Evotec SE (EVT) Earnings Call Transcript & Summary

Good morning, good afternoon. Welcome to Evotec. Today is an important day because it's a significant impact that will happen through the new partnership between Sandoz and Just-Evotec Biologics for the world. Why do I say this? Because when we think about access, then this partnership will make a huge contribution in the future. We have uploaded a presentation for this call that I will host together with Matthias Evers, who was pivotal to make this deal happen. When it comes to the presentation, I would like to guide you to Page #2, which gives you an overview of the tech partnership for biosimilars that we have initiated together with Sandoz. Before that, let me start by a general definition of what a biosimilar is. The FDA defines a biosimilar is a biological product that is highly similar and has no clinically meaningful differences from an existing FDA-approved reference product. And these are differences when it comes to safety, purity and potency. That's a biosimilar. And I make this definition because typically when you are discussing with Evotec, we are discussing about small molecules, cell therapies, we are discussing about antibodies, but biosimilars is for us entering into a new world together with one of the leading partners in the industry. So the deal rationale and some key elements here are showing you that it's a strategic partnership in the field of biosimilars. It's long term in covering the development in the commercial manufacturing of biosimilars. The financial terms are significant. There's an undisclosed double-digit million upfront payment that Evotec will receive and that we will recognize in the coming years. There's future payments depending on successful development of upto $640 million. And on top of this, you can expect that future payments will be committed to the commercial manufacturing that will happen in the network of Just-Evotec Biologics facilities. From defining here a business model, we are going into what we called here a CDMO plus development model. Maybe we should call it even CDMO plus-plus development model because there's really a huge technological component and also risk-bearing component in there. Commitment of commercial manufacturing of several molecules will go into our network of J.PODs. And the joint productivity goal that is behind that will make huge impact because ultimately, this will drive costs down for biologics. And [with] this give future access to many, many more patients. We're talking about a nonexclusive license as well for a so-called S.POD, which could be an option to be set up in the future by Sandoz. When you go to the next page of this presentation, let me remind you for a second what Just-Evotec Biologics stands for. Just was founded by an amazing talented group, most of them coming out of Amgen, and they gave themselves the name Just, which was referencing justice and justice in the sense of giving more people access to affordable and highly efficient medicine. Why is this so relevant? Because today, you're still talking about huge underserved populations. You're talking about huge underserved regions and you're talking about huge underserved indications where Novel Biologics and Novel Biosimilars will make a huge impact. And that's by sharing this cultural North Star, together with Sandoz, brought us together in this partnership. When you go to Page #4, we say and are fully convinced that after a few decades where biosimilars were always a bit in the zone of we don't really know where this industry is going. Now we are very clear where this industry is going. And the era of biosimilars is starting. You see more than 120 biologics that are expected to lose exclusivity until 2030 already. You see 50 blockbuster drugs by 2030 and you see a double-digit market growth in this segment where, again, you have only a very small number of globally leading companies and where Evotec and Sandoz will clearly mark now the top alliance in the industry. With this and especially to illustrate to you our technological advantages. I hand over to Matthias.

