Evotec SE Q2 FY2025 earnings call

Management Statement and Operational Highlights

• New Strategy: In April 2025, Evotec unveiled a new strategy focusing on pioneering drug discovery and development, centering around core technology and scientific strength for operational excellence and sustainable profitable growth. Transformation efforts are on track, with cost saving targets ahead of plan.
• Segment Developments:
  • D&PD: Navigating market challenges, with revenue decline, but seeing a steady increase in number and value of proposals going out to customers in the start of the second half. Continues to progress well in collaborations with BMS and expanded the molecular patient database by joining the NURTuRE consortium.
  • JEB: Remains on a strong growth path, with 16% revenue growth year-over-year. Announced the planned sale of the Toulouse site to Sandoz, a step towards a CapEx lighter business model and pivoting towards a new CDMO model for biologics.
• Cost Initiatives: Cost-out initiatives are progressing well, with an FTE reduction of 600 since March 2024, 200 FTE above the original target, and around 50% of the updated cost-out target of EUR 30 million already realized.

Segment Performance

• Discovery & Preclinical Development (D&PD): In the first half of 2025, D&PD revenues declined by 11% to EUR 269 million. A large part of this decline is related to a temporary effect in the BMS collaboration, and the remainder is due to continued softness in the early drug discovery market. Excluding the expected BMS revenue decline, there is a normalized year-on-year decline of 6% in the D&PD segment.
• Just - Evotec Biologics (JEB): JEB saw strong revenue growth of 16% year-over-year in the first half of 2025, reaching EUR 102.2 million. The majority of the growth is driven by the excellent growth of the business with non-Sandoz and DOD customers. Sandoz business grew low single digits on a strong 2024 comparative, and the partnership with the DOD saw some low value decline in revenues. The remaining business showed an excellent growth of 87% versus prior year.

Guidance

• Confidently confirms full year 2025 guidance. While foreign currency fluctuation had an immaterial impact in the first half, it is expected to have a higher impact in the second half but will be offset by improved business mix. The main drivers of the full year adjusted EBITDA profile are improved cost performance and changing revenue mix with a higher share of high-margin revenues. Midterm outlook remains on track with 2028 aspiration of 8% to 12% revenue CAGR and greater than 20% EBITDA margin.

Risks

• Complex funding landscape in biotech with uneven distribution of venture capital inflows, early-stage investments lagging behind later-stage funding, and cautious spending behavior in earlier stage R&D.
• Market competition potentially leading to price sensitivity in the transactional stand-alone services portion of the business.

Q: Regarding the guidance for 2025 and the recovery in the balance between early stage and late-stage funding, how much of that recovery is built into the guide for 2025?

A: Christian Wojczewski mentioned the statement was referring to recovery of the VC funding but didn't expect immediate second half impact, and Paul Hitchin stated the guidance for the D&PD business is planning for similar dynamics in the second half.

Q: Could you give a breakdown proportionately of the revenues in the R&D business divided into transactional integrated and large pharma?

A: Christian Wojczewski said they're not breaking this into details and not reporting, but mentioned the transactional part is shrinking relative to the integrated and large partnership portion which have been growing in size and expect this to continue.

Q: Can you give color philosophically on how to think about the value transfer from Evotec to Sandoz from the deal in return to the EUR 300 million?

A: Christian Wojczewski mentioned they're executing from a position of strength with a proven world-class technology at JEB, customers excited about the technology, and Paul Hitchin said the consideration of $300 million reflects the value of the site with technology consideration, future development revenues, milestones and product royalties to be part of ongoing revenue streams Q: What's the pricing environment like among customers, are they becoming more price sensitive?

A: Christian Wojczewski said need to disaggregate the business, with integrated deals and long-term strategic partnerships less affected by price, while the transactional side sees different price negotiations in a softer market Q: How to understand the rationale for selling the J.POD 2 in Toulouse now?

A: Christian Wojczewski said it's exactly following the strategy reviewed and executing as planned Q: On the Q3, Q4 phasing in DPD and Biologics, what's the sense?

A: Paul Hitchin said DPD in the second half is expected to look like the first half from a growth profile, and Just business sees a significant step-up in the second half from the first half's 16% growth rate with overall profile consistent with 2024 including significant contribution in the fourth quarter