Evotec SE Q3 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. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Werner Lanthaler, CEO, who will lead you through this conference. Please go ahead.

Thank you so much. This is Werner speaking from Evotec. Good afternoon and good morning from sunny Hamburg. We are here presenting to you the nine months results of Evotec, which we have highlighted under rapid progress on the data driven Autobahn to Cures. We have uploaded a presentation for your convenience, and please follow this presentation throughout this 35 minutes that Enno and I will conduct for you. When you go to the first page of this presentation, you should see that I'm here together with Enno, our CFO; and Craig and Cord are also on this call and they will be happily answering questions after the initial presentation. When you go to Page number 4 of this presentation, you should see that we are in a strong position. Actually, it's maybe fair to say that the company is in a very strong position. Why do we say this? Because the overall performance on all names of our data driven R&D Autobahn to Cures is strong. Yes, it's very strong. Q3 shows many important and consistent steps forward. So overall, we see our EVO Innovate base business, sorry, our EVOiR&D base business in a very strong shape. We see positive momentum across all business lines. And we already see very good business momentum into 2022 and given the long-term nature of our contracts also into '23. Page 4 also shows you some single events that I want to highlight that are supporting our unique business model. Let me highlight here. For example, the recently announced clinical start with our partner BMS, with a highly innovative target in neurodegeneration. Let me also highlight here the progress that we made overall in building our EVOroyalty pool with multiple clinical events that are either showing even more visibility towards the market, like there with our P2X3, or JingXin Pharma by going forward into market registration in China, or by Kazia partner working in highly innovative oncology indications coming from Evotec's target that we have built here. There are not many lowlights that we want to mention, but of course, we also are suffering a bit from ongoing supply chain issues and ongoing, I would say, stagnation in the overall flow of products amongst our network. If you go forward, let me show you our numbers of the full year so far and of Q3 in detail where you see that we can happily confirm our full year guidance and also have a very good increased visibility to our overall strategy Action Plan 2025. So also, here we are concerning our aspirations from Action Plan 2025. Enno will give you more details on all of this later. Page 6 highlights that we completed our NASDAQ listing. Is this an IPO, is a secondary listing? It's a bit unclear because, as you know, Evotec was listed about a decade ago, Evotec is a public company for many years already. It doesn't matter. We are so happy that we made a fantastic debut again on NASDAQ and we are so happy that the investors who followed us are exactly the group of investors who we wanted to target to achieve certain goals. Why do I say certain goals? Because we were very clear with our use of proceeds that we want to raise and that we want to use. Because you will see after making very clear statements why we went public, action will follow, and action will follow in the direction that we want to expand and scale up the global presence of our network of J.POD. We want to expand our precision medicine technology platforms, starting with our world-class pluripotent stem cell platform, expanding our protein degradation platforms and massively upscaling our patient data generation analytics and generation platforms Panomics and PanHunter which are coming on top of building molecular patient databases, which are fundamental to our long-term strategy. And also, we will continue to invest in our unparalleled R&D in building the best platforms but also accelerating the asset building on our platforms. And on top of that, we will even go deeper and broader in our EVOequity strategy, which we have also announced behind our NASDAQ listing. With this, again, let me thank you for allowing us to step to a global presence of Evotec. And with this, also, let me introduce to you Enno with our detailed look into the numbers of Q3.

