Dear ladies and gentlemen welcome to the conference call of Evotec AG regarding the presentation of the H1 Report 2019. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] May I now hand you over to Werner, who will lead you through this conference. Please go ahead sir.

Welcome. This is Werner speaking from Evotec. Welcome to our H1 presentation which we call Expand and Accelerate. We have uploaded the presentation to the web which we invite you to follow for this conference call. On page number 2 you see that I'm here together with my team. Enno Spillner, our CFO; Craig Johnstone, our COO; Cord Dohrmann, our CSO. We altogether representing the approximately 3,000 highly qualified and motivated employees of Evotec. If you follow me to page number 4 of this presentation, you can see that it is a strong year. Maybe it's fair to say it's a very strong year because we can and will expand and accelerate because we exactly know and follow our defined goals. Our market opportunity to become the leading excellent innovation partner is growing every day. It is important to stress here that we together with our recent acquisition called Just Biotherapeutics are expanding and strengthening our leadership here in multi-modality that we bring to drug discovery and drug development. This is making Evotec truly strategic in all modalities in the drug discovery and development world. If we look at page number 4, you'll see the list of highlights is long and my colleagues will touch upon most of the points throughout the presentation. It is a pleasure to already to-date being able to announce that this list will be longer when you see our full results by the end of the year. If we go to page number 5 of our presentation, you can see that our financial performance is strong, very strong. So, with great pleasure we can increase our already highly aspirational goals today as we have a very strong base business ongoing, very strong underlying macro trends which we can already foresee into the year 2020-2021. And…

Yes. Thank you, Werner. And a warm welcome also from my end in Hamburg introducing once again very exciting and very positive financials looking back into Q2 and also first half of 2019. Let me start on Slide number 9 where we are again looking at a quarter with significant growth and it is important to mention that this growth is based on a solid and very broad performance across the organization and all sectors we currently perform very well. I come back to revenues and the margins on the next slide. With regards to R&D, we focused our unpartnered R&D expenses of roughly €18.7 million, primarily on internal initiatives in the fields of metabolic diseases, oncology and neurology, as well as academic BRIDGE initiatives. And in addition our partnered R&D expenses of roughly €10.6 million focused on our infectious disease portfolio and we are fully reimbursed on our other operating income by our partner Sanofi. The split into unpartnered and partnered R&D expenses had not been applied in the first half of 2018, yet where total R&D expenses of €10 million were recorded. So this multiple increase shows clearly our very strong commitment into R&D into innovation and long-term value creation here at Evotec. The group's SG&A expenses increased proportionately by 10% and this increase primarily reflects expenses of Evotec ID (Lyon) for the first six months which is new for this first half year as well as an increase in headcount in response to our overall growth plus obviously transactional-related expenses such as the Just M&A which Werner just mentioned and promissory note. Evotec's other operating income increased to €31.3 million in the first half being positively impacted by reimbursed approximately €20 million R&D expenses from Sanofi, which we did not yet have in H1 2018 and also…

Thanks, Enno, and good afternoon, to everyone on the call today. Together, Cord and I will update you on the key aspects of the scientific and operational performance in the first half. On page 16, we report a very brief summary of some of the key events in the past few months. I'm pleased to report a healthy combination of new partnerships, good scientific progress within existing partnerships, both in discovery and development activities and indeed across a diverse spectrum of target sites, biological mechanisms and the lead indications, such as identified by Astex Dermira Enterprise and STORM. In some cases scientific achievements have also attracted success payments along the way. As indicated by Enno, this consistent and high-quality execution of projects, on behalf of all of our partners, contributes to our strong financial performance and robust gross margin of 27.7% in the Execute segment. As previously reported and as shown on page 17, we were delighted to complete the acquisition of Just Biotherapeutics in early July, formally after the period end. The combination of leading technology, brilliant and experienced staff and our compelling vision for bringing biologics projects more successfully and cost-effectively to the market makes this acquisition a perfect philosophical and technical fit for us in Evotec. This is achieved through the integration of advanced computing and machine learning for prediction of macromolecular properties, followed by rapid expanding to verification and then subsequent control of production quality as well as speed in a highly flexible production model. And we're very excited about the future prospects and the potential synergies that Just.Bio brings us as Evotec biologics. In particular, in addition to executing on partners' projects such as alliance with Teva, the addition of Just enables us to progress -- innovate projects in the biologics field, thus opening the…

