Evotec SE

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 Proluca, 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 EtherTech for future profitable growth. So welcome, Leticia, Matthias, Craig, and Cord. I will spend a few moments on recapping the developments in Q1 before handing over to Leticia and Mateus for the majority of the presentation. On slide six, 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 Leticia will discuss further later, we have moved our reporting to shared R&D and just Evotech 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 Alkin, precision medicine collaboration in cardiology with Bayer, and of course our strategic partnerships with BMS continue to make good progress. Despite our 22% revenue decline in 2020, 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 Evotech 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 23 is 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 Leticia that our reset initiative as described in the April call is progressing well and remains the key focus to return Evotech 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 Evotech biologics reaching 53.5 million revenue in Q1, as mentioned by Mario, above 380% growth versus same period last year. The growth as just biologics 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 experienced 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 Evotech Biologics. We remain committed to investing in the future with R&D expenses of 16.2 million in Q1. However, we reduce spending from 18.5 million in Q1 2023 to 16.2 as we focus on platforms that are best aligned with the strategic fit and relevance for our partners. Adjusted group EBDA 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 face 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 Evotech biologics, which reflects the way we manage the business internally, minimizes the inter-segment elimination, and gives better transparency to just Evotech biologics. You can find the restated Q1 2023 figures in our Q1 financial statement. As we already discussed the revenue and margin developments of the previous page, I only comment on the SG&A expenses, which totaled 45.9 million in Q1, 8% increase compared to last year. The increase was primarily driven by higher IT expenses to upgrade and introduce new system as well as additional people to strengthen the end-to-end global processes and systems. As you can see, our balance sheet continues to offer a solid base for our strategic execution. While total asset decreased slightly to 2,208,700,000, our equity ratio remains around 50%. Our cash flows were impacted in Q1 by a challenging operational environment and certain exceptional effects such as elevated payables balance at 2023 year end. This cash outflow combined with our reduced LTME BDA has resulted in an increase in our net debt ratio to 2.9. We expect our cash outflow, while remaining negative, to materially improve over the coming quarters as our operational profitability improves and we complete committed capex investments such as Just Toulouse. So while our net debt ratio may increase slightly in future quarters, we continue to have strong financial flexibility to navigate the current environment with over 500 million in liquidity at the end of Q1. I will now hand over to Mathias who will guide you through our strategic and operational update.