Thank you, Werner, and good morning, good afternoon also from my side. It's a real honor to speak with all of you on a very special day for Evotec. As Werner said, it's maybe good to first remind us of the value proposition that after all brought Sandoz and Just-Evotec Biologics together. It lies in its foundation is in technology innovation. Technology innovation in continuous manufacturing, but much more. It's actually the use of integrated data analytics, integrated data streams from development to manufacturing and back. Now this allows a paradigm shift in this industry and all these shifts depicted on this page are highly relevant for this partnership for instance, flexible and agile capacity to quickly react whenever a clinical material needs to be produced and in-market demands need to be met, attractive facility costs, driving down CapEx and particularly the last point, how this type of operation allows highly affordable biosimilars that are the magic key in the end to access as Werner I introduced before. Just-Evotec Biologics has a distinctive value proposition in these areas, and this is also what we are leveraging in this type of deal. Before I introduce a little bit more about the deal, let me double-click a little bit into the value proposition of Just-Evotec Biologics. And I will move over to Slide 6. This illustration is in absence of pictures of the plant, a bit what is happening in this continuous manufacturing-based paradigm. What you see is certain devices, [apparatus], et cetera, that are familiar. But in the Just paradigm, which you see at the bottom, it's highly integrated first of all. It's, of course, schematic, but you will see a lot of cables, sensors, 24/7 monitoring and an end-to-end integration that, of course, allows highest control, highest quality and, frankly, the absence of a lot of coworkers. Now for the regulatory informed people, we don't actually switch out the light. This is more to say we could switch out the light because it's a very light operation when it comes to co-workers. This, of course, has implications on costs as well as on quality. If we move over to Slide 7. This highly intensified processing yields much lower COGS. I think the driver is on the one hand, labor costs but much more so, it creates also a highly productive process. Sales are, frankly, like the way as they are treated in this process because they are constantly producing here. I mean we see some schematics of a 25-day production paradigm where the product is immediately moving away from the cells. So they stay in a much more healthy condition and this type of approach drives productivity of COGS, where we believe versus traditional CDMOs based on benchmarks that we have that we are 75% below. And you see later that we operate with an aspiration of to go to $50 per gram and below. If I can just move us on to Page 8 and get closer to the deal itself. This is a partnership that stands under the [work] together. It's a true coming together of companies with globally leading capabilities that are very complementary. Just-Evotec Biologics is clearly bringing into this partnership, CMC expertise, manufacturing capabilities and an emphasis is on really on the development expertise of biosimilars because all the technologies introduced the constant data monitoring gives a very stable data and AI-driven backbone that helps us to be much more predictive and hence, much more productive in process development as well as in later manufacturing. Sandoz is a clear leader in the biosimilar field, and of course, is bringing in clinical, regulatory, medical as well as commercial capabilities in the field of biosimilars. What we touched on briefly earlier, is what together stands also for a fully aligned purpose and culture that has been instrumental to bring the teams together already now on the journey towards this partnership and to make it happen. If you move to Page 9. Page 9 is a bit an illustration of this, what we call a very synergistic collaboration model. Under this combination of capabilities that I just introduced and that we're not quite actually a CDMO plus-plus because we have joint incentives. Joint incentives to drive down cost towards affordable biosimilars. And we have a clear scope for this partnership where Just-Evotec Biologics is bringing all the capabilities we have into the development, into the commercial manufacturing. And over the course of the next years, also Sandoz may exercise the option to build an S-POD -- for us, it is a real Precedent, the Precedent of offering the full technology stack into a Sandoz, into a partner-owned facility. To illustrate this last point a little bit further and the importance of it, let us move on to Page 10. This describes a bit what does this S-POD option actually entail. It's a nonexclusive option for a fully Sandoz-owned operated facility. Facility is actually the wrong word because it's actually the option for a full technology stack, processes IT technology, frankly, is a recipe to make these attractive economics work. The time line is highly illustrative. But given the rapid time lines to build such a facility, this is an illustrative time line that could bring us to an S-POD around 2030. The partnership clearly builds on the expertise on the Just-Evotec biologics team in terms of design, construction, operating and trainings as per facility. As a next step on Page 11, perhaps as a reminder, how would then the global network of [ POD ] facilities look like. We have our Jplants-original starting point of our network in Sierra Phase I to clinical supply hub. And we have our J.POD and Redmond, fully equipped for commercial production because GMP runs already started 2021. And we have our J.POD in Toulouse, France, which is in progress of being built up, looking already impressive, not as finite as on the picture, but frankly, looking impressive. And the S.POD option as discussed before. Let me now move to 1 more slide, Slide 12, another schematic to illustrate the economics of this partnership. We have disclosed development payments for the development of a portfolio of biosimilars of $640 million as direct commercial back value over the coming years. We indicate here commercial manufacturing. So for in-market products 2030 onwards, we also illustrate here undisclosed payments that lead over into commercial manufacturing given the joint incentives given the S.POD option, et cetera. With that, let me hand back to Werner to summarize our presentation.

Thank you, Matthias. If you go to Page 13 of this presentation, let me clearly state that we are just at the beginning of what we think will be a paradigm shift in the world of biologics. We have started our business model by focusing on 3 customers of the future. One, our foundations and governments and let me highlight again that we have a wonderful partnership initiated with the Department of Defense, with the NIH and also other mission-driven foundations that are already buying into the concept of fully continuous manufacturing of the future. Our second group of partners are biosimilar players. And here with Sandoz, we are so happy that we have a world-leading player on our side now. And the third group that we are partnering with are innovative molecules for Novel Biologics. So with this, you see that this is the first large-scale industry partnership for Just-Evotec Biologics in the world of biosimilars. And as you know, biosimilar players are very, very sophisticated when it comes to quality, time lines, precision and that's also why we think that this is the validation for fully continuous manufacturing platforms that have been talked about very often in the industry, but where we are truly building together with Sandoz, a world-leading alliance. This is introducing for our platform where we are very often naming our platform, the shared economy platform in the industry, a new portfolio partner which is excellent from its reputation, excellent from its vision and mission. And that's also why we think that this is very good for us to create even further upside next to a CDMO business together with this partner. We are securing with our J.POD fully continuous manufacturing technologies, large volumes for the planet and will give a lot of patients access in the future. So you can hear me that this is just a starting point of a new wave and the next wave of alliances to come. And if you go to Page #14, you see how this fits into our long-term plan, which we have given out by the year 2020 and where we are very clearly aspiring to not only go way beyond EUR 1 billion in revenues, but also to bring up EBITDA levels to EUR 300 million, and the contribution of Just-Evotec Biologics, which is, as you know, still in its start-up phase and is today still in its negative territory when it comes to EBITDA contribution will shift in the year '24 to a very nice contribution in EBITDA. And with this, let me highlight again that this is a great day for access for many patients to have best medicine available in the future, and let me thank you for following Evotec. And on Page #15, let me thank you also for following Evotec in the future where you see upcoming dates of our publication of our annual report where you see our Capital Markets Day announced for the 5th of June and where you see our AGM, which will be held on the 20th of June in the next weeks as events to highlight into your calendars. We are open for questions, and thank you so much for being with us.

