Evotec SE [EVO] Conference call transcript for 2023 q1
2023-03-28 13:18:08
Fiscal: 2022 q4
Operator: Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Evotec SE Preliminary Figures Full-Year 2022 Call. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Dr. Werner Lanthaler, CEO. Please go ahead.
Werner Lanthaler: Thank you very much. A warm welcome from sunny Hamburg to all listeners. And let me first remind you that we have uploaded a presentation for this call, which you can find on the Internet and we have called it ahead of the curve leadership in our focus areas for medicines that matter. This brings me directly into how we wanted to start this discussion with you today because it is amazing to see what we have achieved in 2022. And let me start by thanking the whole company who is working every day to find new medicines that matter. Let me also thank you, my closest team, it's a big pleasure and a great satisfaction to go forward with you also in a year like 2022, which overall was quite challenging, but nevertheless we have achieved a lot. And as you have seen, in an environment where many things came unexpected, we have done the right thing and have kept our traction in being ahead of the curve. Looking at my team, I want to wholeheartedly say thank you to Enno. It has been a great pleasure to work with you for such a long time and I'm very, very certain that our paths will cross again in the near future. Let me at the same time and with this guide you to Page 4, introduce Laetitia to you. Laetitia will join us as of April and has started her onboarding process, but will grow fully into Evotec as of April. And then you will for the first time see and hear Laetitia at our Q1 presentation. When we come to a reflection of 2022, let me guide you to Page number 6. It is important to see what we are doing in the context of the convergence of technologies that ease going faster than ever before. And when we say convergence of technologies, this has only one goal for us. To understand diseases better than ever before and with this generate better starting point. We have pointed out here a few selected industry megatrends and you have heard about all of them. But what we want to point out is that in many of these megatrends Evotec is truly ahead of the curve by for example applying AI and ML based discovery methods, or by using Omics as a key tool for precision medicine of the future. And of course, when you think back only one decade, where Evotec started with an iPSC platform and you have seen how often we have seen megatrends coming and where we have put the company ahead of the curve to achieve significant results, which will result for medicines that matter very soon. On that note, let me guide you a bit into the highlights of 2022, but also not neglect that it was a challenging year where we also saw some lowlights. On the highlights, it is significant progress that we can show in our partnerships throughout the industry network, especially also with BMS. We have made the largest targeted product degradation alliance in the industry, and importantly, here you should see this is an 8-year alliance. On our iPSC, beta cell replacement therapy alliance, we are also making great progress towards the functional cure for diabetics. When you look at our multiple partnerships in many disease areas, progress is made on many fronts. On Just – Evotec Biologics, we are laying the foundation for strong growth in 2023 and by building J.POD number 2 in Toulouse, we also are fully according to our plans on our way. We have made some smaller, but very important acquisitions in 2022, and I want to highlight here how important our Evotec Modena clinical and commercial manufacturing platform for small molecules, for cell therapies, and our small molecule acquisition in Halle Evotec DS is. Progress on our data driven precision medicine platform is huge and launching PanHunter is just one act that shows you how far we are ahead of the curve here because generating the key data analytics tool in the industry, which was one of the triggers for many of our transactions that you have seen in the past and many more to come, is just a highlight here. Many of the diseases in the future will only be treated if we understand their molecular core. So, creating molecular databases, what we call E.MPD, is a key highlight that we have started in 2022 on a quite aggressive path and we will continue this into 2023, 2024, and forward. Another highlight which came after year-end, but we want to put this into this room is a very large and very strategic collaboration with Janssen where we are going after very, very important therapeutic areas. The endorsement of the European Investment Bank to give us a second time a large loan should also not be neglected, it also was reported after the period ended. On the lowlights, it's very small, the number here, and we of course have to highlight that the discontinuation of our P2X3 program as one of our portfolio assets in women's health was something that we didn't like, didn't expect, but we have clearly already digested in our operations. When it comes to increased costs from energy and materials, this is nothing that was in our control, but of course, on the operations we suffered quite significantly from this effect in the first half of 2022, and we have corrected here many situations in the second half of 2022, which also led to a much better Q4 as you have seen into a good start into 2023. And the