Ladies and gentlemen, welcome to the Evotec SE Quarterly Statement 9M 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. At this time, it's my pleasure to hand over to Volker Braun, Head of IR and ESG.

Thank you, Lorenzo, and good morning, good afternoon to all of you on this call. We have a lot to cover today, and I'll keep my part very short. So let's move on to cover the housekeeping items on Page 2. We share the cautionary language here as usual, and some statements will be future-looking based on information available today and they might be subject to change in future. But now let me hand over to our CEO, Dr. Christian Wojczewski. Christian, please.

Thank you, Volker. Good morning and good afternoon to everyone. It's a pleasure to welcome you all to this call. I'm looking forward to taking you through the progress we've made over the past 6 months of transition since the announcement of our new strategy. Very pleased with the momentum and high speed of our transformation towards better monetizing our technology leadership. The steps we've taken in the past couple of quarters are a strong foundation for our value creation path and for the execution of our mid-term outlook. I'm confident that this will become more visible to you while we lead you through this presentation. Let us now take a closer look at the year-to-date performance. In the first 9 months, Group revenues landed at EUR 535.1 million, which is a 7% decline versus the previous year. This is driven by our D&PD business, where we faced continued softness in the early drug discovery market, leading to a 12% revenue decline. In contrast, our Biologics business, JEB, remains on a strong growth path with an 11% growth in the first 9 months. As mentioned in the last call, we expect the trend in D&PD to continue in the second half of 2025, while for Just-Evotec Biologics, we anticipate revenue growth to further accelerate. Taking a closer look into the D&PD business, we see several main elements driving past and future performance. Talking about the early drug discovery market environment, the VC funding for biotech is certainly not yet favorable, affecting the business development activities of the transactional service business. However, over the last 2 quarters, the number and value of proposals going out from Evotec to customers is clearly trending upward, indicating that the business is stabilizing. Also, the level of negative change order volumes in Q3 has substantially improved versus the first 2 quarters. In the meanwhile, we have taken appropriate actions to adjust our cost base. We've introduced a new organization structure, and we're strengthening our commercial and operational capabilities. 12 months ago, we were targeting EUR 30 million of cost out in 2025. We raised the bar over the course of the year. And during the last call, we committed to EUR 60 million of cost out, and we will stay ahead of plan. As announced last call, we are working on delivering an additional EUR 50 million of cost out and productivity measures in the future. You should expect a full update on the initiatives we're working on during our next call. The business momentum with strategic partnerships remains healthy, ensuring continued mid-term revenue streams. Those strategic partnerships are expected to also result in meaningful progression of our asset portfolio over the next 6 to 9 months. Several catalysts lie ahead of us, leading to the transition of molecules from the early drug discovery stage into preclinical and from preclinical into clinic. And I'm pleased to announce today that we're expecting up to 4 molecules from our partnered asset pipeline to be in Phase II clinical studies in 2026. This is exciting news for Evotec as it demonstrates the scientific strength and the outstanding capability of our technology. And it underpins our plan to generate meaningful upside to milestone and royalty payments in the future. More about this a bit later. At Just-Evotec Biologics, we're making great progress in our efforts to diversify and broaden our customer portfolio. Business development within non-Sandoz and non-DoD business is moving fast. The momentum for this part of the business has further accelerated versus half-year results to now over 100% growth after 9 months. Moreover, we signed a transformational deal between Just-Evotec Biologics and Sandoz just hours ago. This landmark transaction is a strong testament to our cutting-edge technology and capabilities in the fast-growing biologics business. It will unlock payments of more than $650 million over the next years. In addition, we expect to generate sizable revenues from royalty streams related to 10 biosimilars. We're extremely excited and proud to have been selected as partner by Sandoz on their path to shaping the biosimilars market. In a nutshell, we are well on track with our strategy, driving both scientific and operational excellence. Since the VC funding for biotech customers is relevant for approximately 30% to 40% of our revenue base in D&PD, let me share some further background information about the market trend. Updated data on total venture capital funding environment shows no material change compared to the analysis we shared in August. The absolute funding level has not grown over the past 2 quarters. The share related to discovery and preclinical stage companies remains well below pre-pandemic levels, suggesting a continuing short-term investment focus on companies with clinical stage assets. We spoke about the temporary deprioritization of early discovery and development activities and funding. It needs to be overcome before we see a forceful recovery of the early drug discovery market. That said, we do see some encouraging developments. Negative change orders are normalizing and customer activities are increasing. In the first half of 2025, the balance between positive and negative change orders was impacted by higher than expected cancellation volume, contributing to a weaker sales performance in D&PD. This effect was related to a small number of contracts, which were canceled by customers either for strategic or scientific reasons. In Q3, we're back to normal levels. The development of our change order balance is shown in the upper graph. In contrast to the comparably low funding activities for early-stage biotech, the business activity level at Evotec has picked up. The number of proposals issued to our customers has grown 20% over the past 2 quarters, and this is also in line with the growth in the total value of proposals. Even though those early indicators are promising, we are not yet indicating a change of trend. We remain vigilant in monitoring market developments and continue to adapt to our customers' evolving needs in a more agile way. In parallel, we are building a more targeted go-to-market approach. And as mentioned last time, we are strengthening our commercial organization. I'd like to now hand over to Paul, who will guide you through our financial results.