Thank you, Werner, and a truly warm welcome also to all of you from my side. Good afternoon or good morning, respectively. And let me start; I’ll continue on Page number 8. Here with the nine months 2021 numbers, which show an excellent 20% increase on our revenue line. This is substantially pushed by the positive development of our base business and the realization of two BMS milestones in September 2021. Adjusted for the FX and for portfolio FX, we would even recognize a 26% gain in revenue growth. The gross margin amounted to 23.1%, lower than last year's 24.7%, which is mainly due to the aforementioned end of the Sanofi subsidy for our site introduced after Q1 2020 and adverse FX effects in 2021. If adjusted for both respective FX, the gross margin year-to-date 2021 would come in at 24.6% versus 22.9% in 2020. The planned increase in unpartnered R&D expenses by 28% leads to a 16% growth in the overall R&D expenses. This development is especially driven by further enhancing our multiple platforms as Werner just indicated and accelerating our co-own pipeline. The increase of 20% in SG&A expenses versus last year is mainly caused by increasing headcount and costs for our secondary NASDAQ listing. The rise in this position in January reflects our continuous growth efforts, for example, for ramping up our new operational J-POD in Redmond, U.S. and enhancing ongoing integration tasks and ensuring overall growth opportunities. The other operating income stands slightly above last year's level and contains two main components, essentially reported in past quarters and past years. A, R&D tax credits, and B, the recharge for our infectious disease unit in Lyon. All-in-all, this development results in a plus 3% increase for this other operating income. With a total of EUR 70.1 million, our adjusted EBITDA lands well within our expectations. The net income amounted to EUR 247 million and benefits substantially from a very positive one-off effect in the non-operating income, resulting from a sales value upgrade of our Exscientia Evoequity engagement due to recent IPO prior to our own IPO in the U.S. Moving to Page number 9. This slide depicts our strong base in this development leading to a 15% overall sales growth and this despite negative portfolio and unfavorable FX effects as already indicated before. Therefore, our base revenues adjusted for these two FX year-on-year even grew by 22%. Margin-wise, we arrived within expectations, which was also supported by the successful realization of significant milestones as mentioned earlier. The margin decrease versus last year is triggered by the same effect as just described for the revenues plus additional ramp-up efforts and costs for our J-POD in Redmond, U.S. and this in context obviously of preparing the successful launch of this new site. Moving on to Page number 10. Taking a view on the single Q3 results illustrates the accelerated growth we have realized in this particular quarter. The 23% growth in revenues has been pushed by a strong milestone contribution, but also by our growth areas, such as Just-Evotec Biologics that contributes an additional 11.7 million in revenues in that quarter. The gross margin comes in at a good 27% and would even exceed last year’s 27.9% if adjusted for the already mentioned adverse FX effects. R&D expenses grew by 11%, SG&A expenses grew by 14% to support operational and financial growth. The major part of the unbudgeted costs of this listing will be accounted for in Q4, however. All-in-all, the EBITDA was up 14% versus last year and would have increased by 19% if adjusted for the mentioned FX effects. Moving to Page 11. Looking at the two segments, both continue to grow and they both perform very well reflecting a broad-based business and broad growth of Evotec in total. Year-to-date, the execute revenues including intersegment revenues grew by 17%, coming from 367 million in the first nine months of 2020 and this is further driven by an increasing demand for integrated offerings under our EVOiR&D measures, and also strong demand for the base business. Nine months 2021 Innovate revenues amounted to 102 million, an excellent 36% above last year due to the continued high demand for precision medicine, also reflected by the expanding existing and several new partnerships. Also due to the realization of substantial milestones in Q3 2021. Innovate’s total R&D amounted to 60.4 million, which is 21% above last year, underlining our continued investment and commitment into innovation projects and long-term sustainability. Moving to Page 12. Looking at the year-on-year revenue development, the increase is mainly driven by our significant plus 26% organic growth of the base business reflected in a 90 million step up versus last year. This is further evidence of our continuously high revenue quality coming from a healthy mix of our sustainable repeat business with our long-term partners and strong additional demand for our EVOiR&D offering. Mostly due to the on-average weaker U.S. dollar against Euro in the first nine months of 2020, revenues were negatively affected by a currency effect, which is in total minus 11 million and thus at constant 2020 FX rates sales would have ended even better at approximately EUR 442 million. Page 13 summarizes Evotec's very solid and sustainable non-P&L related financial KPIs. The balance sheet is going up 21%, mirroring the ongoing dynamic growth also in our assets here. Trade accounts receivables that could be kept on a very reasonable level leading to an improved DSO figure, and DSO stands for days sales outstanding. In addition, the equity ratio steps up to a very good 56% and also the net debt position including IFRS 16 shows an excellent ratio factor of 0.8. These factors together indicate plenty of headroom and flexibility for further investment into organic and strategic growth. Please also bear in mind that the aforementioned KPIs are before our NASDAQ listing from early November 2021, which will lead to even better ratios and significantly increase our liquidity position as well as strengthen our balance sheet total. Total liquidity decreased at the end of Q3 to 418 million, mainly driven by the expected CapEx investments to support growth such as the J-POD in Redmond, the ramp-up of the second J-POD in Toulouse, where we are already starting to work on, as well as general expansion of our overall capacities across all sites. Furthermore, Evoequity engagements into new and also into existing equity holdings require additional liquidity, where we keep investing. And with this, I will hand back to Werner. Thank you.