slightly slower anticipated ramp-up of J.POD in the U.S. should not worry anyone because we feel fully on track with this operation. When it comes to our Page number 8, you should see that this was an amazing year also when it comes to our growth profile and also our profitability profile. Because this was the 13 year of continued double-digit growth and we feel this is a great achievement because the excellent influences were clearly not all in our favor. And it also feels great to already now be able to say that there will be a fourteenth year coming with strong double-digit growth. And if you take our Q4, many indicators and Enno will speak to that are going really into the right direction, despite a very grim biotech environment when it comes to current funding situations out there. Page number 9 shows you our initial guidance for 2023 where you see that we clearly are committed to grow steeper on our bottom line than on our top line and both will be double-digit growth figures. Nevertheless, we are not compromising on our R&D commitment, which will be still in the range of 70 million to 80 million, which is where we see our projects getting started and then rolled over into strategic partnerships also in the future. Many people ask us how does this fit into your Action Plan 2025. Here, never forget that J.POD will only show their initial contribution to our top line and bottom line by the end of 2023, beginning of 2024 and were J.POD number 2 will go online by the end of 2024, beginning of 2025. So, that's why there will be a step function coming into our top and bottom line with this contribution where the negative contributions will be gone and you will also see a step function in many of our milestone bearing collaborations into the year 2024, 2025. With this, Action Plan 2025 is fully on track. And if you look at Evotec, do not only look at the short-term numbers because the royalty pool that we are building into the future and the massive milestone pool that we are building into the future is growing every day. And it's of course a great pleasure that today another 4 billion in milestone potential was added and another royalty cascade of a huge portfolio that we are building was added by the today announced CNS collaboration together with our long-term partners BMS here. If you continue in this presentation, let me guide you a bit deeper into our focus areas. Building a company that is ahead of the curve nevertheless means that we want to stay and will stay very focused on where we can win. We have defined four areas where we can win in the global competition in building a leading company. The first area is what we call PanOmics. PanOmics stands for deep disease understanding for effective therapies. The second area are iPSC based cell therapies, where we create off-the-shelf cell therapies based on induced pluripotent stem cells, which ultimately will be not only manufacturable, but also affordable cell therapies for wide groups out there that need cell therapies. Just – Evotec Biologics is a start into creating access for many more patients with more precise antibodies and biologics than ever before. And our end-to-end shared R&D platform is representing the shared economy of research and development for all technologies and tools that partners in the industry need. Page number 14 illustrates you this portfolio of our offering [even nicer] [ph]. And if you go to Page number 17, and we are diving into the first focus area, you see that PanOmics is already a success now and it's just starting. The future of Omics is beginning now. And when you look back in a few years, you will call this an iPhone moment in drug discovery and drug development when we started to really go to transcriptomics and Omics level to understand diseases better than ever before. It's great to see the endorsement of many partners, but it's even more exciting to see that with this better drugs will be made very soon. An enormous endorsement when it comes to Omics was the first transaction in targeted product degradation that we did and that was then expanded through BMS and us last year. In the noise of the biotech environment, when it comes to funding or when it comes to other things, it was often not clearly heard how big the disruption potential ease of this transaction because here we are finding more [novel drug] [ph] targets than probably anyone else in the industry at this stage. And we are degrading more parts of the largest and most productive library than anyone has ever done. So, the efforts here are enormous and the upside and reward for Evotec with a more than $5 billion deal and double-digit royalties is also enormous. If you go forward, you see and we have announced this today in the morning and that's also the reason why Cord is not here, because he is just finalizing the work plans of our expanded and extended neurodegeneration platform. You see how important it is for us to land and expand with our strategic partners because that's the best testament that any company can get. Creating a partnership for the next 8 years and with this creating a second alliance that goes into the 2030s, which we have done with targeted product degradation and which we have done today with neurodegeneration shows you the full commitment of two partners to build a portfolio, which will be world-leading. Eight years of full commitment, eight years of efficient teams, eight years of the best platform will generate also [in] [ph] neurodegeneration