Thank you, Craig and good afternoon to everybody on the call. Once again, it is my pleasure to give you an update on the progress we have made with Evotec Innovate. As you might remember within Evotec Innovate we focus on building high-value pharma and biotech partnerships with long-term financial upside. These partnerships are particularly designed to let Evotec participate in the successful development and eventual market entry of drug products for the achievement of development and commercial milestones as well as ultimately royalties. Evotec Innovate had an excellent start into 2019. We have made great progress on all fronts with a key goal to expand and accelerate our co-owned product pipeline. First of all, we signed a number of new Innovate partnerships which will bolster and expand our core drug product pipeline. In addition, we significantly expanded our activities in anti-infectives through a number of new alliances. Furthermore, we expanded our iPSC-based drug discovery platform through the acquisition of Ncardia AG in Cologne and we also further expanded our academic BRIDGE and equity strategy. Last but definitely not the least we were able to report very encouraging Phase II results in chronic cough together with our partner Bayer. All of these achievements support further expansion and development of our co-owned product pipeline which is shown on page 21. For the first half of 2019, we are able to report significant progress with a number of new and very exciting collaborations. First of all, we started the risk/reward share partnerships with The Mark Foundation in immuno-oncology through a partnership with Indivumed, which is a leading provider of premium biospecimens. We will access patient samples and data for the development of first-in-class colorectal cancer therapies. We also initiated a partnership with The Global Antibiotic Research and Development Partnership called also GARDP…

Thank you very much. Its many pieces of a puzzle that come together and could make a strong first half of 2019 and let us very optimistically look forward for the remainder of the year. Based on the many elements that you've heard from our top-class execution and our top-class innovation that we provide to our partners, we are able to update our guidance as you see outlined on page 28. We are going now to approximately 15% growth for the year. We are going above 10% on our EBITDA line and we keep our un-partnered R&D expenses in the range between €30 million and €40 million. With this let me thank our team let me thank our employees and let me thank you for following Evotec. We open of course for all questions. Thank you very much.

Now we will begin our question-and-answer session. [Operator Instructions] The first question we received is from Joseph Hedden, Rx Securities. Your line is now open.

Good afternoon. Thanks for taking my questions and congrats on a strong quarter. Just on the acquisition of Just.Bio slide 17 is giving guidance for €30 million revenues for the full year 2019. That includes this company revenues? I just wanted to confirm that these companies revenues are what you expect post your acquisition. And can you guide us to that level and then staying with Just.Bio, just wondering what kind of gross margin you're expecting and also the CapEx investments over the next few years? Thank you.

So, on Just.Bio, the first thing to note is that we are in U.S. dollars, so the 30 million is in U.S. dollars that we have secured. And from all that we have done so far, I think it's fair to say that the revenue recognition policy from Just.Bio has to be adopted to what we're doing here in Evotec, but it looks like it's a very strong order book that we are taking over. And we can of course confirm what we have seen there in the books from the very beginning. On gross margins that we will apply in the business of Just.Bio, you can assume that nothing will be below Evotec's gross margins. It will be typically higher than Evotec's gross margins as you typically see that in the large molecule space. And from future CapEx investments, we are -- the current facility's next outlet comes to the drug discovery and drug development work in Seattle and we are evaluating expansion plans for not only the R&D work, but also the manufacturing work for so called J.PODs that we want to build in the future which was also one of the key use of proceeds for the promissory notes that we have hindered out. We will make a decision here in the coming months. Does that answer your question?

Yes, it does. Thank you.

The next question is from Falko Friedrichs, Deutsche Bank. Your line is now open.

Hello. Thanks for taking my questions. I will have three please. Firstly, on the Sanofi subsidies, can you just confirm that you said there's €20 million that is falling away on both sales and the bottom line? So it would be the same amount on both? And I would assume that it's the full year or annualized amount so the impact should be a bit less next year because you would still get a subsidy until April. Is that the correct way to look at it? And then secondly could you give a bit more color on the oncology compound with Carrick that's now in Phase II just in terms of what it is targeting and how it differentiates in that space? And then thirdly, a bigger picture question on iPSC. So we've seen larger pharma companies increasingly break into that space themselves by acquisitions or even internal developments, so with the competition apparently increasing here, I was wondering how you aim to differentiate in that space going forward? And I'm also wondering, how much differentiation potential lies in these platforms themselves or whether it is just about being the earliest and fastest player?

Thank you very much. The third question I will hand over to Cord. Let me comment on question one and two. Because question two, I have to apologize that we are not in the position to comment on the differentiation of the compound of Carrick before asking our partner to do this in public. So please respect here our policy on that, but we are happy to provide the context going forward. But it's -- I think in short, a very exciting -- exciting not only the company but also individual compounds that are moving forward here. To your first question, it's a set of agreements that we have with Sanofi. There are many collaborations ongoing with Sanofi on the Execute level and on the Innovate level. So therefore giving you a precise annualized number is hard. And we will at the end only see this going forward because many of the collaborations with Sanofi will continue also way beyond April of next year. So you are right. It is the €20 million annualized approximate number that we expect as a subsidy to fall away. And as I said before, there are many collaborations ongoing with Sanofi way beyond also 2020 April. Does this answer your question? And I now hand over to Cord.

