Dear, ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer’s request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] May I now hand you over to Dr. Werner Lanthaler, CEO, who will lead you through this conference. Please go ahead, sir.

Good afternoon. This is Werner speaking from sunny Hamburg. Welcome to our Half Year Report 2020. You can find the supporting slides for this call on the web as usual. We often get asked, what’s the purpose of Evotec? And it’s very simple. We design and apply innovative technologies and processes across all modalities in order to expand access to more precise medicines together with our partners. Or if you want it even more simple, we are the drug discovery and drug development Autobahn. Especially in times of a pandemic crisis, acceleration and even more speed on this Autobahn is needed today more than ever before. I’m here together with my team, our CFO, Enno; our COO, Craig; our CSO, Cord. And it’s great to also have Volker Braun for the first time here together with us in the room, who will be our key contact for investors and analysts in the future. If you go to Page number 3 of the presentation, you see that our long-term growth mission and aspiration is fully intact and we see good growth across all business segments. Short-term, I’m very happy to report a strong Q2, a strong H1, and with this we can – and we can report this with minimum negative impact of COVID-19. More importantly, we can report some very strong mega trends supporting our long-term strategic vision. And some of these trends even seem to accelerate in times of COVID crisis. The first mega trend is the outsourcing mega trend. Switching from fixed cost to variable cost is especially now very relevant that many people have started to validate their supply chains. A strong pipeline of new expanded deals is a very visible consequence on our platform, because people find a very stable platform that supports their supply chain…

Thank you, Werner, and also from my side a truly warm welcome today here from Hamburg. I’m very happy to introduce you to our H1 2020 numbers, confirming that Evotec’s growth story is well on track despite eventful times. Let’s start with consolidated overview. H1 2020 numbers show a good 12% gain on the revenue line, driven by various factors. And I will come back to the details of this success on the next page. R&D expenses increased compared to last year’s level. This reflects our strong commitment with respect to growing unpartnered R&D, continuously investing into innovation, into sustainability and long-term value generation. The increase in SG&A is mainly driven by the growing number of employees and personnel-related expenses due to the overall growth. Focus areas just to name a few are the continuous growth of BD and administration. The first time H1 addition of Just and J.POD in Seattle, and we added new business setup of Evotec GT in Austria in Q2 2020, as well as various equity engagement. The other operating income turns out to be slightly above last year’s level. This value contains 2 mutually offsetting developments. With R&D tax credits increased for UK and for France, we are facing changes in the R&D regulations in Italy, which have led to a substantial reduction of R&D tax credits in Italy, resulting in total, in a 3% increase of other operating income. With regard to cost coverage for partnered R&D, under the Sanofi ID engagement, income remained on the same level as in H1 2019, which is also recognized under other operating income. With a total of €47.3 million, our adjusted EBITDA was below the level of H1 2019. The lower EBITDA line despite growing revenue line, in a summary is mainly to be seen in context…

Thank you, Enno, and a warm welcome from me too. It’s my pleasure to begin this next session – section on scientific and operational performance. So on Page 16, as already reported by Enno, one of the highlights and clear achievements from the first half of 2020 is a very strong base business performance, with double – robust double-digit growth in revenue in the Evotec Execute segment, and this even despite the loss of Sanofi subsidy in Toulouse and a challenging operating environment due to COVID-19. This base business performance represents further illustration of the power and the attractiveness of our flexibly accessible and the highest quality infrastructure. The fully integrated the multimodality drug discovery and development Autobahn, which provides the efficient platform to support our own R&D and innovate projects as well as the co-owned pipeline and execute partners alike. This is perhaps even more true for our partners during times of global disruption like these past few months. Despite the pandemic, in the first half of the year, we’ve continued to invest in new science, additional capabilities, and expand our overall capacity to fuel and sustain our long-term growth ambitions. And so I’d like to take a few moments to highlight a selection of these in the coming slide. As usual, we’ll continue to add a number of new partners such as Boston Pharma, as well as continuing to expand the breadth of existing partnerships, including those with Amgen and Takeda. And we continue to see a very high return rate over 90% of repeat customers. We’re very pleased to announce a multi project strategic partnership with Ildong Pharmaceuticals in March. And during Q2, we agreed to second INDiGO start under this partnership. In April, we also launched Evotec gene therapy, adding this exciting therapeutic modality to our…

