Evotec SE (EVT) Earnings Call Transcript

Ladies and gentlemen, welcome to the Evotec SE Company Update Conference Call. I'm Sasha, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Volker Braun, Head of Global Investor Relations and ESG. Please go ahead, sir.

Thank you, Sasha and good morning, good afternoon to all of you on the call. Thank you very much for dialing in. Today's call will be led by Professor Iris Low-Friedrich, Chairwoman of Evotec Supervisory Board; and Dr. Mario Polywka, CEO of Evotec. Before we start, please allow me to spend a few words on housekeeping items. The call today is limited to 30 minutes. After the comments of Iris Low-Friedrich and Mario Polywka, you will have the opportunity to ask questions, as Sasha just alluded to. Please be aware that we will only answer questions related to the sphere of influence of Evotec. The second housekeeping item is to make you aware of the cautionary language as outlined in the disclaimer on Page 2. And with that, I hand over to Iris Low-Friedrich to share details on governance principles at Evotec. Iris, please, the floor is yours.

Yes. Thank you very much, Volker. And also from me, a very, very warm welcome to today's call. As Chair of the Evotec Supervisory Board, I would like to briefly recap up on the termination of office of our former CEO, Werner Lanthaler and his late disclosure of transactions in company shares. As you all know, at the end of last year, Werner Lanthaler asked the Supervisory Board to end his position as Evotec CEO and his service agreement. He referred to personal reasons for that decision. We, the Supervisory Board decided on the 3rd of January to agree on such termination with immediate effect, and we communicated that to the market immediately. In parallel, Werner Lanthaler disclose to Evotec a number of transactions in Evotec shares that he made over a period of 3 years. Evotec reported these transactions to the market immediately after the company received the respective notifications from Werner Lanthaler. Evotec has acted always in compliance with the statutory regulations and our own very strict compliance code. I assure you that Evotec has a clear and widely communicated insider policy, which is supplementary to Evotec's code of conduct. So for example, the policy explains the notification duties of managers related to dealings as well as blackout periods before announcement dates of interim financials. The policy also describes what information is to be considered as insight information and the resulting information ban and trading prohibition. Furthermore, the insider policy lays out a mandatory clearance process prior to any trade in company shares. The clearance process is to be observed by any person discharging managerial responsibilities, which means, in essence, the Supervisory Board and the Management Board members. All details of the insider policy have been reviewed and refined in the run-up to our U.S. listing in 2021. Our corporate insiders have been appropriately trained on the policy. The policy has been published and is accessible on the company's website in the government section under evotec.com/investorrelations/governance. Triggered by this instance, we have refute our processes. And I state firmly today that Evotec has fulfilled all its notification obligations as to manager's transactions at all times. We have also reaffirmed with the current members of the Management Board and the current members of the Supervisory Board, the strict adherence to Evotec's very strict insider policies and procedures. Werner Lanthaler has left Evotec's Management Board, except for certain outstanding internal handover activities, which may only continue for a very, very short time still, he does not hold any operational or advisory role in the company or in the group's subsidiaries anymore. Besides that, let me be very clear, there are no further plans for Evotec to involve him on company matters in the future. It's very important for me to underscore to you that Evotec is very strong. The innovative power of Evotec has been and will be always the almost 5,000 colleagues in the company who bring their experience and expertise, their passion, creativity, resilience and commitment to work every day. They are creating the high-caliber research results, the fascinating science and the high-quality deliverables upon which Evotec's reputation and wide recognition in our industry are built. It is the collective scientific expertise that makes all the difference. And of course, I can assure you that we continue to have strong engaging state-of-the-art and experienced leadership in place. Before I hand over to Mario Polywka, our CEO, I would like to underscore what Volker said in the introduction and to clarify. We do not participate in any speculation on matters outside the sphere of influence of Evotec. I've covered all aspects that are relevant in the context of Werner Lanthaler's departure with my statement. Hence, I'm seeking you're understanding that we will not answer today any additional questions related to the former CEO's departure. Of course, we are very much looking forward to respond to any questions you might have related to the business, future growth, the search process. So thank you very much. And with that, it is a pleasure for me to hand over to Mario Polywka, our CEO.