So, in regards to the iPS cell technology and increasingly taking a foothold in the industry, it is I would say slowly the iPSC technology starting to deliver on its promise in month-on-month performance. It always has been a very compelling story in terms of being able to work on human cell types and in many cases not only human cells, but diseased cells that are directly derived from the patients. It is a superior tool compared to rodent cells or non-disease cells for drug discovery purposes, not just for drug screening but also for safety, toxicology profiling and ultimately the potential, of course, for cell-based therapy. And I think what has been in the past been slightly underestimated are the technical difficulties to really drive the advancements of iPS cell technology in the drug discovery context. But here it is increasingly possible to not only differentiate iPS cells in disease-relevant cell types not only at a small scale but at a larger scale, but also bring them into high throughput screening scenarios and of course being able to deduce certain cell types in a larger scale that also opens the door for potential cell therapy approaches. So we feel -- we continuously feel that using iPS cell technology is essentially a clearly superior tool, more traditional approaches in the space and I think what you recently see happening in the industry is that more and more people are catching on to this. And I think as we said in the past if a number of companies in certain areas are starting to work on human neurons and use human neurons for drug discovery purposes then other companies who work in the same field simply cannot afford to continue to work on rodents, so they need to basically catch up to that and also invest into those technology platforms or access them somewhere else. And I think this will be a continued trend and we feel that Evotec is pretty well positioned in that regard especially when it comes to drug discovery, drug screening purposes more increasingly also now with the acquisition of Ncardia AG in Cologne in drug safety and toxicology profiling, and also in the cell therapy space where we have existing collaborations with Sanofi in diabetes and are looking at various other opportunities here as well.

Okay. Thank you.

You're welcome.

Thank you very much. Next question please.

The next question is from Brigitte de Lima from goetzpartners securities. Your line is open.

Good afternoon, and thank you for taking my questions. I have three, and the first one is on the venture capital investment that Evotec has been doing. It's become much more frequent and I was wondering if Evotec actually has dedicated funds internally where you budget for say at the beginning of the year? What size could that be? Or do you still do it more on an opportunistic basis and assess this on a case-by-case basis? The second question is on the bio asset. And it wasn't entirely clear from the press release if the next step is a Phase III, which triggers the milestone or is there still another Phase II or Phase IIb maybe in between? And then finally on the I/O drug that you're developing with Exscientia. I was wondering if you can provide any information whatsoever on the target or the mechanism of action of the molecule at least. Is it short of a checkpoint inhibitor or is it a top level? Thank you.

Thank you very much. On the partnership with Exscientia, I will hand it over to Cord again. On our “execute investments” it's a very clear strategy that we have not built a fund, which makes independent decisions. We are operating here on a case-by-case basis evaluate on a case-by-case basis operational effects that are together synchronized with our operational platform. So the dimension of that is opportunistic, the cases are opportunistic, and we go forward here on an opportunistic way, but we are very happy to see the operational synergies here. On Bayer please understand that we cannot comment on the development strategy of our partner here but we will inform you the moment we know exactly how the development strategy goes. With this I hand over to Cord.

Yeah. So our partnership with Exscientia is between metabolic disease and immuno-oncology approach with the adrenergic receptors that we are targeting here. Once again this is a program that is -- where we participate significantly in the outside of this program but this is a program run and steered by Exscientia, so we can't comment really beyond this on the profile.

Yeah. Thank you very much.

The next question please.

The next question is from Patrick Trucchio, Berenberg. Your line is open.

Hi, good afternoon. Just a follow-up on regarding the uses of cash. Can you tell us how we should think about priorities for business development, M&A and equity investments in the context of a leverage ratio that's one times adjusted, less than one times adjusted EBITDA. And if there's a target leverage ratio over time or a maximum that you would not look to exceed over time?

