Dear, ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer's 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 Lanthaler, CEO, who will lead you through this conference. Please go ahead.

Thank you so much. This is Werner speaking from Evotec. Welcome to our Q2 report 2021. We have uploaded a presentation for this conference call, which is titled Driving Growth and Getting Ready for Launch. That's the scene of the first half of 2021 that we are preparing and investing for accelerated and future growth out of all lanes on the R&D autobahn to Cures. If you go to page number two of this presentation, let me welcome our CFO, Enno, who's here together with me and who will guide us together with me through this conference call. If you go to page number four of the presentation that we have uploaded, you see that we are performing extremely strong on all lines of our R&D Autobahn to Cures. It's actually fair to say that the company is in a strong, maybe in a very strong situation. We can say this for our base business. And we can also see this because some of the very important milestones for our profitability are imminent. If you look at page number four, you see some of the highlights events that have happened in the past few months. But let me point you to one which I think is extremely important, which is the new data that came in of the Phase IIb study on P2X3, which was delivered by our partner, Bayer. Why is this important? Not only that we confirmed excellent data that we have already seen in Phase IIa, but it is also confirming our long-term business model where we are building the largest royalty pool in the industry and where P2X3 will be an important first element to this long-term strategy. What you see also on these highlights is that all lanes are at full speed at this stage,…

Pleasure to do so. And thank you, Werner. And to all of you a very warm welcome. Great having you here on the call today. And I'm looking very much forward to introduce you to our Q2 2021 financial numbers. Let's continue on page number 9 and looking at the H1 2021 numbers, which has shown excellent 17% increase on our revenue line, substantially pushed by the development of our base business. And adjusted for FX and portfolio effects, we even would recognize a strong 27% gain in organic growth of our revenues. I will come back to the further analytics of these growth factors later on page 12. The gross margin amounted to 20.8%, lower than last year's 23%. And this is mainly due to the often mentioned and end of the Sanofi subsidy for our site in Toulouse after the Q1 2020. R&D expenses continued to increase as anticipated by a strong 90% compared to last year's level, especially driven by further enhancing our multiple platforms and pushing our co-owned pipeline. The growth in SG&A comes in at an expected plus 27% and aims to secure further organic and inorganic growth, as well as integration, like for example, the recent Verona site takeover from GSK and especially ramping up our J.POD 1, getting ready to become operational very soon. The other operating income turns out to be slightly above last year's level and contains two components, almost traditional, one could say. The one inside R&D tax credits and Sanofi recharges for ID Lyon on the other side. All in all, this development resulted in an increase of 7% of the other operating income. With a total of €36.2 million, our adjusted EBITDA lands within our expectations, but also experiences shift of anticipated milestones into H2 of this year.…

Thank you, Enno. When we say building for growth, and if you go to page 20, it is a great pleasure to report back to you that, at this stage, we are growing our footprint at every site where Evotec is present at this stage. And when we are growing, we do this because we see a long-term mega trend, where the increased externalization of innovation is improving productivity, and that's why our platforms are so well positioned from our global sites to support the pharma industry, the biotech industry, and academia and foundations. With this, we are also able to recruit and retain the best talent in the industry, which we are also growing at all sites at this stage. If you go to page 20, let me highlight one site for a moment because incremental growth on all sites is great, but it's even better if we see a chance and can make larger moves. We did so in the past, if you remember, in Toulouse where we took a full site from Sanofi, and now we were able, this year, to take ownership of the former GSK Discovery Center in Verona. A full ownership here gives us more flexibility, more expansion space, and also makes the site more attractive for our partners. And something that is very attractive and outstanding also deserves an outstanding name. And with this, in the full tradition of science of Italy, we are a proud Campus Levi-Montalcini now in Verona, in the tradition of neuroscience of Italy that changed the world globally. If you go to page 21, it is a very emotional moment for me. Because if you would have asked me at the peak of the pandemic if we could ever finish one of the largest construction sites that is…

[Operator Instructions]. Our first question comes from Ram Selvaraju, HC.

This is Boobalan dialing in for Ram Selvaraju. I just have a couple. I'll list both of them. So, the first one. So, what are some of the trends you're seeing that AI-based drug discovery and how Evotec is positioned to capture those trends? And second, with respect to your Cold Spring Harbor lab collaboration, what are your thoughts and expectations? And is the focus exclusively on developing biologics?