Thank you, Craig, and good morning, good afternoon to everybody on the call. It’s my great pleasure to give you an update on the Evotec Innovate. Evotec Innovate posted a strong first half in 2020, revenues increased by 8%, despite an overall challenging environment and lower milestone contributions. We continue to make good progress in expanding our co-owned product pipeline, and in particular, our clinical stage part of the pipeline is making good progress. In our Bayer, endometriosis collaboration, we continue to move projects forward into the clinic and keep progressing, in particular, our very exciting P2X3 antagonists program in a number of high value indications. Moving to the preclinical part of the pipeline. In the beginning of the year, we regained the rights of our beta cell therapy program for the treatment of diabetes. Since then, they have continued to invest into this very promising project and initiated partnering and financing initiatives, which are gaining good momentum. Similarly, our global health franchise is also progressing quite well. In our TB collaboration with the Bill & Melinda Gates Foundation, we continue to progress various TB initiatives. Furthermore, together with the NIH, we filed an IND application for our Chikungunya antibody project. The exact date for the start of the Phase I study which will be carried out by Duke University in North Carolina, is not entirely clear yet, and this is mainly due to COVID-19, but it is expected to happen within the next 12 months. In response to the COVID-19 crisis, the ramp up our efforts here as well, in particular, organizing a large repositioning effort of marketed drugs as well as drugs in clinical development, when advanced stages of preclinical development. Beyond the ongoing COVID-19 global health crisis, there’s another crisis looming, which we all know is coming.…

Thank you, Cord. On Page 30, we want to just illustrate to you that our Autobahn also has bridges. And we are very happy that we were able to add Autobahn labs in the U.S. to this concept where you will hear much more about in the future. On Page 31, we illustrate to you that our equity co-owning strategy is also fully up to speed and gaining momentum. And we are very happy to report back to you that we were invited to participate in the foundation of great companies like Cajal Neuroscience and QUANTRO just recently. Page 33 is giving a brief outlook that we see Evotec well on track when it comes to the achievement of our news flow and deal making goals that we have given ourselves for 2020. If this follow us and when you follow us, you should also go to Page 34, where I want to confirm again, our guidance on revenues and EBITDA, and where at the same time, we are very happy that we can increase our Evotec Innovate R&D investments for the long-term value generation and growth of the company. Page 35 gives you an overview of our dates to come and Page 36 should mark one calendar date very highly for you, because I cannot tell you how much we would love to have a big party or meet you for lunch in New York City in the fall. But as it looks right now, we will have to make our Capital Markets Research Day as a virtual event. Nevertheless, be excited about it and make a mark on your calendar for November 19. With this, we are very happy that you follow us. And with this, we are inviting you for questions. Thank you so much.

Dear, ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] And the first question received is from Joe Hedden of Rx Securities. Your line is now open. Sir, please go ahead.

Hi there. Joseph Hedden from Rx Securities. I’m just looking at your infectious disease research, and obviously, there is some positive updates and you’ve expanded there a bit recently. I’m just wondering about the Sanofi part of your infectious disease research, and whether there’s been any progress on any of the pipeline programs that you inherited when you took over their facility. And then, just a couple on the financials, I was wondering on other operating income, would it be possible, could you split out for us what is coming from Sanofi there and what component is tax credit? And then, thirdly, just on the EIB loan, I know you’ve drawn down another €16 million. I was wondering if you had any specific investments earmarked for that? And how much of the facility is left to draw down? Thanks.