So, for us, the key goal is to have a healthy operational cash flow and with a healthy operational cash flow growth opportunities are ranked and prioritized behind that. Having said that, the great situation that we are facing right now is that the investment opportunities that come out of our own pipeline are very, very compelling. And by opening this multi-modality opportunity driven platform, I think that priority number one is clearly to invest into the growth of our own operations by, for example, leveraging the opportunities of biologics drug discovery into biologics drug manufacturing going forward into the deeper part of the value chain just like we have done it with the small molecules with the acquisition of Aptuit, for example, two years ago. When it comes to target leverage rate, yeah, I think we look of course here also at peer groups and others and we are way below what others can show here. But it's a unique business model that Evotec is doing. So therefore, it's not top of our list to do that. And I think with debt also here there is no target that we have set ourselves to, for example put into the equity investment box. It is something where the target is only driven by, is this fully value generating for our shareholders and is this creating enough excitement to invest into an opportunity or not into an opportunity. I think last sentence on this one what is great to see is that the market for debt opportunities are open for us and with this what our finance team has done here by issuing the -- just in time we have seen that this tool, like for example, of the EIB loan is open for us. Enno, do you want to comment additionally on this maybe, or if the question's answered.

One comment on the leverage of the net debt factor as you asked. There's not a defined number here at Evotec where we say this is our target, but we definitely know a threshold which is common in the market, which is roughly at 3.0. And that's when you would go out of the investment grade. And we clearly have achieved in the past years investment grade within various banks according to the internal record, which is quite, quite positive and we will make sure that we do stay conservative here and do not over-leverage. So this is kind of the threshold where we want to stay away from unless there's really urgent need, but this is not foreseeable right now.

Next question please.

So the next question is from Victoria English, Evernow Publishing. Vic, your line is now open.

Okay. I have two questions. The first concerns the iPSC. Cord, a minute ago or two minutes ago you said that one of your aspirations or one of your goals is to look to cell therapies and you mentioned your collaboration with Sanofi and diabetes. I'm wondering if Bayer might be a natural partner given the fact that you already collaborate in two -- at least two areas and the fact that Bayer has just taken full control of BlueRock Therapeutics and has and iPSC product coming into clinical development. That's question number one. And the question number two has to do with Werner with what you said in the introduction. You said our goal is to build a co-owned pipeline with our partners. So if does this mean just for the Innovate side of the business or the whole business? And secondly, I think the idea of co-owned sounds very attractive in terms of bringing in a diverse number of technologies. But at the end of the day, who's in charge?

Let's first have the answer from Cord on iPSCs, and I'll then answer the co-owned pipeline question.

Thank you for your question. So, I would say, when it comes to potential cell therapy approaches, I think more generally speaking cell therapeutic approaches are becoming or turning into an opportunity for many pharma companies in their respective areas, and it is -- for us it's interesting to see in that other companies such as Bayer, have made significant investments now in particular via the acquisition of BlueRock, where the lead program is directed towards treatment for Parkinson's disease, which is exciting to see. And also, I would say, it puts certain price tag on these type of therapies -- potential therapies even at an earlier stage, which is very exciting. And we do have -- as you rightly noticed we do have a number of relationships with Bayer, and Bayer has been a fantastic partner for us in endometriosis chronic cough, kidney disease, and hopefully, in the future, there will be additional opportunities. And here I certainly wouldn't rule out that one or the other therapeutic approach could be on the list here as well. But there are many other companies I think who are starting to look in more detail at cell therapeutic approaches as a potentially not just disease-modifying approach but potential curative approach for the longer term. And so I think there are many more potential partners out there for in these areas.

Thank you.

On our -- on co-owned pipeline building, I think the first element to look after is what are the sources for co-ownership. Source one is our own Innovate project where we first invest then translate these projects into partnerships and with this that we co-own. Second, we can come to co-ownership via by our Execute platform where we, for example, take sometimes risk-based approaches in peer structures and with this come to co-ownership. And thirdly, where we build so-called BRIDGEs where we get to very early ideas out of academic institutions or take very early ideas in the venture community and via equity investment start to co-own. So, that's the starting point of co-ownership. When it then comes to driving co-owned modalities or pipeline projects forward, I think it's a fantastic expansion to now not only have the focus on small molecules, but being able to process biologics where today we have a small proportion of our pipeline, but this will increase significantly especially with the acquisition of Just going forward, where you have cell therapies, where we are building a whole portfolio, and where you have, of course, small molecules. And the third thing is when it comes to who's in charge there's a very clear governance behind every project that we run and there's very clear governance and very clearly defined roles who is responsible for what part of the value chain. And here, Evotec can offer expertise, competence, and execution on all the steps that you need along the value chain and then it just comes down to how do we blend our confidence together with our partner to optimize capital efficiency and speed in these transactions. That's how it's built and that's why we can leverage the strategy into many, many more projects that we will build.

Thank you.

Pleasure. Next question please.

The next question is from Ram Selvaraju. Your line is now open.