Thank you, Enno. With this, let me take a short step back first before we go forward. A quick reminder of the cornerstones of our strategy, because it is important that you see that all pillars that power our innovation hub are coming together extremely nicely at this stage. Our integrated EVOiR&D is going forward and delivers more projects than ever and with this, we come to scale and scale effects in our business. Our precision medicine platforms, EVOpanOmics, EVOpanHunter, and especially our induced pluripotent stem cell platform are allowing us to go to the absolute frontier of precision medicine and with this to improve probabilities of success like it has never been done before. Our network of biologics and our network of J-POD, which we summarized under EVOaccess is coming together very nicely and here pushing the go button in August '21 was clearly a highlight this year. We also see that we are operational very nicely in our biotech strategy. In all modalities coming together with EVOcells and EVOteams and all other modalities that we bring to bear on our Autobahn to Cures allows us to put the best modality behind every target that we are putting together into corporations in the industry. So with this, the claim of building the sharing economy within R&D is truly fully substantiated. How do we then put this forward into a business model that we make the right business model for every partner to optimize speed and value for both partners? With this, we had a Fee-for-Service business and, of course, our strategic long-term goal is to build a co-own strategy, which results in co-owned assets and ultimately into the largest royalty pool that has ever been built in the industry. If you go forward, we just want to illustrate how nicely these capabilities are coming together in our leading to not only continued partnerships but also new partnerships where people start to see the value of integration but also the technological superiority that Evotec can bring to bear. It is this technological capability, and it is this efficacy that we bring into projects that ultimately convinces every partner, once they work with Evotec to stay on Evotec's platform with more than 90% probability. It is great to highlight here just a few examples, like for example, Engine and Novo Nordisk to really start working with us in service lines that we didn't work with them before. It is great to see that, for example, our Korean partner Ildong is now making the third INDIGO with us, which basically shows you that we are translating three projects into the clinic with Ildong in a very short period of time and that's then something where we see that this return rate of partners is truly substantiating our land and expand strategy with our customers that we have built. When we talk about partners and when we talk about long-term partners, I want to highlight here out of our Evotec Innovate portfolio, our IPSC platform and the great progress of this platform in the last five years. It is not only one target that came to the clinic here, it is a full portfolio of targets that will follow right behind this in the field of neurodegeneration. And let me highlight here that this is a full induced pluripotent stem cell platform and here we only talk about neurodegeneration as a carved-out part of the area. But please be aware, this is just the beginning of our induced pluripotent stem cell and how we will create a network of partnerships and a network of indication areas in all modalities that can result out of this IPSC platform that could go forward here into small molecule targets, like we have seen it with BMS, but that will also be antibodies coming out of this platform that we will progress forward. We are building a very large induced pluripotent stem cell driven cell therapy platform forward, especially in the fields of metabolic diseases. Let me highlight here, our CureBeta project. We are expanding this at rapid speed for the last quarters and years into cell therapies in oncology. This will be something to watch out for in the year 2022, because we feel that what we are building here is not only world-leading in drug discovery but also world-leading in cell therapy. The next page shows you another precision medicine platform and a platform of the highest degree of innovation power, that's our protein degradation platform, supported by EVOpanOmics and supported by EVOpanHunter. If you bring this together, protein degradation all of a sudden becomes a highly productive effort, which you can also see here in a selective partnership with BMS where we are working since 2018 on building one of the largest industry efforts in protein degradation together with our partners. These are just two highlights out of more than 10 massive scaled Evotec Innovate transactions ongoing, where some of them are early and others are already closer to market and when it comes to closer to market, you will see on the next page that we are very proud that our partners there have shown what we expected to see in the Phase 2b trials, which will not only be more selective but also more beneficial target, when it comes to side effect profiles, not only in refractory chronic cough, which is the first indication that data is targeting, but also in many other indications including neuropathic pain and overactive bladder in endometriosis. Multiple Phase 2s are ongoing, and you will see results in the year 2022 and onwards. We are also expecting a Phase 3 start with P2X3, the target, which was derived at Evotec translated into the clinic together with data and now driven by data into the market. This is what we call daily offenders, the top of the iceberg when our co-own pipeline is shown. The next page is only highlighting a few of the