Thank you very much, Joseph. First question will go to Cord. Second question will go to Enno, third question also goes to Enno.

Yeah. So in regards to the Sanofi pipeline, actually, the chikungunya antibody project is an example. So that’s the project that originally came from Sanofi, which is progressing quite nicely and other projects in earlier stages are also progressing here as well.

Okay, Werner, I take the other operating income questions. First of all, this basically splits up into roughly €12 million into tax credits. And then there’s another €18 million cost coverage coming in by Sanofi ID Lyon mainly and the rest is other small stuff, but this is the 2 major positions. With regards to the EIB loan, you were referencing to the last drawdown of €16 million, so there’s roughly a remainder which is only a small amount of €1.6 million. And the amounts that we draw down are normally dedicated to Innovate R&D projects. But here they go into a wide range of different projects. So there’s not a very specific or dedicated one. But it’s really a portfolio that we are feeding. And the way we handle this is that we normally have a 50% coverage by this loan and the other 50% is internal cash going into these projects.

Next question, please.

Thanks.

And the next question received is from Igor Kim of Bankhaus Lampe. Your line is now open. Please go ahead.

Yes, hi. I’ve got a couple of questions. First, on your R&D expenses that you have increased by roughly €5 million, could you give a bit of a color on what – for what projects you have increased the R&D budget? I assume it’s beta cell project that you have regained from Sanofi or is there anything else on top of that? And then speaking of beta cell project that you took over from Sanofi, do you think it’s still realistic to expect a decision before the end of the year? Or it might also take a little longer, probably up until H1 next year? And the third question is more of a general character regarding your multimodality strategy. You have recently increased it into antisense, before that the gene therapy. Do you continue – do you plan to continue to increase the platform? And if yes, what kind of technologies you could imagine to add on top of your platform? So far, these questions. Thanks.

Thank you very much. First question I will take. It’s really a portfolio of projects where we are speeding up our investments. And, of course, the cell therapy platform that we are building is one part of this portfolio. But also let me highlight our Induced pluripotent stem platform, in general, where many projects are looking just fantastically well at this stage and where we feel that there is no reason to wait in bringing these projects forward. And that’s the underlying portfolio that we are bringing forward here and where we are increasing our spend a little bit. When it comes to our beta cell project, we will make the best decision here and certainly not the fastest decision. So therefore, we don’t give us a real timeline. When this has to be partnered, it has to be the alignment of partners who have the right strategy in mind here. And all I can say and Cord alluded to this that we find a very good momentum with many parties who understand what we want to achieve here, with this cell therapy project going forward. When it comes to our multimodality strategy, I think we have never felt so complete in being systematic, unbiased and comprehensive of what we can do when it comes to modalities. And I think when you look a bit forward, and if you would go deeper into our Innovate and also our Execute platform strategies, it’s really now connecting the dots in giving our partners the integrated ability to use these modalities in parallel and integrated fashion. I think that’s currently what we are doing. And the other priority that we have set within the company, and Craig alluded to this a little bit, is accelerating the platforms via machine learning and artificial intelligence driven technologies. And I think we are probably one of the very few companies globally, who are working on intelligence-driven and algorithm-driven drug discovery in the small molecule space, but with HAL, also in the biologic space. And these are the platforms, which going forward, I think will connect the multimodality Autobahn even better than what you can visibly see right now. And we can tell you that our partners start to appreciate every day more.

Great.

Next question, please.

And the next question is from Falko Friedrichs of Deutsche Bank. Your line is now open, sir. Please go ahead.

Thank you. I have 3 questions, please. Firstly, on the outlook for the Execute segment. Has the pandemic lead to disruptions that could impact growth of the segment over the next month and next year? Or is it not really impacted at all and should continue to grow in the double-digits? Then secondly, could you share some more color on your expectations for milestone achievements in the second half of this year? Your EBITDA guidance obviously implies a bit of an acceleration in H2. So what gives you the confident that you can achieve these milestones in order to meet your guidance? And then thirdly, given the very high interest for your Just.Bio offering, do you feel like your initial capacity plans are still sufficient? Or is the demand already much more than expected, so that you have to consider expanding capacity earlier than planned?

