Evotec SE

Good morning, good afternoon. Welcome from Evotec. Welcome to our Q9 presentation for Together for Medicines That Matter. We have uploaded the presentation that is accompanying this call to our website, and you can follow this call throughout the next couple of quarters. When you go to page number Two of this presentation, you can see that I'm here together with my team, our CFO, Eno, our COO, Craig, our CFO, Cord, and our CBO, Matthias. Eno and I will guide you through the initial report, and then we are all looking forward to your questions and are happy to answer them. As you know, this call follows our second Capital Markets Day of 2022, which we held last week in Redmond, and which was focused more or less only on just Evotech Biologics. So we are very happy to today give you a broader picture about the whole business ongoing in the group and we will also at this point of time of course refer to just Evotech Biologics but if you have more detailed questions to just let me please also advise you to go to the internet where we have now uploaded the webcast of this presentation and where you can really follow this capital markets day. Let me also thank you very much for attending this capital markets day and your excellent questions around this. So let's go into our business and let's go into page number four and let's look at the latest highlights and also lowlights of the nine months report of 2022. We are focused on execution acceleration and it's fantastic to see that we see undisrupted demand in all sectors of our business. This is best reflected by new and extended discovery and development agreements and also highlighted by some so far smaller milestones, but milestones are coming in. We see significant progress in neuroscience, especially in our collaboration with BMS. Why is this important? Because I think we all realize that CNS will be one of the most important areas to focus on in the next decades to come. Here we hold together with BMS a leading position in the field based on our IPC platform technologies. When it comes to another highlight, yes, we highlight just Evotech Biologics despite the fact that we are in startup mode. But our collaborations that we signed recently and our two contracts from the DoD that we have have been committed by this fantastic institution show us that we are truly representing a technological paradigm shift in biologics. And with this, we look forward to not only filling our J-POP 1 in Redmond, but also we are looking forward to filling our J-POP 2 in Toulouse, which we have started to build in the latest months. We have closed the acquisition of Central Gas Germany, which will in the future operate as Evotec drug substance, and which we are very proud of because it is a logical cross-selling continuation of our value chain in the field of API. On our molecular patient databases, what we abbreviate with E and PD, it is fantastic to see that we're making great progress and that we are expanding are molecular patient databases, for example, as we have done with the Hannover Medical School in autoimmune diseases. This is all based on our technological leading-edge software that we have launched commercially called Panhunter. This is omics-driven data analysis and data integration, which is world-leading, and where many scientists throughout All labs in the industry will have a lot of pleasure to use this tool in the future. Let's also not hide lowlights. Yes, we see delays in milestones and we see a slower revenue recognition process which comes from the scaling of especially our biologics business. But this doesn't stop the company at all. And yes, we see headwinds from rising energy costs and material costs and of course also from overall inflation. But I think on the second point, we are not alone with many other companies in the whole industry. If you go to page number five of this presentation, let us again first highlight that we see undisrupted demand from all industry sectors. And we want to especially highlight this because many people are talking about the slowdown of biotech funding and talk about a biotech funding crisis, which is true. But in part, it's not true because Evotech as a high quality organization is reflecting the answer for many of these companies where the switch from fixed cost to variable cost is making them more efficient. And that's why for many companies that are currently suffering from this biotech funding crisis, Evotech represents the answer. With this, it's easy to explain why our revenues are going up by more than 19%. and where even if we adjust for ethics effect, our growth is very impressive. When you look at our adjusted EBDR, it's of course a slow growing EBDR this year, and especially compared to last year where we had much better milestones and upfronts in Q3, it's down by 36%, which again, we have to and will try to correct in Q4. Just EvoTech Biologics is in its startup phase and therefore we always want to highlight the dynamic of this business that first of course we have to invest until we then see the revenues increasing and with this also profitability kicking in as we have always projected. Adjusted EPKI is of course also here very strongly impacted by energy costs, material costs and also by M&A related costs as Endo will show you in a couple of slides. If we would adjust our EPTA to take out just Evotec Biologics, you see the number is quite good and is really in order where it should be by growing without 14%. If you look at our overall guidance, we are confirming our overall guidance where we see very good top line growth and we still expect top line growth to be in the range of 750 to 735 million euros. will accelerate our R&D investment for sustainable growth into the long-term future of Evotec and have not stopped to invest in R&D or have not slowed down to invest in R&D. And when it comes to our EBITDA, I think it is clear that Q4 has to deliver significantly and that's also what we will lay out through this call where we are confident that this will be possible. If you go to our financial performance, let me hand back to Eno. to bring you a bit deeper into our numbers.

