 will be about RMB 6 billion. Our goal this year is to continue to deliver positive free cash flow using our own cash inflow here. I'm going to pass the baton back to Chris to summarize our achievements and also talk about our future.
Thank you, Min. Yeah, I think this is a industry report talking about this our space, basically global biologics CDMO, how the market is gonna grow. We are very excited. Min has already presented to you over the past eight years, we are growing twice, more than twice faster than the industry.
You know, our top line growth was 60%, whereas the industry growth was only less than 20%, we grow almost like three times the industry. In the next couple of years, when industry is growing probably around, you know, 14% to 18%, our goal is still to maintain this momentum to grow twice the industry. How can we do that, right?
How can we grow, even with the current size, with a 12.8% global market share, with a global number two business, how can we still grow twice the industry? We believe our business model, the CRDMO really is a key, right? You know, being a pure CMO, right?
You know, being a pure CMO, the demand is really, you know, the company may be subject to the demand, you know. When you put a new facility online, the margin will fluctuate quite a bit, right? We have the D part to complement that. The M, you know, as soon as you put a new facility online, your margin will be impacted by it.
I'll talk about our Ireland facility later on when we put it online. Being a CMO, the margin will always be, you know, sort of up and down, up and down, be somewhat cyclical, right. With the CDMO, the D part always gives us a very stable margin, and with WBS actually improve margin year-over-year. We see RDMO, the R will give us a milestone in oncology. Although small, but the R part will actually have a big impact on the P and on the profitability of the company. We believe we have a perfect business model with CRDMO, right. Each balance each other.
You know, so our business overall, we're coming to see some year D will be driving the business, some year M will be driving the business, some year maybe eventually R will actually be a big driver as well, right? You see for the first 10 years of the past 12 years, the first 7 years, D is the main driver. For the past 5 years, M starts to be the driver.
You know, starting this year, R will play a bigger role as well. The CRDMO model will really be, you know, be perfect in term of the delivering sustainable high growth. What's more exciting, we have already demonstrated over and over again, D will lead to M, right? That's our follow the molecule strategy.
Now, you know, when we move upstream, R will also lead to D. With the GSK deal, the full program will also be doing the D and will also be doing the M. Actually, for most of the R program, we actually have the option to sign exclusive manufacturing deals.
So far we have six programs where 100% manufacture will be done in WuXi. Most of them originally from R. You know, with our R, we manufacture 100% D and eventually possibly 100% M. I think now you see the beauty of the CRDMO model. That's why I have the confidence to say, you know, even with the current size, we'll still be growing twice the industry.
I want to give you a very good, you know, very brief summary. I think again, despite all the external challenges, the business and financial metrics in 2022 was actually, you know, a best ever, right? We achieved free cash flow positive. We can fund our own operations with our growth. We can, you know, we can invest $1 billion every year.
That will generate about, you know, $1.5 billion revenue in 3 to 5 years with our own operations. You know, you know, if you take out the COVID, we actually added the highest number of projects last year. Our win the molecule continued to accelerate. As I mentioned, last year, we won 11. This year, the first four months, we won 9.
Most of all of them are actually basically in commercial. If you include the early phase program, we have already achieved, the first 4 months, we achieved everything we won in 2022. That's the acceleration. If you still remember the first slide, one of the earlier slides where we talk about all 3 phases. The pre-IND phase, last year growth was 48%.
The clinical phase growth was 100%. The phase 3 and commercial, if you take out the COVID, was 78%, right? It's, it's, you know... Again, you know, pre-IND grew 48%, clinical grew 100%, and phase 3 and commercial, non-COVID grew 78%. Growth all, you know, again, if you look at all those, it's very exciting.
I just already highlighted to you the unique CRDMO model. Lastly, as you know, over the past 10 years, you have seen us with very good execution. You have seen us with very good M&A strategy. All M&A has been proven to be successful at WuXi. You know, we invested in WuXiBody, you know we invested in bispecific, you know we invested in ADC, you know, before industry need it, right?
We have really a very good strategy. Count on WuXi Biologics to do the right thing and do it well. With this, I want to give you a growth outlook. I think we are still very confident, you know, 2023 will deliver very strong top line and bottom line growth despite all the challenges, right?
For the past 3 years, most of our facility are 100% utilization. We really need some time to tune the facility and also to overcome the potential issues from the headlines. We actually bring online Ireland facility, Ireland, Germany, US at the same time. When you bring online a new facility, the utilization is always lower because you need to ramp up slowly to make sure that everything's done well, right?
