Evotec SE

Good afternoon, this is Werner speaking from Hamburg. Great to have you on our call. Welcome to Q1 2019, Multimodality is More Opportunity. That's the title of this presentation. As always, you can find the supporting slides on the web and I will guide you together with my team through the pages that we will show you and name to you from page to page. If you go to page number two, you see that I'm here together with my team, our CFO Enno, our COO Craig, and our CSO Cord. We're all back in our offices in best of health and fully active for the company, which also reflects the spirit of how we are dealing with the pandemic that is ongoing and fading away slowly, at least in some of the countries where Evotec is operating. If you go to page number three, yes, there was a COVID-related slowdown and adoption of processes, but overall the company managed extremely well to get through this crisis. You can assume that at every moment in time, despite the pandemic, more than 90% of our total capacity was able to deliver work for our research and our partners. On top of that, Evotec took a central role in the global fight against the virus by especially taking over the preclinical repurposing efforts together with more than 26 companies and, for example, the active NIH consortium and the COVID R&D Leaders Consortium. It is fantastic to see how the industry has started to cooperate in these days because we all know that only together We will be able to fight against this virus and many other diseases to come. We are very happy to see that platforms like Evotech are increasingly becoming an essential part of the infrastructure of industry-wide efforts, where speed, unbiased research, and top quality does not help only one partner, but helps many partners at the same time. So our vision of the shared economy in R&D is getting more and more visible, and COVID is only one example that is highlighting this long-term vision of Evotech. When you go to page number five of this presentation, you see that our long-term vision is more relevant than ever before. For our more than 3,000 scientists, research truly never stops, as long as there are more than 6,000 untreatable diseases on this planet. Our big strategic opportunity is right there where we are now. We design and apply innovative technologies and processes across all modalities. Access to the best technologies in all modalities multiplies the effectivity of how we can bring more precise medicine to patients. and this is just the beginning of a new era of how drug discovery and development will be done in the future and it is best illustrated by the fact that even a pandemic cannot really stop us. Here, a very big thank you to our partners. We had not a single cancellation of projects in the last two months and a very, very big thank you to all our employees out there who have done an amazing job in keeping the spirit of Research Never Stops alive more than ever before. When we come to our Q1, let me highlight a few things. Q1 marks another very strong quarter on multiple fronts. Both segments, Evotec Execute and Innovate, perform according to their strategy and are in full swing. Most importantly, you should note that with gene therapy through Evotec GT and with our full commitment to just Evotec biologics, the even further expansion of our IPC therapy into cells, what we call now evil cells, and With the entry into nanoscience-driven manufacturing technologies, we made multiple steps to make multimodality more reality for our platforms and with this to multiply this into the market more than ever before. When you translate our strategy into our Q1 numbers, you see that Q1 is strong. Strong numbers are a signal that make us comfortably confirm our guidance and more than 300 million in cash show you that we are in a very strong strategic position. Yes, I think it's fair that even despite massive global challenges, we are in a very strong position. And yes, despite macro challenges, we would like to remind you that in 2020, We also have some additional challenges like, for example, the loss of the Sanofi subsidy from our Toulouse transaction in the year 2015. But we are fully committed to build this company and the infrastructure even further and that's why we, for example, make significant CapEx investments in 2020 for building our first J-Pod in Seattle. So I think it's fair to say that we are on a very good track for full year 2020. And with this, again, we confirm our guidance as given in our full year report. When you go to page number eight of this presentation, why are we so convinced that multimodality equals more opportunities? Because creating an innovation platform on all modalities is basically something that the industry hasn't seen in the past. There was always a bias either towards small molecule driven platforms or biologics platforms. What you can see with Evotec is we are building an opportunity space for our partners and for ourselves that make us more unbiased and with this more efficient to bring projects forward. With this Let me remind you that this is just the beginning of where our platforms will go and let me thank you for following us and with this let us follow Eno into our numbers.

