Evotec SE Q1 FY2021 Earnings Call

Dear ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer's request, this conference will be recorded. May I now hand you over to Werner Lanthaler, CEO, who will lead you through this conference. Please go ahead.

Good afternoon, good morning. Welcome to our Q1 reporting. It's a pleasure to have you on the phone, and it's a pleasure to guide you through our presentation acceleration on the data-driven Autobahn to Cures. When you go to this presentation, which we have uploaded on the web, and you go to Page #2, let me warmly welcome you. And given the fact that we just recently held a Capital Markets Day on April 20, we also want to invite you to look at this presentation which is also uploaded. At our Capital Markets Day we presented extensively a deeper look into our drug discovery platforms and technology, this is why today we will focus more on our ongoing business and our strong outlook for our mid-term view and the strategy. I'm here together with our CFO, Enno Spillner. If you go to Page #4 of this presentation, you will see that we had a very successful start into the year, despite the still ongoing COVID-19 pandemic, we see a strong start. Actually, it is probably fair to say that we see a very strong start into the year, which also allows us upfront to confirm our 2021 goals and also our strong long-term outlook. Page #4 highlights some individual events that are supporting our unique business model. The long-term view of our business strategy has been put together in an updated business model, which we also introduced recently, which we call action plan 2025, the data-driven R&D Autobahn to Cures. When you look at Page #5 of this presentation, and you look at some of the highlighted numbers, you will see that we had a record start into the year, and Enno will elaborate much more in detail on this. Let me guide you back for a second into our strategic outlook on Page #6 of the presentation. The data-driven R&D Autobahn to Cures has one key theme. And the key theme for us is to achieve leadership in data, science, multi-modality, and access for many people to our drug discovery platforms. The key capability that we are building is to achieve our mission with more disease relevant, significantly earlier-derived information about diseases. This is what we put into the drug discovery process much earlier than it was the case in the past. If you go to Page #7 of your presentation, you should see and appreciate together with us that this is just the beginning of what Evotec is doing. Our action plans are linked to very clear investment and return strategies that deliver significant value. We have shown this in the past, but looking forward, we are still at the beginning of what values we can create and recreate with innovative solutions that we bring to this industry. We are building the essential innovation hub within research and development within the healthcare community. On Page #8 of this presentation, you should see that we bring the power of data and platforms together. Linking our eight building blocks with disease-relevant data is essential. For this reason, you should see the symbolic importance here that we are linking these blocks with a stream of data. Many people say that data is the new oil. At Evotec, we know how to exploit this most important resource for healthcare in the future. We know how to use data for patients in the future. And we also know how to use data to create prevention systems much earlier in the management process of diseases. Page 9 indicates to you that we do what the industry truly needs. If you look at our numbers in detail, you will see that our Fee For Service-based business, our Evotec Innovate Projects, and also our Just-Evotec Biologics platform are all in full swing. Why is this so important? Because this allows us, from multiple sources, to build our long-term vision to create a co-owned pipeline where we own royalties. And if you go to Page #10 of this presentation, you should see that we are especially happy that we can monitor that the cross-selling within our increasingly integrated projects is working very well along the value chain. Our better-defined highest quality work packages are key services to our partners, which are highly appreciated. And you see, in a deeper analysis of our numbers, even increased customer satisfaction than ever before. With this, let me hand over to Enno, who will guide you into more detail of our Q1 numbers.

