Evotec SE

Thank you, George, and good day, good afternoon to all of you following our Q1 2025 results webcast today. Only three weeks after the presentation of our strategic review in April, we will be picking up on the discussions we had in the meantime with some of you. And with that, I think I can move on to slide two in the presentation. As usual, it's my duty to point to the disclaimer and the cautionary note regarding forward-looking statements, which you'll find on that slide. And with that, I hand over to Christian Wojcicki, our CEO, the floor is yours.

Good afternoon and thank you for taking the time to dial in. During our last call on April 17th, we shared our revised strategy. We talked about our value creation levers. We explained the components of our midterm plan and we provided guidance for 2025. the latter based on our understanding of the current underlying market dynamics and Evotech-specific business development. Today, we will focus on Q1 results. Our group performance in Q1 was in line with our expectations and along what we indicated three weeks ago. Therefore, we'll keep today's presentation short. Nevertheless, we have earmarked sufficient time for the dialogue with you after the presentation. So let me start giving you an overview of the first quarter. Over the past couple of months, we have been able to close a few exciting deals. We are particularly proud of the news around our protein degradation collaboration with BMS, which has made further progress. We're expanding the number of high-value molecular glue degraders. I will get back to this topic a bit later, since this collaboration is an excellent showcase for how our strategy of technology leadership translates into superior business opportunities. Another highlight to mention is the reception of a grant from the Korean government to develop novel antibody treatments for lung fibrosis. The signing of new expanded programs is a strong testament of our differentiated capabilities in drug discovery and will contribute to future revenue streams. Short term, and as outlined in April, the market in shared R&D remains soft, resulting in revenue decline versus Q1 2024, And the overall revenue development in the first three months stays slightly below expectations. In contrast, just Avotech Biologics has again delivered strong growth against an already outstanding Q1 2024 result. We see a growing customer list, which is extending from generics providers and smaller biotech to big pharma and biotech. The revenue development in the first three months is slightly ahead of our expectations and shows a very encouraging trajectory for the future. Three weeks ago, I spoke about our new strategic direction. At Evotech, we strive for technology and science leadership in everything we do. We're pioneers in drug discovery. Together with our partners, we accelerate the journey from concept to cure. We achieve this by leveraging cutting-edge technology, disruptive science, and AI-driven innovation. We're focusing on two business pillars, drug discovery and preclinical development, as well as just Evotech biologics. Following our conversation from last call, let me share some insights on how technology leadership leads to superior business opportunities. Not in theory, but in real life. In Shared R&D, our scope is sharply defined from early stage target ID to R&D. We offer essential CRO services to our clients, such as synthetic chemistry, in vitro biology, protein sciences, DMPK services, and others. We provide those services on a standalone transactional basis. This is shown in the upper blue part of this chart. In our more advanced commercial model, exemplified in the lower part of this chart, we help our customers to accelerate the journey of drug discovery, to improve probabilities of success, and to reduce risk. We provide access to our proprietary tools, next generation technology, disease expertise, and mass data to support a selected number of partners in strategic collaborations. The CRO essentials then become a strong supporting element of those collaborations. When it comes to our next generation platforms, I would like to highlight four, which are shown on the right side. Molecular Patient Database, iPSC, Panomics, and Panhunter. First, EMPD, our Molecular Patient Database, has been built over years and is constantly expanded. It not only covers clinical data, phenotypic data, biopsies, but in particularly also multiomics data such as genome, transcriptome, proteome data. Based on these data sets, Evotech is uniquely positioned to identify and validate disease signatures and novel targets to intervene very effectively with disease processes. Our IPSC platform enables us to take insights out of the MPD, forward into the drug discovery process, and build disease-relevant models directly based on patient cells and tissues. Our high-performance Panomics platform seamlessly allows us to profile patient samples at high throughput and to comprehensively profile compounds in in vitro and in vivo models using omics technologies. And finally, our PanHunter platform is a unique AI-supported analytics tool to effectively process and analyze these multidimensional datasets. The amount of data that our platforms generate is huge. For example, we've gathered over 500 billion data points from over 20,000 patients. This represents the most complete data set for quite a large number of patient cohorts. Our IPC platform allows us to model diseases in over 25 cell types. Within these cell types, we can cover over 250 genetic disease models. Finally, using our panomics platforms, and here in particular our transcriptomics and proteomics platform, we have generated over 3 million transcriptome and over 500,000 proteome profiles. All three platforms operate at an unprecedented industrial scale, and are made accessible to our strategic partners. Of course, we're applying AI-supported, state-of-the-art data analytics to separate real signal from noise and thus to support our customers in the drug discovery journey. So how are we generating value with this technology? For example, Both of our BMS collaborations are originally based on these platforms and they continue to thrive. We launched a strategic partnership in the field of neurology almost 10 years ago. For this partnership, molecular patient data and the IPSC platform have and continue to be an important driver. In the beginning of March, we announced significant progress in this collaboration, which triggered a US dollar 20 million payment. While our neurology partnership originated from molecular patient data and the IPC platform, our oncology collaboration, shown here on this page, hinges more on our omics platform. It is progressing very successfully. Just recently, we announced key scientific achievements, expanding the pipeline of high-value molecular glue degraders. The performance-based payments amount to $75 million. Furthermore, in the second half of last year, we announced a further expansion of the collaboration into a new area. In summary, our technology and science leadership in drug discovery is giving us access to business opportunities beyond the essential CRO services. It broadens our addressable market and it provides superior value generation potential since Evotech not only is paid for services, but also participates significantly in the successful development of programs via milestones and royalties. Let me now hand over to Paul who will speak about our Q1 results.