I think despite all those factors, we are very confident our top line will grow 30% this year. Our adjusted net profit will grow 26% this year, more than 26%. I think I mentioned that we are bringing online Ireland, Germany, and US all at the same time.
Just this 3 facility alone will reduce our margin by 450 basis points this year. I think this year will hit hardest. Next year we're actually seeing a 150 basis point improvement on the margin just because of the better utilization of those facilities. The year after, another 200 basis point improvement.
Basically all those facilities, you will see a minimum impact to our margin, and more contribution actually back, you know, when we go to 2025. Again, I have already mentioned we wanna continue sustainable high growth in the next couple of years. For 2023 to 2025, we still want aiming for 2x industry growth.
Our target on top line is 30% growth, and on the adjusted net profit is still 26% high, basically high 20s. I think with the current size, I'm hoping that investors, you know, you're still convinced that WuXi Biologics can deliver sustainable high growth. I also want to point out to you that after 3 years of super growth, you know, the past 3 years, super growth, capturing all those COVID opportunities, COVID antibodies, COVID vaccine, you know, our team really need to transition from high COVID revenue to low COVID revenue.
As I mentioned, some of our facility hasn't been shut down for a while. We need to go fix the facility. We need to go improve the facility. We also learned a lot about how to operate the facility during the peak time. Again, we have been operating the facility at 100%, so we need some time to improve the facility. That will happen in the first 6 months of this year. To make it harder for us, in the first half of 2022 also was a record period for the company in terms of financials, right?
That's where all our facility are 100% utilization. Every employee is contributing a lot more than typical. I think we have a very strong first half of 2022 as a baseline. That's why you see our first half 2023, you will see a slower revenue growth and profit growth. I think overall, second half 2023, our growth will accelerate.
Full year, again, we'll still achieve 30% top line and 26%, more than 26% adjusted net profit growth. For the next 3 years, we are maintaining the same guidance, a 3-year CAGR of top line 30% and profit growth of 26%. Thank you for your attention.
Thank you, Chris. To... I mean For this very comprehensive presentation. It's always exciting every time I heard Dr. Chen giving presentation, I would like to rush out and buy some shares. Unfortunately, we are not allowed to do that. Let's now start a Q&A session. I've seen lots of questions online. Unfortunately, we may not be able to go through all the questions one by one because of the time constraints.
Let me start a quick question, maybe, then I will go through some of your questions. As Chris properly mentioned earlier, Morgan Stanley released a second round of CDMO survey last year and found that actually at least by 2025, with all the new entries issued, we'll see significant higher growth of demand for CDMO biologics, CDMO than supply.
I think we're in good shape here. Also, we found that WuXi Biologics is now the most used CDMO vendor by the biotech companies. Maybe, Chris can share with us why you are so attractive to the biotech companies and also like, what do you see the competitive dynamics evolving with a new entry like Lotte Biologics and also like a more investment from Fujifilm. Also what's going to drive the demand for CDMO, like Alzheimer's, DDR to go like bispecific and things like that.
Thank you, Sean. I think, as Sean mentioned that, you know, in Morgan Stanley survey, WuXi Biologics is actually the most trusted partner for biotech companies. Even for large pharma, we rank top four. I think that's really happy to see this result. It's in line with what we have heard from our clients.
I think if you look, you know, most of the investors already know we haven't talked about our business model for a while, integrated one stop shop. I think, you know, we actually cater to biotech companies more than anyone else in this space. The one stop shop, we make biotech so much easier. You know, before WuXi Biologics, typically they need to work with two CDMOs, and sometimes even three.
With WuXi Biologics, you know, our one stop shop, you know, they only need to work with us. Once they found our business model, very exciting, once they found out we have good execution, right? We have many biotech companies that put every program out of WuXi. We have exclusive programs, company like Arcus, like Inhibrx, like Amicus, you know, they put every biology program within WuXi.
Tesaro, Momenta, some of the company already acquired by Janssen and GSK, right? We cater to biotech company. We provide a one stop shop service. We help them, you know, be really successful. We're also very flexible working with them. It's very easy set them up. Our business model, we basically, we tailor to every client's request.
We truly make the, you know, service truly become a service. I think, you know, service attitude, service mindset, I think that's in our gene. That's why over the past, I would say over the past 5 years, we have always been the preferred choice for biotech companies. I think, you know, and now we also become the top 4, number 1 preferred choice for biotech and then number 4, total for big, large pharma.