Great, thank you, Leticia. 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 Shired R&D efforts. So if I quickly talk to them, there's an AI-powered partnership with the tech bio Oaken where we combine their expertise on the target side with our integrated discovery and development platform in oncology and INI. We also announced just another partnership with a foundation, here with the Crohn's and 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 Clarisse 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 Evotech. Now, in summary, we feel quite confident that our differentiated, integrated offerings are very attractive for very different kind of partners. So I mentioned venture, 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 from IND towards IND and phase one. 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 future, I'm showing here discovery, which is really the heartbeat of shared R&D. It's roughly 70% of revenues in shared R&D. What we plot here are now closed sales, so really signed contracts. Now, as a reminder, from a closed contract to revenues, it might take four, six, eight months. So sales can really also drive revenues over more than a year, both in terms of ramp up, then also continuation of the contract. That having said, what you see here really is that Q1 2024 has been our second best quarter for Evotech in discovery. And we take this as a data point pointing to recovery. We have early data that suggests a similar business momentum already in Q2. Now, on the development side, as noted here, we see, as competitors sometimes call it, proposal momentum. So we have direct interactions on proposals. That's our 50% probability stage. We see that momentum here. And we expect this forward moving then into closed sales at a later point. In summary, closed sales are a leading indicator of new revenues later in the year. And combined with what we are hearing and you are hearing from competitors and peers, I mean, for us, gives us a solid footing and planning for stronger business momentum towards the end of the year. Now, let me move to our second reporting segment, which is just Evotech Biologics. Here we simply, in simple terms, see continuation of a strong business building and growth story we are obviously excited about. Our closed sales are ahead of expectations. We are now slowly moving towards an order book of closed sales of 1 billion US dollars. What is more importantly, though, I think we are making strategic progress. And that has a few components here. So the molecules we contracted with Sando are under development. We are expanding with existing customers. We are increasing our options towards commercial supply. So here we note signature of a first phase III supply. And lastly, we work with a big pharma, which is an important segment for us, on a bispecific molecule, a complex biotherapeutic. And that point is really worth stressing. So if I move to the next slide. I mean, complex biotherapeutics are, of course, all the rave today in terms of bispecific, complex therapeutics, etc. And we see it. And on the left side, you see the industry analysis, which points to the share of these complex biotherapeutics is increasing. And we have right now more than 40% of molecules in that category. So it's overrepresented in just Evotech Biologics. And given the feedback we hear from partners, we really see this continuous manufacturing platform as the preferred platform for these type of biotherapeutics. Now, let me dive a little bit more into how our actually pipeline looks like. And what I'm showing here, and this is really news to you because we have not shown it before, is how a longitudinal shot at our portfolio views. I mean, that's a complex term for saying which molecules did we touch over time. So, I mean, and the message is we touched over 150 molecules. Now, if you want to calibrate, we are right now roughly working on 56 active molecules. But this is important because as you can imagine, if a molecule is once on our platform, it can also come back. So that's why we took the view to take the full spectrum. And if I quickly go through the numbers, we see, I mean, we have touched more than 100 molecules and molecule optimization. That's where our AI, artificial intelligence solution, plays a critical role and is actually part of our value proposition. When it comes to IND enabling, we touched more than 50 molecules. And in late stage clinical supply, we have 10 molecules, which also means 10 chances for commercial supply over the coming years. Last but not least, this pipeline clearly needs capacity. And on capacity, I have the good news. JPOD 2 in Toulouse is fully on track. I keep it as simple as that. We are proud to report that two years after groundbreaking, we are there. I mean, we are expecting opening in September. And the picture is from January, so... um i mean you of course can't look on this picture inside but believe me it looks already i mean in it's in in all its beauty so and with that i just want to invite you again for 10th of october for the capital market day in toulouse come and see it um we will follow up on logistics soon and that was in short our strategic operational update so i will quickly hand it back to you leticia thank you much yes

We are progressing well also on the execution of our three priorities to sustain the profitable growth at Evotech. 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 Hort 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 project 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 signal of positive momentum, particularly in discovery, are visible, as Mathias has just explained before. On our second priority, we are in the 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 trigger short-term facility space reduction and footprint optimization. Constructive discussions with the Works 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 initiatives that drive both short-term savings in 2024, as well as optimize the full-run 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 Marsy Lyon in Q1. We also announced the exit of our Hort site on May 21st and are in advanced planning stage for further site exits that we will communicate over the following months. We also initiated short-term measures to optimize the existing facility infrastructure. Regarding capital allocation, we have launched a program to optimize and harmonize pricing and rationalize diversity of options. We continue to invest in R&D and focus on our platforms that have the best possible leverage and scalability for future collaborations with partners. Investment in IT are essential to run a resilient business, and we continue to improve our systems constantly. And we address headcount review to address our current overcapacity. We started constructive discussion with the works councils and we provide for the details once the regulatory process is completed. At the same time, we need to be mindful of capacity needs in fast growing areas such as just Evotech biologics or areas where scaling back is not acceptable, which includes IT in particular. Our improving results in the second half of the year are grounded on a discipline execution. For the remaining first half of the year, we are further building the basis for better results. We are further focusing on the execution of cost improvement, which will show first visible impact in the second half of the year. We continue to drive the positive trajectory in early BD pipeline and close sales, especially in our discovery business. In the second half, we translate our initiatives into visual results. This includes translating BD pipeline momentum and close sales into revenue growth and our continued execution of the priority reset initiatives to capture efficiency gain and cost savings. The JPOD Toulouse launch will be a central milestone for Just in H2 to enable the further revenue growth. On our expectations for 2024, I want to reiterate the details shared during our full year 2023 presentation. Q1 is a clear indication of our trajectory to achieve top line guidance. Just Evotech biologics, as well as differentiated offerings, will drive the business, while more transactional businesses are likely facing a challenging environment in 2024. Future growth, a more favorable business mix, as well as our efficiency improvement measures on cost, are the basis to assume that EVDA will grow mid-double digit. And on this, I hand over to Mario to conclude this presentation.