Thank you, Werner, and a truly warm welcome to all of you today. I hope you have a good morning or good afternoon. And I'm very happy to introduce you to our financial performance Q1 2021 on our next slides, starting on Page 12. Q1 2021 numbers show a very good 11% increase on the revenue line, substantially pushed by the development of our base business. Adjusted for FX effects, we will even recognize a 17% gain. I will come back to further analytics on the composition of our growth factors on Page 15. Gross margin amounted to 23.1%, as anticipated lower than last year, but in line with expectations. This is mainly due to the fadeout of the Sanofi subsidy for the site in Toulouse after Q1 2020 and a slightly lower level of milestone achievements. R&D expenses increased, as anticipated, by a strong 23% compared to last year's level, especially driven by further enhancing our multiple platforms and pushing our co-owned pipeline. The growth in SG&A also stands at plus 23% and relates to the targeted further organic and inorganic growth like the new business setup of Evotec GT, the integration of the acquired biopark BBS by Sanofi, and ramping up our J.POD 1 in the U.S., and so on. The other operating income turns out to be slightly above last year's level and contains two main components, basically as in all the last quarters, R&D tax credits and the Sanofi recharges for ID Lyon. All in all, this development results in an increase in our other operating results. With a total of €21.1 million, our adjusted EBITDA lands well within our expectations. I will give you a more in-depth overview of the EBITDA development on Page 16. The net income amounted to €52.7 million and benefits substantially from a one-off effect in the non-operating income resulting from a fair value adjustment of our Exscientia EVOequity engagement. Exscientia successfully closed the financing round in March, which also changed the value of our shares, resulting in a significant upgrade of the total valuation of our interest in our books. Moving to Page 13, the next slide depicts our strong base business development that leads to an overall sales growth of plus 11% versus the prior year. This is despite negative counter effects, such as the termination of the previously mentioned Sanofi Toulouse payments, a slightly lower milestone upfront and license level, and adverse FX effects. Therefore, it is particularly worth looking at the strong growth of our base revenues, which adjusted for portfolio and FX effects even grew by 28%, confirming the solid expansion of all base businesses. Margin-wise, we arrived within expectations. The decrease versus last year is explained by the same effects as just described for the revenues. Adjusted for the Sanofi effect, the actual margin would be virtually on the same level as in the prior year. Looking at the two segments on Page 14, both continue to grow and perform well as planned and anticipated. Year-to-date, Execute revenues, including inter-segment revenues, amounted to €137 million coming from €118 million in Q1 2020. This is driven by two factors: an increasing demand for integrated offerings and a strong base business. The Execute gross margin for Q1 2021 was 21.4% and thus below last year's level of 29.3%, which benefitted from the last Sanofi Toulouse payments and the Bayer milestone recognized under Execute at that point in time. The adjusted EBITDA came in at €28.3 million, significantly below last year's level for the same reasons as just described for the gross margin line, plus recognizing higher SG&A costs obviously. Innovate Q1 revenues amounted to €28.2 million, which is an excellent 21% above last year due to higher demand for precision medicine, reflected by expanded existing as well as new partnerships. Innovate's total R&D amounted to €18 million, which is 12% above last year, once again confirming our continued investment into innovation projects and sustainability. The Innovate adjusted EBITDA was negative, but within expected ranges and amounted to minus €7.2 million versus last year's minus €5.4 million. The main reasons were the anticipated increase in R&D and SG&A investments. Looking at the year-on-year revenue development on Page 15, the increase is completely driven by our very strong plus 26% organic growth of the base business reflected in a €28 million step-up versus last year. This is another proof of our continuously high revenue quality coming from our sustainable repeat business, and together with our long-term partners. The portfolio development is solely driven by negative effects from the end of the Sanofi Toulouse payments after March 2020. Mostly due to the weakening U.S. dollar against the Euro in Q1 2021, revenues were also negatively affected by a currency effect of minus €6 million. This means that the overall sales development at constant 2020 FX rates would have been even better, namely ending approximately at €139 million. Moving on to Page 16. This EBITDA BRIDGE once again visualizes that its development was negatively impacted by the anticipated portfolio effect, also, and the same as with the revenues and negative FX effects coming from a weaker U.S. dollar in Q1 2021 compared to Q1 2020. Netting out these two factors, Evotec shows once again an organic increase compared to 2020, despite ongoing COVID-19 challenges and a slightly lower contribution from milestones. In the end, the achieved €21.1 million lies within our estimates as expected. Page 17 summarizes Evotec's very solid and sustainable non-P&L related financial KPIs in an unsteady market environment. Higher CapEx is one main reason for the balance sheet going up 8%, and another reason for the step-up results from the aforementioned valuation increase of our Exscientia Holding. In addition to the balance sheet increase, the equity ratio steps up to slightly more than 50%. The net debt position, including IFRS 16, shows an excellent ratio below a factor of one. These factors together indicate sufficient headroom and flexibility to further invest into organic and strategic growth, and also with additional debt capital if required or needed. Total liquidity decreased to €460.6 million at the end of Q1, mainly driven by expected CapEx investments to support and secure growth projects such as the J.POD 1 as well as general expansion of our capacities across most sites and countries. Further engagements into new and existing equity holdings also require additional liquidity. Overall, these numbers reflect a stable and very solid position, which we feel very comfortable in meeting and fulfilling our ambitious goals and targets for 2021. And with this, I complete the financial overview and hand back over to Werner, who will guide you to other operational insights. Thank you all.

