Evotec SE (EVO) 2021 Q3 法說會逐字稿

Dear ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer's request, this conference will be recorded. As a reminder, all participants in after the presentation, there will be an opportunity to ask questions. (Operator Instructions) May I now hand you over to Werner Lanthaler, CEO, who will lead you to this conference. Please go ahead.

Thank you so much. This is Werner speaking from Evotec. Good afternoon, and good morning from sunny Hamburg. We are here presenting to you the 9 months results of Evotec, which we have highlighted under rapid progress on the data-driven Autobahn to Cures.

We have uploaded a presentation for your convenience, and please follow this presentation throughout this 35 minutes that Enno and I will conduct for you. When you go to the first page of this presentation, you should see that I'm here together with Enno, our CFO; and Craig and Cord are also on this call, and they will be happily answering questions after the initial presentation.

When you go to Page #4 of this presentation, you should see that we are in a strong position. Actually, it's maybe fair to say that the company is in a very strong position. Why do we say this? Because the overall performance on all lanes of our data-driven R&D, Autobahn to Cures is strong. Yes, it's very strong.

Q3 shows many important and consistent steps forward. So overall, we see our Evo Innovate base business -- sorry, our Evo IR&D base business in a very strong shape. We see positive momentum across all business lines. And we already see very good business momentum into 2022. And given the long-term nature of our contracts also into '23.

Page 4 also shows you some single events that I want to highlight that are supporting our unique business model. Let me highlight here, for example, the recently announced clinical start with our partner, BMS, with a highly innovative target in neurodegeneration. Let me also highlight here the progress that we made overall in building our Evo Royalty pool with multiple clinical events that are either showing even more visibility towards the market like Bayer with our P2X3, or Jingxin Pharma by going forward into market registration in China, or by Kazia, a partner working in highly innovative oncology indications coming from Evotec targets that we have built here.

There are not many low lights that we want to mention. But of course, we also are suffering a bit from ongoing supply chain and ongoing, I would say, starkness in the overall flow of products amongst our network. If you go forward, let me show you our numbers of the full year so far and of Q3 in detail, where you see that we can happily confirm our full year guidance and also have a very good increased visibility to our overall strategy action plan 2025.

So also here, we are confirming our aspirations from Action Plan 25. Enno will give you more detail on all of this later. Page 6 highlights that we completed our NASDAQ listing. Is this an IPO? Is it a secondary listing? It's a bit unclear because, as you know, Evotec was listed about a decade ago. Evotec is a public company for many years already. It doesn't matter. We are so happy that we made a fantastic debut again on NASDAQ, and we are so happy that the investors who followed us are exactly the group of investors who we wanted to target to achieve certain goals.

Why do I say certain goals? Because we were very clear with our use of proceeds that we want to raise and that we want to use because you will see after making very clear statements why we went public, action will follow. And action will follow in the following direction that we want to expand and scale up the global presence of our network of J.PODs.

We want to expand our precision medicine technology platforms, starting with our world-class induced pluripotent stem cell platform, expanding our protein degradation platforms and massively upscaling our patient data generation analytics and generation platforms, PanOmics, PanHunter which are coming on top of building molecular patient databases, which are fundamental to our long-term strategy.

And also, we will continue to invest into our unpartnered R&D in building the best platforms, but also accelerating the asset building on our platforms. And on top of that, we will even go deeper and broader in our Evo equity strategy, which we have also announced behind our NASDAQ listing.

With this, again, let me thank you for allowing us to step to a global presence of Evotec. And with this, also, let me introduce to you, Enno with our detailed look into the numbers of Q3.

Thank you, Werner, and a truly warm welcome also to all of you from my side, good afternoon, or good morning, respectively. And let me start or continue on Page #8. And here, with the 9 month 2021 numbers, which show an excellent 20% increase on our revenue line, and this is substantially pushed by the positive development of our base business and the realization of 2 BMS milestones in September 2021.