When it comes to artificial intelligence and machine learning, let me highlight, first, that we are probably the platform in the industry that does not only apply machine learning in small molecules, but we apply machine learning and AI in biologics, small molecules, cell therapies and gene therapies. That's the first thing. The second thing, we are in this fortunate position that, if we build an algorithm, we can make this algorithm learn not only from data that we generate internally, but our algorithm can learn on the platform, together with more than 20 out of the top 20 pharma partners and more than 500 biotech partners at the same time, with multiple sources of data that comes in here. Of course, we can only use this data if it is cleared by our partners. And of course, we are fully complying to that. The third element when it comes to AI and machine learning is it's a productivity tool that should guide us to more precision. And this is where I want to highlight our Panomics and our PanHunter platform, where we have not only generated data prediction tools, but also data analytics tools, how we do this in the industry. And with this, AI and machine learning is for us a fully integrated idea and vision. And it's probably best exemplified by the number of young data scientists and biologists who are at the same time data scientists that we have brought on our platform. And the future of drug discovery will be AI and prediction driven. And that's what we see in every process that Evotec is applying. And, for example, there's not enough time now, but how beautiful we translate this into safety predictions of the future will be exemplified also on our next candidates that go into the clinic because, here, safety levels should really be already predicted to a large degree when we bring these assets forward. On your second question with Cold Spring Harbor, Cold Spring Harbor is one very important and, of course, outstanding institution that we put into the mix of our academic partnerships where we are translating great ideas not only in biologics, but from all modalities that we can find where they fit our platforms. And again, this is for us the roll out of our academic bridges by adding here an outstanding institution to that.

Our next question comes from Joseph Hedden, Rx Securities.

Congrats on delivering the J.POD 1 opening. The questions are on J.POD . So, I'm just wondering how long – I know you've got 12 pods, I think you said, in the initial facility. I'm wondering how long it's going to take you to get manufacturing to full capacity in all of those pods. You've mentioned a very strong order book and singled out Department of Defense today as – you're going to start manufacturing for them in November. I'm also wondering how much of the initial capacity are they taking?

First that there is no misunderstanding. We have two trains that are currently in J.POD 1 Us installed and in the facility. It's not 12. Sorry about any misunderstanding there. The second point, we can expand up to six trains within J.POD 1 US relatively rapidly. I say relatively because there's, of course, a full supply chain linked to doing that and there is several quarters of preparation to do that if we want to go beyond train 1 and 2. What we are doing, we are building at this stage a pipeline where we are trying to really create the longest or the best optimal flow and the best portfolio mix into these first two trains of J.POD 1, which means that we want to bring co-owned projects into this portfolio mix, so co-owned biologics, but we also will work on fee for service contracts that we bring into this portfolio mix. And that's why the shortage of global capacity is really helping us here quite a bit. But we don't want to block our capacity with not value optimal contracts. I think that's one of the messages I want to give you. The second is, of course, that we see a very strong trend to have full capacity for the first two trains, reached some times in the next 24 months. And of course, that will be then triggered by business demand to expand the capacity in J.POD 1 US. And also, don't forget, we are building J.POD 2 in Europe that we want to also have here, of course, a near shoring solution, wherever the mix of product is rightly done that way. So, a long answer to a short question. We see full capacity, of course, coming in, and we expect, of course, also here an important boost. Because, so far, you have to imagine, it's difficult for a new partner to believe in the promise that we will open a J.POD. Now as we can show around people in Seattle and in Redmond that it's an existing facility and that the FDA is coming and inspecting that facility, that will give a lot of ticks to the checklists that have to be done for due diligence on our partners. So, that's why the take up, I think, will come, but of course has to be fully endorsed with the full facility in place.

So, if I just follow-up on J.POD 2, I'm just wondering what does that facility – what's the plan for that in terms of size and capacity compared to J.POD 1? And obviously, you've already had part of the J.DESIGN, Just - Evotec Biologics established in Washington, are you going to be like-for-like in Europe or will there be some reliance on those services that are the manufacturing site coming from US?

That's the whole trick. The J.POD is the exact blueprint that we build on site one. And we are building it also on site two. So, copying this and allowing here for a global rollout – of course, obviously, there's local adaptions that have to happen. Yeah, that's the principle behind this J.POD. And that's why we think that building J.POD 1 is an enormous achievement. And with this, we also think that J.POD 2 will still be difficult to make. But of course, we already have a learning curve of how things work. Because again, it will be the same blueprint that we are building globally. And when you see us counting from one to two, you should expect that in the future, we want to count even higher when it comes to the number of J.PODs.

Our next question comes from Falko Friedrichs, Deutsche Bank.