Thank you very much, Enno. Let me give you just some brief highlights of our scientific and operational performance in Q1. If you go to Page #19, you should appreciate the picture of our iceberg of opportunities that we co-own. The vision of creating a long-term pipeline of product opportunities is growing steadily, and it's growing at a fast pace. We saw a very good news flow from our partnered co-owned pipeline in Q1. But we believe that with the reopening of many clinical centers, there will be even increased activity of development work within our ongoing partnerships. With this, we also think that there will be some very positive momentum towards the middle of the year and into the second half of the year, when it comes to our co-owned pipeline, which also results in our milestones expectation. If you go to Page 20 of your presentation, you should see again the core theme of our action plan 2025. Molecular patient data is redefining health and disease. You will hear this from us over and over again because it is essential to shift the paradigm of drug discovery and drug development into the future. With our panOmics and panHunter platforms, we have established the best data generation and also the best data analytics platform in the industry and have started to combine these platforms with multiple data sources within the community. Most of these projects are currently still ongoing within Evotec, and we have not even started to reach out to our partners. So that's why the business development process of this platform will be initiated along action plan 2025 in the coming years. If we go to Page 21, you see that the value of data is increasing exponentially. The more data you can generate and the better you can handle data, the more we can improve the quality of the starting point for drug discovery and development. We are creating much better starting points for novel drug developments than ever before. Page 21 highlights one part of our activities in the field of kidney and liver diseases. We are building the most comprehensive starting points in the industry, which has already resulted in multiple partnerships in this field. This is only an example of what we are doing in many other disease areas as well. On a flashlight level, I would also guide you to Page 22, highlighting that we are taking a very long-term systems approach to the rapid development of biologics. Why is this so important? Because more access to biologics will be essential for many disease areas, including infectious diseases in the future. Our Just-Evotec Biologics initiatives are ongoing here at full speed. We see for J.POD 1 in the U.S. a very nicely growing order book. And we have also started to see very good traction on our recently launched J.HAL machine learning and AI prediction platform. With this, I think it is fair to report back that we are on full track to launch new platforms in our biologics world. But we are also on full track to launch the commercial facility J.POD 1 U.S. in the second half of '21. We are building J.POD 2 in Europe as we speak. So we have started this initiative even before J.POD 1 is fully operational. Why? Because we see an extremely strong demand coming in the next decade for novel biologics. There will be a very important feature within J.POD 2 that we are preparing for commercial manufacturing of antibodies and biologics; we are also preparing here a commercial process for cell therapy products. If you go to Page 24, you should see that our translational strategy from academic institutions is in full swing. beLAB2122 and beLAB1407 exemplify our recent initiatives. The rollout strategy of our translational BRIDGEs between academia and Evotec platform going forward into the industry is fully ongoing as we speak. We are very happy to see that our global rollout strategy is gaining momentum also with the support of our partner BMS in the recent BRIDGEs that we have launched. When you go to Page #25, you should see that a BRIDGE project is very often only one data point away from a successful company formation. With this, we are preparing our BRIDGE projects to be the companies that we co-own in the future. Our existing portfolio, which you see on Page 25, is doing very well at this stage, and we expect very good news flow out of many of the companies that we are currently holding in our operational VC portfolio in the near future. Going to Page #27, let me bring you into a more corporate theme, which is very important to our heart and to the planet. We were very clear when we started our ESG initiatives in the past two years. This is for us much more than lip service. And you can see and you will be able to measure this very soon. Our first steps to reduce emissions have taken place, and we have made all organizational alignments group-wide to include ESG topics also for the personal goals of many of our employees. It is important to drive ESG initiatives from the top down into not only the minds but also the daily reality of employees because that's what makes the company better, but that's also what makes the daily performance of our scientists and employees better. If you go forward to Page 28, we can confirm that we see a strong year ahead based on a very strong long-term plan. We can confirm our Group revenues expected somewhere between €560 million and €570 million. We can confirm our EBITDA somewhere between €105 million and €120 million, and we can absolutely confirm that we are accelerating our R&D investment for further high-value generation within the company. This gives you on Page 29 also a very good look into our long-term financial goals of how we are building Evotec. And this shows you a strong company, growing strongly on all aspects that define Evotec into the future. With this, and Page 30 indicating to you that we are just at the beginning of this year, but also the beginning of our long-term strategy, you can expect strong news flow to continue. And we want to invite you to follow us throughout the year. Thank you for dialing in today, and we look forward to your questions. But more importantly, please mark your calendar with what you see on Page 31, the important dates to come. With this, we open the line for questions, and we thank you very much for following Evotec.