Thank you, Leticia. Thank you, Matthias, for your summaries there. On this side, we just present to you important upcoming dates, our annual 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 message? 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 to 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 Evotech 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 Aurelie, they will form a formidable team driving Ecotech 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.

Our first question comes from Charles Weston from RBC. Please go ahead.

Hello. Thank you for taking my questions. I'll do three, please. But 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 Leticia, I think you did say 100 million and upwards, although you caveated it 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 biosecure. 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 preparation timeline. I mean, coming from summer last year. So how I want to frame it as the green shots we see from Biosecure 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 that combined with what we hear from competitors, one 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 relate to milestones. In the original 2025 guidance, this included a roughly 70 million from milestones, and 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 a guidance in a quantitative form.

All right. Thank you.

The next question comes from Thierry Bouterin from Morgan Stanley. Please go ahead.

Yes, thank you. My second question is, sorry, my first question is just on the early dynamics in the second quarter. You mentioned the split between H1, H2. Is H1 still difficult? So just based on the kind of initial trends 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. So 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 Mathias mentioned, there is a few months before it 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 EBDA and revenue growth.

And Thibault, let me comment on your second question, because forgive us, we won't discuss margin difference because it's really a spectrum. And one reason is not wanting to, because our CEO 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 enough to thank you the next question comes from michael raiskin from boink of america please go ahead great thanks for taking the question i want to go back to the the orders or the close the ld discovery um

helpful chart you had during the presentation. But I was wondering, it seems like that's relatively volatile historically, more so than we would have thought. And obviously, you know, 2023, you have the cyber attack impact. So that's not unexpected. But even prior to that, you had a decent amount of volatility. So just curious, what makes 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 one queue and you're seeing it in two queue. How predictive should that be going forward, or should we not read too much into that?

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. 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 mean, I can predict already now, I mean, 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.

OK, that's actually really helpful. And then follow up on that is on the cost optimization. Again, you provided a helpful 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 know, you're not seeing anything that's going to make you think that you suddenly might need more capacity and more headcount going forward. Okay.

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 as recently 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 Leticia already mentioned during the presentation, there are a couple of key indicators that that's already well underway, such as the exit of chemistry MARSI 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 handle it 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, but 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 Evotech

then to um to be more successful in the in as new growth comes in okay thank you so much the next question comes from peter from city please go ahead yeah hi there uh people don't silly um just a couple of questions and to give the bluntness but obviously we've got to deal with the uh the cyber attack um you know the cao departure and a big reset of expectations so just in terms of just calming investor fears in the market and and and you know building or rebuilding the credibility I just want to make sure I understand that we've got a CEO incoming in 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, 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 cyber attack. But it sounds, I just want to make sure that you seem to be implying there'll be no revenue growth year on year in Q2. And that is strange to me given the cyber attack 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 on from 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 cyber attack? So I suppose what I'm really getting to is the confidence you have that we're going to see this HT recovery. And my very quick second follow-up question is, Speaking to C-Suite on some of the large farmers, they're having discussions about the impact of the BioSecure 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 further 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 biosecure act, just to be clear, what I presented today, I have not included, I said in one sentence very carefully about an, 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 able tech biologic 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's a series A today, there's a real discussion, do we place the work in Asia or not? So that's a 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 and what we see just now. Then the second question, I mean, the order book, you're right. It's 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 showed 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 I mean, 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 I mean, 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 compliment 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, 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, the primary idea is really a deep dive in our progressing Just Able Tech Biologics business. I mean, you will see, you will 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. 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 endeavors. 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 and 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 edutech 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 even technobiologics 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 Falco Friedrich from 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.

Falco, great questions. Let me start, and then I hand it over to Letizia. So first, a little bit more specific. So what you see on the written materials, we put there six 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 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 weeks. 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. Falco, 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 side protects in our Admi Talks business, of course, you order and get the results. And that's more 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 EBITDR, I think maybe I use slightly different words and let Letizia 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, is hundreds a floor? Today, we mentioned the consensus. We talk about that ballpark, and we'll come back with quantitative guidance as promised.