Thank you, Christian, and a warm welcome from my side. Let me guide you through our first quarter financials in more detail. Our Q1 2025 group revenues reached €200 million, a 4% decrease versus the first quarter of 2024. Our revenue performance in the first quarter reflected two counterbalancing effects. Firstly, our shared R&D revenue declined from €155.2 million in the first quarter of 2024 to €140.6 million in the first quarter of 2025 in a persisting soft market. The year-over-year decline in revenues largely comes from our BMS activities and softer transactional discovery work. This follows the trend that we saw in 2024. As mentioned in our prior call, lower BMS revenue is a temporary effect with a partner where we've seen very strong continued growth over recent years and which is expected to continue in the mid-term. As you heard in Christian's opening, looking forward, we have a strong BMS work packages and an excellent asset pipeline. In contrast, just Evotech biologics continue to grow strongly in the first quarter, reaching 59.4 million euros of revenue, which compares favorably to a tough comparison in the first quarter of 2024 and is slightly ahead of our expectations. The majority of the first quarter 2025 year-on-year growth in JustEva technologics came from expanded contracts with existing non-Sandoz customers and our new customer base as we expand the reach of our technology. Our R&D spending has reduced by 33% versus prior year as we direct our investments to those most relevant for our partners. Our first quarter spending is now broadly in line with our new expected run rate for the year as we continue to focus on our R&D activities. Adjusted group EBITDA reached 3.1 million euros, driven by the stronger than expected contribution of 10 million euros from Just, offsetting the lower operational leverage from the softer revenues in the shared R&D segment. Continuing with our cash flows, operating cash flow in the first quarter of 2025 has improved versus prior year of the first quarter due to favorable changes in working capital. Operating cash flow should further improve in the second quarter as we see the effect of receipts for the completed piece of the BMS oncology work packages highlighted by Christian earlier in the call. Investing cash flow is largely driven by our capex spending of 18 million euros in the first quarter of 2025. Our capex spend represents a substantial reduction versus the first quarter of 2024 and reflects the planned ramp down of the JustEvaTech to lose site investments and the move towards the new capex base level I mentioned in the last call. Overall, our liquidity has been developing as expected, decreasing by €26 million to €371 million by the end of March of 2025. Our liquidity was supported by a drawdown of an existing R&D financing facility with proceeds of €44 million, which reduced the cash outflow from operating and investing activities. Our net debt consequently increased to 107 million euros, translating to a net debt leverage of 5.97 times adjusted EBITDA. As indicated during our April 17th call, we expect a temporarily elevated net debt leverage during the period of our covenant waivers. You may recall that in the April 17th update, we provided a waterfall containing the building blocks for our full year 2025 guidance of 30 to 50 million euros of adjusted EBITDA. One of those building blocks is incremental cost out measures in our shared R&D business that will contribute on top of the priority reset program. We have already made significant progress on the implementation of those cost out initiatives, and we will see the accruing impact over the coming quarters. Today, I want to provide you with details of the implementation progress of three key measures. Firstly, we've completed the closure of our Cologne site at the end of February and have completed the remaining target role reductions by the end of the first quarter. While some of those savings are already visible in our first quarter financials, we should see the full run rate effect in the second quarter and following quarters. Secondly, we are carefully evaluating the need to rehire open positions based on our existing capacity and business lead. The combination of restricted hiring activities and organic attrition means shared R&D FTE will reduce by an additional 180 FTE on top of those announced in the priority reset, with much of this impact already in effect. Finally, we continue to challenge all areas of discretionary spend. We already see in the first reductions on external spend versus 2024, However, as our external spend is spread across the full year, the progress will unfold over the remainder of 2025. In summary, our incremental cost savings measures are well on track with more than 50% of the planned savings already having been implemented by the end of the first quarter of 2025 with the full benefit on our cost baseline seen over the remaining quarters. Finally, a reminder of our full year 2025 guidance, which we reconfirm with group revenues of 840 to 880 million euros, R&D expenditure of 40 to 50 million euros, and adjusted EBITDA of 30 to 50 million euros. And lastly, another housekeeping item, our unchanged midterm outlook. As presented on April 17th, we expect the average annual growth rate over the coming four years to be in the range of 8% to 12%, and EBITDA margin is expected to exceed 20% by 2028. As always, we are now happy to answer your questions. So, George, please start the Q&A session.