Yes, pleasure to do so and a warm welcome to everyone also from my side. Thank you, Werner. And starting on page seven with a summary of our group consolidated numbers, revenues increased by a strong 19% to 511 million euros and this despite significantly lower milestones, upfronts and license payments. With more than 50% of revenues denominated to US dollars, we experienced significant tailwinds from the strong US dollar against the Euro in particular, and revenue growth excluding FX effects was at 13%. The gross margin amounted to 17.9% for the first nine months of 2022 and decreased from 23.1% in the previous year due to High ramp-up costs of the JustEvoTech Biologics business and a low contribution for milestone revenues as already indicated before. Furthermore, inflation with significantly rising energy prices, more expensive material costs as well as increased logistic costs had significant impact as well. The group R&D expenses remained nearly constant with 55.3 million euros versus last year of 53.5 and therefore or thereof unpartnered R&D expenses of Evotec Innovate increased by 19% whereas partnered R&D expenses decreased. The SCG&A expenses amounted to 110 million and were thus 38.9 million or 55% higher compared to the last year and expanding Evotec's Number of employees to facilitate further growth, the US listing from last year, as well as fees for consulting services were the main cost drivers. The respective consulting costs were incurred mainly due to the preparation of our SAP implementation, which we started in 2022, new requirements in context of the US listing, for instance SOX implementation and M&A activities. The other operating income and expenses increased by 5 million and continue to be driven by A, tax credits, in particular in France and Italy, as well as Sanofi-related R&D recharges. Please bear in mind, next year we will only have the contribution from Sanofi for ID Lyon in the first half of the year, as this collaboration will expire mid-2023. With a total of 44.6 million euros, our adjusted EBITDA has been influenced by investments to increase the growth and the value potential of JustJPOT, as well as low contribution for milestones, upfronts and licenses, plus again experiencing strong inflation headwinds. For the first nine months of 2022, we report a net income of minus 48.5 million euros, which was influenced or mainly influenced by share price adjustments in our Evo equity investment in Accenture. Here Accenture's share price dropped from 19.76 euro per share at the end of 2021 to 8.21 dollars per share at the end of Q3, which then resulted in a non-cash loss from equity of 126.7 million euros. On page 8, this slide depicts our continued strong revenue growth of 19% overall, which was well spread across most business areas. The base business stood at 502.7 million and continued to show very strong growth of 27%. Milestones, upfront and royalty payments of 8.1% were significantly below last year's number at the same time, which then stood at 36.5 million including the 20 million milestone from BMS which we received at that point in time. Just Evotec Biologics contributed revenues of 27.9 million in the first nine months of 2022 compared to 34.7 million euros in the same period in 2021. Therefore, growth of the group's base revenue, excluding Just, would have been or would have stood at 32%, which is quite significant. The gross margin, excluding milestones and excluding Just Evotech Biologics, stayed at 26.5% versus 21.7% in the previous year's period. Once again, confirming our very healthy base business going forward. That said, Total gross margin only excluding just Evotec Biologics would be at 27.3% and thus in line with last year's 27.2% despite lower contribution from milestones as mentioned before as well as increased energy cost and inflation also as mentioned before. EBITDA bridge on the next side or the EBITDA amounted to 44.6 million, as I mentioned, and decreased by 36% against previous year. That said, and while at nine month 2021, the just startup impact was not yet so significant, year to date 2022, the adjusted EBITDA adjusted again for the just JPOD startup impact would total 84.6 million. and consequently reflect again growth of 14% or 10.6 million euros compared to the first nine months of 2021. Considering tailwinds from FX after nine months, this shows a positive contribution of 12.4 million if calculated on the basis of the previous year exchange rates. Both our segments, reported solid top-line growth revenues versus the first nine months of 2021. And the year-to-date execute revenues, including intersegment revenues, grew by 23% to 526.7 million euros in the first three quarters. Revenues were driven by strong base business, which stepped up 18%, excluding just Evotec Biologics, even 23%. The adjusted EBITDA of the Execute segment was 75.8 million and was impacted by the ramp-up cost of biologics. The previous year, Execute reported an EBITDA of 87 million euros for exactly that. Nine-month 22 Innovate revenues amounted to 122 million, which is a significant 20% growth compared to last year due to continuous high demand for Precision Medicine, reflected by expanding existing as well as several new partnerships. Higher base revenues of 29.6 million euros were, among others, driven by the increased FTEs in the MS Corporation, which we utilized there. However, and as a result of the continued R&D investment and the lack of milestone revenues, the adjusted EBITDA of Evotec Innovate remained as expected negative. Looking at the single quarter, Q3, overall my comments for