I think our ranking for large pharma will continue to increase as well. I think, Sean also mentioned capacity increase by the global competitors. I mentioned earlier, we believe this industry is a winner take all. The top 6 company will actually get more market share.
New vendors actually have a much harder time in getting more market share in this space. I think because power leaders, you know, the current leaders already have access to clients, have good track record, have good quality system, have the capital and have the talent. If you're new entry, it's much harder to do than, you know, than copying our business model. I'm very confident that the top company will continue to do well in this space.
Let me ask the first question, I think one. Hey, Chris, you mentioned that employee in the factory are going on vacation and then refurbishing. In first half of this year, how much capacity is expected to be affected?
It's a, it's a, it's a rotational program. It's like every facility needs to be maintained, so not every facility is maintained at the same time. Yeah, because of COVID, all our facilities utilization has been like close to 100%. Now we, you know, this year, the first half, you'll probably only see our utilization collect, you know, close to 70%, 80%, because we need to leave room for maintenance. We also need to leave room for training the people, you know, in fixing the facility where we have the issues, and also improving the facility to be able to do different projects. All those positions.
Okay. Next question is, could you verify your long-term gross margin target with overseas expansion? In your previous call, you said overseas operation is more expensive, and hence you expect a long-term gross margin to exceed the 40% at a steady state. Is this 40% for the reported gross margin or adjusted gross profit margin?
I think our adjusted gross margin will be high 40s%. I think the net margin will boost. Yeah. Min, maybe you can comment on that.
Yeah. For our global facilities, basically we're looking at about 40% of the net margins. Not net margins, the growth margins on a GAAP basis at a steady state. On an adjusted basis without stock-based compensation, it should be in the mid-40s. In our existing facilities here, we're talking about 50. So in the long run, there will be about a 10 percentage difference between the China facilities and global facilities. Our combined growth margin on adjusted basis will be over 45%.
Okay. That's great to hear. This question. I think that's about the project. Are you seeing any increase in cancellations or delays? We hear of biotech and large pharma companies prioritizing their program to conserve cash and only focus on the most promising molecules. You may have seen some, like, in China. How do you assess the urgency of product backlog conversion?
Yeah. What we have seen is actually just the opposite, right? As I mentioned to you, on the page, you know, our phase I and phase II program, actually, the revenue actually doubled. That basically means the program actually move into the next phase.
I think there the priority for two ways to explain this. One is actually, you know, most of the companies work with us are top companies, so they're, they may be impacted a little bit less by the funding constraint. That's probably one reason. The other reason is, you know, because some of the delays may not be reflected last year. It may be happening this year.
I think overall, again, because our pipeline growth is still continue to be very strong, we have early phase, middle phase, and late phase, right? You know, the middle phase growth was doubled last year. This year, even if we start to see some slowdown, but our late phase, the commercial will continue to accelerate. That's why we are still so confident that we can deliver 60% growth on the traditional business, non-COVID.
Okay. What is your CMO commercial stage only revenue contribution expectation in 2023 and 2026, as opposed to 2023 and 2024? Can you give us some color like annual revenue growth targets? Now reflect on the 11 non-COVID projects. I think you mentioned some could be like $2 billion, $3 billion in total sales. Can you provide some color on what are those targets for oncology, for autoimmune, things like that? Like, you expect the commercial CMO contribution in next couple of years?
Yeah. We don't guide on the specific segment. Because you know, we have, you know, we believe overall we have early phase, middle phase, and late phase. I think all of, you know, combined will give us very strong growth, we don't guide each specific segment. It's very hard to guide. Last year, our phase 3 and commercial combined is about 45% revenue.
The year before it's 49% revenue. It's still incredible. It's almost like half of the total revenue. I think, you know, again, if you look at the half revenue, I think I already mentioned to you that if you take out the COVID, the traditional business, the phase 3 and commercial growth was actually, you know, 78%. Growth was 78% last year. We don't guide because this is not something we can control. We would rather guide the overall business.
Okay. I think. Do you have any color on current rate of project termination and cancellation? Any upturn signals from start-ups and the biotech, any kind of like signal turn around? How does the current level look like compared to the near historical level and longer than historical level?