This is [Indiscernible] filling in for Ram Selvaraju via from H.C. Wainwright, New York City. I have a few questions to ask, maybe I'll start with the first one first. So, last month Evotec and couple of VC firms formed Breakpoint Therapeutics, essentially a spin-off of your DNA damage response portfolio. As you may be aware of both small and big companies have already set their foot in this space and they target both molecular pathways as well as individual cell cycle targets. For instance in the case of AstraZeneca which already has an approved drug LYNPARZA a PARP inhibitor which shuts down the base excision repair pathway. And then among the small companies in this field, we have Sierra Oncology which has got couple of assays checkpoint kinase 1 inhibitor and checkpoint -- cell cycle sorry, cell cycle seven kinase inhibitor. So, given this nature of competitive landscape, I was curious to better understand the unique features of your DDR portfolio and how your platform might permit you to deliver advantages versus existing therapeutic modalities.

Cord?

Yes sure. Happy to take that question. Thank you very much. So, first of all, you are -- of course, you're absolutely correct that the DNA damage response field is becoming an increasingly attractive field to pharma companies and LYNPARZA from AstraZeneca is certainly the poster child here which is expected to bring in billions in 2021 in terms of revenues. But there are additional PARP inhibitors out there Zejula, Rubraca, and others that are following. This is clearly not the molecular targets that we're going for at this point in time. We have taken a very systematic approach to DNA damage response and conducting a couple of phenotypic screening approaches and thereby identifying and ranking many target candidates. And currently we have honed in on a portfolio of three potentially first-in-class approaches here target approaches in DNA -- in the DNA damage response field. It's really -- we feel that there are many more opportunities out there, but this is currently the portfolio we are going for. And within the context of Breakpoint Therapeutics, we will most likely look at additional target opportunities. And if we feel that there is an opportunity to continue to grow the portfolio beyond what we have currently, we will absolutely do so. And that's exactly also the reason why we decided to spin this approach out there. It's just more opportunity, than we could muster through our own R&D budget, at this point in time. And here sort of combining this more systematic approach, the initial pipeline, with a team of experts that has been working in the field for many years by now, was just a fantastic opportunity. And with Medicxi and Taiho we are really extremely pleased to have superb, highly recognized international investors on board. And I think, I -- you have to understand that we cannot really comment on the identity of the molecular target at this point in time that we are pursuing. But we will do so. I think, in due course as, Breakpoint proceeds.

All right, thanks a lot. Moving forward, this is about your, GNA NOW project. So as you may be aware of, there's no new class of antibiotics since 1962, especially in the gram-negative infection section. So that actually kind of makes your GNA NOW project sounds pretty intriguing. I also see that you plan to complete at least one Phase I trial program, by 2024. So, what's your strategy to succeed in this difficult therapeutic place? There are many others including large pharmaceutical companies, that fell flat in the past. Can you provide us more color on the target or therapeutic class, mechanism of action or specific market opportunity?

So the GNA NOW collaboration is, the larger collaborations. And we are working with many top-notch experts in the field, on the development of another class here, of antimicrobial therapeutics. And it is I would say we fully recognize. What you're saying that, this is, technically and from a peer perspective, a field that is, at least just as hard as any other field of drug discovery. And this is -- but this is also an area, where I would say that, currently there is much less competition than in other areas. So, we feel that, really investing into these areas, together with very clear leaders in the field, on individual approaches, and also bringing them new technologies to bear on these drug discovery approaches, being assay systems, be it sequencing efforts et cetera. This is where we feel that Evotec, together with our partners, we have the best possible shot at success. And probably, a little less competition than in other areas of drug discovery and we -- I would say, we are fully aware of the individual risks, pursuing individual targets here and approaches. And this is also why we continue to build a portfolio here of approaches. We are trying to spread the risk, by co-financing or having -- making sure that we are co-financed on these programs. And like I said that, we are bringing the best possible technologies to bear on these programs. So in that regard, this is also why I mentioned, for example the Helmholtz collaboration with Rolf Müller, really one of the best known world experts, in the field of natural products. And new classes of natural products, where we simply say, okay these are really top-notch approaches, top-notch teams, top-notch technology platforms, and sort of a balanced risk, in terms of the financing of these programs. And so we feel these are in that regard excellent opportunities. And I think that, somebody will succeed here, at some point, to develop a new class of antibiotics and antimicrobials. And I would say that, at this point in time, actually that Evotec is quite well positioned.

All right, really, appreciate that. Moving forward, all right, really, appreciate that. Moving forward, so this is my third question. So after your company presentation 45% of your partners are biotech companies. So I'm looking for a little granularity here, as in what percentage of your current biotech partner network use your discovery services? And what percentages use your preclinical, or manufacturing, or clinical development services, or a combination of this and that? So maybe, you can comment on that please.

Yes, very good, question. Question goes to, Craig.