Thank you, Christian, and a warm welcome from my side. Let me guide you through our year-to-date results in a little more detail. Our first 9 months Group revenues reached EUR 535 million, a 7% decline versus the same period in 2024 and is aligned with our expectations. Firstly, our D&PD revenues declined by 12% to EUR 391.9 million in a persisting soft market in early drug discovery, as Christian commented on in his introduction. Also, as mentioned last time, included in this result is the expected temporary decline in the BMS revenues. Our Just-Evotec Biologics business continues to grow strongly in the first 9 months of the year and is on track for a very strong 2025. For the first 9 months of 2025, revenues reached EUR 143.2 million, which is up 11% versus the first half of 2024. As we mentioned last time, we continue to see a broadening of our customer base with non-Sandoz and non-DoD customers growing 105% in the first 9 months versus last year. During the first 9 months of 2025, our Sandoz business grew low-single-digits. Although as we look forward, we expect meaningful full-year growth following the completion of the recently announced transaction, which will include multiyear consideration for technology access, development revenues, and product royalties. Our R&D spending remains on the trajectory shared last time and is reduced by 33% versus prior year period from EUR 41.1 million in the first 9 months of 2024 to EUR 27.7 million in the first 9 months of 2025 as we direct our investments to those most relevant for our partners. Adjusted Group EBITDA reached negative EUR 16.9 million, driven by the weaker than expected D&PD revenues and our fixed cost base. We are well on track with our cost-out initiatives to deliver the EUR 60 million of in-year structural cost reduction in 2025 that we communicated in our last call. We also remain focused on delivering the additional mid-term cost and productivity actions that we discussed in our April update. Our Just-Evotec Biologics business remains ahead of expectations, helped by positive operating leverage despite the planned J.POD build-out. Bridging to our full year outlook, we expect our fourth quarter profile to reflect the higher revenue contribution weighting that we have seen in prior years. In addition, our recent guidance update in July reflected lower full-year D&PD revenues with an overall improved business mix, including the effects of the events announced last night. Now continuing with cash flow. Our year-to-date free cash flow has improved by 14% versus the same period last year. This is despite our third quarter operating cash flow having a tough comparable to last year when we received $125 million of BMS payments, whilst the recently announced BMS neuro payments have only been received in the fourth quarter of this year. However, in line with our expectations, our investing cash flow continued to see sequential improvements as we drive more rigor in our CapEx investment processes whilst also completing the J.POD build-out. Our net debt levels grew versus the second quarter of 2025, which also reflected the higher lease obligations following the adoption of a long-term lease agreement in our Hamburg facility. Following the completion of our transaction with Sandoz planned in the fourth quarter of this year, we expect our liquidity to be in a significantly stronger position with the residual long-term debt portfolio.