the first nine months that I made on the previous pages also apply accordingly for Q3. Base revenue use further accelerated this quarter versus Q3 2021 across all business lines. So far, we didn't recognize any relevant impact from changing funding environment, as Werner described already before. However, milestones, upfronts, and licenses contributed relatively little compared to a strong Q3 of the last year. This also explains the change in gross margin, aside from inflation-driven cost factors that we indicated before. SG&A reflects the further dynamic growth, scaling, higher energy costs, and strategic projects, in particular M&A. As a result of the above, the adjusted EBITDA decreased to 11 million euros in Q3, coming from 33.9 million in the last year's Q3, and excluding biologics once again, the adjusted EBITDA would stay at the previous year's level. Slide 12 summarizes Evotec's very solid and sustainable non-P&L-related financial KPIs, and the slide balance sheet expansion resulted mainly from the revaluation of the Exientia on the negative side, being overcompensated by the US$200 billion payment or prepayment from BMS received in May 2022. The equity ratio decreased to a still very strong 54.3%. The liquidity position decreased slightly to 823.7 million euros despite significant capex expenditures and equity investments and still reflect a very strong position. So this strong liquidity will allow us to continue planned capex investments to support growth projects such as the U.S. J-POD and the J-POD in Toulouse, as well as the general expansion of our capacities, technologies, platforms, and of course our EvoTech equity portfolio. And with this, this completes my financial overview, and I therefore would like to hand back to Werner. Thank you very much.

Thank you, Eno. If you go forward to your page 14 of this presentation, Let me just summarize again for you what are our focus areas to accelerate growth and leadership for profitable long-term growth. We are building a panomics platform for better disease understanding and more precise medicine. We are leading the field of IPC-based drug discovery and cell therapies. With Trust Evotec Biologics, we are highlighting the disruptive power of fully continuous manufacturing, and this is all based on an end-to-end shared R&D continuum where we can basically execute every experiment that the industry needs to progress on all modalities. If you go to page number 15, you see how we are slowly with our Panamix platform going broader and deeper into many of the disease areas and the partners where we are acting. So with this, the two new programs identified in our BMS collaboration in neurodegeneration are just a highlight of our access to more and even deeper insight in disease areas where we will expand this technology in the future. Expansion is also the key word for our molecular patient databases because here, building strong databases is the basis for a portfolio of transactions that we are building in many disease areas. And Panhunter as a tool to really integrate and analyze data is essential to understand and with this to better disease understand in every aspect of our activities. Panhunter is launched and it will take a while, but you will see that the offering of software as a service will allow us to have even more partners closely linked to the technology powers that Evotech can offer. If you go to page number 17 of your presentation, we just want to highlight that building an IPC-based platform for drug discovery and for cell therapies is just at the beginning, but we feel very confident with our recent moves that especially in cell therapy, Evotec will enter the map of globally leading cell therapy IPS based players when it comes to off the shelf solution. If you go to page 18, it's just again calling out how proud we are of our trust Evotec Biologics build out and build of J-PoTS that is at the starting point in Redmond and at the starting point in Toulouse. When we say starting point, we can today, as you see on page number 19, report back to you that the initial basis for growth, which are basically endorsements of partners with their programs, has started and is picking up not only in its number, but also in its breadth when it comes to disease areas. And with three programs added in Q3 alone and another DoD award, we see that it took a while but the pickup of Just Evotech Biologics is taking place as also highlighted on page number 20, where we have already tripled our sales compared to 21. And yes, it's a disappointing Q3, which only 6 million revenues can recognize, but you will see that this is going up very nicely. And I think this was the lowest point of revenues that you will have ever have seen on Just Evotech Biologics in one quarter into the future forever. Let me highlight again our new partnership with the Department of Defense. We are in a very fierce competition for technological leadership. Evotech has won the second award, and we will disclose by the end of the year the size of this award, which is considerable. And with this again, 2023 will be the starting year of significant growth also for just Evotech Biologics. If you go to page 21 in our base business, it's great to see that we can not only extend, but also go deeper in various drug discovery and development partnerships and cross-selling into the development part of the value chain is what we are doing when it comes to integrated CMC. And here, for example, expanding with Soganix and other, especially orphan drug and smaller drug substances companies, is making our way into a very very