Sure. Thank you. And yeah, you're absolutely, right. So biotech represents a major part of our partnerships of course. And it's probably not so, surprising as to why that's the case. Many of these biotech companies have areas of specific interests, areas of specific expertise. But in order to be capital-efficient from their perspective. They don't want to build labs, build infrastructures, hire people and indeed, as projects which may start in the discovery space mature, the nature of the expertise that's required evolves. It starts-off in discovery perhaps in heart failing chemistry disease biology. But as the projects mature you move through safety, toxicology, formulation, API and clinical development. And as Werner said earlier, we can provide and we do provide the knowledge the expertise and indeed the experimental execution right through the value chain from the very, very early stages of an idea cooking all the way through to even commercialization. And so by way of a direct split, I don't think I've got a number that would accurately distinguish discovery service provision versus development service provision. But certainly, biotech in particular draws on the full spectrum of services and partnership capabilities that we provide for the reasons that I've said. The need to tap into different skills and different experimental paradigms all through the value chain and as their projects mature towards key inflection points. Does that answer your question?

Great. Appreciate that. Yeah kind of. Appreciate that. So the fourth question is the global R&D outsourcing market is valued as much as €150 billion and your share last year was approximately €375 million which represents approximately 0.25 percentage it looks like there is of room for growth so in which segment specifically do you feel Evotec is best poised to aggressively expand market share?

So we are growing as you see in our business lines at this stage in every single business line. For us, it's more a question of how to prioritize where to grow. That's the first part of the answer. The second part of the answer is we are growing especially in the areas where the best co-ownership opportunities are evolving because that's essential to our strategy. The third area which we have addressed to grow is really the approach from multi-modality driven discovery approaches, where basically we wanted to on our platform close the gap of so many companies out there who are not able to address an early target via an antibody or via small molecules or via cell therapy. So that was for us absolutely essential to close – to create a unique position out there. And with this, we feel very complete at this stage as a platform. And of course, we are always adding on where new technology is evolving but that gives us a growth opportunity market, where the macro trend as you rightly point out will not go away. Our only question is how can we resolve internally the capacity to deliver the quality that ultimately our partners deserve and that's where setting ourselves a target of about 10% growth per year in all business lines or overall business lines is giving you the quality parameter that we have set ourselves that we say that's the number of employees that we can integrate into our capacity. And that's what we are doing at this stage and that's also part of the long-term Action Plan 2022. Next question please.

The next question is from Joseph Hedden, Rx Securities. Your line is open.

Just two quick follow-ups if I can. On the Sanofi infectious disease R&D looks like fully covered by Sanofi, I think in your annual report you guided to about the expectation of €35 million in this R&D. And you put €10.6 million in the first half. So is it correct to assume that that's going to be around in the second half? And then secondly on Aptuit I think you disclosed the split of Aptuit revenues in the first quarter but would it be possible to get to Aptuit revenues for the first half? Thanks very much.

On the Aptuit question, I will hand back to Enno, but we – just to caution you we tend not to give up individualized performance lines. But nevertheless I'll then get back. And on the infectious disease question, we have always assumed of course projects over their lifetime. So how this pans out exactly in a year is hard to say. But I think you are correct by pointing out that it will be hard to spend €35 million in infectious diseases, because that would require significant typically external costs and these external costs would come by manufacturing clinical trial materials, which we have started for some of the projects, but it will be difficult to ramp-up the costs as aggressively to reach the fully €35 million. Where we exactly go we will see but it's fair to assume that it could be a little less. Enno?

Joseph, could you ask – repeat the Aptuit question please it wasn't quite clear here. Q – Joseph Hedden: Yeah. Sure. So it was just on the fact that – and I appreciate that as the business gets mature you won't tend to report the lines of your acquired businesses. But in the first quarter I think you booked Aptuit say was of about €29 million. I was just wondering if you could give us a number for the full first half.

So, it's correct what you're saying. So we're not guiding on the individual parts of the business or of the acquired units. But I think in principle if you apply what you have seen in the Q1 and roughly multiply this for the second quarter, then you're on a pretty good track for the first half year. Overall, we have seen a really good performance in the first half year of Aptuit, which is fully on track with what we anticipated and what is planned in the budget. Q – Joseph Hedden: Okay. That's great. Thanks very much.

Next question, please.

And the next question is from Joe North [ph]. Your line is now open.

The line is open Joe.

Maybe your line is muted Joe.

Let's take the next question, please.

The next question is from Alex Gorskie [ph] from [indiscernible]. Your line is open.

Alex, the line would be open.

Sorry, I was just on mute. Yeah. Thanks for my questions. I just have three. Could you elaborate on the rationale for not raising EBITDA guidance in line with revenue guidance? Can you give us a sense of how large the Bayer milestone for the Phase III started? And then third what was the rationale for returning the Second Genome program to Evotec? And what is the plan with the program now? Thank you.