an absolutely needed novel pipeline of products. Page number 19 shows you that great deals come from great people and it is absolutely appropriate to thank Cord, especially on this one, and it's also appropriate to thank Richard Hargreaves on BMS side, especially on this one because it's their scientific vision now coming into product stages very soon. Why is this so important? You'll see this on Page number 20, because we all, as we are listening, into this call, should see that the burden of neurodegenerative diseases is increasing with age. We will get very old, but we want to get old and be healthy. And with this, creating here novel interventions for neurodegenerative diseases is absolutely needed because you know that the pipelines are empty or are only very, very symptomatic and not effective treatments. When it comes to the how are we doing this? On Page 21, you should see that our industrialized iPSC platform is in the heart of these efforts and this is combined with our molecular patient databases and then creating completely novel drug targets where we can predict much faster than anyone else, which targets will have higher probabilities of success if we bring them forward because they are human derived and not like in the past, most of these drug targets were only tested and derived from animal data. If you put this in context on Page 22, I think we can all appreciate that the whole industry is getting more excited about CNS again, but leading here the industry with the best technologies and with BMS creating a new therapeutic area is of course absolutely essential for us to build this franchise even broader in the future. And when I say broader, we want to also go outside of neurodegenerative diseases here with our iPSC platform and our molecular patient databases. If you switch to the next focus area, iPSC-derived therapies. I think we should all appreciate that this is the beginning of iPSC-derived therapies that are affordable and that can be widely used. This has been so far really the bottleneck in the industry and with this, we also are expecting here quite a big renaissance in the next years to come for cell therapies, especially when we can create off-the-shelf therapies that will be manufacturable and affordable. Talking about manufacturability, the product is the process when it comes to biologics like this. And with this, the piece of the puzzle that we have added with our Modena facility to being able and create here manufacturing processes that follow the biology, we are absolutely leading the industry when it comes to an end-to-end solution for iPSCs. On iPSCs and on cell therapies on Page 26, you see that we are building a comprehensive portfolio where our partnering efforts have just started. So, you can expect much more efforts in our partnering world to come. And now with having a biology understanding into a manufacturing solution, you can imagine how well-received this offering is in industry and Janssen is of course one partner that we are very proud of in this context. Coming to Just – Evotec Biologics, I think we have made it very clear that we are fully behind this effort. More so than ever today. Why? Because access to biologics is needed and will be even more needed with the many biologics to come in the future. And therefore, we are feeling quite comfortable at this stage that we will meet and maybe overachieve our close sales guidance that we have given ourselves for the end of 2022, where we said, we're going to be above 100 million. We are in multiple discussions at this stage with public institutions, with innovative biotech, with pharma companies, also with biosimilar companies, and we expect here our portfolio of partners to grow quite nicely in the near future. This is important because on Page 30, you see that our CapEx spend, which has to be before bringing customers into our J.POD is, of course, ramping up, but it was always clear to us that this will be a start-up phase, which will be volatile and which we will then see coming to the market by the end of 2023, 2024, 2025 quite substantially. Our last focus area is our end-to-end shared R&D platform. And let me convince you here only by numbers on Page 32. Having more than 800 partners on our platform at every moment in time is justifying when we say that we are the basis for the shared economy in R&D, even increasing our repeat business from about 90% to 92% in 2022 shows you that customer satisfaction is what matters at Evotec. And showing you also that we are creating an even larger number of partners where we are going deeper with more than 1 million in revenues is giving us a very good portfolio effect in many regards. Page 33 shows you that we believe in this megatrend. And we are leading this megatrend with a high quality growth if you look at the global market for [variable] [ph] cost. And let me comment here for a second on the biotech funding crisis. Many biotech funding situations are today really driven by the fact that biotech companies understand that they are better off in working with Evotec on the basis of variable costs, then building fixed costs. So, we are the answer to the biotech funding crisis. We are absolutely not suffering from this problem at this stage. And with this, let me hand over and give you context to our financial performance of 2022. And again, Enno, this will be your last presentation in this context. But again, it's beautiful to see you presenting the best numbers of Q4 ever.
