Evotec SE

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Evotec SE Half Year Report 2023. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Dr. Werner Landthaler, CEO.

Please go ahead. Thank you very much. Welcome to all of you. Welcome to our half-year presentation, first half of 23. Emerging Stronger, that's the theme that we have given this presentation, which will become very clear throughout presentation why we choose this topic. We have uploaded a presentation and invite you to follow this presentation throughout this presentation which I will give together with my management team who is here with me. Here is Letizia, our CFO, here is Cord, our CSO, here is our Chief Business Officer, Matthias, and we have to apologize Craig this time who is on a customer visit. I'm very happy to have my whole team around here. because you see that all efforts coming together at evotec are efforts of teams we are strong as a team we go through crisis as a team and we emerge strong as teams and if you go to page number five of your presentation let me directly bring you into the highlights and also some of the low lights of the first half of 23. you see that in a year where Q2 was heavily incited by the cyber attack, we nevertheless grew by more than 14% in 23. There are not many companies who can talk about double-digit growth in general, and definitely there are not many companies who can talk about 30% growth, which we show in Q1 of 23. This is of course all driven by fantastic collaborations that we have closed in 2022, but also at the beginning of 2023 that are now running forward. Let me mention a few of them. Our collaboration with Janssen, our collaboration with BMS, expanded and extended in neurodegeneration, and of course, a strong progress of our ongoing protein degradation partnership with BMS. And you will see later in this presentation the continued validation of just evotec biologics and multiple agreements that we have signed that have carried over from 2022 and are enlarged and expanded in 2023. So you see highlights are coming together from many fronts but also let me highlight that our pipeline building efforts will gain traction and visibility in the next couple of months, and you have seen a first highlight here with, for example, a transition and a highly attractive indication in kidney disease together with Bayer. Of course, you've heard about our low light of the year already enough, so let me skip this and go forward into the future because that's what it's all about. When we talk about future on Action Plan 2025, which you see illustrated on the next page, you should be aware that we have our guideline, we follow our guideline, and it is a wonderful orientation for us despite that sometimes there are external challenges that we have to master and that we are mastering every time when there is one and where we are every time emerging stronger. So that's why we are very happy that also today we can feedback to you that we feel that we're on a very good track on Action Plan 2025. Action Plan 2025 is not only growing a fantastic shared R&D platform, which we describe as the shared economy for research and development in our industry, but it's also growing and building a massive royalty pool. So if you go to page number seven of your presentation, you see that we have grown our co-owned pipeline assets to more than 140, which used to be still below 130 at the beginning of this year. We have grown up to 19 clinical assets that we co-owned, which was 18 at the beginning of the year. You have seen that our portfolio is coming together with very balanced programs in all disease areas. And you should appreciate that there is more than 15 billion of potential partnership milestones in the company that we have accumulated and which will drive our milestones and profitability into the next years to come. And don't forget, a royalty pool consists of royalties that once these products are registered, will come to us and here on average, we have between eight and 10% royalties on all the co-owned assets. This is just to start Our royalty pool and to illustrate that with many aspects that we are doing we are just at the beginning and when it comes to the beginning I'm also very happy that Letizia who started recently in the company is for now giving you the first time Q1 or Q2 presentations in a full setting that she has prepared. With this I hand over to Letizia.

