Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Evotec SE half-year report 2023. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. 9Operator instructions]. I would now like to turn the conference over to Werner Lanthaler, CEO. Please go ahead.

Thank you very much. Welcome to all of you. Welcome to our half-year presentation, first half of 2023. Emerging stronger, that's the theme that we have given this presentation, which will become very clear throughout presentation why we choose this topic. We have uploaded a presentation and invite you to follow this presentation, throughout this presentation, which I will give, together with my management team who is here with me. Here is Laetitia, our CFO. Here is Cord, our CSO. Here is our Chief Business Officer, Matthias, and we have to apologize, Craig, this time, is on a customer visit. I'm very happy to have my whole team around here because you see that all efforts coming together at Evotec are efforts of teams. We are strong as a team. We go through crisis as a team, and we emerge stronger as teams. And if you go to page number five of your presentation, let me directly bring you into the highlights, and also some of the lowlights of the first half of 2023. You see that in a year where Q2 was heavily incidented by the cyberattack, we nevertheless grew by more than 14% in 2023. There are not many companies who can talk about double-digit growth in general, and definitely there are not many companies who can talk about 30% growth, which we show in Q1 of 2023. This is of course all driven by fantastic collaborations that we have closed in 2022, but also at the beginning of 2023 that are now running forward. Let me mention a few of them. Our collaboration with Janssen, our collaboration with BMS, expanded and extended in neurodegeneration, and of course a strong progress of our ongoing protein degradation partnerships with BMS. And you will see later in this presentation, the…

Thank you, Werner. It's my pleasure to walk you through half-year financials and the guidance for 2023, which we, as you all know, updated on 27th of July. We had a very strong start to the year, with revenues in Q1 at €213.6 million, which implies a growth of 30% versus Q1 of the prior year. A robust underlying base business, as well as a new strategic collaboration with Janssen, and the expanded collaboration with BMS, have contributed to this excellent performance. The cyber incident in the first week of Q2 led to a deliberate shutdown, however deemed necessary to protect all the company's partners and stakeholders at Evotec, could ensure that integrity of scientific data remain unaffected, which led to missed revenue of around €100 million, of which €30 million were compensated for with higher than anticipated and advance payment. Despite this massive event, Evotec continued to expand its operational activities and enter a new partnership with highlight the new multi-year tech partnership Between Just-Evotec Biologics and Sandoz. All this contributed to group revenue amount to €383.8 million in H1 2023, increased by 14% compared to previous half-year in 2022, amounted to €336.9 million. Moving to Page 10, gross revenue grew by 14%, plus €46.9 million to achieve €383.8 million within the first six months, of which about €214 million were generated in Q1, and €170 million in the second quarter of 2023. Growth of the base business was also 14%. We achieved milestone upfront and licenses revenues of €4.3 million versus €6.8 million the year before. Just-Evotec Biologics more than doubled its revenue share year-over-year to €59 million during the six first half months of the year. The cost of revenue during the six months ended 30th of June amounted to €284.3 million, yielding a gross margin of…

Thank you very much, Laetitia. We are building the shared research and development economy in our industry. With this, it is essential to also build leading platforms in this industry to drive progress. So, we pride ourselves not only to have the most cost-efficient and cost-effective platforms, these are also the most innovative platforms at this stage available in our industry. Let me name them. It's PanOmics, so Omics-driven discovery and drug development. It's iPSCs in cell therapies, so using induced pluripotent stem cells for off-the-shelf solutions, and it's Just-Evotec Biologics, and we bring this all together in an end-to-end shared R&D platform, which is accessible for more than 800 partners in our industry. Here are just a few examples of what we can do when we are applying this. So, Page 17 illustrates to you how we are building this massive royalty pool with our partners by fully leveraging these technologies. Going strong with Bristol, going strong with Janssen, going into a tech partnership with Sandoz, and also building with iPSCs a cure for diabetes together with Sanofi, is just highlighting the potential of these platforms in all four areas. And if you go one page forward, you see how every building block is bringing this into a portfolio in several disease areas where we're very strong and along the full value chain from clinical projects to a massive iceberg of preclinical and discovery projects that is growing over time. So, yes, this is the long game that so many people have asked us to build and yes, this is the idea of going into the same direction with a very clear strategy to build these co-owned assets. And yes, if you go to the next page, you see that this comes with a massive cascade of milestones where…

[Operator Instructions] The first question comes on the line of Peter Verdult with Citigroup. Please go ahead.