Thank you very much. We will now begin the question and answer session. Our first question comes from Christian Eymann with World Book Research. Please go ahead.

Questions. I have two at the moment. Given that you mentioned that your segment performance was deviating from the expectations so that shared R&D was worse and JEB was better than expected, do you see or what's your gut feeling about the course over the year? Do you think this will persist? in the coming months or quarters. What is your stance on this right now? And my second question would be towards, there's a lot of chatter online about various biotech layoffs in the space of biotech and also big pharma. Do you see an impact of those layoffs in terms that you see a stronger incentive for those companies to really engage you in additional CRO activities over the next months or years? Thank you.

Christian Schreiber- Thanks Christian and maybe i'll start and we'll see if we need to chip in on the on the first question as Paul was alluding to. Christian Schreiber- The guidance remains for good reasons, as we said, we are slightly below expectations on shared I need slightly above on just in the mix, we are aware. we're probably a bit better on revenues than we expected. And that's also why we see there's no need to change the outlook for the year. Obviously, when it comes to shared R&D, as we already alluded to in the last call, There is right now a very soft market environment and everyone is observing what's happening. It's frankly, from a market perspective, no news to report. So that's why we remain confident with our guidance that we gave in the last meeting. On the biotech layoffs, Well, it's obviously two sides of the coin, right? On the one hand, more cautious spending, that's not helping. On the other hand, if you see layoffs, and particularly also in pharma, that ultimately the work needs to be done by someone. And I guess that's your question.

uh we're happy to pick up the work that is then not being done anymore in-house let's put it that way thank you very much our next question comes from charles western with rbc please go ahead hello thanks for taking the questions three please the first is um could you provide some color on your pipeline in each of Justeva Tech Biologics and Shared R&D, specifically around customer concentration, product concentration, perhaps outside of BMS and Sando, which are obviously very big. Secondly, on the covenant, you said, I think you have a waiver until Q3. Does that mean it's tested in Q3 or is the first test in Q4? And what are the key levels that we should be looking at here? And then lastly, you mentioned working capital should improve in the second quarter. Could you perhaps provide a little bit more colour about what that means? Obviously, there's the BMS payment, but what else might be happening in working capital for the remainder of the year? And are there any major payments for the rest of the year expected from your collaborations? Thank you.

Thanks, Charles. Let me briefly touch upon the first question and I'll hand over Covenant and Working Capital to Paul. The mix has changed over the last couple of years. We've seen in previous years a bit of a trend towards more concentration. towards larger accounts, particularly in the year 2023, I would say, where, fair to say, we peaked on the BMS side. The more recent trend is that this has softened a little bit. So the concentration hasn't necessarily increased with regard to the super large accounts. And that is also the case for our Just business, where I mentioned earlier that we've been quite successful in lining up new accounts and expanding our business with those new accounts. So I would almost want to say that 2023, 2024 was probably the peak in terms of concentration that has come down a little bit.

Paul? Hey, Charles. Yeah, just on your question around covenant, just as a reminder, no active financial covenants in place. We've got covenant waivers for drawn lines until third quarter 2025, as you rightly say. And what I would say to answer your specific questions, testing will be in the fourth quarter on the third quarter results. And in terms of development of working capital receipts, you heard at the beginning of the call around BMS payments. So we would expect those to come in over the course of the remainder of the year, much of which will be in the second quarter. And then in addition, as you appreciate, we have a number of just related work order payments as is usual for us in that business.