Thank you, Paul, and good morning and good afternoon to everybody on the call also from my side. As you know, at Evotec, we strive for technology and science leadership on our mission to pioneer drug discovery and development. Our ambition is to accelerate the journey from concept to cure in partnership with our customers. Today, we are pleased to talk about considerable achievements we have made along this strategy in both segments. Let me start with a look at the D&PD segment first. We are seeing great scientific progress with our strategic partnerships. Based on these achievements, we continue to feed and expand our strategic partnerships and are confident that our common asset pipeline will show substantial progress not only in 2025, but also during the next 6 to 9 months. So what is our approach? Christian already mentioned that we offer end-to-end discovery services, including development and also highly innovative drug discovery technology platforms. We strive to combine both offerings to create superior customer value. Our core service offering spans the entire value chain from target identification to IND. When we combine those individual services, we can seamlessly run integrated research projects using highly automated workflows. This train of services is the backbone of our operations. Within our strategic partnerships, we are then adding proprietary AI-enabled technology platforms on top of this. These platforms elevate our drug discovery platforms to the next level. Our AI-driven platforms are targeting, in particular, 4 goals. We create a much deeper understanding of disease biology, and therefore, patient stratification through our proprietary molecular patient database. We improve our target ID and validation efforts as well as hit identification through superior in vitro disease models driven by our iPSC platform. We enhance and accelerate hit to lead and lead-up processes through in silico profiling and AI-supported molecular design. We reduce the risk of failures due to industry-leading tox and safety predictive tools. So this means that AI for us is not a standalone feature. We have embedded AI deeply into our toolbox, enhancing the performance of each and every platform in the value chain. Based on this, we not only shorten timelines, but we also improve outcomes. Let me briefly take you through the individual elements. Our proprietary molecular patient database includes high-quality comprehensive clinical data along with in-depth multi-omics data derived from corresponding patient samples. This database is crucial for identifying and validating targets and is enhanced by AI machine learning algorithms. Our E.INVENT platform is a comprehensive suite of AI machine learning-supported molecular design tools that predict various parameters, such as solubility, ADME-tox parameters, and target affinities, while significantly accelerating our molecular design cycles. Our AE safety platform consists of NAMs that utilize gold standard in vitro models, integrating high content omics and/or high content imaging data to accurately predict the safety and toxic profiles of drug candidates. We achieve this with great precision, and I will provide more details later. Additionally, we possess a versatile iPSC drug screening platform that, when combined with omics and high-content imaging data, can assess disease relevance, efficacy, and safety of drug candidates throughout the drug discovery process with greater granularity and accuracy than standard in vitro models. All of these platforms are underpinned by our seamless high-performance omics platforms, which can generate, in particular, transcriptome, proteome, and metabolome data at highest quality and with unmatched throughput. I will come to the details here later as well. Finally, we are able to bring all of these data together in our data analysis tool called PanHunter. This tool facilitates the handling and the analysis of high-dimensional data sets and is in many areas, AI machine learning supported. On the next page, I will show you selected examples of significant scientific achievements in 2025 and also talk about how they translate into commercial results with our strategic partners. And thereafter, I will show you how those partnerships are associated with highly attractive long-term financial upside. But let me take you through a few selected highlights. I have emphasized the significance of our Evotec molecular patient database as a key resource for enhancing our understanding of disease mechanisms, which also aids in target identification