First question is by Ram Selvaraju of H.C. Wainwright.

Hi. This is Boobalan dialing in for Ram Selvaraju, and thanks for taking my question. I would like to ask three questions. And maybe I'll begin with the OxVax collaboration. Could you provide additional details regarding the nature of the collaboration? And do you anticipate playing the role of a strategic partner, in addition to being an investor in this? That's the first. And then the second question with respect to your collaboration with BMS regarding the targeted protein degradation pathway. This is really exciting. Just a few clarifying points on this front. First, why did you choose to go with the degradation strategy versus developing inhibitors that would block the functional activity of the enzyme? And secondly, the degradation of an entire protein could cause toxicity, which may be difficult to predict in advance. So what are your thoughts on this based on your own experience? And the third question with respect to EVT801, can you please remind us once again why Sanofi chose not to proceed forward with the molecule and also what are your expectations from your current partner Kazia Therapeutics? And when do you expect clinical entry for EVT801? Thanks so much.

Thank you. Thank you for dialing in from New York City. Good morning to you, so to say. On OxVax, we are very intrigued by this academic project, which resulted in a small spinout initiative, because of the broad potential usage of iPS cell-derived elements on the platform strategy that could be complimentary to what we are doing in our iPSC world here within Evotec. So you should look at us here as an operational synergy-seeking investor supporting and leveraging the idea behind OxVax, which of course is perfectly leveraged through the assays that we have generated here at Evotec on our iPSC platform and what we have been doing for the last eight years on creating this induced pluripotent stem cells. Having said that, we really look at academic findings here also to round up our iPSC platform with every potential edge that we might not have had. Having said that we believe that we have by far the most robust and best iPSC discovery and development platform in place right now in the whole industry. If you touch on our for more than three years ongoing partnership in protein degradation with BMS, it is first of all fantastic to see that BMS has extended this partnership. And it is also fantastic to see that we are using a comprehensive way of exploiting protein degradation molecular blues on a mass spectrometry platform, which is unparalleled in the industry. Unfortunately, coming to your question one and two, I cannot disclose any details of this collaboration which goes beyond what we have told the public in the press release, because we never do this without the permission of our partner. So sorry about that. When it comes to EVT801, we are very happy that our partner Kazia showed fantastic scientific insight into this molecule, and with this also a very good development path forward, which we shared with them where we agreed with them. This is also the reason why we formed a partnership with them where we expect the clinical start by the end of 2021 or beginning of 2022. So relatively soon, and here all preparation work for that is in place. That's why an optimal synergistic collaboration came together: biology from Evotec, development experience and expertise by Kazia from a molecule that came to our portfolio through the transaction, which we did about six years ago, when we took over the site in Toulouse including the oncology portfolio, which was still active in Toulouse and where we have progressed some of the assets forward. EVT801 is one of them, which now came into the partnering stage about five years after we took over that molecule. With this, I hope I answered your questions, and I'm happy to take the next question.

The next question is by Christian Ehmann of Warburg Research.

Hello, and thanks for taking my question. Congratulations on a good quarter. I have a more technical one or two at least. So on the operating income, the net at least, can we extrapolate from the current levels which you have shown for Q1? Can we extrapolate those for the whole year? Or what do you expect in the next nine months in this regard? And my second question would be what do you think would be good investments or strategic additions to your current portfolio? Thank you very much.

Let me address your second question by saying that when we created our Action Plan 2025, it was a company-wide initiative that focused on leveraging our strengths for future growth. We have felt very confident in our strategic plan, which has emphasized expanding our organic platforms. Currently, we are beginning to see the benefits from several add-on acquisitions made since 2010, such as DeveloGen in the metabolics space, which significantly enhanced our capabilities, and Kinex, which strengthened our proteomics platform. Over the years, we have also integrated many iPSC protocols, which were industrialized between 2012 and 2014. The long-term impact of these smaller acquisitions has been very positive in completing our platform, which aligns with our commercial vision. This has been complemented by our collaboration with Aptuit, our development arm for small molecules, providing comprehensive commercial material, and Evotec Biologics, which offers not only a machine learning platform for biologics projects but also the capability to produce commercial material. Everything is coming together nicely across all modalities and throughout the entire value chain. We have also strengthened our platform with the best safety standards by acquiring Cyprotex for toxicity prediction and analysis. To sum it up, we feel very confident in our current platform. We are directing most of our resources towards organic growth, which is why capital expenditures are increasing, primarily driven by J.POD investments. The rest is focused on R&D projects with variable costs. Are we ruling out future acquisitions? No, not at all. However, we have never been more comfortable with the organic investments we can currently make. With that, I’ll turn it over to Enno to discuss the operational income.