Yeah. You do see. I don't know whether you can see the slide. You do see a significantly higher termination of the project in this. You know, this is probably the highest. I didn't highlight this so when I present, right? If you look at the slide, we actually have 28 projects terminated during the last period.
I think that, you know, this is actually very high. Typically, we only see around 10, 15. We see 28 projects terminated. We do see a higher percentage termination. It's either terminated for business reasons or terminated for funding reasons. I think, you know, our overall portfolio growth is still very healthy. You know, even with this 28 termination, our overall projects still grow to 588.
Okay, that's good. I think people clearly are struggling with how to assess the impact of the U.S.-Sino conflict on your business, although it appears you haven't seen much problem at all. I think I will have to ask you this question, and you may take this opportunity to clarify.
If you had to quantify the impact of U.S.-Sino tensions, what would be the impact for WuXi Bio, kind of, probably in short term? If this tension persists for longer term, how much in revenue data that you will, last year actually impact? That's the first question from the investor. Another one is, do you see margin pressure as the COVID-related projects decelerate?
No, we don't see the margin pressure from the funding deceleration. We have, you know, our margin will be, you know, our overall margin will probably be 150 basis point lower this year because we put so many new facility online, right? I think fortunately, you know, just Ireland, US, and Germany alone will reduce our gross margin, gross profit margin by 400 basis points. Fortunately, we have WBS. We are improving our operation in other sites where actually, you know, increase our margin by 300 basis point. That's why overall, this year we only expect our margin to be reduced by 150 basis point.
Next year, I think, you know, if we can continue to improve our, you know, our margin will actually be even recovering by 200 basis points. I think overall margin, I don't think this is a big issue for us. It's very hard to quantify the China-U.S. relationship. As I mentioned earlier, if you look at the numbers, right? If you look at the numbers, you don't see much negative impact at all. I'm sure, right, if there is no headline, our U.S. revenue will grow even faster, right? I think basically what it meant is despite all those challenges, we can still deliver, you know, 62% revenue growth in North America last year.
U.S.'s, you know, overall market, overall contribution to the company actually increased by 300 basis points. I think our revenue the year before was around 51 or 52. Now, it's almost 55, 56, right? I think again, I think, you know, We are, you know, WuXi has figured out a way to navigate the China-U.S. relationship and provide a value to our clients, right? I think that has been key. I think I'm very confident that our U.S. market continue to be strong.
If you look at our backlog, most significant, last year we added $7 billion to our backlog, and most of those are actually still from U.S. companies. That basically means the next couple years, U.S. companies will probably continue to see increased revenue and faster growth.
Okay. I think this question may be best addressed by Min. What is expected technically in 2023 and beyond? Maybe also with more, like, overseas facilities can open, some of them will be started doing business. Does this offer you opportunities for some, like, tax planning type of situation? Ireland, many companies have take Ireland as the tax haven, which of course is now getting more difficult.
Yeah, I understand. You know, basically for 2023, our effective tax rate, we're still targeting about 15% because our major operations in China here, we enjoy high tech tax status here. We pay about 15% CIT. Globally, you know, say, we're still not at the sort of a profit stage. We're going to leverage so-called DTA, Deferred Tax Asset here, to take the benefit in the future. In the past years, Ireland do offer us a lot of the tax advantages here in terms of, you know, the R&D tax credit here, and also in terms of accelerated depreciation for tax shielding.
One thing here that with the implementation of the Pillar Two, you know, with basically the 15% minimal corporate income tax, Ireland is going to adopt that 15% in 2024. The current 12.5% CIT nominal rate will increase to 15%. A lot of the tax advantages granted to us, like the R&D tax credit and accelerated depreciation will stay there intact. Overall, you know, we're still confident here we can achieve 15% effective tax rate for 2023 and beyond.
Good. Thanks. Wondering, what is the milestone fee in 2022? Is there guidance on royalties in the future? Are you going to provide any kind of guidance? I suppose it's very difficult, if you don't know the sales from the clients.
Yeah. Milestone royalties are very hard to guide, and that's why you know, we don't want to guide. I think the milestone revenue was around $30 million last year. This year, with the GSK project alone, we achieved $40 million. That's why it's. Because milestone, by definition, depending on the progress, I think. I think the good thing is the more program we sign, the more will be. Eventually, this will be $100 million a year, the milestone possibility. I think we hope to get there in the next couple years.