and validation. In 2025, we greatly expanded the database by incorporating new cohorts, particularly in areas such as kidney diseases, obesity, and immunological diseases. This database continues to foster strategic partnerships while generating substantial success-based payments. Regarding our iPSC drug discovery platform, we are advancing our disease models into more sophisticated organoid-type in vitro models, especially in the kidney disease area. We are also making progress with our AI-supported small molecule design platform, E.INVENT, where we are developing models tailored for specific compound classes since we believe that a universal model for all compound classes does not exist. We previously noted our ongoing investment in new approach methodologies to predict the safety and toxicology of drug candidates. In this area, we are making significant strides by continuously refining our existing models and incorporating additional new models. For example, our drug-induced liver injury toxicity prediction tool has achieved a predictive accuracy exceeding 90%. Similarly, we have created a highly accurate cardiotoxicity prediction tool, also reaching about 90% predictive accuracy. Additionally, we are developing a new teratogenicity prediction tool, approaching 80% predictive accuracy. To our knowledge, these omics and image-based AI-supported safety toxicity prediction tools are leading the industry in terms of their predictive accuracies. Finally, I would like to briefly talk about scientific progress in our PanOmics platform. Our high-performance PanOmics platform continues to evolve. In 2025, we reached 2 landmark achievements. With our high-throughput transcriptomics platform called ScreenSeq, we conducted a high-throughput compound screen, screening over 250,000 compounds using transcriptomics as the primary read-out. To our knowledge, this is an industry first and has never been done before. Similarly, we keep improving our proteomics platform. We have improved efficiency, automation, and throughput of our platform significantly and expect to profile over 100,000 compounds in 2026 using proteomics as the primary read-out. To our knowledge, there is no other company generating as many proteomic compound profiles in the industry or processing as many samples using proteomics. So it is great to see that we continue to make this much progress on our AI-supported proprietary platform. Just as important is that these platforms continue to support the business financially. The combined order value directly tied to these AI-powered platforms is currently over $200 million. Furthermore, these platforms not only support the business through research payments but they also enable us to build strategic partnerships, which enhance our partnered asset pipeline with considerable financial potential. Today, Evotec has a pipeline of more than 100 projects, with over 60% of these projects being part of strategic partnerships that provide full support. All advanced assets, particularly those in clinical and preclinical stages, are backed by partnerships, representing pure financial upside for Evotec. Collectively, this portfolio has a non-risk adjusted value exceeding EUR 16 billion just in milestones. By 2025, the pipeline is expected to progress significantly, making the total milestone potential more than EUR 16 billion, along with substantial royalties, increasingly tangible. Accumulated returns up to 2028 could reach around EUR 500 million. In April, we provided an update on our asset portfolio, indicating that 12 out of our 100 projects had advanced beyond the discovery stages, with six in preclinical stages and six in clinical Phase I. In 2025, two assets progressed from Phase I to Phase II of clinical development, and we expect one asset to move from preclinical to clinical stages. Additionally, we anticipate further progress in the next 6 to 9 months, with two more molecules likely moving to clinical Phase II. This suggests a high likelihood that our asset pipeline will have a total of four molecules in clinical Phase II, each partnered in different indication areas. Overall, we are very pleased with the progress across multiple fronts, including significant scientific advancements on AI-supported platforms, notable progress in our clinical and preclinical asset portfolio with two new assets in Phase II, and an expanding discovery stage pipeline that will continue to support our preclinical efforts. More exciting news is expected within the next 6 to 9 months. Now, I will hand back over to Christian.