So coming back on this specific point, of course, we keep our guidance around the mid-double digit growth. For the EBDA, 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 Hayden from RRX 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 Sando 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 colour on your reasoning behind the choice of that particular element of the business. Thank you.

Let me start on just, it's 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, 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, Sando is an important partnership. We don't provide detail. I mean, it's multifactorial, the results. I mean, we have worked for DoD. We have worked for multiple biotechs and Sando, but it's no secret. Sando is a significant partner in the mix. Guys, I think... 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 tagline that we want to achieve profitability this year. Maybe caught on Bayer.

Yeah, this is Court 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 endometriosis or PCOS 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 a 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 disease.

And then on the decision to close gene therapy, I think we all recognize that gene therapy remains a technologically very challenging area. It's 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's 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's 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 cost, 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 with the closure of the site.

Okay, thank you all. That's very good.

The next question comes from Christian Ehman from Barbrook 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. You mentioned that BMS is expected to continue to be a large customer for you. Maybe you can break it down to something like Well, we have around 10% with one of our three big customers and so on. So we get more of an idea how high or how risky your exposure in this regard is to have one or two or three large ones besides Sandhu. That would 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. I really... probably relate 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'll 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 there's not a clump risk essentially. We continue to have discussions with multiple partners about opportunities to uh expand car partnerships and here i want to point out collaborations such as novo lily etc so overall i think we are in really good shape on that front and i believe that we will deliver on our goals here thank you court um i think it's also worth saying that we track our customer concentration and overall given the breadth of our customer base we are

less concerned about dependency now what is of course a special situation with sando 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's 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 a discovery program, of course, we need, I mean, and let's stick in the small molecule area, we need the 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, Evotech 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 particular development, which includes chemistry, so the development part, and cyber attacks, which we have indicated. That's where we have seen the overcapacities that we are addressing now. But that hopefully puts the various comments a little bit into perspective.

Okay, thank you very much.

As a reminder, if you wish to register for a question, please press star followed by one. We have a follow-up question from Charles Weston from RBC. Please go ahead.

Hello. Thanks. Let's get a couple of clarifications, please. On the R&D line, you said you've cut this or you've focused on alignment with customers. Does that mean you've 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, etc. But I still haven't understood whether you mean as a euro number, i.e. 55, 60 million, or as a percentage number, i.e. 110%, because that's 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 R&D related question regarding R&D budget and what we're doing with it. So we still have a very significant budget in 2024. We're targeting about 60 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 can become the foundation of the next generation of partnerships with pharma companies and biotech companies.

Great. Thank you, Court. On just the child's 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, 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 cyber attacks under pressure, and we are adjusting with a reset our capacity, i.e. our cost base. I think we are seeing... close 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 capacities. These are the drivers, more quantification later to come.

Okay, thank you. Just if I could squeeze one more in. I think in your annual report, BMS, it says contributed 195 million euros 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 intersegmental sales or what's the right concentration we should be thinking of there?

Charles, I mean, so BMS is an important customer. I just back up a little bit. That number that we stated is, of course, as per the annual report, those are the revenues. And I think one has to see it not as binary, is there a customer and maybe the risk of leaving, because that's a customer and we build a pipeline together. So it's very sustainable and value is created that drives milestones and upside down the road. 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 airman from bar book research, please go ahead.

Hello again. And thanks again. So I'm trying to link a little bit on the BMS development over the next year. So I appreciate the fact that you said, okay, around 10% of revenues from in this year comes from BMS and, um, Matias and I talked about milestones and upfronts, um, potentially that might be coming in from the pipeline expansion. Um, do you expect any visible revenues from BMS over the next year? in a similar fashion to what we see maybe in this year, not on a percentage basis, but probably on a nominal basis. Thanks.

Yeah, 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 also at this point in time, still growing the pipeline of opportunities within our collaborations. And so once again, I can only reiterate that we 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 EvoTech towards profitable growth. In case you feel that further clarification is needed, please feel free to reach out anytime. And otherwise, we are looking forward to speaking again 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 goodbye.