Thank you. Peter Verdult here, Citi. Two questions. Werner, just could you just talk a bit more about characterizing the funding environment that you're seeing? I think you noticed softness, but that you say will hold its own. But can I just - what are you seeing in terms of large, medium, small customers and their behavior? And then secondly on just biologics post Sandoz, I realize you can't go into huge detail, but again, could you characterize whether you are seeing a lot more incoming and inquiries in terms of partnering with Evotec as it relates to just biologics going forward? Thank you.

Hi, Peter. Great to hear you. On both questions, I'll hand over to Matthias, who is the person who is closest to the market as our Chief Business Officer, and therefore best witnessing what he sees.

Thank you, Werner, and thank you, Peter. Thanks for the question. So, on the funding environment, this is of course something we watch very carefully and we developed a certain view, which is as follows. A, we see obviously starting in the year with - I mean with the Silicon Valley Bank, with I think interest rate, I mean, I don't need to tell you that the biotech environment is stiffer and that we have a certain more limited funding environment. At the other end, you have an outsourcing partnering market, which is large in nature. So, by our account at least 20 billion with a conservative measure, so not including all the adjacency, et cetera, that we see. So, by default, a large market with a long-term demand, which is clearly unbroken in terms of therapeutic areas with high unmet needs. And why do I open up both vectors? So, short-term funding challenges for small companies, as well as an environment of a very large call it also a market and essentially profit pool for us because we are quite positioned with a value proposition, which is against the premium end in terms of scientific problem-solving, in terms of end-to-end solution, in terms of high-end products. So, this market affects us a bit. So, we are adjusting our tactics. So, you have seen in the numbers as presented by Laetitia, that we are adjusting our growth for the second half-year by something like 7%. You see it adjusted, but we are definitely looking forward into a market environment where the value proposition of Evotec is part of this solution in this environment, because so far, I've talked only about the small companies, and for those, I mean in a funding-constrained environment, accessing a highly efficient R&D platform, as well as leveraging variable cost from their perspective, is helpful. And a similar argument I would take also for the large customers. So, if I draw a line, we are reasonably optimistic and comfortable with our growth outlook, while recognizing that particularly for more commoditized services and solutions, the world has become a bit tougher.

And if I may add, especially now our development and manufacturing API business, we see, I would say more competitive market. Otherwise, market for drug discovery, high-end quality services is very strong,

Which is very fair. And then secondly the question on Sandoz, and I take the same arc of the story as Werner started, because as we presented at the Capital Markets Day, and I remember our discussions, Peter, I mean, where - I mean, obviously, we highlighted already feasibility projects in the biosimilar space, and that gave us a certain focus and we - I mean, as we publish, we see the realization of a very large tech partnership with Sandoz. Now, this is part of the commercial validation next to - and the public partnering with the DoD. So, this has made quite an impact on the market. So, we see an early par partnering pipeline with more momentum. So, what we feel is a priority now to properly launch and expand existing partnerships and then building into the next two years, I would say 2024, 2025, that pipeline that is following. But yes, we see increasing momentum around this technology platform. Thank you.

Very clear. Thank you.

Next question, please.

The next question comes on the line of James Quigley with Morgan Stanley. Please go ahead.

Hello. Thank you for taking my questions. I've got some clarification questions. So, in the report, I think it says there's €38 million in milestones at the EBIT execute level. Then it seems to move up into service fees and FTE revenues at the group level. So, does this fully relate to Sandoz? How much of the additional amount is Sandoz, or the other effects in there? I know you mentioned the Bayer milestone as well. Then when I look at the guidance as you sort of highlighted, just got a slowdown in the second half. Can you remind us some of the headwinds in the second half 2022 base in terms of milestones or anything that could impact the headline growth rates and what does the guidance imply for the underlying growth rates? And finally on the previous call, you highlighted €20 million to €40 million in revenues from a catch-up perspective. How would you expect that to be recognized between third quarter and fourth quarter? And also, there's a lot of pushes and pulls for the second half of the year. So, if you give us an idea of the cadence of third quarter and four quarter revenues, that'd be awesome. Thank you.