So our EBITDA is largely driven by milestones that are performance based. Given the volatility of our milestones because they depend on scientific results, we -- I think have here gone the cautious way in leaving this open to the actual scientific events. That gives you the first answer to your question, but I think it is notable that we have increased our EBITDA guidance beyond 10% and not approximately 10% just to point that out again. If Phase III start of Bayer P2X3 project would result in a significant milestone which would be double-digit millions and the return rights from Second Genome are now and that's a principle behind our collaboration are now returned to Evotec, and we will explore how to ultimately use these rights in either our own research or in partnership or sometimes we can also not use them anymore because for example [indiscernible] become short or there is just no scientific rationale.

Okay. Thank you.

Did I answer your question? Thank you. Next question, please.

The next question is again from [indiscernible]. Your line is now open.

Hi. Sorry, I got disconnected. I have actually two more questions. So the next question I actually in mind was -- is about LAB282. About two years ago LAB282 was conceived and founded. And then come now into 2019 it will near its three-year term. So your end goal is to create three or four spin-outs off of LAB282. So how is the progress so far? And can you provide more granularity in terms of the commercial viability of these projects funded through LAB282?

And the second question? Or is this the -- all the questions that are…

Yeah. Okay. I can ask the next question.

Yes.

So the next question is so you have been in a partnership with CHDI. It's a non-profit organization solely for Huntington's disease for over 13 years. As you may know there is no cure for Huntington. You only have VMAT2 inhibitors that only provide marginal improvements. So I'm curious when do you anticipate delivering a clinical candidate in the Huntington's space? Thank you very much.

Thank you. So question number one on LAB282, we are -- and I think it's fair to also comment here for our partners very happy with the progress of LAB282 and I think that will also be the statement of Oxford University. We have more than 27 projects that are actively at this stage evaluated and progressed. We are nearing our three-year mark of this partnership, but I think it is fair to assume that there will be a very clear acceleration and expansion and prolongation of this partnership of LAB282 because it is a highly successful, highly capital-efficient way to translate best-in-class science on our industrial platform, which gives academic access to these platforms. So I think here the proof-of-concept for the BRIDGE model has been definitely achieved and we'll go forward in this partnership. And on CHDI, we also cannot comment on all the projects that we are involved in, but you should assume that all the projects that are currently progressing Huntington's disease where the CHDI as you know, the key funding organization in this disease area from the foundation is involved is very close to Evotec. And I think there's a commitment from our side that -- and of course also from the Huntington's disease foundation that our expertise and our commitment to Huntington's disease will not stop until we have a cure for the patients. And that's why, whatever it takes we will do together with the CHDI to push here novel targets and novel clinical assets forward.

Thank you very much. Appreciate all the answers.

Pleasure. Next question please.

The next question is from Joel North. Your line is now open.

Joel North your line is open.

Yes. It's Naresh Chouhan from Intrinsic Health. Hi.

Hi.

So could -- I've got three questions please. So Just.Bio there seems to be a full suite of biological services that they offer from manufacturing all the way to antibody reengineering, but there's only 95 people or so in the business. I think you alluded to this already, but a bit more detail would be helpful. I'm guessing you're going to have to materially invest in this business both from a CapEx and people perspective similar to what we saw Cyprotex. So it's sufficiently resourced to exploit all of the technology they have? Or is it fair to assume that some of the technology isn't of any interest and therefore requires less investment? And then following on from that strategically, do you think you have the ability to manufacture in larger volumes than Just.Bio currently offer? Obviously, WuXi is much further ahead in this kind of line of business to 2018 market share, because biotechs are keen to have a one-stop shop when they go to partnership with people. So is that a consideration? And clearly that requires significant CapEx and may explain the recent fund raise. And then lastly on EVT Execute, the gross margin was up over 500 basis points in the first half. And if I understand correctly, utilization has been high for quite some time now. So it's probably not coming just from scale benefits. Just trying to understand, what's driving that improvement? And is it higher price, price mix? What's going on there and how sustainable is that where could we get to? Thank you.

Thank you. On the third question of the Evotec Execute business Craig will comment. And also on the Just.Bio idea of long-term higher volumes that we are making there. But let me comment on your first question taking over 95 highly qualified, highly experienced people in the biologic space is a fantastic opportunity that we were able to capture. There is nothing that we want to de-prioritize from what Just has done. On the contrary, everything that they have done we want to expand and accelerate, because you should see and you have correctly pointed out the market opportunity there is not one where you are fighting against competition. You are fighting here especially to offer new opportunities for biologics in for example smaller drugs that haven't been served before. So there's a market space opening for more flexible manufacturing and that is the secret behind Just that they are not following the steel tank and less flexible way of manufacturing like others have been doing this for a long time. This is highly agile manufacturing, which will allow completely new products in biologics to be made. That's why we are so excited about this. With this, I hand over to Craig.