Thank you.

Thanks.

George? The next question comes from Joseph Head with RxCurriculars. Please go ahead.

Good afternoon, and thanks for taking my question. You continue to highlight the soft environment for shared R&D. And I think a few weeks ago, discussing the continuation of a kind of decline across the first half of the year, with perhaps some recovery in the second half. Can I just ask what's given you confidence of this recovery? Perhaps if you can talk in terms of metrics that you've used before, for instance, the order book or closed sales and the conversion of closed sales. I'm just interested in also how much of these future BMS work packages factor in. Does that alone return you to an upward trend? Or is there a certain amount of recovery in the other elements of shared R&D that is also required? Thank you.

Thanks, Joseph, for the question. On the overall market trend, you may recall in April our message was we see a soft market environment and we expect business to be around 2024 levels at the top end of our expectation, we see a recovery towards the end of the second half, right? And that hasn't changed. There is actually no indication in either direction that the market is either going south or all of a sudden going north. And that is based on the conversations that we're having with our clients, which continue to be very fruitful. And we also see business coming in. But as I said earlier, in the April call, it comes in smaller chunks. And there is more slicing of work. which indicates that there is more conservativeness in spending at the customer side. With regard to the BMS work packages, I'd like to remind you that obviously this is a large multi-year program and throughout the year and also over the years we are moving along scientific progress in a drug discovery process. And that means that we're touching target identification, hit identification, lead optimization, and so forth. And those work packages have, they come with different amount of work on our side. And hence they also come with different amount of intensity and they come with different revenue profile. And that profile changes also depending on what on a quarterly basis we discussed with our partner here, whether we should go back to the drawing board, change the profile a little bit, do some more testing or accelerate the work on other parts of the business. So it's a bit of a, a partnership that is changing over time, but growing in the long run. And that's why you also can't sort of draw a single line a month over month with this collaboration. That said, we mentioned that over the last 10 years, over the last five years, we've seen this partnership growing substantially. And we also expect, given the work that we're doing and the recent expansion, that this will be the case also in the midterm future.

Okay, thank you. And perhaps if I could have one on just, you talked a few weeks ago about how the ramp up for Toulouse is going to subdue EBITDA relative to 2024. And the first quarter, indeed, is coming quite strong. Could you perhaps just talk about the phasing of the ramp up costs over the rest of the year, please?

Paul will cover this one.

Yeah, hi Joseph. So yeah, you're right. So first quarter, as we said, was stronger than expected. There's a little bit of phasing of those work packages that we expected within the year. But again, remain very confident on the four year landing for JustEvaTech. In terms of ramp up of costs, you are also correct. We started ramping up those costs in the fourth quarter for readiness of future growth. And those ramp up costs will continue over the rest of the year. Again, as we described in the April call. So we will continue to ramp up to ensure that we can serve the future volume.

OK, thanks very much.

Our next question comes from Finn Scherzler with Deutsche Bank. Please go ahead.

Yes, hi, and thanks for taking my question. I also have a couple on the FTA development and in particular the phasing that you just mentioned. So can you maybe help us a bit with the magnitude of the phasing in the JEP business? So what I'm trying to get at is will the absolute EBITDA demand potentially fall again into Q for the segment? And then it would be interesting to hear on the remaining headcount reduction you had in the shared R&D business, how much was there still in one Q? So I'm trying to bridge again the different moving parts and trying to get at where two Q could end up. So if you could expand a bit on that, that would be great.

Okay, just a general comment, obviously. While there were a few movements in the first quarter on the different segments, overall, the outlook remains. I mean, that's the most important message, but Paul, maybe a few more details.

No, exactly. Thanks for the question. So first of all, Four-year guidance remains, so this is within our expectations. As I did just say in the last question, there is a little bit of timing and overperformance in the first quarter for JustEvaTech relative to our initial plans. That said, the segment continues to do well, remains within our overall plan for the year. In terms of headcount reduction, what you see if you think about the elements that I described, first of all, we have closure of the site in Cologne and exit of other headcount that has taken place over the course of the first quarter. So think February, March predominantly. Then we also have our new kind of attrition, net attrition run rate that we exit the year, exit 2024 on a lower flight level. So part of that is already within our run rate going into the year. And then we have some additional extra in the first quarter, as we see some level of net attrition outflow. So we, as I said in the overview, we enter the year in the first quarter where we need to be and aligned with what our guidance was, which we described in the April 17th call. The full run rate effect, though, as I described, will only be visible over the course of the coming quarters.