Adjusted for the FX and for portfolio effects, we even would recognize a 26% gain in revenue growth. And I will come back to the further analytics of the growth factors on Page 12. The gross margin amounted to 23.1%, lower than last year's 24.7%, and this is mainly due to the often mentioned end of the Sanofi subsidy for our site in Toulouse after Q1 2020 and adverse FX effects in 2021. If adjusted for both respective effects, gross margin 2021 year-to-date would come in at a 24.6% versus a 22.9% in 2020.

The planned increase in unpartnered R&D expenses by 28% leads to an 8 -- sorry, to a 16% growth in the overall R&D expenses. This development is especially driven by further enhancing our multiple platforms, as Werner just indicated, and accelerating our co-owned pipeline. The increase of 20% in SG&A expenses versus last year is mainly caused by increasing headcounts and costs for our secondary NASDAQ listing. And the rise in this position in January reflects our continuous growth efforts, for example, for ramping up our new operational J.POD in Redmond U.S. and also enhancing ongoing integration task and ensuring overall growth opportunities.

The other operating income stands slightly above last year's level and contains 2 main components, basically, as already reported in the past quarters and past years. A, R&D tax credits; and B, the recharge for our infectious disease unit in Lion. All in all, this development results in a plus 3% increase for this other operating income. With a total of EUR 70.1 million, our adjusted EBITDA lands well within our expectations.

The net income amounted to EUR 247 million and benefits really substantially from a very positive one-off effect in the nonoperating income, resulting from a fair value upgrade of our Exscientia Evo equity engagement due to its recent IPO prior to our own IPO in the U.S.

Moving to Page #9. This slide depicts our strong base business development, leading to a 15% overall sales growth, and this despite negative portfolio and unfavorable FX effects, as already indicated before. Therefore, our base revenues adjusted for these 2 effects year-on-year even grew by 22%.

Margin-wise, we arrived within expectations, which was also supported by the successful realization of significant milestones, as mentioned earlier. The margin decrease versus last year is triggered by the same effect as just described for the revenues, plus additional ramp-up efforts, and cost for our J.POD in Redmond U.S. and this is in context, obviously, of preparing the successful launch of this new site.

Moving on to Page #10, taking a view on the single Q3 results illustrates the accelerated growth we have realized in this particular quarter. And the 23% growth in revenues has been pushed by a strong milestone contribution, but also by our growth areas, such as the just mentioned Evotec Biologics that contributes an additional EUR 11.7 million in revenues in that quarter.

Gross margin comes in at a good 27% and would even exceed last year's 27.9%, if adjusted for the already before mentioned adverse FX effects. R&D expenses grew by 11%. SG&A expenses grew by 14% to support operational and financial growth and also the already -- we are already considering some costs in context of the NASDAQ listing. The major part of the unbudgeted cost of this listing will be accounted for in Q4, however.

All in all, the EBITDA is up 14% versus last year and would even increase by 19%, if adjusted for the mentioned FX effects. Moving to Page 11. Looking at the 2 segments, both continue to grow, and they both performed very well, reflecting a broad-based business and a broad growth of Evotec in total.

Year-to-date, the execute revenues, including intersegment revenues, grew plus 17%, coming from EUR 367 million in the first 9 months of 2020. And this is a further -- or this is further driven by an increasing demand for integrated offerings under our Evo IR&D measures and also a strong demand for the base business.

9 months 2021 Innovate revenues amounted to EUR 102 million, excellent, 36% above last year due to the continuous high demand for precision medicine, also reflected by the expanding existing as well as several new partnerships, and also due to the realization of substantial milestones in Q3 2021. Innovate's total R&D amounted to EUR 60.4 million, which is 21% above last year, underlining our continued investment and commitment into innovation projects and long-term sustainability.

Moving to Page 12. Looking at the year-on-year revenue development, the increase is mainly driven by our very significant plus 26% organic growth of the base business, reflected in the EUR 99 million step-up versus last year. And this is another evidence of our continuously high revenue quality coming from a healthy mix of our sustainable repeat business with our long-term partners and strong additional demand for our Evo R&D offering.

Mostly due to the, on average, weaker U.S. dollar against euro in the first 9 months of 2020, revenues were negatively affected by a currency effect, which is in total, minus EUR 11 million. And thus, at constant 2020 FX rates, sales would have ended even better at approximately EUR 442 million.

