Ladies and gentlemen, welcome to the Evotec SE Quarterly Statement Q1 2024 Conference Call. I am Sandra, the chorus call operator. I would like to remind you that all participants have been listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Volker Braun. Please go ahead, sir.

Thank you, Sandra, and good day, good morning to all of you in the call, the Q1 2024 results call. I trust you have seen the press release this morning, and we are happy to share more details with you today. Before we do that, it's my obligation to familiarize you with the cautionary language as outlined on page two. And with that, I would like to hand over to Mario Polywka, our Interim CEO. Please Mario, go ahead.

Thank you, Volker, and a very warm welcome to everyone on the call. The entire management team is present in this call with me and they will do the main update on the development of the first quarter and on the program we have initiated in resetting and right-sizing Evotec for future profitable growth. So welcome, Laetitia, Matthias, Craig and Cord. I will spend a few moments on recapping the developments in Q1 before handing over to Laetitia and Matthias for the majority of the presentation. On Slide 6, we give a brief summary of our Q1 developments. Our business, like many of our peers, continues to operate in a challenging market environment. It is clear that the more differentiated our offering is, the better positioned we will be to grow our business in the future. For clarity, you will see and Laetitia will discuss further later, we have moved our reporting to Shared R&D and just Evotec Biologics. So in Shared R&D, despite the poor market conditions, we have still closed a number of exciting deals, including the AI-powered strategic partnership with Owkin, precision medicine collaboration in cardiology with Bayer, and of course our strategic partnerships with BMS continue to make good progress. Despite our 23% revenue decline in Shared R&D in Q1 of 2024 versus Q1 of 2023, which you will all remember was the strongest in our history. On a more positive note, the 70% increase in our Discovery Sales Book points to a recovery in the second half of 2024. Just Evotec Biologics, as Matthias will describe in more detail later, has made good progress, especially within the tech partnership with Sandoz and a number of new projects. The revenue growth over Q1 of 2023, of nearly 400% and the breakeven in EBITDA is a strong signal as to the health and huge potential of this business. You will hear as well from Laetitia that our reset initiative as described in the April call is progressing well and remains the key focus to return Evotec to its strong profitability position. Firstly, however, it's my honor to pass over to Laetitia to walk you through the Q1 financials. Over to you, Laetitia.

Thank you, Mario. In Q1 2024, we achieved €208.8 million revenue, which represents a slight 2% decrease compared to the same period in 2023. While the decrease was driven by a decline in our shared R&D business, minus 23% versus prior year, primarily on the transactional side, we have seen remarkable growth at just Evotec Biologics reaching €53.5 million revenue in Q1, as mentioned by Mario, above 380% growth versus same period last year. The [growth of Just Biologics] (ph) was driven by higher revenues due to our collaboration with Sandoz, the Department of Defense and others in what has been an exceptionally strong quarter. The new factory in Toulouse, France is expected to be fully operational in Q1 2025. Our gross margin experience some pressure, declining to 17% from 25% due to our high fixed cost base in Shared R&D and the ramp up of the capacity at Just Evotec Biologics. We remain committed to investing in the future with R&D expenses of €16.2 million in Q1. However, we reduced spending from €18.5 million in Q1 2023 to €16.2 million, as we focus on platforms that are best aligned with the strategic fit and relevance for our partners. Adjusted Group EBITDA for Q1 2024 was €7.8 million, marking a 73% decline from prior year, mainly driven by higher revenues and low overall cost increase. To sum up, we faced another challenging quarter in Q1 that showed solid underlying performance, however was held back by high fixed cost base and slow market demand on the transactional business, which we are addressing through priority reset over the next quarters. This is the first period in which we report our new segment logic, Shared R&D and Just Evotec Biologics, which reflects the way we manage the business internally, minimizes the inter-segment elimination…