Pleasure. On the guidance question into the second half, I'll then hand back to Laetitia. But let me first give you a color on what we have so far seen as milestones coming in. There is nothing recognized from Sandoz. That's only upfront that we have so far recognized. So, the milestones that are coming into the company at this stage are largely driven by the existing partnerships with BMS onco, BMS neuro, and here we have a very good visibility on a very big pipeline of these two partnerships to come. Bayer, as the milestone contribution, which was small, but scientifically very important, is a big contributor. And then you see high FTE rates and high exposure to these partners where we are delivering on these platforms. And that shows you also the very strong growth in what we show as innovate revenues in the first half. And that's why also innovate had, despite the cyber incidents in Q2, a very good first half. The catch-up effect, and when it comes to “headwinds” of the second half, I think again, you will not see many headwinds everywhere where we are back to productivity as we wanted to have it, with the exception of our API manufacturing business. And that's also where, due to the fact that we simply were not able to show when exactly we will have the platforms back, there was a kind of a gap in our business development, which will, by the end of 2023, beginning of 2024, then kick in again. So, effectively, that's where the headwind from our growth comes, because all other areas in drug discovery are, I would say, almost back to normal and almost back how we expected them to be at an above double-digit growth for 2023. And the development business is on a below double-digit growth. That's how you could titrate that out. And when it comes to a better illustration of how to come to the catch-up effect of €20 million to €40 million, I hand back to Laetitia.

So, James, thank you for your question. Coming back on the guidance and on what is included as milestones and key payments we had, so first half of the year, we had BMS 3.1 that had counted for two times €11 million. So, let's say rounding €22 million, €23 million in March, and we got the Sandoz coming in June 2023. So, this year for €36 million. So, that's the two major elements that has come as a big bonus this year. And that is what is factored in the guidance that we share.

And the rest will be considered as potential upfront and very unlikely recognized revenues from execution of projects if we deliver still by the end of this year. And otherwise, it'll be recognizable profitable milestones to come. But as you know, we never guide for them because they are depending on the timelines that our partners are executing. I hope that gives you a color on your question, and we are looking forward to the next question.

The next question comes from the line of Michael Ryskin with Bank of America. Please go ahead.

Hi, this is Wolf Chanoff on for Mike. Thanks for taking the questions. So, on the first one, I kind of wanted to build off of an earlier question. I know that you talked about activity among smaller biotech customers, but a lot of your peers have also kind of called out seeing signs of budget tightening or prolonged decision-making amongst larger pharmas. Is this something that you're seeing as well, or are your conversations with your larger pharma customers having a different tone? And then I have a follow-up.

Yes, maybe I'll do the following, that we split this answer in two parts. One, that Matthias gives you a short answer on large pharmas when it comes to our “end-to-end platform services,” and Cord, who is also on the line, to describe a bit to you how with large pharma, we are making our long-term innovation deals and why this is less impacted than other things. So, let's put this in two parts. Yes,

Okay. Well, thank you for the question. And I mean, let me dig a little bit more compared with my previous answer, because I touched on larger pharma co. So, just to be clear, across the industry there's some R&D budget tightening going on. I don't think we have a different view. I think what we try to address is that in those situations, the demand for high-end innovation is unbroken, and we see that in many - in the selective deals that are made at this point of time despite the environment. And secondly, the difference between how people look at commodity, more commoditized services versus solutions that are pointing more towards pipeline building. So, that's where we see Evotec from the position. And let me hand over on that note to Cord.

Yes, thank you very much, Matthias. So, yes, I want to pick up where Matthias left it out. I mean, pipeline-building type of deals, I usually have a more strategic character for the pharmaceutical industry. These type of deals, they take more time to generate and finalize and sign than more tactical fee-for-service deals, of course. But they're also not as much affected, I would say, as the tactical fee-for-service outsourcing. As this is really strategic, it usually involves pipeline-building. It's usually driven by a very high differentiation in terms of technology platforms and pipeline opportunities, pipeline projects that are loaded into these deals. So, here, once again, at this point in time, we don't see any real slowdown. We do see continued interest especially in our PanOmics-based or drug discovery efforts and platforms here that are servicing a wide variety of indication areas. But we also see a lot of traction and interest in our iPSC-based cell therapy focus area where we have quite a number of discussions on projects and that we have been working on for quite some time. So, overall, we are still very optimistic that we will continue to sign deals that are strategic in nature, and here at this point in time, we don't see any real slowdown or change in the dynamics in the industry.