The first question is coming from James Quigley from Morgan Stanley.

Two please, so in the [Sandoz] press release highlighted there could be an additional [ 8 or 9 ] assets or so through the collaboration as the highlight going from 15 plus to 24. Can you give us an idea of which assets these biosimilars are for? Or if not, could you let us know the current market size of the innovative market for the 8 or 9 biosimilars? And what are your expectations around the build-out and timing of these assets moving forward through development and into commercial. And finally for that part, are any of those potential first-to-market opportunities? And secondly, can you give us a little bit more details on the timing and achievement on the $640 million. What milestone needs to be achieved to recognize the revenue? Is it a straight-line basis? Or is it linked to particular milestones? And should we sort of spread it across the 8 or 9 assets? Is that the most sort of reasonable way to think about it?

Thank you for the questions and great that you had the time to already see Just-Evotec Biologics. And this is also an invitation to everyone on the call if you are coming to Toulouse or if you're coming to Redmond and you want to see the future of biologics manufacturing, then be invited after letting us know that you are coming. For your questions, I hand over to Matthias.

James, thanks a lot for the question. On the first question of -- as you referred to the Sandoz press release and the numbers, I cannot give you a lot here given the confidential nature in a highly competitive market. You can assume that a global leader looks at globally relevant antibodies. And that's a fair assumption you can take, and we have to leave it here. I think in terms of the $640 million, a straight line is a reasonable start. I mean we did acknowledge that we will start immediately as you will have noted it immediately on a portfolio of molecules. I would also signal that it's not the traditional milestone in terms of highly risk-based milestones, but basically a straight line from development from the start towards launch of biosimilar so you can put a straight line up here and don't put very high risk against the milestones to achieve it.

Market potential, clearly first in market potential when it comes to biosimilars. Next question, please.

The next question is coming from Stephen Ma from TD Cowen.

Congratulations on the deal. My question is, what is the time line for Sandoz to take the S-POD Technical license? And does that option expire? And then to add on to that, can they create more than 1 S-POD. And if so, would that be an additional licensing option? Or can they create as many S-PODs as they like? And then why make the decision to enable others with your J.POD technology. Wouldn't that be potentially competitive with your existing business?

Stephen, Matthias here. Thanks for the question. Let me try to explore that a little bit. I introduced an illustrative time line and no, at this point of time, it's a long-term-oriented partnership, the option would not expire. And again, it's an option. And again, the time line is illustrated from our perspective. We have talked about a singular option. So it's really, I mean, the tech stack for one S-POD. We are talking here today singular. Of course, we are very open to the idea of multiples and growing this network given the demand we are seeing. So we are also not limiting it because that comes to your foundational question why? Because we feel where we have -- I mean, we really stand behind the shared R&D economy, and we want to provide leverage. This is a real leverage because we respond with this type of technology to demand the globe has and we participate in this demand, as we talked about, undisclosed payments. So this is a collaborative economic partnering model with I mean, obviously, undisclosed details but that's our rationale strategically to move into this unprecedented move and make such an option available, which is nonexclusive to Sandoz. So I mean you can also hear me here saying, this is an idea we can, of course, also explore in other spaces. Thanks, Steve.

Okay. Got it. And then one follow-up question on that. You talked about the shared R&D economy. Are there royalties attached to the products you're developing for Sandoz?

We have clear upside attached to that. Yes.

Okay. So it's not just a commercial milestone, there's commercialization also.

Yes, upside [indiscernible].

Next question is coming from Sebastian [indiscernible].

Congrats on the partnership. I was thinking maybe you can give some insight on to what the requirements are to hit certain development milestones for biosimilars versus other projects involving therapeutics? Is that more based on hitting certain production efficiencies or scaling from lab to clinical or commercial supply? And is there any relevance in that you hit certain milestones are not based on how far you get with the production capacity? And then I was wondering if you can also give some insight. You mentioned the portfolio of biosimilars can you maybe give a certain range what we should think of? And then also on how many slots are now actually taken in the J-POD facility for Seattle and are there already slots reserved for the Sandoz collaboration.

