Evotec SE

Ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Werner Lanzala, CEO, who will lead you through this conference. Please go ahead.

Thank you so much. This is Werner speaking from Evotech. Welcome to our Q3 2020 reporting, which we called On Our Way to the Future of R&D. As always, you can find the supporting materials for this call online under www.evotech.com. On page two of this presentation, you see the whole team is assembled. I'm together here with our CFO Eno, our COO Craig, and our CSO Cord. We are together all back in our offices, but given certain travel restrictions, we are not at the same city at this stage. Most importantly is we are all well and healthy and fully active for the company. When you go forward on this presentation to page three, it looks like we are getting used to some COVID-related adoptions of our processes. And overall, the company is managing extremely well to get through this pandemic. And we will come out of it even stronger than before. So despite the pandemic, we are very optimistic for the future because Last but not least, it's our industry that delivers novel vaccines, novel therapeutic antibodies, and novel antiviral treatments for faster and better treatment for a disease which hasn't been there before. This is the service that this industry brings to the whole society, and the way we are doing this at this stage as a collective industry is nothing short of excellent. We are collaborating as a whole industry and really move faster in developing novel treatments than ever before. Evotec's platforms and know-how are also pivotal for the fight against COVID. At this stage, more than 16 companies globally are working together with us against COVID. This is probably best illustrated with our alliance with the Department of Defense, the DoD, and also with our recently announced grant from the Bill and Melinda Gates Foundation to make novel biologic treatments for COVID treatments, which we are performing in our JustEvoTech biologics site. Q3 shows multiple highlights. Next to a very strong core business, we are building A co-owned pipeline faster than ever before, which is the center of our strategy. They are advanced, our co-owned molecule, right after the COVID shutdown in the summer, when many clinical centers opened again, into phase two in RCC, which is refractory chronic cough, which is now up and running. And they are also advanced, the same P2X3 antagonist, into overactivity. Overactive Better Phase 2, which is also initiated since October. With this, our promise to make P2X3 a molecule which defines a whole pipeline is closer to reality than ever before. If you go forward on page 5, you see that Q3 marks a very strong quarter for both segments. The translation of our strategy in Q3 into numbers worked very well. Strong growth, strong EBITDA, a confirmed guidance and close to 500 million euros in cash after the capital increase in October show you that we are in a strong position. Yes, I think it's fair to say that even despite massive global challenges, we are in a very strong position. Thank you very much. as we see right now. Our partners want and they get an extremely resilient, high-performing partner. Especially in times of global insecurity, our business model shows that it's gaining momentum and strength and even more support than it ever had before. Q3 clearly highlights the power of our unique business model because we bring together and the best of both worlds that lead us to building a unique co-owned pipeline into the future. When you go to page number seven of your presentation, we want to illustrate the optimism and tailwind for our business that you see probably best by showing you that we have not slowed down our recruitment efforts. We have even increased Our recruitment efforts in 2020. With this, we are building a fantastic, globally unique talent pool to advance drug discovery and development faster and better than anyone else. By the end of 2020, we expect about 3,500 coworkers on our 14 sites. And this is very important because we see Significant growth and also accelerated growth into 2021 already now. When you go to page number eight of this presentation, let me remind you and illustrate how important it is for us to build a long-term business. Building a long-term business requires also long-term strategic partners and shareholders to support this vision. On that note, we are very happy that on the 12th of October, Muvadala Investment Company, a leading sovereign wealth fund, has decided to make a significant investment into Evotec. Together with our long-standing strategic partner, Nova Holdings, this equity increase brought about 250 million euros into Evotec, which allows us now to especially accelerate our multi-modality vision of our business going forward. When it comes to the translation of our business into financials, I want to hand over to Enno, our CFO, who will bring you into our nine-month numbers of 2020.