Thank you, Cord. Let us now switch gears from monetizing technology leadership in D&PD over to doing the same for Just-Evotec Biologics. As you will have noted, last night, we announced a successful signing of the sale of the Just-Evotec Biologics' Toulouse site to Sandoz. Under this transaction, Sandoz will acquire Just-Evotec Biologics EU plus a technology license to our continuous manufacturing platform. The agreement includes additional license fees and development revenues. This marks a pivotal milestone in the journey of Just-Evotec Biologics and underscores the successful execution of our strategy. We aim to close the transaction together in 2025, subject to meeting customary closing conditions, including foreign direct investment clearance by the French authorities. With the transaction, we are reconfiguring our successful partnership with Sandoz which started back in 2023 with the intent to support the expansion of Sandoz biosimilars pipeline and was extended in July last year. We are now converting a collaboration that was based on a long-term manufacturing arrangement into a new partnership centered around technology transfer and enabling our partners. The rationale for the deal is clear and compelling and it follows the strategy we outlined for the whole company. Number one, we will focus on our core competencies. This is making business by leveraging our technology leadership. Our intent is not to run a fleet of manufacturing sites as a classic CDMO player. Number two, we're entering a new episode of growth. Our commercial approach will pivot towards an asset-lighter, higher-margin business model, one that leverages best our technology, scales to partnerships, avoids the need for large upfront capacity investments and delivers superior returns. Number three, we remain fully equipped to serve all our customers through our center of excellence in Redmond and Seattle. Operationally, we have no limitations to support the growth plans of our partners. Number four, this deal is financially highly attractive for Evotec as it provides us with short, medium and long-term economic benefits. On this page, you see a summary of the financial parameters of the deal. We've agreed on an initial consideration of about $350 million for the site transfer and upfront technology license payments, which will be effective short-term. Over the mid-term, Evotec has the potential to generate revenues from licenses and development services plus milestones of over $300 million. Those payments are related to enabling our partner to manufacture biosimilars. In the time period thereafter and starting with commercial success, Evotec is eligible to royalty payments for up to 10 molecules. These 3 phases, starting with a handover, create sustained cash flows over an extended period. At the same time, we improve our revenue mix, reduce CapEx intensity and unlock high-margin IP and technology streams. As part of the deal, up to 10 molecules developed with the Evotec continuous manufacturing technology are eligible for royalties. As recently published by Sandoz, the Evotec partnered molecules in development are targeting a fairly large share of the originator biologics market. For example, the 6 most advanced molecules address a combined net sales of approximately $92 billion. Another 4 molecules are currently not disclosed. Looking ahead to the future of Just-Evotec Biologics beyond our great collaboration with Sandoz. Our U.S. operations will remain a center of excellence for biologics discovery, process development and manufacturing. The hub of innovation fully aligned with our mission to discover, develop and deliver the next generation of medicines faster, smarter and more sustainably. Given the strong momentum of our U.S. business with over 50 ongoing customer projects, we've expanded P&PD in Redmond and are contemplating further expansion in manufacturing selectively. Going forward, we will provide additional commercial routes for our customers to use our proprietary technology. With the transaction announced last night, we've validated the value of the technology, and we've demonstrated the IP licensing model for our continuous manufacturing platform is a very attractive path for our partners. We're now adding further optionality, including licensing of our cell lines, perfusion media, and the launch pad concept to enable alternative manufacturing platforms via our J.POD design. In very simple terms, our job is to drive the innovation forward and to enable our partners to successfully launch and manufacture biologics products. Just-Evotec Biologics has 4 main compelling modules to offer on this page in blue, J.HAL for molecule discovery; J.MD, our machine learning-enabled molecular development technology; JP3 for complex biologics process development; and the J.POD for continuous manufacturing. Until now, we have deployed this technology as part of an overall plan to manufacture biologics. This would have required Evotec to continue to invest in the expansion of our manufacturing footprint. The transformation towards the next-generation CDMO model allows us to now deploy the technology without having to make those investments. All components are already in place, such as J.CHO, J.MEDIA, J.TRAIN, and J.POD, here in pink. The performance of our proprietary cells and cell culture media customized for the perfusion-based continuous manufacturing process is industry-leading. Today, we are only using them for in-house development. For tomorrow, we see the potential to leverage these assets along a product commercialization path. On the path to enable our customers, there are multiple options to ramp up manufacturing capacity using our technology without us directly investing, such as integrating a J.TRAIN into a customer's facility or providing turnkey solutions at the customers' premises. Over to guidance and outlook. Our mid-term outlook shared in April is based on the ambition to better leverage technology and science leadership, the foundation of our strategy. It is therefore encouraging to see that the endorsement of an important customer of Just-Evotec Biologics, such as Sandoz, translates into tangible results only a few months later. Furthermore, our asset portfolio in D&PD has substantially progressed. The visibility towards our mid-term goals has improved substantially. You heard the detailed financial analysis from Paul earlier. Hence, I keep it short here on this page. Despite the headwinds in the early drug discovery market, we have full confidence and confirm our guidance for 2025 with a targeted revenue of EUR 760 million to EUR 800 million and an expected adjusted EBITDA in the range of EUR 30 million to EUR 50 million. We also see Evotec on track to reach its mid-term outlook at 8% to 12% top-line growth and EBITDA margins greater than 20%. With the actions in place, we gained visibility and increased confidence in delivering our EBITDA margin. Let me conclude by making reference to what we discussed on April 17 this year with you. Only half a year later, we see 3 out of 4 levers of our mid-term value creation unfolding their impacts. While it is too early to call the challenges in the D&PD market mastered, we see green shoots and continue to prepare our organization to be more competitive in this environment. Our cost-out program is ahead of plan. We fast-track the execution of our new strategy at Just-Evotec Biologics and the asset pipeline is progressing well. For now, I would like to say thank you. We're now happy to answer your questions. Back to Lorenzo.