Yes. Hi, Christian. Pleasure having you on the call.

Hi.

The key factors we have in these areas include R&D, SG&A, and other operating income, which can be divided into two main components: tax credits, as we have observed in previous years, and reimbursement from the Sanofi infectious disease unit in Lyon. These components will remain consistent. The reimbursement is expected to remain fairly stable, while tax credits should increase slightly over the upcoming quarters. As our organization expands, we will see minor parallel movements in SG&A, and R&D will stay relatively stable. Essentially, you can use the first quarter as a reference. However, we cannot predict any impairments or other activities that could introduce volatility in this regard.

Thank you so much.

Thank you very much.

And regarding the handbook, please proceed to the next question.

The next question is by Falko Friedrichs of Deutsche Bank.

Thank you. Good afternoon. Three questions, please. Firstly, on the beta third line, beta cell project, and could you provide an update on the partner in process for the compound? When can we expect the decision here? Then secondly, on data, and you mentioned it a few times in your presentation that you have this increased focus on data? Are you also thinking about or working on ways to monetize your data sets more going forward? And then thirdly, on Exscientia, it sounds like they're making a lot of progress. Will you be able to integrate some of their artificial intelligence processes into your own processes at some point? Will they just remain more of an investment for you going forward?

Hello, Falko. Thank you so much for the excellent questions. Question one, on our CureBeta initiative. I think we are very happy at this stage with the progress of CureBeta and all our cell therapy initiatives. Let me also highlight here that we have increased our portfolio on cell therapies with opening a partnership with UKE on cardiomyocytes and cell therapies for cardiomyocytes. With this, we are at this stage progressing CureBeta on our own platform at full speed. The beauty of our own platform is that every technology and everything that we need to progress CureBeta into clinical stage at this stage is anyways happening on Evotec's platform. So independent of who would be our partner, the cells would anyways have to be made at Evotec and also scaled up here would anyways have to be made at Evotec. The next piece of information, which is absolutely relevant here is that the commercial scale-up process for these cells will be made within Evotec, namely just Evotec Biologics platform. We see the full synergy of the platform and CureBeta as a project, which is gaining momentum every day. We are in discussions at this stage with pharma partners and we are considering all options at this stage, whether it be giving out a license, creating a company, or keeping the project into combining it with other initiatives like the cardio initiative, still a bit longer on our platform. We have the full R&D funding behind that, which is also why we want to have the optimal solution for this project and not only a short-term solution for the project. But most importantly, all data that has to be generated is going at full speed, and actually going very well. When it comes to monetization of data, we are already in the middle of it. Why do I say this? When you look, for example, at recently announced partnerships with Novo Nordisk, or with Chinook Therapeutics, where the starting point for these partnerships is really coming from the data mining that we can do by accessing, for example, our NURTuRE database for kidney diseases. That's really where the starting point of such a drug discovery partnership is so early that we are starting together with our partners to mine the data and then define drug discovery starting points that we then define the path forward for the molecules. For example, we were able to generate significant upfront for these partnerships, which fortunately we didn't disclose, but it is very relevant and shows you that the pure data generation and data analytics that we can provide behind NURTuRE allows us to monetize this capability within Evotec. This is just the beginning, again, of what you will see not only out of NURTuRE, but also other disease areas where we have started to build these datasheets. Most importantly, where the tools, so panHunter and panOmics tools are basically exercised and trained and getting better every day. For example, our recent expansion into liver diseases is here a very important point, because I don't know of any other company that has such an unbiased well-structured platform with data generation and also analytics tools available like Evotec at this stage. This is really for us not only long-term but also high-value activities that we are providing here. When we monetize that is not that relevant because this data becomes more valuable every day the more we put data behind also drug discovery targets and make them better. Your third point on our equity portfolio, one company in there is Exscientia which is progressing extremely well. Let me highlight that we have a joint venture with Exscientia where an A2A antagonist has entered into the clinic, which was really built together and then very fast on our platforms and their platforms to progress to the clinical stage. Here you see the synergistic use of their technologies and our technologies which is ongoing on multiple fronts. There is also financial interest because we are a key shareholder in Exscientia, which is also long-term, I think, a very valuable investment for our shareholders. With this, let me also not be here incomplete. What you should also see is that all machine learning in AI tools are, of course, at Evotec, fully in swing, and we are building this more comprehensively than many other companies can ever do this because we can fully integrate this into multiple projects. I mean, we are very pronounced on the power of HAL, our J.HAL machine learning tool, because here creating antibody libraries with AI and machine learning tools is really fascinating to see how efficiently we can with in vitro tools go much faster and with in silico tools go dramatically faster than we ever thought. That's why we are applying and generating AI and machine learning tools in small molecules, large molecules, also on our own platform and bringing this into our partners. Sorry, again, a too long answer for three short questions. With this, best regards to you, Falko.

