Evotec SE Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Results: 2024 group revenues, R&D expenditures, and adjusted EBITDA were within the guidance issued in summer 2023. Q4 was strong with the second best revenue quarter ever and operational leverage. Strengthened partnerships in Shared R&D (e.g., extension with BMS, new partnerships with Novo Nordisk, Pfizer, Bayer) and Just-Evotec Biologics.
• Priority Reset: Implemented in Q1 2024, resulting in €40 million of run rate savings by end of 2024, including divestment of API business, site exits, and headcount reductions.
• Strategy Review: Evotec is focusing on pairing scientific excellence with operational excellence. This includes simplifying the Shared R&D business model, upgrading Just-Evotec Biologics as a world leader in continuous manufacturing, and prioritizing technology and science leadership to drive profitable growth.

Segment Performance

• Shared R&D: In 2024, revenue declined from €673 million in 2023 to €611 million. It contributed €12.7 million in full-year adjusted EBITDA. Q4 2024 revenue was €221.2 million, a 20% increase from Q3, making it the second best quarter ever.
• Just-Evotec Biologics: Revenue grew from €108.4 million in 2023 to €185.6 million in 2024 (71% growth). It contributed a positive full-year adjusted EBITDA of €9.9 million, with strong growth driven by partnerships like with Sandoz and other customers.

Guidance

• 2025 Outlook: Group revenue expected to grow 5%-10% (€840 million-€880 million). Shared R&D revenues are expected to be broadly similar to 2024 due to soft market, but Just-Evotec Biologics is expected to grow beyond the market rate. Priority Reset will drive an additional €30 million of growth savings in 2025. Adjusted EBITDA is expected between €30 million and €50 million.

Risks

• Market Softness: Temporary softness in the R&D market is affecting the Shared R&D segment.
• Indirect Impacts: Potential indirect impacts from university budget cuts reducing biotech innovation, which could affect long-term biotech startups.
• FDA Implementation: Uncertainty around the timeline for fully phasing out animal testing and the implementation of new methodologies like human microphysiological systems and AI-based models.

Question and Answer

• Q: About tax credits, savings composition, drug portfolio phase, FDA models **A: Paul Hitchin addressed tax credits as sustainable, noting they align with business growth. Cord Dohrmann discussed drug portfolio phases (6 clinical stage assets, 6 preclinical stage assets) and Evotec's advanced platforms for predicting drug-induced liver injury with over 87% predictive accuracy, moving towards phasing out animal testing with advanced models.
• Q: Market expectations, cost out, FDA upside **A: Paul Hitchin discussed market expectations with 5%-7% growth from outsourcing, cost out plans for 2025 focusing on tight cost control, and FDA guidance with ongoing use of tools but no immediate tipping point for full phasing out of animal testing.
• Q: Mid-term outlook, milestones, margin improvements **A: Paul Hitchin reiterated a conservative approach on non-risk adjusted milestones, and margin improvements driven by growth and cost control, with a backend weighted approach.
• Q: Just-Evotec growth drivers, FDA upside timing **A: Paul Hitchin noted strong line of sight on Just-Evotec growth for the next 12 months based on existing partnerships, and FDA guidance with ongoing use of tools but no immediate timeline for full phasing out of animal testing.
• Q: Pipeline streamlining, service dynamics **A: Cord Dohrmann discussed pipeline streamlining focusing on differentiated assets developed with partners, and service dynamics in Shared R&D with different characteristics and investments in high-tech segments.
• Q: Just-Evotec leverage, one-offs, synergy **A: Paul Hitchin explained Just-Evotec leverage with ramp-up costs for 2025, no further one-offs planned in 2025, and synergy between Just and Shared R&D through technology leadership to aid partners in drug discovery and development.