Thank you, Werner. It's my pleasure to walk you through half year financials and the guidance for 2023, which we, as you all know, updated on 27th of July. We had a very strong start to the year with revenues in Q1 at 213.6 million, which implies a growth of 30% versus Q1 of the prior year. A robust underlying base business as well as a new strategic collaboration with Janssen and the expanded collaboration with BMS have contributed to this excellent performance. The cyber incident in the first week of Q2 lead to a deliberate shutdown, however deemed necessary to protect all the company's partners and stakeholders at Evotec could ensure that integrity of scientific data remain unaffected. which lead to missed revenue of around 100 million, of which 30 million were compensated for with higher than anticipated and advance payment. Despite this massive event, Evotech continued to expand its operational activities and enter a new partnership which highlight the new multi-year tech partnership between JustEvotech Biologics and Sandos. All these contributed to group revenue amount to 383.8 million in H1 2023, increased by 14% compared to previous half year in 2022, amounted to 336.9 million. Moving to page 10. Gross revenue grew by 14%, plus 46.9 million to achieve 383.8 within the first six months, of which about 214 million were generated in Q1 and 170 million in the second quarter of 2023. Growth of the base business was also 14%. We achieved milestone upfront and licenses revenues of 4.3 million versus 6.8 million the year before. Just Evotec Biologics more than doubled its revenue share year over year to 59 million during the six months, the six first half months of the year. The cost of revenue during the six months ended 30th of June amounted to $284.3 million, yielding a gross margin of 25.9%. The significant increase of margin was attributable to recent signed beneficial cooperation and partnership with BMS Sandoz and the milestone revenue of $2 million from Bayer. Excluding just Evotec Biologics, total gross margin amount to 25.3 million versus 27.3% during the same period last year. The cost of revenues of the group was divided into 160.3 million in Q1, gross margin 24.9% versus 124 million in Q2, gross margin of 27.2%. The decrease in unpartnered R&D expenses by 11% to 29 million versus 33.3% the prior year and partnered R&D expenses by 64% to 1.9 million versus 3.5 million the year before was primarily related to the impacted business activity in Q2 and in the second quarter leading to a temporary reduction of R&D cost in Q2 2023 to 12.2 million after 18.7 million in Q1. Our adjusted group EBDA of the first six months totaled at 26.1 million, which compares to 33.6 the prior year, The decrease was caused by missed revenues as well as higher costs to manage adverse effects of the incident. Business dynamics were fully intact until 6th of April, resulting in a strong start to the year, yielding an EBDA of 34.3 million in Q1. One-off burdens due to the incident in Q2 were partially mitigated due to the signing of the technology partnership with Sandoz, Still, adjusted BDA Q2 was in a negative territory of 8.2 million in Q2. Moving to page 11, summarizing a selected balance sheet and cash flow items for Evotec. With an equity ratio of 51% compared to 52.6% as of December 2022, we remain with a very solid basis for future investments as it provides us with considerable financing flexibility. Cash flow used in operating activities in the first six months amounted to minus 5.6 million. The comparable figure last year was a cash flow of 240 million and was largely driven by a 200 million upfront payment from BMS in H1 2023. This figure is impacted by the cyber incident and does not yet reflect payments in connection with the BMS collaboration and the agreement with Sandoz, which were received in July after Q2 end. The net debt leverage ratio amounted to minus 0.9 times of adjusted EBDA, which means we still maintain a net cash position. The group liquidity as per end of June amounted to 620.8 million. We continue to invest significantly into the growth of our sites and our offering into JPOD facilities in Toulouse in the first semester. This is reflected in CAPEX, which amounts to 104 million in H1. In addition, we finance our equity and minority shareholding with 9.2 million. Moving page 12 has presented in our business update end of July based on our regular review of our economic situation and our order book status. Our guidance was adjusted with revenue now expected to come in a range of 750 to 790 million. Unpartnered R&D expenses to reach 60 to 70 million and adjusted EBDA in a range of 60 to 80 million for the full year. Slide 13 shows the bridge amount between the original guidance and the revised one. We estimate revenues net of 770 million missed in Q2 due to the cyber attack. We see the feasible partnering pipeline as strong, but are seeing buyers dynamic in more service-oriented business. Overall, We think we will be able to catch up and generate additional revenue of 20 to 40 million in Q3 and Q4. Earlier and better than anticipated, effects from advance payments are mitigating part of the negative effects. With slide 14, I would like to introduce to you our initiative to bounce back ever better after Q2. with a so-called value protection plan, which includes a variety of activities we aim to secure liquidity and profitability. The identified savings potential for 2023 is representing 25 million. Furthermore, we continue to improve processes and systems as well as improve GMP compliance, good manufacturing practice, We are preparing for a focus ERP build out in the UK and for the CHEPOD site in Toulouse in Europe. A strategic review has been started which targets a portfolio realignment including capabilities and capacities. Finally, we will continue to invest in focus areas for technology leadership. Moving to page 15, we estimate the net impact of one-off costs to rebuild the business together with missed revenues of 80 to 85 million. As mentioned before, with the value protection plan, we aim to build a leaner and safer organization targeting 25 million in cost savings. This will also result in recurring savings in 2024 and beyond. The new strategic collaboration with Janssen and Sandoz as well as the expanded collaboration with BMS contribute significantly and help to mitigate the misrevenue and profitability resulting from the cyber so that we updated adjusted EDA guidance to 60 to 80 million. With this, I hand over back to you, Werner.