multiple data points that you will see coming out of this co-own pipeline, where we are very confident that this strategy will become not only more visible and broader but also will show you massive medical impact in many of the indications that we are following. Again, let me highlight here the power of P2X3 as the best-in-class molecule in multiple indications, where our Kazia Therapeutics alliance in oncology with a target that came from Evotec and was progressed forward. We don't want to overemphasize the strategy here, but we want to really show you that there are multiple data points, where always our partner is in charge of financing these projects into their respective markets, moving forward. A nice example here is that Evotec alone would have never found access to the Chinese market when it comes to insomnia fractures. It is great to see pure upside from our partner JingXin Pharma driving this into a market which otherwise we would never have access. Now we feel that JingXin Pharma is on a good path to enter here, the insomnia market in China by the year 2023. With this, initial small royalties will also come to Evotec out of this project. I think you all understand the strategy and you are also on board when it comes to accelerating the strategy, as you see on the next page into other modalities that we have built only a few years ago because nice modality is something which will drive medicine forward into the next decade. We couldn't be happier about our colleagues in Seattle than we are because what we have seen from our initial partnership with Just Evotec Biologics that we scaled now into commercial manufacturing scale is something where we make an impact, a huge impact. This will be started with the first product that will come out of the Redmond facility in 2022, where we are at this stage in trial runs for commercial products where we are also building a huge type of biotech corporations that, of course, will take a while until they are going to be commercial. But as you know, the product in biologics and in cell therapies is the process and with this, we are co-owning here not only products in the future but also processes in the future, which will make our concept even stickier with our partners. Let me highlight also here, this is the beginning of our Toulouse J.POD, which is ongoing and with this, we are also very happy here with the progress that we see in Toulouse. Extending our fellowship to co-owned targets, into co-owned companies and academic bridges is something that is ongoing. Here, we are of course very happy with the active capital markets at this stage in the private work because that allows us to leverage Evotec platforms into multiple companies, but we are also very convinced about our long-term co-owning strategy to take the biggest innovations coming from basic science in academia directly onto Evotec's platform. I want to highlight our bridges efforts that are ongoing. Yes, we are aware this is a long-term strategy, but Evotec is thinking long-term and with this co-owning the academic excellence of today into the future is a very rewarding way as you will see. When it comes to rewarding, I really want to highlight our co-owned companies, not only here, but many others also making good progress here in the private space. I've also highlighted for example Breakpoint Therapeutics, I want to highlight many other companies these are all where you will hear a lot about them in the future, because they are often going for first-in-class technologies and first-in-class targets that we are co-owning and building on our platforms. When it comes to Evotec as a company, you should see that we are building a long-term sustainable company. Sustainability, as you see on the next page was something that we highlighted about a year ago. We did not want to make lip service out of this and a new job. We wanted to make ESG as part of our strategy. What you see on this page is just a few highlights that we are translating here. Company belief, company culture into actions. It is great to see that our 4,100 employees are fully on board with this because we are creating a place to work, which is more. When I say more, it's more sustainable; it is more caring about the world than only making all the drug, which is of course our core purpose. We can also do a lot when it comes to energy, we can do a lot when it comes to quality of how we leverage our company here into educating not only within the company, but also our supply chain partners, for example, or our families working together with our colleagues at work. Putting ESG in the center of our company is a good idea, as it makes us stronger in the long run. With this, we are strong also for the short-term because we can confirm our outlook for 2022 and already today give you a strong visibility of great orders coming in 2022 when it comes to our top line. With this, I really want to highlight one more time that it is great that you follow us on the next page. We want to also highlight here that by this time, we have to inform you that our Capital Markets Day has been shifted to the 2nd of March. We were advised that we shouldn't do it so close to our NASDAQ IPO, because everything that is not in the F1 would have potentially been contractual, and we don't want to risk that. Please mark your calendars for the 2nd of March, we will have a great R&D Day together with you that will show you the power of our platforms, when it comes to integration of technology and may come to precision medicine in building a co-own pipeline. With this, let me thank you very much for following Evotec. We are open for all questions. Let me again, highlight here and thank Craig and Cord for being on the line as well for your questions.