Thank you. And of course, you should consider that all these transactions typically are closed over timelines starting with three years and sometimes going up to seven years in their nature. And that of course allows us much better visibility and plan-ability of these partnerships than short-term tactical outsourcing. And that's why these two things should really not be mixed up in the same bag. It's really two different efforts, pipeline-building, strategic long-term beyond five years collaboration versus very tactical funding-driven crunches in pharma and in biotechs. Next question.

Got it. I really appreciate all the color. And then as just a quick follow-up, it's good to hear that most of your businesses are online after the cyberattack, though I did notice that you noted that your API manufacturing was still kind of suffering some of the after-effects. So, I was wondering if you'd be so kind as to size that business for us just as a percentage of revenue. And is there any chance that you've lost wallet share here as customers have looked to move their time-sensitive projects elsewhere? Or given the nature or given the (specting) in nature of these processes, are you pretty confident that you've maintained it?

Yes. So, before I hand over for numbers to Matthias, we are fully back on all our platforms, and it was really us who were not the bottlenecks here. We had to validate everything with external authorities, which we also are ticking off as we speak and have done as we speak. So, that's why we are absolutely open for business again and feel very good about it. And when it comes to our total dimension of the business, Matthias gives you color.

Yes. I mean, I just wanted to thank you for the question and the start, Werner, because I would also frame it more as a matter of revalidating and bringing online the GMP business, which is multifaceted, of course API at the heart of it. So, when we look at our development businesses where we are in the range of €150 million to €170 million, then we speak - when we talk about the GMP affected areas that still need some required work, maybe a third of it, a third to less of it. So, that would dimensionalize the impact. But again, I think we are bringing that online as we speak with some rebuilding the momentum on the BD side, so as articulated by Werner earlier.

And also coming back to a question from James at the beginning, the Indigo business is something which you will see in Q4, Q3 very strong. And Indigo is so to say, leading into development manufacturing business. And that's why we are for 2024, quite optimistic for that business in this dimension, as Matthias pointed out, going up to about €200 million total capacity that we have available in that business. Next question, please.

Got it. Thank you very much.

The next question comes on the line of Steven Mah with TD Cowen. Please go ahead.

Great. thanks for taking the questions. I've got a three-part question on Just-Evotec Biologics. So, one, the €1 billion sales book order, can you help us define exactly what that is? Does that include potential work that hasn't yet been committed? And then two, how has that order book compared to your internal projections for just biologics? And then finally, has the macro environment impacted your plans for multiple J.PODs beyond Toulouse? Thank you.

Great questions. I think, let me start with the third question. The beauty of Just-Evotec Biologics is the highest productivity holding platform in the industry. So, that's why two metric tons of output of a J.POD, gives us enormous output potential for a J.POD in the US and a J.POD in Europe. And these were the two geographies that we wanted to create in order to nearshore our biologics capacity. And when it comes to giving you color on the order book and how this compares to our original assumptions, I hand back to Matthias.

Okay. Thank you, Steven, for the questions. So, what is the sales order book? So, we talk about closed sales. So, this is all committed work. Now, there's no guarantee because, I mean, there are of milestones and decisions, but it's committed work, so it's not wishful thinking. So, that number we are carefully tracking and we had of course, prior to the last Capital Markets Day, and at the Capital Markets Day, we keep on tracking that for that committed work. I mean, you will remember that we were nearing €100 million in terms of at that point of time. And that's why, I mean, what I called earlier in the question from Peter, is the arc of our evolution, because we started in the space of establishing that platform in the biotech space. And we have announced, for instance, a partnership with Alpine. You might remember. So, that was building up the sales funnel, reaching €100 million. And we talked about the biosimilars as a strategic space where we run feasibility projects. By now, we are more nearing €1 billion, and that gives us some runway into J.POD 1 and 2. I mean, outlook, I'm not commenting. Question three is already answered. So, I think you should see it as a metric that's determining the committed work for the next two, three, four years, and that's a metric we will also continue looking at as we build the business momentum.