Great, thank you Laetitia. Good morning, good afternoon everyone. Really great to be back so soon after our full year results. Let's just move to the next slide immediately. Yes, well, I'm very excited to provide a top-line view on a few disclosed partnerships we were able to close as part of -- particularly as part of our Shared R&D efforts. So if I quickly talk through them, and there's an AI-powered partnership with the techbio Owkin, where we combine their expertise on the target side with our integrated discovery and development platform in oncology and I&I. We also announced just another partnership with the foundation, here with the Crohn’s & Colitis Foundation, where in the high unmet need area of IBD, we again provide them access to our integrated R&D platform. Quite interesting is also the collaboration framework with Claris Ventures because this allows them to have access to our R&D capabilities across different therapeutic areas for their companies in UK, Italy and Switzerland. And then yes admittedly after period end but we are also excited to approach cardiology in a new way with our precision approach across Bayer and Evotec. Now, in summary, we feel quite confident that our differentiated, integrated offerings are very attractive for very different kind of partners. So I mentioned Ventures, Foundation, Big Pharma, as they work with us from early disease understanding, so from novel targets, and then use the full spectrum of our PanOmics platforms and our end-to-end platform towards IND and Phase 1. Let me illustrate a little bit the underlying business dynamics. And I move to the next slide. So the question is first, what are we seeing here actually on this slide? So while we are not going into more detailed reporting in the future, I'm showing here Discovery,…

Thank you, Matthias. We are progressing well also on the execution of our three priorities to sustain the profitable growth at Evotec. So let me highlight the key updates since our last call. On priority one, to do more of what we do best and focus on smart partnering, as announced yesterday we are exiting our Orth site and correspondingly our gene therapy business to focus on our core modalities. First R&D savings have been initiated through focusing out capital allocation to the right R&D projects that are aligned with the strategic priorities of our partners. In addition, we continue to strengthen our business development to accelerate the conversion of commercial leads for further revenue growth. Early signals of positive momentum, particularly in discovery are visible, as Matthias has just explained before. On our second priority, we are in a full swing of driving the execution of our cost optimization initiatives. We have initiated global purchasing optimization program with external support to maximize 2020 for savings and triggered short-term facility space reduction and footprint optimization. Constructive discussions with the Workers Council have started and we will provide further details once the regulatory process is completed. Let me provide details on the progress of the individual initiatives on the next page. And on the third priority, pre-boarding with Christian and Aurélie is ongoing and we are looking forward to have them join over the months. To generate cost savings, we are executing a bundle of initiative that drive both short-term savings in 2024, as well as optimize the full rate savings in-line with our capacity demand expectations. The initiatives can be clustered in three areas. One footprint optimization and right sizing. We have completed the redeployment of Chemistry capacity in Marcy (Lyon) in Q1. We also announced the exit of our…

Thank you, Laetitia. Thank you, Matthias, for your summaries there. On this slide, we just present to you important upcoming dates on your general meeting, the first half report, the Capital Markets Day, and then of course our nine-month quarterly statement. To conclude this presentation, what are our takeaway messages? Well, the reset is fully underway, And we continue to progress and push our initiatives to get our profitability back on track and to align ourselves and right size the organization for our market demands. We do believe we have a challenging H1 as you've heard, but we do think that this is the trough of the difficult market environment. There are very credible signs for business recovery in H2. I'd like to thank all of our employees, shareholders and stakeholders for their support, your support and all the hard work through this period. And on a very personal note, and this is the last opportunity, I'll have to say this, I'm so grateful to this management team for their huge commitment to steering Evotec through these very challenging times. They have done a magnificent job. They've done all the hard lifting in the last five months. And along with the new CEO Christian and the new CPO, Aurélie, they will form a formidable team driving Evotec forward. Thank you guys so much and that concludes the presentation.

Thank you Mario and team and we are now looking forward to taking questions from people attending the call and I ask Sandra to start the Q&A session please.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Charles Weston from RBC. Please go ahead.

Hello, thank you for taking my questions. I'll do three please, the first one is more of a clarification. On the call last month, one analyst asked whether the EBITDA guidance for 2024 meant €100 million, and, Laetitia, I think you did say €100 million in upwards, although you carry out a bit with the word ballpark. Can you just confirm what you mean here and what the range of EBITDA is that's implied by your guidance of mid-double digits?

So for the guidance that we are sharing is a mid-double digit percentage. And I would say the consensus that is coming to us is around €95 million. And I would say that directionally that's where we are targeting for this year.