Page 13 summarizes Evotec's very solid and substantial non-P&L related financial KPIs. And here, the balance sheet is going up 21%, mirroring the ongoing dynamic growth also in our assets here. Trade accounts receivables could be kept on a very reasonable level leading to an improved DSO figure, and DSO stands for days sales outstanding.

In addition, the equity ratio steps up to a very good 56%. And also the net debt position, including IFRS 16, shows an excellent ratio factor of 0.8. These factors together indicate plenty of headroom and obviously also flexibility for further invest into organic and strategic growth. Please also bear in mind that the before-mentioned KPIs are before our NASDAQ listing from early November 2021, which will lead to even better ratios and significantly increasing our liquidity position as well as strengthening our balance sheet total.

Total liquidity decreased at the end of Q3 to EUR 418 million, mainly driven by the expected CapEx investments to support growth, such as the J.POD in Redmond, the ramp-up of the second J.POD in Toulouse, where we are already starting to work on as well, as general expansion of our overall capacities across all sites. And furthermore, Evo equity engagements into new and also into existing equity holdings require additional liquidity where we keep investing.

And with these, this complements the financial overview, and I therefore, would like to hand back to Werner. Thank you.

Thank you, Enno. With this maybe one short step back first, before we go forward. A quick reminder of the cornerstones of our strategy. Because it is important that you should see that all pillars that power our innovation hub are coming together extremely nicely at this stage. Our integrated Evo IR&D is going forward and delivers more projects than ever. And with this, we come to scale and scale effects in our business.

Our precision medicine platforms, Evo PanOmics, Evo PanHunter, and especially our induced pluripotent stem cell platform is allowing us to go to the absolute frontier of precision medicine, and with this, to improve probabilities of success like it has never been done before. Our network of biologics and our network of J.PODs, which we summarized under Evo Access, is coming together very nicely. And here, pushing the go button in August '21 was clearly a highlight this year, and we also see that we are now going operational very nicely in our biologics strategy.

And all modalities coming together with Evo cells and Evo genes and all other modalities that we bring to bear on our Autobahn to Cures, allows us to put the best modality behind every target that we are putting together into corporations and the industry. So with this, the claim of building the sharing economy within R&D is truly fully substantiated.

How do we then put this forward into a business model that we make the right business model for every partner to optimize speed and value for both partners. With this, we had a fee-for-service business. And of course, our strategic long-term goal is to build a co-owned strategy, which results into co-owned assets and ultimately, into the largest royalty pool that has ever been built in the industry.

And if you go forward, we just want to illustrate how nicely these capabilities are coming together and are leading to not only continued partnerships, but also new partnerships, where people start to see the value of integration, but also the technological superiority that Evotec can bring to bear.

And it is this technological capabilities and it is this efficacy that we bring into projects that ultimately convinces every partner once they work with Evotec to stay on Evotec's platform with more than 90% probability.

It is great to highlight here just a few examples, like, for example, Amgen and Novo Nordisk to really start working with us in service lines that we didn't work with them before or to see that, for example, our Korean partner, Ildong, is now making the third Indigo with us, which basically shows you that we are translating 3 projects into the clinic with Ildong in a very short period of time. And that's then something where we see that this return rate of partners is truly substantiating our land and expand strategy with all customers that we have built.

When we talk about tightness and when we talk about long term partners, I want to highlight here out of our Evotec Innovate portfolio, our iPSC platform, and the great progress of this platform in the last 5 years. Because it's not only 1 target that came to the clinic here. It is a full portfolio of targets that will follow right behind this in the field of neurodegeneration.

And let me highlight here that this is a full induced pluripotent stem cell platform. And here, we only talk about neurodegeneration as a carved out partnered area. But please be aware, this is just the beginning of our induced pluripotent stem cell and how we will create a network of partnerships and a network of indication areas in all modalities that can result out of this iPSC platform that could go forward here into small molecule targets, like we have seen it with BMS. But there will also be antibodies coming out of this platform that we will progress forward.