The first question comes from the line of Charles Weston from RBC.

They're kind of sequential in nature. So I'll just ask them one at a time, please. Firstly, just factually, how much were Sandoz revenues in the first 9 months? And what would the division have looked like without the Sandoz revenues and the associated costs in Toulouse?

Are you asking me to answer immediately?

Yes, please. If that's okay.

I will hand this over to Paul.

Yes, Charles. So I would answer your question as non-Sandoz revenue year-to-date was north of 50% of the overall year-to-date. Also, your question was around, I think, earnings contribution within that. So the way to think about that is within the Just profile that you see on a year-to-date basis, that includes the Toulouse build-out cost of around EUR 20 million. So it gives you a little bit of a view of what our kind of normalized view of share and profitability looks like for the division.

Okay. And then associated with that, therefore, how much of the EUR 30 million to EUR 50 million EBITDA guide for this year is the expected upfront recognition from the Sandoz deal?

Yes. To provide additional detail on the full year outlook, first regarding the D&PD segment, we anticipate a similar trend in full year revenues for D&PD. We expect potential improvements in the revenue mix from milestones as we approach the fourth quarter. On the Just-Evotec Biologics side, we are seeing continued outperformance and operational efficiencies as we near year-end. There may be some impact from lower costs in Toulouse, contingent on the timing of completions following approvals. Additionally, we believe that there is a component of license recognition from Sandoz.

Sorry, I missed that last bit that you said around just after operating leverage.

There is a lower cost base in Toulouse, depending on when the completion occurs. Additionally, there is a license recognition from Sandoz, which is included in the initial consideration presented. At this point, we are not separating out the license portion from the initial $350 million upfront payment.

Okay, that leads me to the last question for now regarding the trajectory from 2025 to 2028. You've provided the revenue CAGR range. The margin guidance suggests that we could see EBITDA between EUR 140 million and EUR 180 million in 2028, which is a significant increase from nearly zero this year when excluding the Sandoz deal. Can you help us understand what the expected year-on-year progression will be over the next few years and how variable it might be based on the milestones you've mentioned?

Yes, Charles, let me address that. Regarding the mid-term outlook, we indicated a revenue CAGR of 10% to 12% with an EBITDA margin of 20% by 2028. Given the recent events in the D&PD business, I believe the revenue CAGR will be closer to the lower end of that range. However, we see potential for a stronger EBITDA margin than we initially expected. In terms of milestones, those tend to vary significantly in both the D&PD and Just-Evotec Biologics businesses. For the transaction with Sandoz that we announced, which has considerations between 2026 and 2028, approximately two-thirds will be related to product development activities, and one-third will involve licenses and milestones that depend on specific criteria. This provides some insight into what we can anticipate over the next three years.

The next question comes from the line of Brendan Smith from TD.

Actually, I really appreciate all the color on the AI capabilities internally. So I actually wanted to ask just a bit more about this. And really, I guess, to what extent the NAMs capabilities actually come up in your conversations with partners and customers thus far this year? If you've seen any material shift in that kind of tone? I mean, we get a lot of questions about whether pharma is kind of increasing investments in AI internally on their side is impacting their engagement with external partners offering those kinds of capabilities. So just wondering if you're seeing any demonstrable shift in where they're engaging on that side of things or if NAMs offerings are actually increasing that? I mean, how you might expect that to kind of help grow revenues over the next, let's say, 12 to 18 months?

Thanks, Brendan. I'll hand this over to Cord, and I'm really pleased to see also these questions. We recognize that we've maybe talked a little bit less in the past about those topics. But rest assured, there's quite some activity at the Evotec side. Cord, please.

The NAMs are definitely receiving more attention, particularly from the pharmaceutical sector. However, growth in this area remains somewhat subdued at the moment. Still, we are noticing genuine signs of acceleration as many projects are starting to incorporate these NAMs at an earlier stage. If you think about having a predictive tool for drug-induced liver injury, introducing it late in the process means you would only profile a handful of compounds. Conversely, if it is introduced early, you can continuously profile potentially hundreds of compounds. This is why we emphasize the need for the industrialization of these platforms and making them capable of high throughput, as it allows for the incorporation of these assays at an earlier stage in the drug discovery process. Given the increasing interest in integrating these NAMs early, I expect to see substantial revenue growth in this area. While achieving this within the next six months may be optimistic, I believe we could see this within the next 12 to 24 months.

The next question comes from Fynn Scherzler from Deutsche Bank.

So the first one, I would like to ask them one by one, it's on your drug discovery and preclinical development segment and whether you are able to give any sort of glimpse on what you expect into 2026. Some of your U.S. peers sort of gave an early indication. I think consensus sits at around 5% growth for next year. Do you consider this a sensible starting point for the year or as of now would you point us to take a more cautious stance? I understood you spoke of green shoots and so on, but not really of an inflection yet. This would be very helpful.

Thanks, Fynn, for the question. Obviously, our visibility at this point in time is not all the way through 2026. And keep in mind, collectively, the industry since quite a bit was actually looking at when exactly the tipping point is happening. So I'm a bit cautious about making statements about when exactly the market is coming back. And as I said earlier, when you look at the individual bits and pieces here, you've seen on one slide the change order pattern that wasn't favorable in the first and second quarter, the negative change orders, but it was also related to a few individual wins. Q3 looks much better than you've seen the number of prospects going out, right, plus 20%. You can draw conclusions out of that, but I'm not doing it at this point in time because these prospects need to convert into sales orders. So at this point in time, given that we have probably visibility into the next couple of months, I would not make a statement around plus 5% for the market next year.