I see. Thank you. And then, can I ask what's driving that 70% growth in discovery work? Is it more relating to the Innovate business model, i.e. not really delivering necessarily near-term margin, or is it more on execute? Is it more biotech or pharma? And I'm asking this because a month ago you said you weren't seeing much improvement in demand from biotech funding improvements, nor from BIO-SECURE. So I'm just trying to figure out if that's changed.

Charles, let me take that. Thanks for the question, Matthias here. So first of all, let's start with where do we see very strong traction with customers. That's often when we offer an integrated offering, which also covers multiple steps along the value chain. So I just want -- not only because we give up Innovate as a reporting, I mean, it's also important to understand those contracts have near-term margin. Now, we might have long-term upsides, but they have margin. So what has changed? I mean, frankly, I think the reset and progress, I think we are doing, I think based on partner feedback, a good job on the BD side. We leverage our relationships because the deals we were able to close have of course a long run preparation timeline coming from summer last year. So how I want to frame it is the green shots we see from BIO-SECURE Act and in terms of demand, the hopefully improving biotech environment, I don't think that's what we see at right now. Right now we see translation of our value proposition into business. So that's what makes us hopeful, is that combined with what we hear from competitors, what we see in the market, that we see a much better picture towards the end of the year next year.

Thank you. That's clear. And then my last one please, relates to milestones. In the original 2025 guidance, this included roughly €70 million from milestones. I know you're not going to give guidance now, but could you at least indicate whether the programs that you had factored in to deliver those milestones are still on track?

So, I mean, we can't say a lot to that, to be very honest, and we have not guided on that. So, I mean, that's not fully correct. I mean, what we have said qualitatively, that 2024 is, I struggle for the word, weak or soft on milestones as a year. And 2025 can be stronger if science is progressing, can be much stronger. But we have not and cannot provide guidance in a quantitative form.

All right, thank you.

The next question comes from Thibault Boutherin from Morgan Stanley. Please go ahead.

Yes, thank you. My first question is just on the early dynamics in the second quarter. You mentioned the split between H1, H2 -- H1 still difficult. So just based on the kind of initial trend you're seeing this quarter, should we just expect that Q2 will be similar to Q1 in terms of revenue growth, profitability, and then the year more skewed towards the second half. So just some details here would be helpful. And then the second question, just if you could mention, if you could comment on the margin difference, so the mix on margin between transactional services and discovery, and if we see a shift of this mix going forward, if it's going to improve margins. Thank you.

So let me go through your first question regarding the dynamic of the path for Q2. As we said, we are progressing towards H2 into getting momentum in picking up in the revenue. So I would say effectively H2 will be the quarter where we will see a trend that will be shifting. So we are at the moment really getting those contract and sales orders. We see the dynamic, but of course, as Matthias mentioned, there is few months before it translates into revenue. So in the short-term, I would say that directionally, you need to look at towards end of the year and H2 to get this ramp up really visible in terms of EBITDA and revenue growth.

And Thibaut let me comment on your second question because forgive us we won't discuss margin difference between the spec -- because it's really a spectrum. And one reason is not wanting to, because our COO Craig, will always tell us we have to optimize an existing capacity and that we have high margin work. And of course, we need the volume as well to drive the overall margin. So I think the bigger difference you have to think about is where and how strong is our value proposition. And that's a statement we continuously make that it's stronger on the integrated side where we have the differentiated offering.

Understood. Thank you.

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

Great. Thanks for taking the question. I want to go back to the orders or the closed sales and discovery, the helpful chart you had during the presentation. I was wondering, seems like that's relatively volatile historically, more so than we would have thought. And obviously, you know, 2023, you have the cyberattack impact. So that's not unexpected. But even prior to that, you had a decent amount of volatility. So just curious, what makes that those order trends so volatile? Is there any seasonality there? Are there single customer orders or a couple customer orders that tend to swing that? Just trying to take your comments on the fact that you saw strength in 1Q and you're seeing it in 2Q. How predictive should that be going forward? Or is that really -- should we not read too much into that? Thanks.