Thank you, Falko. Question 1 and 3, Craig will take. Question 2, milestones are scientifically driven events that are in their outcome, not predictable. That’s the only volatility that you have to accept on this and you cannot predict them on a quarter-by-quarter basis. So therefore, for us, we are completely relaxed about that situation. What counts for us is the total potential of milestone events that are coming. And here, there is, of course, a slight delay that the whole industry is suffering from right now, because there was a parallel shift of preclinical starts and also clinical starts for about 3 to 6 months, because clinical centers just didn’t open clinical trials. This parallel shift is something where we see centers opening already in the fall. That’s why we have a high confidence that some of the clinical milestones that we – or clinical events that we are expecting will happen. That’s one thing. And the other thing on the preclinical milestones achievements, we see that our platforms are operational and working, and that the multitude of milestone events is there. If biology supports these milestones, that’s always an open topic and a separate topic. But overall, that’s probably giving you a color on how we approach this question. And why we are so confident on achievement of our milestones, and with this, our EBITDA guidance.

Yeah, thanks for your question. So on the Execute segment and the outlook, I think it’s fair to say that, of course, we’re all still in certain – uncertain times. But nevertheless, we are very confident in maintaining our outlook for the year, because we see a sustained demand for our Execute services even during this time, and perhaps even in the manner of the mega trends that Werner mentioned at the beginning of the call. If anything, the global uncertainty can actually promote the use of flexibly accessible platforms that are high-quality and peer-to-peer quality with our partners. So as it stands at the moment, we feel confident in the outlook for the second half of the year and indeed into 2021, which is why we continue to invest and build and recruit and so on. So I hope that addresses your question on Execute. And then on just, of course, we’re very satisfied and pleased with the initial 12 months performance. And one of the beauties of the Just vision is this flexible and very capital efficient way to create modular approaches to biological manufacturer. And that means that in terms of current demand and modular build out, we are very closely monitoring the interest and monitoring the consumption of that capacity in advance. And as I said, the modular nature means that it’s possible for us to closely monitor and anticipate at what point any further capacity would be needed.

And maybe, Falko, to further illustrate what Craig just said on point one of your question, it’s – I think really very important to see the continued recruitment of talent. Because ultimately, you can, in our Execute business, more or less extrapolate that if we are able to recruit top talent on our platform, we will be able to translate this into revenue growth. And that’s why we are so happy that our – first of all, retention is very strong at this stage in the company; and secondly, that we are able to find excellent talent.

Perfect. Thank you.

Next question, please.

And the next one is from Victoria English of MedNous. Your line is now open, madam. Please go ahead.

Yes, I have 2 questions. One is to ask you to give us a little bit of a briefing on QUANTRO and where that fits into your – or how it fits into your drug discovery business? And the second concerns, the anti-infective, you mentioned antimicrobial resistance. And of course, we all know a lot of that is bacterial. But there hasn’t been much activity on fungal – antifungal agents, except today, when an Austrian company called F2G raised €60 million for new antifungal agent. And I’m wondering whether antifungal agents are on your agenda as well.

Hi, Victoria, this is Werner. First of all, greetings to you. Secondly, it’s great to see Austria thriving forward in biotech. With this, I hand over the question on AMR to Cord.

Yeah, so in regards to AMR, we currently mostly focus on the antimicrobials and – because, we firmly believe that this is a clear present danger to the healthcare system and that – this is a great opportunity also for Evotec here to really make a difference. And when it comes to antifungals, I would say they are in our radar, but we are not very active at this point in time here. Once again, here the current focus is clearly more on antivirals, where we also feel like we have a pretty strong presence and portfolio, and we’re continue to – would like to continue to expand this.

Okay.