Thank you. We will now begin our question-and-answer session. Our first question is from Joseph Hedden of Rx Securities.

First one on guidance. Things you reported year-to-date revenues of 431 million to get to the top end of your revenue guidance is about 140 million away now. You've booked 116 in Q3, generally being as Q4 is quite strong for Evotec, is it fair to say that guidance on the top-line is now pretty conservative, or is there some kind of effect here that I'm missing?

Maybe I hand this over to Enno, because he's the conservative guy.

Thank you very much, Werner. Welcome Joseph on the call and indeed, currently, from what we see, we are clearly expecting our revenue guidance to be on the upper part of our range.

But please bear in mind, we are fully invested at this stage into growth. With this, I think the only question for us is how to translate strong top-line into bottom-line and here I think for us, we see that investing into growth for the long run is the right thing to do.

I just have one more on the recent payments for the great progress with the BMS neurodegeneration deal. Those additional program designations, could you perhaps explain to us a little bit more about what that means. Are they, is that the same kind of progress to recent R&D, these projects going to the clinic, how many programs it will be great.

So maybe I hand over this question to Cord to elaborate a bit, how a mighty target alliance on our IPSC platform really works and how these payments come together.

Sure. The neuro lines with BMS started about five years ago and we are really immensely proud that from essentially a zero start almost, essentially from initial phenotypic screening approach. We have already introduced the first molecule into the clinic in less than five years time, which I would say was a very ambitious timeline and actually surpassed our goals in that regard. In parallel, as you could see from the slide Werner presented, the alliance has been consistently growing in terms of number of programs that we have added to the portfolio. The most recent announcements of milestone achievements is just elucidating on the fact that the number of programs now still at preclinical stages have reached key value inflection points, where essentially BMS has not only seen the target but also related small molecules.

Our next question is from Ram Selvaraju from H.C. Wainwright.

Hi, this is Boobalan dialing in for Ram Selvaraju, and thanks for taking my questions. Just a follow-up on the BMS partnership, as highlighted previously. What neurological disorders are likely to make the most sense to target with EVT8683? And what level of risk mitigation with the prospect of simultaneous development in multiple neurological businesses provided? This is the first question. And second one with respect to your agreement at the University of Birmingham. We presume you're targeting growing demand in that area to begin with small molecules.

I'm very sorry, the line that you are using as a telephone line is for us very difficult to understand. I didn't get the first two questions at all. Cord, did you get anything?

I think I got the first question regarding the most attractive indications for EVT8683 but that's about it.

Can I make a suggestion? Either send in your questions fast and we can address them directly via email if we have them during the call, but the line is really not good. Sorry about that.

Okay. So very briefly regarding the first question if I understood the question correctly. It's about what are the most attractive and generous indications for EVT8683 that recently underwent IND filing. Here we are talking about a mechanism that is targeting the unfolded protein response pathways which is a highly attractive mechanism not just for multiple neurodegenerative disorders. The current plan as far as I can disclose it is that we will move forward with BMS here on a more specific indication, most likely ALS, in particular. But I would say, more generally, the mechanism has tremendous promise in many other neurodegenerative indications, including Alzheimer's.