Yes, thank you Werner and happy to take over. A warm welcome to all of you from my end as well here from Hamburg and very happy to introduce you to our positive Q1 2020 numbers confirming that Evotec is well on track compared to what was planned and the Evotec growth story further continues. Q1 2020 numbers show a good 15% uptick on the revenue line, which is driven by various factors and I will come back to the details of the revenues on the next page. R&D expenses grew due to an even stronger commitment with respect to our unpartnered R&D, further investing into innovation, sustainability, and long-term value generation here at Evotech. The increase in the SG&A mainly results from increased personal expenses due to the overall growth, for example, in BD and administration, the first time Q1 edition of Just slash JPoT in the US, plus the execution of strategic transactions such as the Evotech GT establishment in Austria, close to Vienna. The other operating income experienced two factors actually. While R&D tax credits increased for UK and France, we experienced a dropout of R&D tax credits for Italy due to an envisaged change in regulations effective retroactively to January 1st, 2020. Total, both effects resulting in an 8% decrease of other operating income. Overall, it's also fair to say that we experienced some backwinds with regard to favorable FX rates from US versus Euro, positively affecting revenues, adjusted EBITDA, and net income, obviously. With a total of 30 million, our adjusted EBITDA remains stable against Q1 2019. EBITDA line versus a growing revenue line is mainly to be seen in context of the reduced milestone-related and very margin-strong revenues, an increase in R&D as well as SG&A costs, while total tax credits have reduced as just described before. Let's take a closer look at the development of our top line on page 11. Group revenues increased by 15.6 million or 15% against last year. positive performance stems from continued growth of the base business across various fields and a new and positive Q1 contribution of approximately 7.9 million euros by just Evotec Biologics also containing some revenues or some revenue recognition from the successful JPOD Merck cash upfront which we received in January of this year containing 15 million US dollars. However, Revenues from milestones, licenses and upfront in total 5.4 million in Q1 2020 came in lower than in the comparable 2019 quarter showing 10.8 million euros. The letter shows once again the volatility among the quarters when comparing milestone revenues and this is why I also keep reminding you that it's always recommended to compare our milestones on an annual basis. The weaker EURUSD foreign exchange rate was to Evotec's favor, and also IFRS 15 material charges and adjustments for deliverable projects were also higher than last year. Consequently, the overall gross margin totaled at 27.9%, confirming again a solid base margin, but in total 2.6% below last year, and again mainly due to lower milestone achievements in Q1 2020, and that's new, an increased amortization due to the adding of the final purchase price allocation of Just. Other than Just Bio, sorry, other than that, Just Bio added positively to the gross profit from its ongoing operations. Looking at the two segments on page 12, we can confirm that both segments, Execute and Innovate, are doing very well. The executed revenues, including intersegment revenues, amounted to 118.2 million euros, coming from 100.3 in Q1 2019. External revenues increased by 10.4 million and included 7.9 million from Just and the JPOD activities. Intersegment revenues increased significantly to 26.3 million. due to higher project demand from the Innovate side investing into new projects and R&D. The execute gross margin as per year-to-day March was 29.3 and thus basically stable against last year's 29%. Within R&D, under the execute segment, you will observe something new, namely some small R&D exposure due to R&D work which is happening within Just. The year-to-day 2020 adjusted EBITDA of 35.4 million grew above last year's adjusted EBITDA, among others supported by the significant increase in inter-segment work for the Innovate segment as just described. Coming to the Innovate segment, the Innovate revenues year-to-day amounted to 23.3 million, which is 24% above last year. due to higher base revenues, including higher project revenues and added long-term partnerships. On the other side, no upfronts and milestones were reached in this segment in Q1. In addition, Evotec invested significantly into active partnerships to increase the likelihood of achieving further milestones in the future. Hence, the margin was low at 4.6% in this segment versus last year's 24.8%. Innovates R&D amounted to 16.2 million in line with last year and SG&A amounted to 3.2 million, which is just slightly above last year. As expected, the adjusted EBITDA was negative, but within the expected range and amounted to minus 5.4 million versus last year's minus 2.3 million. Slide 13 shall summarize a few KPIs that should reassure you about Evotec's strength during these very special times and therefore I would like to draw your attention to a few non-P&L numbers. The balance sheet total remained very stable at 1.18 billion euros other than some decrease in non-current contract liabilities and some increase in stockholders' equity none of the balance sheet positions really changed in a significant or considerable amount. EvoTech continues to hold a very stable liquidity as Werner just already indicated of 320 million which is effectively unchanged from the end of year 2019 when holding 320.7 million euros. This is a result of a positive operating cash flow and the received upfront payment of 15 million from Merck in context of just overcompensating for more than doubling the capex to 16.3 million euros due to investing into our JPOD facilities where we are expanding our new JPOD activities in Seattle. Evotec's equity ratio remains very solid at 41.4%. and beyond that, Evotec continues to maintain a very conservative net debt ratio of 1.1 times adjusted EBITDA, including IFRS 16. Without IFRS 16 considerations, the net debt leverage would even be significantly lower. Overall, this is a very solid balance sheet and a very solid cash position, which we feel quite comfortable to continue our business as anticipated. and that said I would like to hand over to Craig for more details from the operational view. Thank you all.