Thank you. And Victoria, with regards to your QUANTRO question, I hope you forgive us and you understand that without circling back to our partners, we do not like to give more information than what we hand out in the press releases. So that’s why we are very happy that we were invited to this super technology platform. But we are not illustrating this at a deeper level right now without circling back.

Okay. Thank you.

Thank you.

And the next question received is from Ram Selvaraju of HCW. Your line is now open. Please go ahead.

Hi, this is Boobalan dialing in for Ram Selvaraju. I have 3 questions. So first of all, what are your thoughts concerning the impact of COVID-19 on the CDMO industry in general, especially comparing this quarter versus previous quarter? And what might or might not change moving forward for the remainder of the year? The second question is with respect to your R&D site for gene therapy in Austria, what are your initial and long-term expectations from this site? And third, we see that you recently participated in a financing route with respect to Exscientia. So apart from funding, where do you see Evotec’s key contribution in both near- and long-term and how do you measure the impact of your contributions on the company’s growth? Thank you.

Thank you very much. On your first question, I think the platform resilience on COVID-19 that we have seen as illustrated by Craig is very strong. And also here, I think we can highlight that over the last month, our processes has become even better, even stable, even more resilient to a situation where, for example, we would have an infection in the company and we would be affected directly by COVID. So I think here the platform has learned, the resilience is high, and most importantly, the customer demand is very strong, and we have a very good visibility here already until the end of the year and into 2021. Why? Because we have long-term contracts with an average contract duration of about 18 months and that gives you the visibility on the platform going forward. So that’s why I think the resilience of the platform is very strong already into 2021. On Evotec GT, we started this platform, basically with the core team, which used to be within Shire and then within Takeda, and it’s a fantastic group of highly experienced drug discovery and drug development people in that field. It’s about 28 talents that we were able to recruit, in total at this stage. This group from an IP perspective and also from a project perspective, at this stage has no capacity to work outside of the partnership that we have initiated with Takeda. So the strategy here is to increase capacity in the coming months and quarters. And with this then also open the portfolio to further partnerships and further R&D projects outside of the currently ongoing Takeda partnership that Cord illustrated. And on Exscientia and KPIs how we value our investments. So first of all, on Exscientia which was one of our earlier investments, we have really, I would say, a partnership in many aspects and a very fruitful exchange also of how drug discovery should progress going forward. You – we also have a joint project that we are sharing with Exscientia. So that’s a separate measure of success, and otherwise, in the long run when we look at our equity portfolio companies, these are financial investments, which have a financial return equation behind them, where our expected return equation is venture like. So that’s what we see here is the opportunity, and that’s also what we expect as the returns. And when I mean venture like, we typically look at these investments in a horizon of about 3 to 5 years as a minimum, and we look at these investments with a 5x return, also as a minimum expectation here. I hope that answers your question. And with this, I invite you to the next question.

And the last question we receive is from Chouhan Naresh of Intron Health. Your line is now open, sir. Please go ahead.

Hi, there. It’s Naresh Chouhan from Intron Health. A couple of questions, please, a bit more specific questions on COVID and the impact. So in Cyprotex, you mentioned that you had some strong growth announced despite COVID. Could it be that actually it’s because of COVID that actually you’re getting a lot of new orders on your new business? Because people are – other companies are unable to keep their labs open due to social distancing or lockdowns, and they’ve outsourced it to you because you’ve been able to keep your labs open. And therefore, is that a potential for there have been an artificial boost of sales, which may subside perhaps next year or year after whenever that might be? Secondly and particularly in the biotech space, also you’ve got big exposure to biotech arena. Are you finding that or are you seeing any signs yet that they’ve gone into cash preservation mode and a cutting back on, particularly and execute some of the things they might have done or would have liked to have done before, on maybe, let’s say, secondary asset, not the lead asset, and they’re slowing those things down and that might lead to slower revenues either in H2 or particularly more likely next year? I’m just trying to get a sense as to whether or not you’re seeing any signs of that at all. We are seeing signs of companies going to cash – particularly, biotechs going to cash preservation mode, because their clinical trials are being delayed. I would imagine that has a knock-on effect on the early stage pre-clinical, very early stage R&D side. And then thirdly, you just talked about your equity participation and how you view that as a kind of VC – as a VC fund. Would you be able to help us quantify the size of that fund and whether or not you’ve been able to assess what the returns may have or may not have been over the last 12, 18 months ago for us to get a sense of, 1, the size and, 2, how that might grow over the next few years? And that’s probably not in most people’s valuation. So it’d be helpful to get a sense as to how big that number is? Thank you.