Yeah, thank you, Werner, and a truly warm welcome to all of you also from my side today. Happy to introduce you to our nine-month 2020 numbers, and to make a long story short, From today's view, it would take us well on track to reach the 2020 goals that we have set. Nine-month 2020 numbers show a very good 12% increase on the revenue line, driven by several factors, and I will come back to the details on the next slide. The gross margin amounted to 24.7%, as expected, lower than the last year's 30.7%. mainly but not only due to the fade-out of the Sanofi payments for the site in Toulouse. And the expenses also increased 12% compared to last year's level, especially driven by further enhancing our platform, for example, in panomics and cell therapy, which also underlines our continued and strong commitment to long-term value generation. The growth in SG&A stands at 26% and continues to follow by the growing number of employees and personal related expenses because of the overall organic and inorganic growth of the company. Focus areas remain the strengthening of BD and administration, the first time H1 2020 edition of just Evotec Biologics slash Jackpot in Seattle, and the added new business setup of Evotec GT starting in April 2020. In Q3 2020, you see the acquisition of assets and the started integration of BBS Biopark in Toulouse, including a related exceptional and one of one million registration fee for which we have not adjusted our EBITDA. One comment also on the release of the German regulatory body BaFin, published on October 29th with regards to a fine of €350,000 that we have accepted to pay. The fine is related to the general or to the formal incorrectness of a delayed publication of the responsibility statement as an integral part of our H1 2017 report. Once detected, we have flagged this to the BaFin proactively and we were fully compliant in our full year 2017 annual report, which by definition covers the first half of 2007 as well obviously. We decided not to appeal against this ruling as scope for pushing boundaries with the German Regulatories are limited and settled on the basis of these 350K. The other operating income turns out to be above last year's level. This value contains three different components. While R&D tax credits increased for UK and for France, we are facing changes in R&D tax regulations in Italy as reported before, which unfortunately have led to a substantial reduction of our R&D tax credits in Italy in 2020. Another part is made up of Sanofi recharges for ID.Lyon. Furthermore, and that is new, the DBS Biopark in Toulouse receives rent income from external tenants at Campus Marie Curie. All in all, that development results in an increase of the other operating result of plus 7% versus 9 month 2019 comparisons. With a total of 76.9 million, our adjusted EBITDA, as anticipated, remains below the level of nine months 2019, but due to the good Q3, with milestone revenues from BMS, respectively Celgene, as well as some smaller milestones from existing collaborations, is recorded within expectations. The lower EBITDA line, despite a growing revenue line, is mainly to be seen in the context of the following points. Fading out of payments from Sanofi for Toulouse after March 21st, 2020, as discussed several times before. And despite good Q3 2020, still reduced milestone related and very margin strong revenues. We have temporarily reduced efficiency seen due to the COVID-19 related challenges in particular in Q2 of this year. We have an increase in R&D. We see a ramp up of our JPOD or US Seattle based activities. And we have a growth related additional SG&A cost, including the integration of Evotec GT and Biopark. And last but not least, we see a 14% headcount increase in anticipation of a robust demand in 2021. On top of that, The reversal of the US dollar versus Euro development in Q3 led to a negative FX impact of 0.5 million on the nine-month 2020 adjusted EBITDA consideration. The net income amounted to 5.8 million, and besides the reduced operating income, consolidated operational losses from our equity investments and FX losses accounted for the reduced number in comparison to the previous year. Let's take a closer look at the development of our top line and gross margin on page 11. Group revenues increased by a strong 39.1 million or 12% against the first nine months of 2019. And it's important to notice that this growth has been realized despite faded Zanopi Toulouse payments after the end of Q1 2020, with a negative sales impact of approximately 15 million euros year-to-date. In addition, overall less milestones were recognized compared against the first nine months of 2019, also due to some slippage of milestones as mentioned before. Thus, the positive performance in particular originates from continued, very strong growth of the base business across various business areas. When subtracting the positive H1 contribution of approximately 16.3 million by just Evotec Biologics and eliminating the Sanofi payment for Toulouse year-on-year plus taking out negative FX effects, we recognize a very convincing like-for-like growth rate of the base business of approximately 19%. This is showing for another time that Evotec is able to thrive in a challenging macro environment. Revenues from milestones, licenses, and upfronts showed a positive trend in Q3 with a 10.6 million totaling to 18.3 million in the full first nine months of 2020. However, milestones still remain below the comparable 2019 period with 22.3 million. This once again underlines the volatility among the quarters when comparing milestone revenues. The now weaker US dollar versus the euro had also an adverse impact on the sales of roughly 0.5 million euros. Consequently, the overall gross margin totaled at 24.7%, confirming a solid base margin, but in total a notable 6.0 percentage points below last year. This is mainly due to the lower milestone achievements in the first nine months 2020, loss of payments for Toulouse, IFRS 15 material charges and adjustments for deliverable projects being above last year but without any margin, and an increased amortization as a result of the final purchase price allocation of Just. Coming to the Q3 results on page 12, we see the positive impact of the increasing momentum through realized milestones. The Q3 2020 numbers show a good 13% gain on the revenue line, reflecting the good base business and high level of realized milestones. R&D expenses increased by 36% to $16.3 million, once again emphasizing our strong commitment to this core activity. The increase in SG&A of 32%, versus last year is based on the same arguments like I just described for the nine-month summary, mainly originating from a first-time inclusion of the BBS Biopark and related one-off effects as mentioned before, the ramp-up of Evotec GT in Austria, the general FTE growth resulting in increased personal costs as the main factors. Looking at the two segments, we can confirm that both segments, execute and innovate, are continuing to develop very well. Year-to-date execute revenues, including intersegment revenues, amount to 357 million, coming from 308 in the first nine months of 2019, which translates into plus 16%. The execute gross margin, as per year-to-day, September was 25.7%, and thus only slightly below last year's 26.3% due to the reason as outlined before. The year to date 2020 adjusted EBITDA of 92.3 is also only slightly below last year's adjusted EBITDA of 97.4 million. Innovate revenues year to date amounted to 74.7 million Strong 21% above last year's 61.8 million, especially reflecting the milestones realized in Q3 2020 and also due to higher base revenues, including higher project revenues and added long-term partnerships. Innovate's total R&D amounted to 49.8 million, which is 6% above last year, and SG&A accounted for 10.7 million, also slightly above last year. The adjusted EBITDA was negative but within the expected range and amounted to minus 15.4 million versus minus 4.2 million of last year's comparable period. Slide 14 summarizes EvoTech's non-P&L related financial KPIs as per September 30th of this year and they confirm the company's strong standing during these demanding times. You can see our main balance sheet KPIs at the end of Q3 on the slide. However, considering the proceeds from the successful capital increase carried out on October 12th of this year, thus after the reporting period, total liquidity increased to approximately 500 million at that point in time, and the equity ratio stepped up to 50%, while the net debt position This completes the financial overview and I would like to hand over to Craig for more details and insight from the operational perspective. Thank you all.