Three questions, please, from my side. And the first one is on your guidance. Is there any way that you can give us a little more comfort on your adjusted EBITDA guidance? And you sounded relatively positive about it? It obviously requires a very strong acceleration of your adjusted EBITDA in 2H. And is there anything you can share on how good your visibility really is into these potential milestone payments that you expect? Then the second one, an important topic in the market currently is obviously this rising input costs, rising inflation discussion? Is that something that you also notice? Or can you compensate for most of these effects? And then, the third question is, is there any update on your Phase III compound with JingXin in insomnia. So, is there still a full commitment from your partner here? And I saw it on your slide, there's a Phase III readout expected soon. So, I assume the answer is yes. And is this compound then on track to potentially launch to the market over the next, let's say, two to three years?

The cost question will be taken by Enno. I would say confidence level question is a difficult one to give you more color than what we have done. But what can I say? The first thing is that it is part of our business model that milestone price EBITDA – and there's volatility in that because it's depending on biological results. And if we would know that every milestone that we achieve is coming, then it wouldn't be a milestone, then it would be a planned event anyways. Having said that, we are so positive for the second half because we first see that the data points will come because clinical sites have opened, the IND filing processes are faster ongoing than they were ongoing in the recent months through the pandemic. We also see that the backlog of files that is handled by certain CROs is going down. So that's also why we are very confident that some of the data points that are outside of our control will come. Will they all be positive? We don't know. Yeah. That's one aspect to that. And the second aspect to that is also we just feel that by having – and I know that's not for 2021 guidance or relevant, by having proven our business model with P2X3, that many other of these integrated R&D partnerships will be able to close still in 2021. So there is not only the expectation of milestones coming in, there's also the expectation of novel transactions to happen where potentially an impact on our EBITDA will also happen. Having said all of this, the EBITDA number of 2021 is one number. But the view of Evotec is a very long view where we are highly profitable independent of if we are on the higher…

Which brings me to the question on inflation, which we obviously are recognizing and observing. We have a good pile of stocks currently, and no short term impact. And as we grow, also our buying power, so to say, increases, so that we can also be more successful in terms of receiving discounts and reduced prices. So in that regard, no short term or immediate impact. But we keep closely monitoring the midterm perspective. And in that regard, for us, it is more overall currently securing supply, as due to the COVID pandemic, there's still, in some areas, the risk that materials may be short, like simple things like plastics for packing material and sending it, which is currently more of our concern than the pricing.

But, of course, we see inflation trends, we see material costs going up, which of course also is influencing our gross margin at this stage. But mid-term, we want to start and manage this even better than we are doing it right now.

Our next question comes from Christian Ehmann at Warburg Research.

I would like to go more into detail about the NASDAQ listing. So, if you could give me an overview what to expect – like, expectations for this. Do you plan on expanding your multiple? Do you plan on increasing equity? Do your favor debt in some cases to accelerate growth? That would be one question. And the second one would be, you have shown and will continue to show assets that have rapid growth in the future. What are your measures to actually make this growth sustainable, and also keep the growing pains in check, if you would like?

Then I may start with the NASDAQ reference here. And obviously, maybe one immediate point as a reminder. So, we are not under urgent pressure from a financing perspective. As I repeated, we have about €450 million cash at hand. And we also have a strong balance sheet, which we at any time could leverage in a different way than we are doing today. So, in that regard, that's not urgent here. But the overall reason is a combination of different arguments. And as we just nicely described today, we are accelerating and increasing our operational exposure in the US. And here we feel it makes a lot of sense to combine this with a more capital markets focused exposure going in parallel tracks, increasing our visibility and perception in the US market from a capital markets side as well as operations. Because, also customers like and partners like DoD, Bill and Melinda Gates, Merck and others, obviously, recognize these things and that can be clearly supportive to our operational endeavors. Second, if you look at the structure of our shareholders, we have a lot of international shareholders, we have a lot of European-based shareholders. But what we would like to add is more US-based investor exposure. And in particular, also getting more US-based specialized institutional investors from the healthcare and life sciences arena, getting them on board. And in that context, obviously, increasing the momentum within our share. On top of that, if we want to do this, we want to do this in a significant way. So really, establishing so many ADS that this really builds a critical mass and momentum in the US. And this will probably also trigger certain proceeds, which we then would have at our hands to further secure and support the growth of the Evotec, like the J.POD that Werner described, like the CapEx activities, like our equity portfolio growth. So, there's many different areas where we keep investing, plus having strategic flexibility, if need be, and if there are good opportunities that we can observe. So, there's a whole bunch, if you will, of good reasons. And just as a side remark, we are probably one of the last European biotechs standing of this particular size that have not at least a double listing in the US.