Enno Spillner: Yes, that's my great pleasure. Thank you, Werner presenting record numbers actually regarding Q4 of Evotec, which was the strongest performing quarter ever under 30 years history of Evotec. Welcome everybody to the call also from my end. And it's a great pleasure and I'm very pleased to report our financial performance for the 12-month period ending in 2022. And let me start on Page 35 with a brief overview of our preliminary numbers before I break down into more details on the following slides. Compared to the previous year, the group revenue increased by a strong 22% to €751.4 million surpassing our upper revenue guidance by over €15 million. And this significant growth was especially driven by our very robust base business. Favorable FX efforts provided additional tailwinds, adding €40.6 million to the revenue line of Evotec. On the other side, we did see a decrease in milestone revenues of 31.4 million, compared to the previous year 2021. The gross margin amounted to 23.2% in the 12-month of 2022, leading to a decrease of 130 base percentage points compared to the previous year. And this decrease was mainly due to the increasing cost of Just – Evotec Biologics manufacturing and the lower contribution of milestone revenue as just indicated. Additionally, inflated energy prices, more expensive materials, and increased logistics costs had a negative impact on the gross margin, as well as Werner already mentioned. Unpartnered R&D increased by 21% from 58.1 million in the previous year, up to 70.2 million in 2022. This is again a testament of our commitment of investing in Evotec's capabilities to improve our efficiency and precision medicine platforms. And that said, compared to our guidance target, the result of the unpartnered R&D costs is still at the lower-end of our guided range of €70 million to €80 million. Regarding our ambitious EBITDA guidance, which was set between 105 million and 120 million we report a like-for-like adjusted EBITDA of €104.1 million. This result was driven by a well-balanced development between our favorable growth and expansion versus profitability of Evotec's base business. However, significant investments to further increase the high potential of Evotec's Just J.POD had a negative impact on the EBITDA outcome, as well as a lower milestone contribution pointing to the same direction. In addition, strong headwinds from an inflation perspective were a challenge to our EBITDA, particularly in the first half of 2022. Eliminating the expenses, which occurred in context of our M&A activities, and the EBITDA contribution from our latest additions, namely Evotec Modena and Evotec DS, and Halle, Germany which totaled 2.5 million. The M&A adjusted EBITDA like-for-like improves from €101.7 million to €104.1 million, which I just mentioned earlier. For transparency and once again pointing out the strength of our very healthy base business, the exclusion of the financial performance of Just – Evotec Biologics would lead to an outstanding EBITDA resulting into an EBITDA of €138.3 million for the full-year 2022. Looking at Page 36, this slide depicts our excellent revenue growth of 22%, which was spread across the majority of our business units and there of 15% resulted from organic growth of our group revenue at constant FX. Consequently, an important factor and the achieved revenue growth were FX tailwinds of roughly 6.6 percentage points and adjusted for Just J.POD related group revenue standalone grew by 24%. Just looking at the base revenues, these increased by an impressive 30% and once again confirmed the growing demand by our existing and also new partners. While we experienced a decrease of our overall gross margin, the gross margin, excluding Just – Evotec Biologics would actually increase from 28.4% to very firm 31.1% therefore exceeding last year's gross margin by 2.7 percentage points. And this also despite reduced margin strong milestone contribution, as well as inflation headwinds. Considering all these challenging environments and factors, the outcome of this year's 2022 numbers deemed as highly satisfactory. Looking at Page 37, this slide highlights our already anticipated very strong EBITDA outcome for the last quarter of the year. In Q4, the EBITDA contribution was 57.1 million, which was largely driven by milestones, upfronts, license, and royalties. Again, the significant growth factor was the excellent development of our base business, including a very strong operating leverage. And last, but not least, a very strong quarter of Just – Evotec Biologics also contributed to the outstanding Q4 EBITDA. Major factors for the positive development when excelling operating leverage, as well as some royalty related revenues, as Werner just indicated earlier as well. Adjusting for Just – Evotec Biologics, we would be looking at a very dynamic growth rate of 34%, comparing Q4 2022 versus previous year Q4 and 2021, which was already also a strong quarter. Like the previous slide, the slide – Page 38 further underlines the exceptional Q4 2022 performance being the strongest quarter in our history as I mentioned before. The revenue growth was 29%, compared to an already strong Q4 2021 and this exceptional achievement was supported by a milestone contribution of €12.3 million in that quarter. The gross margin in Q4 increased to 34.4% being 6.5 percentage points higher than in Q4 2021. The most significant factors or most significant factors shaping this great outcome for Q4 where the achievements of milestones, upfronts, and licenses, royalties from SK Bioscience, a very prosperous development of the base business and a strong performance improvement of Just – Evotec Biologics in the final quarter of the year. And despite massive pressure on the cost side, due to inflation and ongoing investments, the EBITDA in Q4 could be improved by 53% overall versus Q4 2021. Eventually, 52% of 2022’s EBITDA has been posted in Q4. The net result was once again influenced by the volatile share price development of our shareholding in Exscientia as the main factor driving the net result here. Moving to Page 39. This overview slide summarizes the main balance sheet and also cash