Okay, thank you.

Back to George, please.

Thank you very much. We continue with a question of Charles Douglas with Wainwright. Please go ahead.

Hi, good morning. I think that's me. This is Doug Sao from AC Wainwright. Can you hear me okay? Yes. Okay, so I guess obviously there's been questions about the overall environment, especially focused on industry and sort of the potential negative impact. I'm curious, as you look at the U.S., and I know this is potentially a very dynamic situation and there could be changes, but the prospects for significant cuts to NIH funding, does that potentially create opportunities for you? with a pullback in some of that very early stage research. Thank you.

Yeah, as you rightfully say, not straightforward to project what's going to happen next. That's why we also remain a bit cautious on statements. On the exposure side, we already mentioned last meeting, last call, that our exposure to NIH and other governmental bodies from the revenue perspective is fairly limited. So we're not expecting any uh direct impact obviously then the question becomes um a footprint in the us uh does it actually support And also that one we addressed last meeting. We have research facilities at the East Coast to serve our clients from the shared R&D perspective. We have manufacturing facilities West Coast to serve our just clients. So we're prepared, but we also recognize that things are not moving that quickly, given that everyone is still a bit on the parking lot and waiting, how this all will be sorted out in the mid-term.

And, you know, I guess as a follow-up on just biologics, just given, so obviously so far pharmaceuticals have been excluded from tariffs or proposed tariffs. I'm just curious, have you had conversations with clients who might be interested in in perhaps shifting manufacturing if there does seem to be some kind of implementation of tariffs? And does that make the US side more attractive? Thank you.

Thanks, Doc. And as I mentioned, we're not short of conversations. Let's put it that way. The Just Business is growing fast, and we see a lot of inbound request support. Whether it's ultimately triggered by tariffs or our great technology doesn't really matter. But what I don't see or what we don't see is that on a weekly basis, people come and leave. This is so dynamic right now that it's really difficult also for our clients to make ultimate decisions. That said, as I mentioned, there is sufficient inbound activity here. to make a bold statement that the just business will continue to strive for the next couple of quarters.

Okay, great. Thank you so much.

As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Brendan Smith with TD Cohen. Please go ahead.

Actually, just a quick one from us. Apologies if I missed it, but I wanted to get your thoughts actually on the recent FDA announcement confirming agencies' intention to begin phasing out animal testing for biologics in lieu of more computational AI models and organoids. I guess I'm really just wondering, have you had any conversations with customers or internally about what impact you expect this to have on your businesses at all? I guess I'm really just wondering how you see Evotech's positioning as FDA begins rolling out some of these changes, and maybe if you expect anything similar on the horizon with EMA in Europe. Thank you.

Thanks, Brendan. Also not a new conversation. Actually, the EMA in Europe has been looking at that also since quite a while. I would say it's fair to say that we are well prepared for that, but maybe, Park, you alluded to that a little bit.

Thank you for the question. Technologically, Evotech is really excellently positioned for this, mainly due to the fact that we have for quite some time focused on patient-centric approaches, in particular molecular patient databases, IPSC technology to model in vitro diseases, and in particular the PANOMICS approach, which is really using OMICS technologies to bridge the gap between in vitro and vivo models in the clinic. And so technologically, we're extremely well positioned. We have also improved, especially when it comes to safety tox profiling technologies or adapted these technologies there. I would say that the pickup commercially is still sort of muted at this point in time. But I think in that regard, the FDA announcement is extremely welcome from our point of view. And we believe that, you know, discussions that we used to have and how, you know, this could be done better in the future will create more, will have more traction going forward here on these discussions going forward.

Okay, great. Thank you.

Thanks, Brendan. And back to George.

There are no more questions at this time. I now hand over back to Mr. Brown for any closing remarks.

Thank you, George. And thanks to all of you who participated in this call. And thank you for the questions. In case you want to discuss more details in the coming days, feel free to reach out to me. The line, as usual, is always open. Next opportunity for all of us to meet in person is our AGM on the 3rd of June in Hamburg. We are looking forward to seeing as many of you as possible there to continue the dialogue. Thank you very much for now. Have a great rest of the day and goodbye.