Excellent. I think this question is interesting. Quite unique. Look at the difference between reported gross margin and adjusted gross margin. It has increased from 2%-3% to 6%. How should investors think about the trend for this gap? That is the mean you need to spend more share-based compensation to retain talents, particular overseas talents in the future.
Eventually, the share-based compensation should be considered as an expense once vested. How will that impact your margin cash flow, how I see in the future? You mentioned that you spend quite a bit of money by the shares to kind of blunt the dilution effects from these compensations. Can you comment a bit on that?
I think SBC is a key part of our strategy to recruit, retain the best talent. I think one of the key success of this is like that. Our SBC scheme is actually very backend loaded. You know, for example, for every RSU, is a 5-year program. The first year is 0% vested. Second year, 20%, third year, 20%, fourth year, 20%, and last year, 40%. It's all backend loaded. Financially, you know, the cost actually hit a year, the first year hit hardest and the second year. There is a mismatch between the sort of the RSU we issue and the cost for the company.
This is just the, you know, the financial system. What we believe, because we have been, you know, issuing RSUs in the past couple of years, cumulatively, you see the gap become bigger and bigger. As our revenue grows, I think it's starting in 2025, you'll see it become shrink again. Right? This is having to be the period that we, you know, you know, the, we, the impact of RSU getting bigger. I think this year maybe is the biggest. I think we'll start to see the gap getting smaller and smaller, starting in 2024, 2025, 2026. I think as our revenue grow. I think this is the nature of the company.
If I may add here, you know, say, to Chris' comment, our RSU has a 5-year cycle. Basically, vesting cycle is 0, 20, 40. In other words, 5 years, you know, say 100%, right? It's more towards the later end. From accounting standpoint, it's 30, 20, 13, 8. That's basically how the RSU expenses are amortized. That's why in the first 2 years, because of the cycle, you see a higher expense, but it's all paper money. Fundamentally, you know, say the number of the shares as we talked about, you know, say our, the latest 2 share buybacks offset it, all our RSU issuance in the past 3 years. There is a minimal dilution impact.
Okay. That's good. I think I'll read the question. Significant increase in stock-based compensation in fiscal year 2020. Do you expect the same levels for fiscal year 2023? What's the overall salary increase expectation for 2023?
Min, why don't you comment?
Yeah. Okay. The overall SBC as a percentage of revenue is at a peak at 2023 is about 8%. This number in 2024 is basically the second year of the last tranche. It's probably going to stay at there. After 2024, 2025, 2026, 2027, it's going to decrease by about 2% to 3% as a percentage of revenue a year. From the merit increase standpoint, this year we gave about 7% total increase to the COGS here. 5% is on the salary increase. The other 2% is basically like a merit adjustment promotion, et cetera, is not guaranteed. Overall, you know, say now you can take 5% COGS increase as a guideline for the modeling.
Okay. Thank you, Min. Why have past CMO project count that projection proving to be conservative? What could be the potential upside from your current 2025 CMO expectations?
Can you repeat the question? I didn't get the question.
Just like, your number of commercial CMO actually have increased quite a kind of.
Yeah.
-way and beating your expectations by quite a bit.
Yeah.
The investor was asking whether there may be some kind of substantial upside to your 2025 projection of 32 to 38.
It could be. It could be. I think, you know, I think right now this is, you know, I think this number, if you see the slide I presented 2 years ago, was significantly lower. I think we have been revising up this number every time we meet.
Every time I talk to investor, this number get higher and higher. We started to report this number 2 years ago. I think at that time, 2025 was 20 programs. Now it's almost like, you know, 30, 32 programs. I think this is the exciting, most exciting part about our business. Certainly in CMO, now we start to become a global top leader. We're recognized by biotech and large pharma, right?
I think this is probably the most exciting recognition from the global community in the past couple of years. Just because how well we did on delivering COVID projects, right? We delivered 3,000 metric ton, 3,000 kilograms of COVID antibody for GSK and AstraZeneca. We delivered millions of doses of vaccine to AstraZeneca. I think everyone in the global community has seen that.
Right. As you know, we deliver in a very fast speed with a very high quality, with 100% execution and with a very affordable cost of goods, right? I think essentially, our CMO was proven during COVID. Now with both form of the molecule and when the molecule, I believe this will continue to be the case.
I think, you know, we will likely have upside even on those numbers.
That's very good. You know. I think this question is probably more about financials. Can you talk about your ROE trend giving expansion of facilities outside of China? You, I know long term you want to see the 12% or 15%, but this year you got to that 12%. What's the impact from like overseas expansion in next couple of years?
