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.