I mean, thank you for that question. I'm actually excited you asked that, because it helps me to explain that we, in fact we don't have a sausage factory. Because why do I make that analogy? Because we don't have stable, predictable demand of small units. So what the real value is are high value large contracts. And That drives a certain volatility. So I can predict already now, you will see for instance a spike also in the next quarter of a large contract, so they make a difference. So you have an underlying basis of more transactional work that's actually relatively stable in this that you obviously don't see in this because we don't have the breakdown. And then you see the peaks in this pattern through large contracts. And of course we work on reducing the volatility but that's the reality of our business.

Okay, that's actually really helpful. And then follow up on that is on the cost optimization. Again, you provided a powerful color on your progress on facility footprint reduction, headcount reduction. I'm just wondering, the signals you saw in 1Q and in April and May, nothing in terms of demand signals in the market, there's been no change in your timelines or in the extent of your cost reduction. Is that correct? Just put another way is, you're not seeing any -- and it's going to make you think that you suddenly might need more capacity and more headcount going forward.

Maybe I can take the -- it's Craig here, Maybe I can take the question about what the expected timeline, the dynamics of the cost reduction or reset plan is. It's fully on track. It's as recent as four weeks ago. Much of the cost reduction that we have in a reset frame will be delivered during the course of 2024. And as Laetitia already mentioned during the presentation, there are a couple of key indicators that -- that's already well underway, such as the exit of Chemistry Marcy and the exit from gene therapy, which we announced yesterday. There are further footprint optimizations where we're getting out all particular buildings on campus environments where we're able to consolidate and of course that intensifies our occupancy without affecting revenue or headcount so that's also a margin accretive impact. And then maybe I hand over to Matthias to comment about how the interface is between the fixed capacity versus the outlook for the later part of the year.

I mean it's a very fair question and of course something we look very carefully at because I think we need -- internally we call it a parallel shift. We feel we are just on time to reduce the operating cost and we move that down while we look into growth towards the end of the year in 2025 from a more efficient base to grow again. So I think the short answer to this is no, we don't see shifting timelines. We just prepare with a more cost-effective Evotec than to be more successful as new growth comes in.

Okay, thank you so much.

The next question comes from Peter Verdult from Citi. Please go ahead.

Hi there, Peter Verdult from Citi. Just a couple of questions and to give the bluntness obviously we've got to deal with the cyberattack, the CEO departure, and a big reset of expectations. So just in terms of just calming investor fears in the market and rebuilding credibility, I just want to make sure understand that we've got a CEO incoming, a couple of months, we probably won't hear from him until August. So there's naturally going to be a fear in the market that there's going to be another painful reset. Now I hear what you're doing in terms of talking about order book dynamics, but correct me if I'm wrong, you're painting a picture of a revenue recovery story in H2 and you're providing evidence for that. But I thought Q2, the comp would be Q1, the comp was very tough because you had a very strong Q1 last year. But Q2, the comp should be very weak, or very easy, because you were hit by a cyberattack. But it sounds, I just want to make sure with the [indiscernible] you seem to be implying there'll be no revenue growth year-on-year in Q2, and that's -- it's strange to me given the cyberattack impact. And similarly, Matthias on the order book dynamics, very encouraging 70% up, 70% of the business, great. But is that just a function, I think just to follow up on the earlier question, I do want to get some clarity here. Is that just a function of the fact that the order book was really poor last year because of the cyberattacks? I suppose -- what I'm really getting to is the confidence you have that we're going to see this H2 recovery. My very quick second follow-up question is speaking to C3 on some of the large pharma’s, they're having discussions about the impact of the BIO-SECURE Act. But the way they frame it to us is that it's discussions. That's not really leading to all the patterns changing. I just want to make sure what have you seen in your business? Are you seeing some of the biopharma starting to put orders in and shifting orders to favor you or is that still a potential upside? Thank you.