And again, don't look at Just-Evotec Biologics as more capacity in the space of antibodies or bispecifics or something like that. This is a paradigm shift of how we in the future will manufacture biologics. So, that's why it's really a question, what to compare that number to. For me, it's just amazing to see that a new technology within such a short period of time has attracted €1 billion of committed capital. So, that's really fantastic. Not capital, it's sales. I hope that answers your question, and we are looking forward to the next question.

The next question comes on the line of Joseph Hedden with Rx Securities. Please go ahead.

Good afternoon. Thanks for taking my questions. Just on - just it's clear, Q2 was a great quarter, with Sandoz a strong contributor. Just on the rest of the year really, do we expect that to be the standout quarter of the year? Or do you see other strong contributions from just - it's EBITDA positive for the first half. What might we expect when the full year is done? And then secondly, just thinking about how you account for the revenues, the full-time employee rates from your major collaborations, especially with BMS, so we've always kind of traditionally thought of those as innovate collaborations. Does that mean that the bulk of those revenues are being booked under - as FTE revenues under the innovate segment or is a little more complex than that? Thanks very much.

So, unfortunately, we cannot deliver a tech partnership with an industry leader like Sandoz every quarter. Also, our exclusivity provisions would probably not allow that. So, probably - Q2 was definitely exceptional when it comes to the upfront and revenue impact, but the momentum in getting the technology and the paradigm shift out in the industry, I think is just starting. That's why this is so important. But you should not expect significantly more revenues for Just-Evotec Biologics to come, because also here we first operationally have to build the capacity that we can deliver. And never forget we are, so to say, building at the same time as we are rolling out this technology, and that has to come together. And this is ultimately coming together once both J.PODs are fully operational, that we can also leverage capacity from one to the other one. And that will not happen before the end of 2024, beginning of 2025. And that's also why this vision of action plan 2025 in Just-Evotec Biologics has always been built. And on the second question, you’re absolutely right. You should expect high FTE rates and milestones and royalties when they come from neuro or from BMS onco, be revenue recognized in the innovate lines.

Okay, that's great. Thanks, Werner.

I hope that answers your question and we look forward to the next question.

The next question comes on the line of Charles Weston with RBC. Please go ahead.

Sorry for the delay there. I have three questions, please. If I can just ask them in turn. The first with regards the competitive landscape, which you said is tougher in the more commoditized service. How is that actually impacting the market? Is there price cutting that you have to do to maintain your share? Or are you happy to maintain your higher pricing and lose share? And what might that mean in terms of your revenue mix by higher margin and lower margin business?

First question goes to Matthias.

Yes. I mean, I hinted a little bit with changing tactics. So, I would say, so it does not lead to on our side as a response to price-cutting. I would rather emphasize value-based pricing where we say, I mean, what is a fair price responding to the values that we provide. So, that might include milestones upfront, risk-taking. That's for sure. So, I mean, it is a bit more competitive environment in the more commoditized services, and we are definitely looking at our full toolbox there, which is not to say, I mean, we don't see the necessity and it would also not be helpful in the market to move into price cutting.

That's very clear. Thank you. My second question just with regard to your own ability to offset some of the pressures that you see particularly on the funding slowness. Are you able to slow down your hiring rates or do other cost-cutting measures in order to be able to protect the EBITDA progression that you're expecting?

So, as Laetitia has outlined to you, we have implemented what we internally call a value protection plan, where we have questioned, of course, every spending that we have taken. And I would say, again, never waste a crisis. So, that's why the cyber incident crisis was a good triggering point for us, not only to react and rebuild, but also to question everything that we are building at this stage. If you look to our website, you will see that we are currently looking for more than 250 open positions, most of them dedicated to process development in Just-Evotec Biologics, which also shows you that we here see by far the strongest operational demand of capacity that we are building. Otherwise, we are very happy that we have continued to build our workforce in a steady state over the years. We have slowed down hiring in certain areas, but we also see that retention rates are going up. So, therefore, we feel that the platform is growing with the best people at this stage. And it's, I would say at this stage, a good mix of strong hiring in Just-Evotec Biologics and very selective hiring in the other areas, but of course, a bit more cautious than we have been before.