The next question is by Charles Weston of RBC.

Hello. Thanks for taking my questions, which are probably more for Enno. Three, please. First of all, you helpfully described some of the movements in EBITDA margin within EVT Execute from Q1 '21 from Q1 2020. But could you give us an explanation as to why the margin dipped so much from Q3 and Q4?

Yes, Charles, you're very hard to hear. Is that better?

Yes.

Sounds better.

Thank you. Sorry about that. So, perhaps why Q1 EVT Execute margin was lower than Q3 and Q4 of last year. It clearly seems to come down to gross margin, and perhaps a bit of an explanation on that, please. Secondly, and perhaps related, could you quantify or just quantify the pre-opening and opening losses that you'd expect from a J.POD in the lead-up to when it opens and in the early days before it builds much revenue? And then lastly, on Exscientia, you've obviously booked a nice uplift. The company did a Series D round in April, so will there be another valuation update in Q2, please?

Yes, Charles, pleasure to take your questions. Let me start with the EBITDA question first. If I understand correctly, you are asking comparing Q4 of last year, basically against Q1 of this year. Maybe the additional hint that you're looking for, which makes a difference that you may recall our Merck collaboration, which we announced in early of last year for the J.POD activities in the U.S. where we received the upfront. The respective accounting for this had to be adjusted in context of our annual reporting, shortening the overall revenue recognition period down to 2 years coming from roughly 2.5 years, which means we had to adjust for the full 2020 or the quarters. Obviously, we had to recognize this in Q4 only. That is really the major differentiating factor that makes the delta in Q1 against Q4 and that's probably what you're looking for. On the …

Can I just ask?

Sure.

Appreciating a bit stronger, perhaps because of the Merck accounting, but …

It's very hard to hear you. May I direct you to Enno for that question, as we may not have clarity on the answer. Did you receive questions two and three, Enno?

Yes. So to maybe to start with the Exscientia first, on the last one, here. Yes, as we indicated also in our subsequent section basically of our Q1 report, we are expecting a further uptick in the variation of our assets in context of the second round that took place. So the Series C of Exscientia was in Q1, in March, and there's a new Series D basically happening or happened in April, which we then will adjust and report about. And with regard to the uplift, we do not expect any ramp-up losses from the J.POD part, but do expect basically breakeven or slightly positive contribution immediately from the start once we are getting operational.

Thank you.

Thank you, Charles. Sorry for the line issues, and let's try to connect on a better line there. Hope to see you soon again. Next question.

The next question is by Victoria English of MedNous.

Yes. Werner, in your opening remarks, you made a general statement about the goal of the company to create a co-owned pipeline where you own the royalties. I was wondering whether you meant own or co-own the royalties.

So the royalties we will own. Let me just give you an example. We have in our at this stage, Phase 2b portfolio a compound with Bayer, P2X3, where we expect strong clinical news flow in 2021 and 2022. This would be then, for example, the first product which could be out of that collaboration on the market in the year 2024 or 2025. That would be then a royalty rate, which we could collect, where there are no costs against that, which would fall basically directly on our EBITDA line. That’s the way it’s organized. That’s only one example, out of more than 100 at this stage co-owned situations. There are also other co-owned situations. For example, when we at this stage co-own, let's say a company called Breakpoint, then we have typically not a royalty on the product, but then we have co-ownership in the company. We also have situations where we co-own a product and co-own a company. That’s why it is really the whole idea of creating the long-term royalty pool through situations where we want to benefit from the upside, and the inventive steps that we bring to products together with our partners. If you think through this over time, you end in a situation where you will have multiple sources out of multiple business models, these royalties coming into the company. The next question is how to optimally use them. But we have plans here, but we are not disclosing them yet because that’s a few years to come. Importantly, within actual time 2025, we at this stage don't assume significant royalties to kick in, but that will then be beyond 2025, which again, we hope to boost our EBITDA very nicely.