Peter, thank you for your question. I take them and I start and then I see if my colleagues want to come in. Matthias here. So I start with your last one and work my way up. So BIO-SECURE Act, Just to be clear, what I presented today, I have not included, I said in one sentence very carefully about it's an upside, because I don't think we see the effect just yet. If at all we see it through some incoming discussions on the Just Evotec Biologics side, so more on the biologic side. So however, in the early proposal flow, we have more and more discussions. So I think, and I mean, I give you an example. If there is a Series 8 today, there's a real discussion. Do we place the work in Asia or not? So that's the discussion where we are. And so towards the end of the year, next year, I consider that an upside. But just to be clear, that's not what we see just now. Then the second question, I mean the order book, you are right, it is a revenue recovery story. So that statement I think is correct. Now the question is -- is the order book strong? So obviously I would love to see multiple quarters of this quality. But what we show today is Q1, very strong. Second best of history, not versus 2023, so very strong. And we have a similar indication on the sales pipeline, also pointing for Q2. So this is an evidence-based signal. So not to dilute the message with comparison with last year, because even there we had some sales. And this is a holistic statement over a longer period of time. Now then, your first question is, I wonder if my colleagues want to come in. But the reset we do now, we prepare the ground for a successful strategy, also for Christian coming in as a new CEO. So I think we want to reduce the fear of just another reset. But your key question, Q1 versus Q2, yes, you heard us right. We position H1 as a trough because I think it's the effect on ramp up time on the more transactional side of the business, on development, it's more mobilization on site protect. So all the themes we have talked about that simply takes more time. I mean, I hear you as a surprise, but that's the reality what we are seeing here right now, and then the recovery more in H2. Thank you.

I would just complement Matthias on saying that of course Q2 2024, so next quarter, we still expect to have a top-line positive growth versus last year, where you are right we were into the cyber incident at that quarter. But then the reflection in terms of profitability improvement, as we said, you have -- we have shared that it will come around the second half of the year. Having said that, what it means is that in the top-line development, Q2 will be very likely around a similar pass than Q1, but it's still a growth versus last year.

That's helpful. Thank you.

The next question comes from Ben Jackson from Jefferies. Please go ahead.

Hi, thank you for the question. Just two if I may. The first is there any kind of color that you can provide to us on what we should be expecting from the Capital Markets Day later in the year, aware this is still some time off and is there any thought that's going on there or are you waiting for the incoming CEO to make an impact and make a decision on where that's going and I guess specifically is there any intention to provide any longer term aims for the business as well. And then secondly, just on ADCs and the recent commentary from companies in the space there, could you perhaps talk to us on how you think that you can position yourself to capitalize on potential future demand in this area, and what makes you differentiated there to become a partner of choice. Thank you.

Great, Ben. Let me take that. Great questions. I mean, on the Capital Markets Day, the primary idea is really a deep dive in our progressing Just Evotec Biologics business. I mean, you will see -- you will be sit in the Grand Beauty on J.POD 2 in Toulouse. That's a primary motive for also locating it there. If we add a topic later down the road, I don't know, but that's a prime focus. Simple as that. And ADCs, I think it's definitely, we have a lot of partner discussions. We have, and I don't know, maybe Craig in a moment wants to comment a little bit on, we have a strong proposition on the ADC on the chemistry side, on the discovery side. We know that the continuous manufacturing platform is really prime for ADCs as I introduced complex biotherapeutics today because also of the flexibility in terms of delivering against fluctuating demands. We are very able to house GMP conjugation, which we don't have at this moment of time, and we are open for discussions with partners to basically for co-funding of such endeavours. So in broad, we are not fully equipped at this moment of time, but have a lot of ingredients. And I don't know, Craig, maybe a little bit on the ADC chemistry.

Yeah, thanks, Matthias. And thanks for the question, Ben. I mean, as Matthias said earlier on, integration is one of our biggest advantages in being able to combine elements of capability into a high value combination and proposition is where we excel, I believe. And ADCs lend themselves exactly to that because they land on historic strength in small molecule organic chemistry but combined with our massive investments and advantages in Just Evotec Biologics in particular. So bringing the capabilities together particularly in Toulouse where we have OEB5 containment, for example, in the discovery space, we can do discovery, ADC work and bioconjugation. Also with a view through then to agile Just Evotec Biologics manufacturing of the antibody and even in commercial scale for ADCs, I think it represents a really strong position technologically and competence wise in the market.