Thank you, Iris, and Volker and hello to everybody. It really is my great honor to represent Evotec today and to give you a brief update on our business progress. I would like to first begin with a very clear statement as Iris has pointed out. All my colleagues and I remain completely focused on the delivery of our goals for 2024, which also establishes the platform for Evotec and our 2025 aspirations, which I know are very dear to our hearts and your heart too. Our strategy and our business model remains intact and resilient. The news over the Christmas period has not impacted what we're doing, has not impacted our customer satisfaction or our ability to continue to progress and sign important new contracts. After a hugely time midyear of '23 with the impact of the cyber-attack, our businesses are back in full operation with only small minor headwinds. Just Biologics continues to deliver significant revenue growth. And operationally, we are making truly excellent progress in putting together all the pieces to deliver against our pivotal Sandoz partnerships in the coming years as well as being in the position to acquire and deliver on new businesses within the Just-Evotec Biologics division. Our PanOmics-driven drug discovery platform, our end-to-end R&D platforms remain at the vanguard of delivering on our partners' drug discovery and development needs. And this can be illustrated by the recent progress with BMS and Owkin are the few examples. Coming out of JPMorgan, 2024 see some green shoots of recovery within what has been a very challenging market. And we feel here at Evotec, we are ideally placed to respond to further upward trends in our market. As reported in the Q3 call, we remain super conscious of our need to continually improve our operational efficiency. And we continue to progress initiatives to maximize this efficiency and thus deliver on our increasing profitability objectives for 2025. Continuing from that cyber recovery reported to you at the beginning of Q4 last year, we confirm our adjusted guidance for 2023 as we confirm that just 2 weeks ago. This is a truly excellent position going into 2024, and we will give you full details of the full year 2023 outcome. And of course, a more detailed guidance on 2024, only in our April '24 statement. With this, I would like to summarize and open the floor to questions. We entered 2024 with an improved underlying demand for our services, continued growth in our Just Biologics platform and an increasing number of partnerships with significant milestone-based upside opportunities. As 2025 is predicated by significant contributions from these key business elements, we feel there is no reason to change our aspirations for 2025. But as we all know, finally, it's all about execution. We are always somewhat at the whim of chemistry and biology data working and driving our pipeline forward. But our platforms and our people, as Iris had said, have been developed to maximize that probability of success. It remains for me to also say thank you to all of our colleagues and employees for their unwavering support and dedication to Evotec and the great scale and commitment they bring to their jobs every day. And then finally, you can see here a brief overview on up-and-coming events before we start the Q&A session. Thank you for listening and also for your support. And we will now take a small number of questions, and I ask the operator to start the Q&A session now.

[Operator Instructions] The first question is from Charles Weston with RBC Capital Markets.

I'll kick off with two, please. First of all, have you consulted with German and U.S. security lawyers about any potential liability that the company might face from shareholders? And secondly, how is CEO search going? And what sort of profile of candidates are you looking for?

Yes, Charles, this is Iris. Thank you very much for the questions. You can rest assured that we have gotten advice and support internally and externally on all potential implications, so far to your first question. To your second question about the profile of the new CEO. You can imagine that we are seeking very visionary and dynamic CEO who needs to take the company to the next level of its evolution. But I'm also mindful that following a period of very fast growth, the near-term priorities for Evotec are securing the profitability of the business, streamlining the business processes, systems, site, capturing efficiencies and reducing the complexity across the businesses. In addition, we need to integrate and build a culture of high-performing and collaborative teams and we need to foster psychological safety as well as inclusion and belonging. A little more volatile biotechnology investment climate, as Mario said, the company needs to focus on its core research and development strength as well as building a backbone of strong functions working with the fully integrated businesses in a seamless manner. And of course, the CEO will be responsible for providing the strategic direction, but also for operationalizing strategy to ensure performance and delivery. These are important terms, performance and delivery, driving profitable growth and ensuring the overall success of Evotec. And you can imagine that the ideal candidate will have a strong background in the life sciences industry and ideally, a proven track record of executive leadership and operational management of a large listed enterprise. And of course, we are looking to the successful candidate to work together with the Management Board as a strong leadership team and to drive innovation, which is the foundation of our business to optimize operational efficiency and to deliver exceptional results going forward. That's the person we are looking for.

The next question comes from the line of Falko Friedrichs with Deutsche Bank.