Thank you Eno and good afternoon to everyone on the call. It's a pleasure to take you through some of the highlights of the scientific and operational performance during Q1. Starting on page 15 and against the background of the very strong financial performance which Eno has already described, we've continued to invest and enhance in the Evotec infrastructure. thus continuing on our long-term growth trajectory. Maintaining the highest quality modality agnostic and best performing platforms for the benefit of our partners and our internal R&D is really central to our strategy and during this quarter we've made a number of important steps forward. The most marked example of this is our strategic edition of gene therapy expertise which we'll come back to in detail in a few minutes. In addition we've extended existing partnerships and have also added some new strategic collaborations. As an example, during this quarter, Evotec expanded its existing relationship with Amgen through a new agreement which builds on an existing relationship over many years. Evotec will apply its integrated drug discovery and development platform to design and evaluate novel drug candidates for Amgen's proprietary development pipeline. The multi-year engagement aims to deliver small molecule preclinical development candidates and IND ready molecules. and in the small molecule development arena, we were very pleased to initiate a new partnership with Yildong Pharmaceuticals, a long established medicines development company in South Korea. Through this partnership, Evotec will provide multiple fully integrated indigo campaigns to accelerate Yildong's pipeline build-up of new innovative medicines into the clinic. In only the third quarter since we completed the acquisition, JustEvoTech Biologics is making excellent progress in all respects. We signed an exciting new deal with OncoResponse to develop and manufacture their lead antibody in immuno-oncology. And after a period end, we announced a partnership with Ology Bioservices to identify and bring forward a much needed, highly developable antibody to SARS-CoV-2. This is a flagship example of how the combination of our AI-based proprietary platform, Abacus, and state-of-the-art methods in agile, flexible development of antibodies can provide a rapid response to unmet medical need. In anti-infectors, for sure, but as well as in other indications. In terms of further enhancement of the scientific platform at JustEvoTech Biologics, we also disclosed for the first time an AI-based methodology to create human-like or humanoid antibody libraries. The novel concept here is to create an antibody screening library which is populated with members which are predicted to have highly favourable developability characteristics coded in its source, thus removing costly and unproductive iterations of selection and improvement from the antibody development path, and ultimately accelerating the entire invention and development process for novel antibody therapeutics. On page 16, You can see that we continue to support drug discovery and development partners right across the spectrum of customer types and with a good blend of scale of partnership as well as across geographies. We believe this blend represents and demonstrates our position as a core, central, flexibly accessible platform which enables all types of organisations around the world to progress their missions for patients. In addition, we believe this spread of coverage improves our resilience through challenging external times, perhaps such as we're witnessing. at present. The Autobahn on page 17 represents the fully integrated platform, the highest quality infrastructure on which all our projects and activities run. We execute and innovate projects as well as academic bridges and other activities. In 2019 we added the lane of biologics to the highway so we're really delighted once again to add a new lane to the Autobahn in quarter one. that of the rapidly growing field of gene therapy making our Autobahn truly multi-modality and opening doors into a whole new range of scientific opportunities for our partners and our internal R&D pipeline. In all other areas of our business we fully appreciate the importance of the skills and knowledge and know-how and experience of our scientists and so for our entry into gene therapy research we've recruited a very experienced, very close-knit team of more than 20 gene therapy researchers Aurelie Dalbiez, Aurelie Dalbiez, We foresee the manufacturing of antibodies will move towards smaller, more flexible, less capital intensive infrastructures as biologics products become more targeted, more personalised and applied in areas of more novel biology. Since the product and the process are so intimately linked and JustEvoTech Biologics represents a fully integrated vision of biologics discovery and development, we embarked upon the construction of the biologics facility of the future in 2019. and at the beginning of Q1 2020 we announced our partnership with Merck Shartendome. So on page 19 I'm really excited to share with you an up-to-date image of the facility in Redmond, close to Seattle. Despite the difficulties of COVID-19, the exterior of the building is complete and the work continues apace, so we'll expect this innovative facility to come online during 2021. I draw this section to a close by concluding that Evotech Execute continues on the same positive trajectory of recent years and in the first quarter of 2020 we're really pleased to have created new partnerships with global leaders such as Amgen, Merck and Takeda as well as other numerous high quality biotech partners and have added gene therapy to our comprehensive capabilities and I look forward to bringing you news of further alliances and partnerships in due course and with that and over the next part of the scientific segment to Cord.