Our next question is from Christian Ehmann of Warburg Research.

I have three questions at the moment. So, first, could you give us a little bit more detail about the extent of your supply chain issues you mentioned in the beginning of your talk? Second, I noticed that, while you talked about all the modalities you're offering, anti-sense therapy is absent from the presentation. What's the point here? Is there anything you have changed in the past that you want to tell us at this moment about this or what's going on here? The third one would be, I mean you reported some considerable achievements with the BMS partnership based on your IPSC platform? What kind of maybe other partnerships, other companies we can expect in the future to broaden your customer base in this area?

Let me address the second question first. We are actively engaged in our partnership with Secarna regarding Evotec and anti-sense projects. Our collaboration with Secarna is ongoing, as is our platform expansion. I apologize for not emphasizing this more. We are fully committed to this approach because it is highly innovative and potentially the right fit for specific targets and indications. Each target deserves the best treatment method, which reflects our objective approach to exploring options for different targets. I should have highlighted this more clearly. Regarding supply chain challenges, I'll make a general comment before passing it to Enno. We are emerging from the pandemic, and many individuals have accumulated excess supplies in some areas while others have not. We are managing this situation effectively so far. I would not be able to mention massive delays or anything with our partners that's just not happening at Evotec. A big thank you to the whole team, who is doing this within the company, extremely diligent extremely well. The second point I want to mention is, of course, with a huge exposure into the U.K. We are adapting here to a country which opted to go out of the EU, which doesn't make it always easier for us, but we are adapting extremely well. These are, of course, all process changes that we are seeing now, and they all don't come for free. We are creating value that we generate by doing this which is significantly higher than the costs that we have to incur on top. Maybe Enno, if you have anything to add?

Not too much to add, I mean, it's really a mix of many parts. The last example that Werner alluded to is the Brexit part, which is not a huge impact, but it makes life a little bit more complicated. Just to give an example, if you ship things rather fast on a high frequency like we do with SIP products, and all of a sudden you take instead of two days where you have perfect dry icing packaging, it takes four, five, or six days and it's not as reliable. You have to rethink your logistical chain, and these things take extra efforts. Then we have COVID and COVID directly does not do a lot to us, but obviously, some basic materials like plastics for packaging are short. You have to ensure that you have in time sufficient supply of these materials. We are hedging these orders, looking far ahead, but also not overstocking; that's the balance we have to go with. It's all these little things that make it in total, a little bit more effort requesting demands.

The third question, I will then hand over to Cord but I had the pleasure of sitting yesterday together with our group here led by Sandra Lubitz, who is basically platform group for the whole IPSC area. Once you go through an hour of understanding what the technology does, what full optimization does, you can see why we very often say this is just the beginning of this technology platform we do. This is why one large area that we have highlighted so far is clearly just one out of many that will come in. With this, I hand over to Cord maybe to elaborate a bit on that.

So generally, our IPSC platform continues to grow consistently. The most recent evidence is that we announced another expansion of this BMS into another assay system that we have built, reflecting a disease patient. We have been very fortunate that our partner BMS opted in on many of these assays as we build them, but we are consistently also in discussions with our partners on the IPSC platform and continue to do so, and we are fairly confident that we will sign additional contracts in the future. When exactly they will come, I don't want to comment on yet but we're pretty confident.

Yes. To give a bit more color here. The two big partners have to be long-term dedicated partners in certain disease areas; otherwise, it doesn't make sense for us. You shouldn't expect small companies partnering with us on IPSC platforms. It will be companies fully dedicated to certain disease areas. The first partner category is traditional top 20 pharma players we are working with, and the second category, which is increasingly important to us, is working with mission-driven foundations such as the Huntington's Disease Foundation on many technology areas. We provide access to their mission-driven indications on our IPSC platform, if this makes sense for them because there is a long-term mission, and a clear technological fit. Don't forget our CureBeta project is also up and running and progressing very nicely. The same is true, as I already said, for self-serving quality.