Thanks, Werner. And maybe if I can just pickup on your lead there about Just. Thanks for the question. Obviously, the -- as Werner has said and has indicated, the trick with Just is to compress and increase the yield from a unit volume of manufacturer for biologics. And to succeed in that, it requires engineering of every step of the process, not just in the manufacture, but actually in the selection even in the selection of antibodies for manufacture, which is why they are also engaged in design selection of antibodies, which are then more suitable for high-compression manufacture. And as a result then, it's possible and they have done this to produce even kilograms of material -- or only a 500 liters or a 1,000 liter disposable vessel. And there are various transformations both upstream of the vessel and downstream of the vessel that enable that kind of productivity in terms of masses of material of what is effectively quite a small capacity vessel for production. But you're also right that many partners would wish for a one-stop shop and wouldn't want to undertake a technology transfer as they need more material and as they move towards commercial manufacture. That's also exactly why, as I said earlier, we are currently evaluating the construction of what we call the first J.POD. This would be to take this flexible modality manufacture paradigm and take it into a commercial scale and a commercial facility. And we're evaluating that right now, particularly in the first instance in the United States to capitalize on the skills and the know-how of the people in Seattle. I hope that answers the question.

Could I just ask, am I right to understand, they've basically got currently 1,000 liters of fusion reactor and you will be adding to that to get you use to a level where you have sufficient capacity to manufacture commercially for, let's say, a cancer therapy.

Yes.

Which may require 10 to 20 kilos a year? That's where you need to get to? And what sort of CapEx might that require? Because is that the order of magnitude we're talking about?

So I think, yes, first of all, you are right. Yes. And secondly, when it comes to building the capacity that's done in a modular way. And also, as you should be aware of, Evotec has been investing into CapEx for manufacturing, for example, in Aptuit in the last years, we have been investing into CapEx every year significantly. And we will also, of course, do this in the context of building the J.PODs, as Craig has pointed out. That will be a longer-term process which we have already initiated to evaluate, where we will make a decision very soon of how to do that. And it will come down to the question, how much capacity do we want to build how fast, but we want to grow here not only for being able to do this for small products, but potentially also for larger products. And it's where you are then going down the direction of how many trains and how many vessels do you ultimately want to build up. And that will be a range of investment which we can clearly spend from the existing funds that are already in Evotec.

Okay. Perfect. That's all. Thank you.

And just to be specific, it wouldn't necessarily mean going up in scale of reactors from 1,000 to 2,000 to 10,000 liters. The vision is that from an agile perspective, if you have two or three parallel vessels of 1,000 liters each you can deliver that kind of massive material.

Yes, yes.

Yes. Okay. And then on the Execute gross margin and the improvement over time and the performance of Execute, I think Werner already said there are many pieces of such a puzzle. And I think what we are seeing here is a contribution from many features of operational improvement, investment and delivery, which combined together to conclude with a good strong business performance. Examples are, of course, as I mentioned that in some cases there are milestones for technical success. And, of course, the milestones always give an enhancement in terms of the financial performance in gross margin of any platform projects like that. But as I also said in the report, we've also been investing steadily and in a continuous way in operational performance improvement, cycle times, efficiency and technical investments to make sure that the platform is the most efficient it can be and that results in of course a small, but cumulative benefit in overall financial performance. And then, the final thing I think is the power of integration of services. So, we provide a very integrated set of capabilities for our partners. And as a result then, we don't scale just chemistry or just screening very often, but it's generally the combined power of the organization and the knowledge of drug discovery that allows us to put together a very compelling case for Execute delivery and for project progression. And in that case, then the advantage that we can provide is worth a premium to our partners because it's a very convenient, very effective optimally efficient way of progressing projects in a rapid way. And so, all of these pieces combine together to form a very strong financial performance.

So there is -- and so just to be clear I understand what you're saying, there is a price mix improvement from the ability to bundle together a whole bunch of services and your customers find that valuable obviously?

Yes, yes.

Okay. Thank you.

Next question please?

This was the last question. As there are no further questions, I hand back to you Werner.

Thank you very much. So first of all, thank you for the well thought through questions and the dialogue. Secondly, thank you for following Evotec. And if there is any further question, don't hesitate to reach out to our IR department. And thirdly, let me wish you a great day and a great remainder of 2019 where we will report back with the next highlights to come through. All the best. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.