Perfect, thank you.

The next question comes from Falko Friedrichs, Deutsche Bank, Please go ahead.

Thank you for taking my questions. Firstly, going back to your comment that it probably takes a few months for the orders to translate into sales and therefore earnings, can you maybe be a little bit more specific about how many months we're speaking here? That would be very helpful on average. And then secondly, can you let us know if this adjusted EBITDA figure in Q1 was in-line with your initial planning for the year. Because I'm a little bit puzzled that only a few weeks ago you pointed us to about €100 million of EBITDA, maybe even a bit more. And we're now sitting here and you're pointing at only €95 million of EBITDA. So I'm trying to get a better feeling for how back-end loaded it really is and whether you can provide us a little bit more comfort that at least this €95 million is realistically achievable without hoping and praying in the last few weeks of the year. Thank you.

Falko, great questions. Let me start and then I hand it over to Laetitia. So first, a little bit more specific. So what you see on the written materials, we put there six months to eight plus months. I think what I said verbally is we have the full range from four months, six months, eight months, because what happens in reality – and I'll speak to a few examples. I mean, the prime example, the large contracts are integrated discovery deals. That's often a deal which starts with a list of targets. Then we do a screening, then we do the chemistry, lead optimization, and so on. So A, from contract signature to setting up the team takes some time. That is often also in the hand of the partner, but can take weeks. There are also scenarios where it take months, but let's say a month, so we'd. Then, I mean, quite often, we have over some remaining target validation work, which can at times even take a couple of months. So prior to more large scale chemistry starting, easily six months, eight months are gone. That's the reality of our business. That's why today we want actually to avoid the hope for the best. Falko, I mean, I like that quote because we want to turn it around and give some evidence that we see business momentum, but it will take that time. Now in full transparency, there's also faster moving business. So if we see progress on cyberattacks in our [indiscernible], of course you order and get the results. And that's more a cycle of days to very few weeks in full transparency. But we signal here those peaks in closed sales will take six plus months. So the best we can say here it translates into recovery late in the year and of course next year. Now on EBITDA I think maybe I use slightly different words and let Laetitia build on it. I think we are not giving quantitative guidance here. We have given qualitative guidance and we have reacted to comments last time. It's hundreds of floor, today, we mentioned the consensus. We talk about that ballpark and we'll come back with quantitative guidance as promised, and I let Laetitia.

So coming back on this specific point of course, we keep our guidance around the mid-double-digit growth for the EBITDA. I was referring to in a way your external views, which is the consensus as €95 million. And what I also you ask another question regarding the past and is the Q1 in-line with the guidance that we gave. And what I can confirm is that it is in-line, in top-line. And EBDA is what we have factored in to achieve this qualitative guidance that we have shared with you.

Okay thank you very much.

The next question comes from Joseph Hedden from Rx Securities. Please go ahead.

Hi good afternoon thank you for taking my questions. Firstly on -- Just it's clear that it was a good quarter. I was just wondering if you could share any further details, for instance, how much of the revenue in EBITDA is made up of Sandoz work, and is that work segments, or is there any milestone element to it? Secondly, you announced a little while back the Bayer Collaborations being modified into a cardiology focus. I'm just wondering, are there any other activities going on in the old endometriosis PCOS alliances or is that work all shuttered now? And then thirdly, just on the gene therapy, the closure of that facility, just wondered if you could provide any further color on your reasoning behind the choice of that particular element of the business. Thank you.

Let me start on Just. It is Matthias. And I invite Cord on Bayer. And apologies, the line was really bad here. Can you just say the reasoning on number three on what was that?

Yeah, just on the closure of the gene therapy business [you mentioned on the day] (ph) I'm just wondering if you could provide any further comment on why that was the choice?

Sorry, I misheard. So we'll invite Craig on that side. So on Just, I think this allows us to say it was an exceptionally strong quarter. I mean, Sandoz is an important partnership. We don't provide detail. I mean, it is multi-factorial as a results. I mean we have worked for DOD. We have worked for multiple biotechs and Sandoz, but it's no secret. Sandoz is a significant partner in the mix. [technical difficulty] we said last time in the Q&A, we expect similar growth again from last year while we don't guide on it at this moment of time. But profitability-wise, it's an exceptionally strong quarter. We stick to our tech-line that we want to achieve profitability this year. Maybe, Cord, on Bayer.