Christian, to your question about growth pains, growth pains are the best things that organizations can have. Nevertheless, one should never overstretch an organization. And that's why, for example, we have given ourselves one key measurement, that quality has to be right at every moment in time. And customer satisfaction and partner satisfaction has to be right at every moment in time. So, the key number to monitor here is also a number that we publish is retention rate and the number of people who continue to work with us despite the fact that an experiment doesn't deliver positive data because we're in control of the process, but not in control of the outcome. Having here a retention rate of more than 90% of our partners over the last years, and that number is constant or even growing, that shows us that we are controlling this to a level that quality is right. And we are absolutely not going for every opportunity in this growth market. Because that would then really stretch the organization to a limit where we don't want to go. But I totally understand and hear you because it would be the wrong strategy to grow too fast. Because if you go too fast, many companies have also gone against the wall. And that's clearly not the intention of Evotec. We go along with our partners and we deliver quality.

Our next question comes from Victoria English at MedNous.

Yes, I have three questions. Werner, the first one concerns your vision about being a producer of royalty, creating the largest royalty pool in the industry. At what point is your iceberg going to start delivering the regulatory approvals and the marketing that will enable these royalties to accumulate? That's the first question. The second question concerns your listing on NASDAQ. Do you intend to have a dual listing, still one in Europe and the other in the US? And the third question concerns the protein degradation agreement with BMS. There are a group of companies out there that call themselves protech, dealing with protein degradation. Are you in that group? In other words, are you developing with BMS bifunctional molecules?

The first, when does the iceberg deliver? We don't expect the royalty rate in our mid-term guidance at this stage within Action Plan 2025. But we see opportunities of compounds going to the market, sometimes in the years 2024, 2025, 2026 where then royalties will start to kick in. And P2X3 is such an important example here because once you have cleared at the quality levels how Bayer does this, a Phase IIb translating into a Phase III, you can have a very high probability of such a compound to go to the market because this is a proven mechanism with P2X3, not only by Bayer, but also by Merck US, for example, or other companies working on that mechanism. So, the security level that royalties will come is going up. How many of these royalty streams are coming? That's the next question. And this is why, today, with more than 130 co-owned assets, we, of course, are fully aware that there will be attrition along the way, but just imagine that there would be two, three, four, five royalty flows coming into the company over the next 10 years that basically have no cost against them, how this would boost our EBITDA levels to the upside. Yes, it will be a dual listing, coming to your second question. And when it comes to protein degradation or molecular glue companies that you're referring is exactly what we have been doing over the last five years where we have built the largest farm of mass spectrometry equipment probably in the whole industry in our sites in Toulouse and where we are leading science out of Munich when it comes to protein degradation where you please should look back to an acquisition that Evotec made in the year – I think it was 2012/2013, out of a Munich-based proteomics company called Kinaxo, which is the heart of our protein degradation platform. So, yes, we are absolutely in this space. And we probably haven't positioned it large enough to the outside world. But it's really, for us, a mission where we are bringing protein degradation and all proteomics-based science forward that comes out of out of Kinaxo and is now industrialized on our platforms there. We have gone exclusive with BMS in a certain disease area, which is oncology driven, as you can imagine, and we have expanded this out into another disease area. And unfortunately, we don't have as much capacity that we could sell because the demand for these approaches is really high because the scientific hope by dragging and druggable targets via PROTECT is, of course, a big promise in the industry.

Our next question comes from [indiscernible].

A couple of questions, kind of distracts your sort of overall strategy. The first question is related to COVID and the idea that, clearly, the world has done very well with vaccines in terms of developing vaccines, and now there is this very strong focus on biologics, and particularly antibodies for treating the disease rather than being a prophylactic. Now, I know that – so, this clearly, understandably, a very, very big opportunity for you guys in terms of the J.POD model, in terms of getting those sorts of things out there quickly and be able to respond quickly. Now, people have talked very much – I know the company has a very, and Werner particularly has, a very strong sense of social responsibility that people talk about vaccine apartheid in the world today where the developing world doesn't have the access to vaccines that it would have. Can the J.POD in terms of the ability to do the biologics has that ability to be able to be easily transferred in the way that you described? I'm just wondering how you kind of see that developing. There's clearly issues about patents and costing and pricing. So, that was the first question. It's quite a long question. But I wonder how you'd address that?