Before I hand over to Matthias, let me again stress that we are building a portfolio of partners for our network of J.PODs. And that's long term very importantly. And the portfolio will consist of governments and public institutions and mission-driven foundations. It will consist of biosimilar players. And here with [Sandoz], we have made a great start, and it will consist of innovative molecules going into that. Why is this important? Because that defines ultimately portfolio of value optimal usage of the capacity that we are building. And that's by creating that portfolio in the long run, I think, will be super, super important. With this, I hand over on the technical question, Matthias.

Sebastian, thanks for the set of questions. I mean it's I tried a little bit to address it with a question of Stephen, but it's good you follow up because, I mean, de-facto, Just-Evotec Biologics drives the technical development or some would call it the CMC. So that's basically the process starting from a cell clone, producing the antibody, creating I mean, in terms of analytical requirements, similarity, then developing a process and with that process and of course, supporting also clinical supply. So after the validation run, then supporting clinical supply and later commercial supply. With regard to the milestones we talked about in the scope of the $640 million, we talk about development, first of all, development, including supply for clinical trials. These milestones are very classic milestones, I mean, a, from a regulatory perspective, as you would expect, to achieve similarity, et cetera. So that's why I call them basically milestones with no particular risk attached. It's an average risk of every biosimilar developer we have on this planet. And the second component is given our joint ambition to disrupt the market, we, of course, look also at productivity, implying future COGS levels. And then, I think I answered your second part of the question. I mean, also to state very clearly, we are proud of this partnership with a global leader in biosimilars. So clearly, Sandoz is a priority partner but we are in the partnering model with different parties. And so in that sense, this is not limiting as we grow and build out the network.

The next question is coming from Peter Welford from Jefferies.

I think all 3 questions [are answered]. Firstly, are any of the biosimilars you're considering to the manufacturing? Are any of them existing biosimilars that Sandoz already commercialized [at] all? Because obviously, they are having to transition some of that manufacturing away from the parent. So curious whether are we talking about here in all cases, biosimilars that are yet to enter clinical trials and hence, therefore, really starting fresh. Secondly, then, -- just -- are there any particular types of biologic that you think the Evotec-Just technology platform is perhaps ideally suited to. I guess I'm thinking both in terms of potency, if you like, in volumes, but also potentially some Novel sort of biosimilars in particular, does it encompass the potential to be -- to include antibody drug conjugates at all? Or is this purely naked antibodies? And then finally sorry, third question, I apologize, but I can go back if you want to. Just on the artificial intelligence point of view, do you think -- is this a case that you believe with the upfront sort of AI-driven part, you are better placed to generate cells that result in biosimilar-like molecules. So I guess what you've got to do is create cells that will be more efficient but equally [indiscernible] in an antibody that is obviously highly similar to the originator. Is that where you see AI has been most relevant? Or am I misunderstanding potentially how you could utilize that.

Hi Peter, and thank you for your great questions. The first question is truly excellent, but I hope you understand that we cannot give you an answer because that would directly go to the strategy of our partners, and we are not allowed to comment on that. The second part of your question is there is wherever there's an [ Fc ] element in the composition, the technology is enormously powerful, let's call it that way. And that's also where you then can see a dramatic shift in costs. So this [ Fc ] element is something that really stands out for the technology. And on the third part of your question, I would hand over to Matthias.

Hi peter, thanks. And let me also quickly start a small comment to add on question number two because I think, yes, mass market products are well fit for our technology, so to go for large volumes. And we are not commenting on the portfolio of molecules for Sandoz. We are not. That said, as Just-Evotec Biologics, we are highly interested in ADCs, given the specific market, the market growth and also the capabilities within Evotec as a group across small and large molecules. Now to the third question, and you basically invite me to do the metric and say, yes, AI will provide us the best sales. I won't go there. we do believe that the end-to-end data stream, the monitoring allows us to come up with much more predictive choices that help us to develop much more stable, much more predictive processes. So one example is, and you might remember from the visit where we said we don't need intermediate engineering runs. And so we believe, yes, the technology stack as a whole is much better as well suited for biosimilars development. I would just not say it only plays part on the sales, but it's every step along the way in terms of process stability, process predictability, where it makes plays a role. And I believe that's also why Sandoz starts this partnership with us.

And maybe let me also make a comment on top of the ADC comment that Matthias made. If you look at a recent investment that we made into a company called Tubulis. German-based ADC company. Then you see that Evotec has seen the wave of ADCs coming already years ago and also that we think that this is a very interesting market to come that absolutely suits the synergies of technologies that we are providing here. And Tubulis recently also announced quite interesting partnership with BMS in the field of ADCs.