Yes, this is Cord speaking. So regarding Bayer, Bayer continues to be an important partner for us, although our efforts in the Women's Health division have been essentially discontinued. So there's no efforts in the endometriosis or PQS ongoing anymore. Nevertheless we still have an ongoing partnership, ongoing in the field of kidney diseases and we've brought a molecule into the clinic together with Bayer on this front. So this is continuing quite nicely. And as you mentioned, we have now started the collaboration in the cardiovascular space based on our iPSC drug discovery platform. And this is we believe a very excellent starting point for a more significant collaboration going forward. We are still at an early stage, but it is essentially a very fundamental new approach to cardiovascular at least.

And then on the decision to close gene therapy I think we all recognize that gene therapy is -- remains a technologically very challenging areas, faced a lot of challenges in the past couple of years around safety in particular. And as a result of that, we see and believe that there is a need still for further innovations and investments in R&D in, for example novel vectors, novel delivery like capsid development. But as you've heard, we have taken a focus of our R&D investments into areas that we really feel are very strong for us in the long-run. And therefore, we felt that we could not continue to invest in R&D and novel capsids and novel vectors in the gene therapy space and maintain competitive advantage. In addition, it is a very, very good team, but still a relatively modest-sized team in an isolated site. And so as a result, it adds some complexity to our operations to maintain it. So in the principles of targeting R&D investment, focusing on costs, focusing on areas of long-term growth and development and high value, we had to come to the unfortunate decision to exit that particular topic for the closure of the site.

Okay, thank you. That’s very clear.

The next question comes from Christian Ehmann from Warburg Research. Please go ahead.

Hello, everyone. And thanks for taking my question. I was just trying to get an understanding of the big customer risk they have there. So you mentioned that BMS have expected to continue to be a good -- a large customer for you. Maybe you can break it down to like something like, well, we have around 10% with one of our three pay customers and so on -- so we'd get more of an idea how high or risky your exposure in this regard is to have one or two or three large ones besides Sandoz? That will be my first one. And the second one is, I noticed in your interim report, you mentioned a downturn in Shared R&D revenue mainly driven by in the biology and chemistry business areas. I mean, we know all what chemistry business probably means -- probably relates to the API production, but I was a little bit wondering what biology means in this instance? Thank you very much.

So this is Cord speaking. Maybe I will start with the BMS related question. So first of all, our BMS is an important customer for us and our collaborations are continuing to make great progress and they are delivering as we expect them to deliver. But you have to keep in mind that the overall contribution to our top-line is less than 10% or about 10%. So it's not -- there's not a comp risk essentially. We continue to have discussions with multiple partners about opportunities to expand partnerships. And here, I want to point out collaborations such as Novo, Lilly, et cetera. So overall, I think we are in really good shape on that front and believe that we will deliver on our goals here.

Thank you, Cord. And I think it's also worth saying that we track our customer concentration. Overall, given the breadth of our customer base, we are less concerned about dependence. Now what is, of course a special situation with Sandoz and DOD as we ramp-up the platform, but I think we are broadening out there already. But thank you for that part. On biology and chemistry, let us maybe bring us next -- I mean, earlier I talked about the integrated R&D example, and let me take that example to explore a little bit what we actually do and what we have. So when you run in a Discovery program, of course we need -- I mean -- and let's stick in the small molecule area, we need to chemistry to synthesize the molecules. Now at the same time, on the in vitro and in vivo biology for the whole biological characterization. So on balance, I mean Evotec employs more biologists than chemists, I mean, just to put it into perspective. Now while we talk qualitatively about this concept is to avoid full confusion because as you say, chemistry you have in the very early stages. I mean, when you synthesize very small compound all the way into development when we have API manufacturing -- development manufacturing even at commercial scale. So to be very simple, I would stick for today to the message in our transactional parts of our businesses. So a particular development, which includes chemistry, so the development part. And Cyprotex which we have indicated, that's where we have seen the over-capacities that we are addressing now. But that hopefully puts various comments a little bit into perspective.