I have two questions as well, please. Firstly, is there a risk that your company could face further investigations into your processes and procedures such as, for instance, one from the SEC in the U.S.? And then secondly, will there be a detailed review of the business decisions that Mr. Lanthaler oversaw to make sure that he wasn't also acting unethically in a business context.

Yes, I can take this as a first step, and Mario, please add. So first of all, we are, of course, not aware of an investigation by German or U.S. regulators related to a potential company misconduct with regards to directors' dealings. And so we are again, not aware of that. And we are not expecting, at this time any legal actions taken in either geography. And then on your question around other transactions, please rest assured that all internal processes related to company payments require a principle and we live very strictly by that. And please also rest assured that we have intensely looked inside into any proceeds. And I can state firmly here that we are not aware, and we have really looked deeply of any other misbehaviors on his conduct.

And perhaps I could just add to what Iris have stated. We -- I'm certainly not aware of any issue with business decisions being made within the organization in driving our strategy and vision forward.

The next question is from Michael Ryskin with Bank of America.

I just want to talk about the -- some of the governance and internal metrics in tracking. I think you cited state-of-the-art governance and that throughout this process, Evotec adhered to all the appropriate policies and took the appropriate actions and yet there still -- the events still transpired. So are you considering any changes to your internal tracking, to your internal policies or anything else specifically as it relates to the senior executive team.

Yes, of course, we are looking into are there any learnings, but I want to reiterate what I said before. We have state-of-the-art processes in place, starting with the policy everybody is trained on with the appropriate clearance process with the clarity that there needs to be reporting of any transaction and that no transaction can happen without a prior clearance and also with the annual check-ins. Of course, we are looking whether there is further opportunity to refine and improve, but this will only be refinements. The basic processes are robust and has been tested and are very much in line with best industry practices.

The next question comes from the line of [ Elisabeth Weißenhorn ] with [indiscernible] Investments.

Yes. It was already somehow touched on it. I really don't quite understand that and it was also mentioned in press comments that you should get the list of ownership every year-end by the responsible person and then you could counter-check. But okay, if you're not doing -- if not getting the actual list you cannot counter-check, right? And then the second here would be -- yes, because we have to be -- I mean investors have to be more or less get some clarity whether the company itself could get into trouble with all that? And the second here for me is, the former CEO, said, okay, it's not the time now to go for profitability, but it's the time to invest. And it sounds to me now that you are looking to change that.

So I can give it a start. As you rightly said, we are checking shareholdings with the Management Board and Supervisory Board members in the end of every year. If incorrect information is given back to us, there is limitations to what we can do. And as we said before, if there are misbehaviors, processes and systems can only put a framework around that and can only safeguard against misbehaviors to a certain extent. I would like to repeat and be crystal clear that the company has behaved all the time in line with what should be expected in line with regulations, in line with our own codes and guidances. So we do not expect that there will be any action in the direction of the company. And I think Mario should talk about the focus on profitability, and this does not preclude the focus on growth, right? What we are trying to achieve is profitable growth. But Mario, that's maybe more appropriate for you to discuss.

Thank you, Iris and thank you for the question, Elisabeth. There is no particular emphasis on profitability or growth. The emphasis is on both. So we absolutely are tremendously excited about the opportunities we have in Just-Evotec Biologics. But just with this fantastic Sandoz collaboration partnership we have the all other opportunities that, that presents. And you know that we are closing out on our J.POD 2 in Toulouse, and that's pivotal for us to deliver on what is significant, almost $1 billion sales order book in the Just-Evotec Biologics division. And so we will continue to invest and do everything we can to make sure that is a success, just as we will in all our end-to-end R&D platforms, iPSC cell therapy, or whether it be finding disease-related targets or even to our PanOmics-driven drug discovery. However, as an organization, we must also deliver to our shareholders. And we must deliver not just a robust growing top line, but a very, very robust and meaningful bottom line. So we will continue to focus on processes in sight to maximize our return on our investments.

May I have an add-on? Yes. Please, can you explain the trades that were reported on Friday where Mr. Lanthaler was also mentioned, will this trade -- this option rates where they called before the year -- before this 3rd of January or by -- is he still on that list?

Maybe I can chime in. Mam, can you hear me?