Yes. Can I just have one follow-up question? When you were talking about the role that you anticipate playing in creating new companies what you've already done some, but you were specifically talking about the bridge between academia and commercialization? Have you worked out what the ownership is of the intellectual property in these cases?

Yes. That's a super question. Thank you so much. I think that is one of the blueprints that we established very early on when we started the first BRIDGEs, for example, with Oxford University Lab 282, now four years ago, where we really spent a lot of time with the tech transfer offices, with the PIs, on how to handle publication strategy, how to handle tech transfer strategy, how to handle IP filing, and who at what moment in time is then benefiting from what level of ownership and how this is transferring. The way that it works is probably best proven by the fact that this model has been successful in Oxford, and we have really rolled it out to more than 10 different places where we are basically applying always the same principle. With this, it seems to really globally work and find the satisfaction of scientists who have to publish tech transfers. We have to file IP and we have to have IP before we can start with drug discovery projects to then bring them into situations forward. I can’t provide exact details since we keep this as our BRIDGE secrets, but it's working, and that’s why we also think that it will not be the last BRIDGEs that you have seen.

The next question is by Joseph Hedden of Rx Securities.

Good afternoon. Thanks for taking my questions. Similar to Victoria's in a way, on these most recent BRIDGE collaborations beLAB1407 and 2122, in terms of IP ownership and then who has the ultimate control with these two and one with Sanofi before you have a pharma partner involved at the outset who's pumping in some significant funding. Is there a template for ownership and decision-making in terms of is it going to be a spinout company, if you have an exciting program? Is it going to be licensed by the pharma partner? Can you give us any color on how your decision-making process evolves?

Thank you very much. To elaborate further, a crucial element of these BRIDGEs is to rapidly create unbiased and valid data points regarding costs. The overarching principle of these BRIDGEs is to establish a consistent blueprint and to ensure as much speed as possible while minimizing complexity for rights to reach a valid data point that indicates the next steps. I emphasize this because the initial experiments in the BRIDGE project are usually small-scale validation experiments based on prior academic trials. Considering that fewer than 50% of all academic experiments can be fully reproduced in industrial settings, it becomes clear that investing heavily in IP protection, licensing, and co-ownership arrangements prior to conducting experiments would be unwise. This is one guiding principle. The second principle is that there is a licensing agreement from the academic institution to the BRIDGE, but no rights granted to any pharmaceutical partner, even if they provide funding. The partners collaborating with us benefit from access to a wealth of information and productive discussions on various projects, which can lead to the formation of venture capital, as seen with Dark Blue, where we consolidated multiple assets from BRIDGE projects into a specialized oncology company. Alternatively, some projects may fail due to cost issues, but that is the advantage of the BRIDGE model. It represents the most capital-efficient translational tool in the industry, allowing every academic partner to conduct experiments on the same platform that will be used for their eventual exit. Currently, Evotec is collaborating with all of the top 20 pharmaceutical companies. This validated data point simplifies future acquisition or licensing processes for potential products, effectively diminishing concerns about the validity of the data and generating positive momentum for these projects. That summarizes the BRIDGEs in greater depth, and you can expect to see more developments on this front.

Okay. Thanks for that. And just one on CureBeta, if I may. You spoke about good progress. I think previously, you stated that still needed an external partner to provide the delivery technologies for the cell therapy. Is there any update on how progress is going there?

So, we are at this stage developing two paths forward. One is with external devices. We are evaluating several device strategies on the cells. We are also evaluating cloaking technologies, which would be long-term, potentially even device-less. All these experiments can and are taking place on Evotec's platform, which allows us ultimately to then pick the most valuable strategy to move forward. That is ongoing as we speak.

Okay. Thank you very much.

Maybe one further piece of information. We took a co-ownership in a company last year called panCELLa, which is a company really focused on providing cloaking technologies, and also delivery technologies for cells. So there's a very good operational dialogue and potential synergy coming together here.

The next question is by Alex Cogut of Kempen.