Okay. For overseas expansion, now it represent about 60% to 65% of our overall CapEx. For example, you know, this year we're going to spend $6 billion, and overseas is going to be about $3.5 to 3.6 billion. Because our overall, you know, the expansion strategy here is going to be overseas to mitigate any potential geopolitical risk.
From a return on investment standpoint, basically, for overseas, you know, say, from profitability GP, gross margin standpoint, because labor cost is a bit higher and also in the, you know, the CapEx, the total investment is also higher than China. We just talked about here, you know, say from GP standpoint, it's going to be 10 percentage points lower.
Return on investment is going to be a little bit lower than China. Overall, we have demonstrated about 12.6% of the ROE here. Overall, as our policy to stick to a positive free cash flow. We are going to continue to build this equity and then continue to have our earnings exceeding the equity. That's why we expect our return on equity will maintain at the 12.6 and gradually approaching 15% in the next 2, 3 years.
Okay. It's getting quite late.
There was a related comment about why, you know, I mentioned that every dollar we invest at the CapEx, that will potentially bring $1.5 revenue down the road. There was a question about clarification on that. The reason is because of blend.
Every dollar we invest in China will generate actually $2 revenue, $1.8 to $2 revenue. Every dollar we invest outside of China probably generate maybe about $0.8 to $1. If you blend our capacity, that's $1.5. That's why. Because of we have a very high capacity efficiency for operating in China, that's why every dollar we invest will generate higher revenue than our global peers.
It has been a long day for Dr. Chen and his team, so I'll finish this Q&A with this final question from Zhen Chen of UBS. What do you think are the biggest challenges for biologics CDMO industry and WuXi Bio in the next 3 year? What's your edge compared with peers such as Lonza and others?
I think our competitive advantage is still our business model, right. I think it's very clear, right. Our business model is, you know, we have a very strong R and we have the globally leading D, right. I mentioned last year we delivered 123 projects to the clinic, and most of our global peers deliver less than 23, and that's a huge contract. We continue to be very strong in D. If you believe the stickiness of D, that will lead you to M. I think. That's why I don't worry about the capacity because, you know, the D project will need capacity and eventually, we'll be able to retain most of the M and that will require capacity.
Now our R partner also continue to be benefiting that. That's why, you know, that's why I believe our competitive advantage is the CRDMO model and our execution. You know, we have a perfect track record in delivering. I think that's why again, right, if you look last year, there were so many headwinds, right? We still delivered because our company trust us.
When they give the product to WuXi, they know, you know, if we said we're gonna deliver everything by Christmas, you know, we'll be there before Christmas Eve. I think that's the assurance every client want to have. WuXi is probably the only company that gives them that assurance. That's why, you know, despite all those challenges, we're continuing to gain more market share, right? I didn't highlight this during the presentation.
We added 136 projects last year, is actually higher market share than before. Because of the biotech funding issue, the pie is smaller, right? Despite the pie is smaller, we still add more projects. That basically means we're getting more higher market share and despite all those headwinds, right? I think go back to the challenges.
I think, you know, most of the challenges are still internal, right? We have Ireland, Germany, U.S. facilities. How do we quickly bring those facilities online and deliver the same track record that facility in China can deliver? You know, if we can, you know, make the Ireland facility go to 40% GP margin in the next couple of years, you know, our business model can continue to expand very quickly. I think that's our challenge is something we can control. It's something I have very strong confidence that we can deliver.
Thank you very much. Before we conclude this conference call, Dr. Chen, do you have any concluding remarks?
I think again, I think, you know, you have seen, you know, Again, if you look at the numbers that Min presented, right? From 2016 to 2022, in the six years, our top line grow 15%, 15x, 15 times. Our bottom line grow 22 times. The next three years, we continue to believe that we can grow 30%, twice the industry. Our adjusted net income will be still high, twenties. I think we are the number one choice for biotech despite all those headwinds, and we are the top four choices for large pharma, right?
I think so, you know, continue to trust us. I think WuXi Biologics will be delivering consistent, sustainable high growth for our investors. I think that's, you know, give us time. We will, you will proven, you know, everything that we have said will be proven right in the next couple of years, proven correct.
Thank you very much, for WuXi management to share a very good time with our investors. Thank you, everybody. Have a very good day.
Thanks so much. Have a good morning, good afternoon, good evening.
Bye now.
Goodbye.