Werner, if I may return to the royalty pool. If I recall from our last telephone conversation three months ago, the pool is owned by Evotec, if I'm correct. What would your intention be once the pool gets substantially larger for the uses of these proceeds? Is it to invest in small companies, for example?

Thank you so much for the question. Welcome again on the line. Hope to see you again in person very soon. First, let me say that having the optionality with the royalty pool will be tangible for us from the year '24, '25 onwards. So it's a bit early to make too many statements before we are there. But of course, conceptually, we have started to put the lowest cost of capital to work wherever we can. Royalties for us will be highly profitable, at low cost of capital. If we can reinvest this into companies that we are building, that's a fantastic use of capital. A second use of capital would be to say, some of these royalties will be capitalized because we don't have immediate cash, which again, would be a great option to have to return this to our shareholders in partial dividends or in partial returns, but that's just one optionality. The third idea of this royalty pool is to grow it and continue to fully speed invest, for example, into massive scaling of our precision medicine platforms, because I don't think that we are at the end of, for example, monitoring patient databases that have to be mined. We are just at the beginning of that.

Our next question is from Chris Redhead of goetzpartners.

Kind of macro question here a little bit. The whole COVID vaccine effort has sort of, as far as I can work out, turbocharged nucleic acid-based therapies in a way that was quite sluggish for a long time, but it seems to have given the sort of volumes of people receiving these kinds of mRNA vaccines. Are you seeing that kind of increase in activity in those therapies and in the interest and acceptance of those therapies? On the back of that, what's your strategy in terms of expanding into that space?

Yes, maybe Cord, I can hand over the question to you.

Yes, first of all, I think your observation is completely right. That nucleic acid-based therapies have come to front-end attention of the pharmaceutical industry and in particular messenger RNA-based therapies. Nevertheless, I would say, first of all, we have to mention that at Evotec we do not pursue messenger RNA-based therapies. Historically, we have not been participating in the vaccination business, and messenger RNA-based therapies for therapeutic intervention have not been successful at all so far. There are many approaches that have been tried in many areas, but so far, they have not been successful. This is why this is one of the areas we have not invested too much into but rather focused on proven track modalities where it's clear that there is going to be a benefit ultimately. However, with the advent of the messenger RNA-based vaccines, it is something that we are evaluating and watching very closely if the opportunities for Evotec to move into that area, but we have not made any move as of yet.

There is one more question which just came in via email, which I will take. Can you repeat the question? That’s what I intended to do it with a question. There's two parts. The first part is about materials and costs for raw materials developing, so basically about inflation. The second part is the same direction about labor costs increasing and going up? We clearly, obviously are monitoring both. We do recognize an increase of cost in the base materials that'd be ordering. So far it’s still in a field that is moderate and brief; we can handle. As I mentioned before, we do have certain parts of our orders very early in the order, with early stockpiling. We are covering a lot of the needs for 2022, but obviously, we also keep closely monitoring this field as it can have a significant impact if it continues to grow beyond what we are currently seeing in the markets. This is what we have on a regular basis. And the same is true for recruitment of employees where we also clearly recognize that salaries are increasing. There is a certain level of inflation which we have to consider also in our future cost development going forward, and we are monitoring this closely.

Next question, please, if there's anything coming in from.

There are no further questions from the audio lines at the moment.

Okay. Great. If there are no further questions, let me please invite you to send in your questions whenever you want to speak. His team here is really doing the best of aligning your questions with what we can answer and how it would be paid back. That's one thing. The other thing is let me thank you so much for following Evotec throughout this year. Let me guarantee you that the year is not over yet, and you will hear significantly more from us still in these last few months. Christmas is coming for all of us. This was the last conference call on quarterly results before Christmas. So on that note, let me conclude the year-end on this occasion as well. Lastly, let me remind you again for our Capital Markets Day on the 2nd of March, which will then be the first conference call that we will hold in the New Year, because that's before our full-year disclosure that we will make later next year. Thank you so much. Have a great day, and I wish you all the best.

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