Hi, guys. Thanks for taking my questions. I’ll be brief. I was just wondering what’s the latest status on iPSC candidates entering the clinic? I believe previously you mentioned you expect a neuro candidate from with BMS entering in 2021 and similarly in the diabetes program in 2022. And then just a second question on Eliapixant. If you have some updates on the clinical progress there, and what are you still expecting the Phase 2b trial to be recruited in Q4 of this year in recurring costs? Thanks.

On all three fronts, I can share very positive news that we still expect our first iPSC-derived novel target in the clinic from the iPSC collaboration either in the middle or the second half of this year. This looks very promising, as it will not only validate a novel target but also the platform behind it. We are progressing on the cell therapy project, evaluating various paths forward, all aiming for a clinical entry as soon as possible, but that will definitely not be in 2021. Regarding Eliapixant, we are pleased with the advancements thanks to the opening of clinical centers, despite some ongoing delays from COVID-19. Our partners are making significant progress, particularly in refractory chronic cough, moving the first development candidate into the clinic, with fast recruitment. We expect the timelines to remain unchanged, with data anticipated in the second half of 2021 or early 2022, which will then transition into Phase 3 for Eliapixant. Refractory chronic cough will be the first indication, and there are at least three other indications already being prepared for market entry with that compound.

Yes, that's great to hear. Thank you, Werner.

Pleasure. With this, next question, please.

There is another question by Naresh Chouhan of Intrinsic Health.

Hi, Naresh. You’re on. Hi, there. Thanks for taking my questions.

Sure.

Could you provide more details about the technology behind the cell therapy build-up? There is clearly significant demand, and we’ve observed other companies making some sales in this area. However, many platforms still require substantial human involvement in the production process, particularly with cell therapies like CAR-T, which limits scalability. Have you found a way to automate this process? Additionally, you have some technology that seems to be progressing well in this regard. I'm interested in how you plan to compete in this space. On another note, as biotech companies become better funded and are able to license more assets, such as the Kazia deal, can we expect Evotec to take on a larger role in clinical development going forward, particularly as a key partner? Also, if that is the case, should we anticipate a growth in clinical development teams, including a Chief Medical Officer and more personnel? I’d appreciate your insights on how you foresee that segment of the business evolving. Thank you.

Regarding the industrialization of our cell therapy platform, it is important to note that Evotec has been at the forefront of developing cell therapy scale-up technologies for many years. If you ever have the chance to visit from London to Hamburg, I invite you to see how we have implemented automation for our cell therapy assays. This is crucial because maintaining consistent quality in cell production is essential before scaling up processes. First, stable cell lines must be available for scaling. Additionally, we need manufacturing systems that can transition from smaller to larger quantities of cell therapy. Our modular pod-like system, supported by our Just-Evotec Biologics technology, is uniquely designed to facilitate this process while ensuring both stability and scaling into continuous processes within the pods. This presents a unique opportunity to advance commercial-scale cell therapy projects. What makes this even more special is that we have proprietary cell therapy products in-house. For example, our CureBeta project showcases how we can scale up and maintain full quality control without relying on external providers, and we are expanding this capability for other partners and technologies. Recently, we have also ventured into exosome technology, addressing the challenge of scaling exosome manufacturing processes. For instance, through our spin-out company Curexsys, we exemplify the technology platforms we have developed to manufacture both cells and exosomes. We have established significant capabilities in this area. Additionally, within our nearly 4,000 scientists at Evotec, we possess a strong group with clinical and regulatory expertise, which is vital for projects requiring substantial regulatory guidance before moving into clinical trials. Our offering package, INDIGO, consolidates all stages from preclinical development to clinical entry, providing a comprehensive framework that includes biology, safety, and regulatory considerations. We are witnessing a significant increase in demand from biotech companies that lack dedicated clinical teams and are turning to us for INDIGO packages. We are already executing this with several projects, particularly in small molecules, and are also preparing INDIGO packages for biologics. The synergy with trust in this area is promising. However, we do not intend to take on clinical development risks directly; our strategy focuses on enabling others to advance clinical assets while we co-own those assets.

Great. Thank you.

Yes, pleasure. With this, if there are no further questions, or if there are further questions, please make a sign on your keypad. I wait because it looks like there are no further questions. With this, let me invite you to raise every question that you might have and contact us directly. We are happy to give more information where needed and where wanted. Let me thank you again for following Evotec, and let me wish you the very best for your day.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.

Thank you.