important segment for more precise medicine. We also want to highlight the strong performance of our DMPK ADME tox testing business which we to the outside often represent as super techs because here we are owning and here we are driving the leading brand when it comes to safety predictions and also when it comes to ADME tox services. When you go to page 22 Let me highlight again that we have closed our recent acquisition in Halle in Germany, which is basically allowing us in the field of drug substance to service our partners much better in a fully integrated fashion from discovery into development into the market when it comes to drug substance. When you go to page 23, you see that our Evotec Insight power reflected in building out A pipeline where we always own royalty rates and milestones without taking the risk of clinical development is growing forward. And yes, we have lost P2X3 this year, but there are more than 140 projects that we co-own and that are all moving forward with the investments of our partners. As you can see, we also see some of the projects now entering approval state. and these are small projects but they show that the principle of building a royalty pool is fully intact and working and for example with a COVID-19 project which will go forward in Korea where we contributed a very important part of this product we see that a product where Evotec did some important work and has access to royalties will be approved in certain parts of the globe in the future and here we expect and many other important newsletters to come also in the next couple of quarters. When we go forward, you will also see that the number of data points is very strong in 23, 24, 25, leading to this royalty pool that we always have envisaged out of our Evotech Innovate business. On page 24, you should see that we still see a lot of good opportunities to invest in our operational synergistic companies or into platforms where we see a true leverage of what we are doing at Evotech. So that's also why we are very proud of some of the progresses that our companies that we co-own are making. Having said that, we also see the volatility of some of our especially public holdings, like mentioned before by Eno and Excientia or Sanova. Going forward, With this, I want to highlight again that our co-owning strategy goes from academia to more mature companies and is just the starting point of building a very strong portfolio. Page 26 of this presentation highlights again, when we talk about ESG and sustainability, we talk about ESG as a competitive tool and a competitive weapon for Evotech because we see that committing ourselves to environmental targets is an important contribution to the inside of the company, but also to our value chain and our supply chain. We see that committing to social goals is helping us internally, but also is highlighting our contribution to the world, for example, in the field of antimicrobials. And we see by running a company with the best of all potential governance is helping us to guide a company into a growth phase and having here processes under control because that's what governance does for us. When we come to page 27, let me again highlight our guidance of this year. Let me again highlight that we are on a good track to achieve our top line when it comes to 715 to 735 million revenues. We are on a good track to invest into unpartnered R&T for long-term growth. And we are confirming our adjusted EBTA, but we at the same time on page 28 want to highlight that it will take a lot of effort and a strong finish for the year to achieve our EBTA and we want to be fully transparent with you that we have to achieve significant milestones up front in licenses which is highlighted here where we have a lot of ongoing discussions for new transactions and where many milestones are in reach and will read out especially in December. We see strong traction in our base business which is really highlighting the operational leverage which will come in also from the closed transaction in target input degradation which is now picking up speed and this also will contribute more EBTA in the fourth quarter than it has done in the second and third quarter and we are very certain that we are close to a turning point of just Evotec biologics which will reduce the EBTA impact that you see that with this we are very much looking forward to building out Evotech as you see on page 29 for long-term growth we see that our goal to achieve a billion in revenues is absolutely doable despite the fact that we see very challenging biotech overall funding environment but we see that we are in a superior path here to many other companies and we also see that once just Evotech biologics will kick in and our milestone contributions will kick in that our adjusted EBITDA will be possible to bring to a level of about 300 million euros in 2025. Most importantly, building out our co-owned pipeline to a massive royalty pool is ongoing as we speak and that's the reason why we are investing into unpartnered R&D also within our action plan 2025. With this, let me close this discussion and then open for your questions by basically highlighting that we expect a strong new flow to come on our R&D efficiency platforms, on our precision medicine platforms, and within Just. And this will continue not only for Q4, but also way into 23, 24, and 25. And with this, let me thank you and highlight on page 31 our dates for 23. And let me thank you for following EvoTech and we are now looking forward to all your questions for this quarter and into the future. Thank you so much.