flow KPIs of 2022, compared once again against 2021. Overall, the balance sheet remained roughly stable with a total north of €2.2 billion total assets or total balance sheet. And with an equity ratio of 52.6%, we remain with a very solid basis for future investments as it provides us with considerably financing flexibility to drive our growth trajectory in case this would be needed. It is important to note that the decrease in the equity ratio is primarily attributable to the fair value adjustment of Exscientia shares, which amounted in total to an adjustment of minus 175 million in 2022. The operating cash flow totaled €203 million, exhibiting a more than 80 million increase compared to the prior year. And a significant event was the receipt of the US$2.5 million payment from BMS in the first half of 2022. Moreover, the net debt ratio of minus 2.0 adjusted EBITDA factor also underlines the solid financing basis and a lot of headroom for financing flexibility if needed. Evotec's liquidity position of €719 million builds the platform to further pursue our very ambitious growth and investment strategy. CapEx in 2022 amounted to €181.4 million and included a significant portion of side expansions. For instance, 58 million have been invested in J.POD Europe or Toulouse to be more precise, 50 million in our J.POD U.S., as well as another 86 million to expand our sites in Munich, for instance, Alderley Park, UK; and Abingdon, Toulouse and Verona in Italy. In addition, almost €60 million were invested in new and existing equity investments and also minority shareholdings and €23 million for the acquisition of Evotec Modena, as well as Evotec DS in total. And with this, this completes my financial overview. And therefore, I will hand back to Werner, but before I do so, I would like to in particular today here on this call thank the audience, our investors, our shareholders, our analysts, and the media who accompanied us over the past years and where it was always a great pleasure interacting with you and being in touch with you and I hope we can continue to do so maybe one-time. Let's see. Thank you very much for your trust. And for the interaction and communication we had. I'm handing over to Laetitia from next week onwards. And I'm very grateful having had a great experience over the past almost seven years being on this tremendous journey with Evotec together with my team, with my colleagues, and also obviously the management. It was a great pleasure and therefore thank you a lot for having this opportunity.
Werner Lanthaler: Thank you, Enno. Let's come to the final part of this presentation by first on Page 41, reiterating our Action Plan 2025 as already stated. If you go to Page 42, you see that it is essential to build a growth company with a growth culture. And with this bringing at this stage about 500 new talents into the company in 2023, we also committed to not only build the culture, but also build the prospect for these new talents to come to stay and be motivated to see a long-term future within Evotec. And if you go forward, on Page 43, it is increasingly noted also by the outside that we keep our promise when we talk about ESG and sustainability. We want to make our contribution not only to patients, but to the whole planet. Everyone can start here, everyone can contribute here and we want all our employees in the outside world to realize that we take this as a very, very strong commitment from the whole management team into the whole organization. So, you see listed here our contributions to environment social contributions and also our commitment to best of all governance. If you go to the next page, you also see our promise will continue and accelerate when it comes to ESG goals in 2023. Why is this important because we want to have here a full understanding for growth. And with this, we also want to have, for example, a full understanding of our talents everywhere where Evotec is working with, for example, highlighting here the interaction through an engagement survey in 2023. When it comes to our news flow in 2023. And if you go to Page 45, it's great to see already some ticks made, despite the fact that it feels like the year has just started. So, you can expect a lot from us when it comes to PanOmics, our first focus area, when it comes to iPSCs, our second focus area. When it comes to Just – Evotec Biologics, our third focus area, and when it comes to our end-to-end shared R&D platform, our fourth focus area. We are just beginning when it comes to the year, but we are just also beginning when it comes to the long-term vision of Evotec. And with this and on Page 46, let me thank you for following us. Let me thank you for all the questions that we hope to receive. And I'm here together with Matthias and Craig, and Enno and the whole team to answer your questions as you are hopefully pushing the button now. Thank you so much.
Operator: [Operator Instructions] The first question is from the line of Zoe Karamanoli with Royal Bank of Canada. Your question please.
Operator: Next question is from the line of Peter Verdult with Citi. Your question please.
Operator: And the next question is a follow-up from Zoe Karamanoli from Royal Bank of Canada. Zoe, your question, please.
Operator: The next question is from the line of James Quigley with Morgan Stanley. Your question please.
Operator: The next question is from the line of Steven Mah with Cowen. Your question please.
Operator: The next question is from the line of [Douglas Tsao] [ph] [Technical Difficulty].
Operator: Next question is from the line of Peter Welford with Jefferies.
Operator: The next question is from the line of [Joseph Hedden] [ph] with Rx Securities.
Operator: Next question is from Falko Friedrichs with Deutsche Bank. Your question.
Operator: And the next question is from the line of Christian Ehmann with Warburg Research. Your question, please.
Operator: If I may, we have a final question. No, it's gone. Sorry for that.
Werner Lanthaler: Thank you. That was indicated here on the platform as well. Great. All the best. Bye-bye.
Operator: Ladies and gentlemen, with this, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.