Hi, Naresh. This is Werner.

Hi. Hi, Werner.

Question 1 will be taken by Craig. Question 3 will be taken by Enno. Let me give you my view on question 2 when it comes to cash preservation and funding cycle slowdown. We see the opposite at this stage. Why do we see the opposite, because I’m fundamentally convinced that the window opening for the healthcare industry in general is just starting. And that’s why I would not take the anecdotal things where individual companies are slowing down. If you look at the super cycle of innovation, the intention of first VC funds to put money to work in virtual companies, the intention of foundations, the intention of governments to support the healthcare innovation sector, I think has never been as high as I see it right now. And I’m in this industry for the last 25 years. So I think I would not go down that route and make the conclusion like we have seen this 12 years ago or 16 years ago, when a crisis led to an atomic winter in VC biotech funding or in IPOing new companies. And I think that’s also what you can observe on NASDAQ, that cash flow into companies via IPOs is happening. Funding rounds are happening and, yes, there might be some delays up or down. But the mega trend is I think fully intact and accelerating. So that’s why I think also our platform will benefit in the long run and not see here any knock-on effect in negative way. Maybe, Craig, on Cyprotex and then to Enno.

Yeah, hi, Naresh. Thanks for the question, yeah. And it’s an interesting thesis and I can understand why you would ask is it artificially boosted, because we are working and others are not. Basically, I can say with some confidence, because we know where the compounds come from. And we know the patterns of supply and demand in that area of business that the 8% growth that we’ve seen in Cyprotex in half 1 compared to 2019, and the fact that it’s behind the rest of the Execute segment growth, I think is indicative that we did indeed see a slight slowdown of compound supply from some of our partners that had actually closed their operations. So when they close their chemical operations, then there are lack of compounds for tests and I admit. And so, we did see that slowdown, but then we saw a very strong return towards the end of the quarter as the worst of confinement and the loosening up began. So I’m really confident in saying that the growth that we’ve seen in Cyprotex in the first half of the year is genuinely strong. And it’s actually been, if anything, blunted a little by the COVID impact.

And maybe, Enno, a few KPIs on our equity strategy, but please be short because we don’t want to overstretch this.

No, fine. Yeah, so but just generally for the structure, this is not – it doesn’t have really an own fund structure, but this is more like an evergreen fund, where we are investing from our balance sheet. And so far over the past couple of years, we have invested close to €70 million, so 7-0, into the current about 20 engagements. And for 2020, of the engagements that we have started new, plus following rounds that have been taking place and will take place, you can probably expect, in total, a slightly €30 million to be invested in engagements. Please also bear in mind, we generate quite a bit of revenues out of these engagements as well, that helps kind of building the counterpart. Activities are backed by the EIB R&D loan, because we can utilize this money also for financing these equity engagements.

Great. Thank you so much.

Thanks.

With this, if there is another question on the line, happy to take it. Otherwise, I would invite you to reach out directly to our new contact [Technical Difficulty]. But if there’s a question, please just raise it.

So we received no further questions.

Thank you so much. So Volker is looking forward to his e-mails. And with this, let me thank my team. Let me thank our employees. And let me thank you for doing the best in difficult times to make healthcare even better than it has ever been before. Thank you so much.