Okay. That's helpful. If I can maybe follow-up with 2 shorter ones. So on the profitability in the Discovery & Preclinical Development segment, I think it was surprisingly weak this quarter, but the revenues were sequentially actually about stable. So could you maybe help explain that?

Say that again, please? I'm not sure I...

No, sorry, I was just saying that I think the revenue in the Discovery segment was pretty much flat sequentially, but the profitability was much worse than probably expected. What was the explanation for that?

Yes. Fynn, this is Paul again. When you look at the year-to-date profile of the D&PD business and then compare it to third quarter, you're correct that it appears to take a step down. We did actually in the first half have better mix and then also a license benefit in the first half that impacted positively. It didn't repeat in the third quarter. As I said in my comments, however, we do see further opportunities around milestones for the fourth quarter for D&PD. And that volatility, if you like, on milestone recognition will continue in this segment. But that explains the delta there.

Okay, helpful. And then one last one on the Sandoz deal. I'm not sure if you sort of compare the revenues that investors and the sell-side had expected from sort of your CDMO income stream that is now falling away. How does this compare to what you will get now in terms of licensing revenue and so on and so forth? So sort of the EUR 300 million package you described. What I'm trying to understand is consensus sits at around EUR 420 million for JEB business in 2028. Does that then look completely off from your point of view or is this still sort of the right ballpark or are people totally misunderstanding this at the moment?

I think a couple of points here. First of all, I tried to explain that there is the Sandoz deal, and that's a fantastic opportunity to partner with Sandoz, and it will continue to generate revenues and profit for the company. Then there is another 50 customer projects that we are serving out of the U.S. Don't forget to keep that in consideration. And then what we said is we're basically pivoting to a different model, right? So the way that we look at it is a much more capital-effective way of doing business. So moving from a manufacturing view to a license model allows us to generate revenues in our view, at a higher margin rate and much more capital efficient. And that's the driver why we've concluded that this is a great deal for the company. And as we said also last time from an NPV perspective, for us, this is a positive contribution.

Yes, Fynn. So there is some level of reduction on revenues. But as Christian rightly says, significant improvement in the gross margin driven by that higher quality revenue mix, whether that's tech licenses, royalties, consumable sales that we've talked about as well, and that lower capital intensity. So we're trading to a higher quality mix of business.

The next question comes from the line of Michael Ryskin from Bank of America.

This is Aaron on for Mike. You called out the soft early drug development market environment and VC biotech funding. Given the current market environment, can you talk a little bit about what you're hearing from customers? And related to that, a little bit more about the implications for the overall pricing environment?

There is still uncertainty in the market, particularly in biotech, and our D&PD business has about 30% to 40% of its revenue tied to this sector, which means we have significant exposure. Additionally, as mentioned previously, while discussions are ongoing, there is a trend toward smaller projects as opposed to larger ones, leading to slower decision-making. This reflects the current environment we've observed in Q1 and Q2. However, we've noticed an increase in prospects over the past month and quarters, suggesting more activity and potentially more opportunities for 2026. Pricing is also influenced by market capacity. There has been overcapacity in drug discovery, but most companies, including us, are making adjustments. I believe we will see pricing normalize as demand and capacity begin to align more closely.

Great. And then just a quick follow-up. I wanted to actually ask about the prospects. I'm wondering if you're seeing the prospects of green shoots within similar geographic regions, if there's any geography that's performing better than expected or worse than expected, if you could provide a little bit of color there?

That is actually the case, but it depends a little bit on the subsegment. And as you know, we're less penetrating the Asian market. So we've seen a little bit less dynamic in the U.S. market earlier this year and that has flipped more to the European market. So not very consistent and conclusive at this point in time, but there is variation.

The next question comes from the line of Charles Weston from RBC. Ladies and gentlemen, we lost the line with the questioner. So there are no more questions at this time. I would now like to turn the conference back over to Volker Braun for any closing remarks.

Thank you, Lorenzo, and thanks to all on the call for the engaged discussion. In case you feel not all of your questions were addressed, please feel free to reach out to me any time. We're looking forward to meeting many of you at the upcoming investor conferences in November and December. And with that, we wish you a good rest of the day. Thank you, and goodbye.