Okay, thank you very much.

[Operator Instructions] We have a follow-up question from Charles Weston from RBC. Please go ahead.

Hi, thanks. Just got a couple of clarifications, please. On the R&D line, you said you've cut this or you're focused on alignment with customers. Does that mean you stopped doing Discovery work on your own pipeline? The second question is on Just. Sorry to belabor this point, but you guided that growth would be similar in 2024, I guess, that's ballpark and directional, et cetera. But I still haven't understood whether you mean as a euro number, i.e. EUR €55 million, €60 million or as a percentage number, i.e., 110% because that is quite a big difference? And then if I can just ask one more. I think, you've provided to some investors in your conversations over the last few weeks with a sort of a rough expectation of how much transactional might be down in 2024, offset by growth in Discovery. Could you just give us some quantification or guide on those, please?

Maybe I'll start with the related question regarding R&D budget and what we're doing with it. So we still have a very significant budget in 2024. We are targeting about EUR60 million to spend on R&D internally. And as in previous year, this will be a mix of investments. Some of them will be more platform-oriented and other investments will be on developing early-stage assets that are the -- can become the foundation of the next generation of partnerships with pharma companies and biotech companies.

Thank you, Cord. On Just, Charles, good question. We can't guide today quantitatively, but let me give you so much -- we meant it in absolute terms. So say, roughly doubling. But I mean, it's -- that's what we meant. And then your third question is, of course difficult. So I would say, we cannot go into the quantitative up and down. What we do see -- I think what we have indicated -- let's maybe as a wrap-up also to summarize that we have seen development, Cyprotex under pressure and we are adjusting with the reset of our capacity, i.e., our cost base. I think, we are seeing closed sales discoveries that will drive it. So I mean we look holistically in terms of cost across the entire organization so to optimize and provide almost a parallel shift so that we can grow from a new base. So that's the emphasis there. And we have to look into optimally using our fixed cost installed physical capacity. These are the drivers, more quantification later to come.

Okay. Just if I could squeeze one more in. I think in your annual report, BMS, it says contributed €195 million of revenue, which would be something like 25% of sales. But I think you were talking about that number being lower before. Was that something to do with segmental sales or what's the right concentration we should be thinking of there?

Charles, I mean -- so BMS is an important customer. I'd just back up quarter a little bit. That number that we stated is of course as per the Annual Report is also the revenues. And I think one has to see it not as binary as our customer and maybe the risk of leaving because that's a customer we build a pipeline together. So it is very sustainable and value accretive and that drives milestones and upside down the road. So from our perspective, we have a broad customer base. But yes I mean, we would -- we are working on multiple customers to become the BMS like in terms of pipeline building.

Okay, thank you.

We have a follow-up question from Christian Ehmann from Warburg Research. Please go ahead.

Hello again. Thanks again. So I'm trying to linger little bit on the BMS development over the next year. So I would appreciate the fact that you said, you'll get around 10% of revenues from -- in this year comes from BMS. And Matthias, you now talked about milestones and upfront potentially that might be coming in from the pipeline expansion. Do you expect any visible revenues from BMS over the next years in a similar fashion to what we see maybe in this year, not on a percentage basis, but probably on a nominal basis? Thanks.

Yes. We definitely expect similar revenues on a similar level potentially or actually growing going forward as projects keep maturing and moving forward in the pipeline. And we are also, at this point in time still growing the pipeline of opportunities within our collaborations. And so once again, I can only reiterate that they are very comfortable with our collaborations with BMS. They have been delivering in the past and we expect them to continue to deliver.

Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Volker Braun for any closing remarks.

Thank you. And thank you to all of you in the call and your interest in the unfolding of measures to reset Evotec towards profitable growth. In case you feel that further clarification is needed please feel free to reach out any time. And otherwise we are looking forward to speaking again at -- on the 14th of August in our H1 call or if you can make it, we would be delighted to meet you in person at our AGM in Hamburg on the 10th of June. Thanks a lot, and good bye.

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