Thank you very. So, my last question relates to the bridge from 2023 to 2025. Should we - I guess we should be expecting that progression on EBITDA to be more backend-weighted, but can you give us a sense of how much backend-weighted it's likely to be? You've given us 2023 and 2025 expectations. So, it would be just helpful to get just a broad sense perhaps of how we should expect that to trend over the two years.

So, again, you see a company that every year over the last 14 years, by the way, has been growing by double digits on its base business revenues. So, that's a clear trend that you can factor in. And there is for 2024, I would say double-digit revenue growth in our base business, something that we, from a capacity perspective, are able to show, and also what we in our budget processes will have in the “very close” to the 10% and not higher than - much higher than that double-digit rate of the base business. And then there are two factors that you have to see that are yes, backend loaded for 2025, because one is how many milestones will EBITDA contributing fall in place? And that's why I've shown you today this massive pool of existing pipeline events that are coming with high milestones behind them. So, the message here is, we don't have to close the new deals with the high double-digit million events behind the milestones. They are there, and in the year 2025, if you look at them compared to 2023, you see them three times as high from their potential. But of course, they have to be proven by biology. That's an existing potential that has to come in place in 2025, and it's building up over 2024, but at a slower pace than what you will see in 2025, given the nature of the contracts that we have signed. And the third element is the EBITDA contribution coming from Sandoz plus other Just-Evotec Biologics elements where first, both J.PODs have to be fully operational, which will also only be possible into 2025, second end of 2025. And where we have to deliver against our existing contracts, which again, is also a bit driven by biology and delivering on projects. But also here we are quite confident. So, it's these three elements coming together to make the bridge from today to go above €1 billion in sales and to go to €300 million in EBITDA because what we don't want to do, we don't want to slow down our R&D efforts to get there because there is all reason to believe that PanOmics-driven drug discovery and iPSC cell-based drug discovery will really open many, many doors, just as well as Just-Evotec Biologics does at this stage.

Thank you for the color.

Pleasure. Next question, please.

The next question comes on the line of Douglas Tsao with H.C. Wainwright. Please go ahead.

Hi, good morning and congrats on the progress. In terms of the iPSC and the PanOmics business, Werner, I'm just curious, how scalable do you see those businesses, and how much of a limitation is it finding the high quality people that to date you've been very successful in bringing into the business?

So, on scaling of PanOmics and iPSCs, I'd like to end over to Cord.

Yes. So, it's a really good question, but we are very certain that both platforms are actually highly scalable. The PanOmics platform, PanOmics written drug discovery, it's really a paradigm shifting effort in the industry using PanOmics as a guiding light essentially throughout the drug discovery process from the very beginning, understanding the disease on a molecular level by profiling patient samples, tissue samples of disease tissues, to translating this into disease signatures, which can be used for drug screening purposes, and ultimately then moving them forward into the clinic based on PanOmics-based biomarker strategies and patient stratification then also based on these PanOmics-based biomarkers in the clinic. So, we see this as a new end-to-end platform, which can be applied to most disease areas. And where we are currently using it the most is probably in the context of neuro and oncology. But I&I cardiovascular pain, essentially any other area is just as well suited, and we believe that this will come. Similarly, for iPSC-based cell therapy, there is just a large number of opportunities ahead of ourselves beyond diabetes, which is currently our leading project, most advanced one where we are hopeful to introduce us into the clinic end of 2024, the year. So, there, we are active in the oncology space here in particular, but there are also many, many other opportunities which are currently purely spoke about, but it's an absolutely scalable exercise because much of the platform, or I would say actually probably around 75% to 80% of the platform, remains the same. And where you can use essentially existing platforms, proven platforms in other areas, and which means that you can move and scale even faster in other areas. I hope that answers that question.

Thank you, Cord. So, I think the answer to your question is a clear yes, this is scalable also effectively through the fact that this is algorithm and platform-driven. And with this, also being conscious of all of your time, let me thank you very much for following us in a quite exciting first half of 2023. I think it's a fair wish that we want to have only business excitement in the second half of 2023, and we are very thankful for you to follow us. And we look forward to seeing you very soon. If there are any further questions, please don’t hesitate to reach out to Volker or to any one of our team. We are happy to answer all questions. All the best.