Evotec SE Q3 FY2025 earnings call

D&PD Business - Faced continued softness in the early drug discovery market, leading to 12% revenue decline. Over the last 2 quarters, the number and value of proposals going out from Evotec to customers is trending upward. Introduced a new organization structure and is strengthening commercial and operational capabilities. Committed to EUR 60 million of cost out in 2025 and will stay ahead of plan, with additional EUR 50 million of cost out and productivity measures in the future. Business momentum with strategic partnerships remains healthy, and several catalysts lie ahead with up to 4 molecules from the partnered asset pipeline expected to be in Phase II clinical studies in 2026. ### Biologics Business - JEB is on a strong growth path. Business development within non-Sandoz and non-DoD business has further accelerated to over 100% growth after 9 months. Signed a transformational deal with Sandoz, unlocking payments of more than $650 million over the next years and expecting sizable revenues from royalty streams related to 10 biosimilars. Made progress in diversifying and broadening the customer portfolio. The Just-Evotec Biologics' Toulouse site was sold to Sandoz, reconfiguring the partnership and aligning with the company's strategy of focusing on core competencies, entering a new growth episode with an asset-lighter, higher-margin business model, and remaining equipped to serve customers through centers of excellence. ### AI-supported Platforms - Proprietary molecular patient database expanded with new cohorts in kidney diseases, obesity, and immunological diseases. iPSC drug discovery platform upgraded disease models into more complex organoid-type in vitro models. E.INVENT platform continues to build models for specific compound classes. NAMs capabilities for predicting safety and toxicology of drug candidates continue to progress, with predictive accuracies of over 90% for some tools. PanOmics platform made landmark achievements like high-throughput compound screening using transcriptomics and improved proteomics platform efficiency.

In the first 9 months, Group revenues landed at EUR 535.1 million, a 7% decline versus the previous year. The D&PD business saw a 12% revenue decline, with revenues at EUR 391.9 million. The Biologics business, JEB, had an 11% growth in the first 9 months, with revenues reaching EUR 143.2 million, which is approximately 26.76% of the Group revenues.

2025 Guidance - Expect the trend in D&PD to continue in the second half of 2025, while for Just-Evotec Biologics, anticipate revenue growth to further accelerate. Committed to EUR 60 million of cost out in 2025 and will stay ahead of plan, with additional EUR 50 million of cost out and productivity measures in the future. Expect up to 4 molecules from the partnered asset pipeline to be in Phase II clinical studies in 2026. ### Full Year Outlook - Target revenue of EUR 760 million to EUR 800 million and expected adjusted EBITDA in the range of EUR 30 million to EUR 50 million. ### Mid-term Outlook - Aim for 8% to 12% top line growth and EBITDA margins greater than 20% by 2028. The transaction with Sandoz provides short, medium, and long-term economic benefits, with potential revenues from licenses, development services, milestones, and royalties.

Market-related Risks - VC funding for biotech is not favorable, affecting business development activities of the transactional service business in the early drug discovery market. Market capacity excess may impact pricing. Geographic regional performance不一致 may bring uncertainties.

Q: 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?

A: Non-Sandoz revenue year-to-date was north of 50% of the overall year-to-date. The just profile includes the Toulouse build-out cost of around EUR 20 million, giving a view of the normalized share and profitability for the division.

Q: 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?

A: On the full year bridge, on the D&PD segment, see similar trajectory on full year revenues with potential mix improvements from milestones in the fourth quarter. On the Just-Evotec Biologics side, continued outperformance and operating leverage, some impact of lower cost base in Toulouse depending upon completion timing, and there is a license recognition element from Sandoz, with the split of which included within the initial consideration but not split out at this stage.

Q: Brendan Smith asked about the extent the NAMs capabilities come up in conversations with partners and customers thus far this year and if there's a shift in tone.

A: NAMs are getting more attention from pharma side, with real signs of acceleration as people are integrating these NAMs at an earlier stage, expecting revenues to vastly accelerate on this front within 12 to 24 months.

Q: Fynn Scherzler asked about the drug discovery and preclinical development segment's outlook for 2026 and profitability.

A: At this point, not making a statement around plus 5% for the market next year as prospects need to convert into sales orders. On profitability in the D&PD segment, the year-to-date profile has volatility due to milestone recognition, with better mix and license benefit in the first half not repeating in the third quarter but seeing further opportunities around milestones for the fourth quarter.

Q: Fynn Scherzler followed up on the Sandoz deal comparing revenues.

A: There is some level of reduction on revenues, but there is a significant improvement in the gross margin driven by a higher quality revenue mix including tech licenses, royalties, and lower capital intensity.

Q: Michael Ryskin's related question about what's heard from customers and pricing.

A: Still uncertainty in the market, especially in biotech, with cautious spending, slower decision-making. Pricing is a function of market capacity, with overcapacity in drug discovery and players adjusting. Geography has variation with U.S. market flipping to European market earlier this year.