I think the first thing is you have to be technologically in the situation that you can manufacture biologics at cost levels that allow more access for more people, independent of all other questions that are coming with that. And that is the disruptive point about our [indiscernible 58:56] prediction platform translating into J.POD commercial manufacturing that we will be able to have very efficient antibodies built if we can influence the way these antibodies look from the very beginning of the process. There is no beauty in COVID at all. But if there is any beauty, then it is really this great situation that we are in right now that we are starting COVID therapeutics from the beginning, and with this we can optimize them, to a degree, that the cost level behind them will allow big access, much more access than typically for antibodies where you know that the cost of an antibody starts north of €5,000 typically, which, of course, when it comes to global access would be unthinkable for many countries in the second or in the third world. And I think this is really the power of J.POD that we will come to very flexible cost situation if we can optimize these antibodies. Which brings me to another part that the beauty of building biologics in infectious diseases is starting, as we speak – because so far, biologics in infectious diseases were basically unthinkable because of cost reasons. And I also think here that our chikungunya therapeutic antibody holds huge potential to prove that also for these diseases that typically occur in poor countries, we will be able to achieve cost levels for therapeutic antibodies that create markets here. Hepatitis B is the same when you think about the global reach that we want to achieve here with a biologic, but you first have to be able to have costs that allow you to really roll out these therapeutic antibodies. I hope that gives you a color on how we think about that.

Second question was related to [indiscernible 60:58] which kind of relates to one of the questions that was asked previously. As you expand and as you develop this very large portfolio royalty streams, there must be some prioritization within this royalty stream. So, how do you manage that prioritization? There must be some difficult decision in the sense of, you look at – you have a program with a very large partner that's worth a lot of money downstream or another smaller partner where that particular project may have a higher value? How do you make that decision because that seems to me, particularly as you grow larger, that's becoming more and more of an issue?

It's actually not an issue at all. Because the first is, don't forget, it's always the same platforms where these assets are generated. Then there are 4000 scientists at Evotec that are expert driven in, for example, neuroscience. oncology, metabolic diseases, inflammation, immunology, virology, antibacterials and global health, so you have groups of experts that are creating the priorities along the science in these disease areas. And the moment we partner something, our partner has to take over the diligence to bring a compound forward along the diligence clauses that we give to them. And that's the moment of prioritization. Because if our partner doesn't deliver on this due diligence clause, the asset falls back to us. And we can re-partner or develop a compound on our own with another partner. And again, it's this diligence clause to our partner that, basically, is ensuring that the royalty pool is moving forward at optimal speed because our partner has to commit to invest to do that. And the other thing is, our partners are not strangers. These are typically the 20 pharma companies or the people who we know and work with. So, there's typically a very long-term good relationship behind these partnerships that we're building. And that's why the flow of information is guaranteed. And also, that's why we see that our partners really leverage the platform. And that's why the pool can be not only leveraged with one partner, it can be leveraged through multiple partners out there. That's the principle of the shared economy that we are applying to R&D. And it's very simple if you look at it.

So, in the Innovate program, in every case, the partner has sort of the golden vote on how fast it goes, how the triggers for each step of development, is that the case? That it is completely given over to them at that speed and you don't participate in that at all?

In very many projects, we partner a project and still the platform where the science is generated is Evotec. So, for example, when we are generating induced pluripotent stem cell in neurodegenerative portfolio, our partner is BMS who is funding and who is running the clinical trials. But all the discovery and preclinical work is done on the platforms of Evotec. So, here we have full control, full insight and full visibility about the progress of projects. And with this also, we have, of course, full rights to prioritize projects that have higher and lower probabilities. But what is, of course, in the hands of our partners, if they pay, it's their decision to say we take something forward or we don't take it forward with their costs that they have to bear to bring projects to the market. But the moment they don't pay anymore and they don't invest into project anymore, everything that has been generated for such a project would fall back to us. And then we can do, as I said before, every partner needs someone else. So, that's why there is a very fair alignment between our partners and us that secures optimal speed to generate this royalty pool.

In every case, whatever they've spent, if they stopped spending, all the rights come back to you? Is that the case?

Yes. Maybe one last sentence to that, the more competition around an asset that we partner, the better our position to enforce a stronger contract with higher diligence clauses. And that's why we typically don't partner if we do not have two term sheets on the table. That's one thing. And the second thing, we optimize our Innovate transactions for royalty rates. We don't optimize them for upfronts because, again, that's the vision of this company to create a large royalty pool, not a large upfront pool only.

Because you're not cash starved, so you don't need the milestones, right?

We need them to achieve our profitability, but we are not cash starved.

Yeah. Unlike many other companies where the milestones are key drivers for their survival, essentially. Because you have a relatively lower cost of capital, you can be more selective in what milestones you take, right?

Perfect.

Are there further questions? Because if there are no further questions…

No, we have not received further questions at this point.

Fantastic. If there are no further questions, let me thank all of you, let me wish you all the best, and I look forward to hearing from you soon again. And if there are any questions outside of this conference call, don't hesitate to contact Volker Braun or Gabby Hansen, who are always there to help you. All the very best.

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