And of course, we are building a very large induced pluripotent stem cell driven cell therapy platform forward, especially in the fields of metabolic diseases. Let me highlight here our Cure Beta project, and we are expanding this at rapid speed for the last quarters and years into cell therapies in oncology.

And this will be something to watch out for in the year 2022 because we feel that what we are building here is not only world-leading in drug discovery, but also world-leading in cell therapy. The next page shows you another precision medicine platform and a platform of the highest degree of innovation power. That's our protein degradation platform supported by Evo PanOmics and supported by Evo PanHunter.

Because if you bring this together, protein degradation, all of a sudden becomes a highly productive effort, which you can also see here in a selective partnership with BMS, where we are working since 2018 on building here one of the largest industry efforts in protein degradation together with our partner.

These are just 2 highlights out of more than 10 massive scaled Evotec Innovate transactions ongoing, where some of them are early and others are already closer to market. And when it comes to closer to market, let me highlight on the next page, that we are very proud that our partner, Bayer, has shown what we expected to see in the Phase IIb that eliapixant will be not only a more selective, but also a more beneficial target when it comes to side effect profiles in not only refractory chronic cough, which is the first indication that Bayer is targeting, but also in many other indications, including neuropathic pain, overactive bladder, and endometriosis.

Here, multiple Phase IIs are ongoing, and you will see results in the year 2022 and onwards, where also in 2022, we expect a Phase III start with P2X3, the target, which was derived at Evotec, translated into the clinic together with Bayer and now driven by Bayer into the market. This is what we call very often the top of the iceberg when our co-owned pipeline is shown. And the next page is only highlighting a few of the multiple data points that you will see coming out of this co-owned pipeline, where we are very confident that the strategy will become not only more visible and broader, but also will show you massive medical impact in many of the indications that we are following.

And again, let me highlight here the power of P2X3 as the best-in-class molecule in multiple indications. Let me highlight here our Kazia Therapeutics alliance in oncology with a target that came from Evotec and was progressed forward. And we don't want to overemphasize the strategy here, but we want to really show you on the left side of this page that there are multiple data points where always our partner is in charge of financing these projects into their respective markets are going forward.

And one very nice example here is that Evotec alone would have never found access to the Chinese market when it comes to insomnia drug. So that's why it is great to see pure upside from our partner, Jingxin Pharma, driving this into a market, which otherwise, we would never have access. And now we feel that Jingxin Pharma is on a good path to enter here the insomnia market in China by the year '23. And with this initial small royalties will also come to Evotec out of this project.

I think you all understand the strategy, and you also are all on board when it comes to accelerating the strategy, as you see on the next page, into other modalities that we have built only a few years ago. Because MIT modality is something, which will drive medicine forward into the next decade.

And we couldn't be more happy about our colleagues in Seattle than we are because what we have seen out of our initial partnership with just Evotec Biologics that we scaled now into commercial manufacturing scale is something where we make an impact, a huge impact. And this will be started with the first product that will come out of the Redmond facility in 2022, where we are, at this stage, in trial runs for commercial products, where we, at this stage, are also building a huge pipeline of biotech corporations that, of course, then will take a while until they are going to be commercial.

But as you know, the product in biologics and in cell therapies is the process. And with this, we are co-owning here not only products in the future, but also processes in the future, which will make our concept even more sticky with our partners. Let me highlight also here the beginning of our Toulouse trade port, which is ongoing. And with this, we are also very happy here with the progress that we see in Toulouse.

Expanding our strategy to co-own targets into co-owned companies and academic bridges is something that is ongoing. And here, we are, of course, very happy with the active capital markets at this stage in the private world because that allows us to leverage Evotec platforms into multiple companies.

But we are also very convinced about our long-term co-owning strategy to take the biggest innovations that are coming from basic science and academia directly onto Evotec's platform. So I want to really highlight our bridges efforts that are ongoing. Yes, we are aware. This is a long-term strategy, but Evotec is thinking long-term. And with this co-owning the academic excellence of today into the future is a very, very rewarding way, as you will see.

When it comes to rewarding, I really want to highlight our co-owned companies not only here, Exscientia, but many others are also making good progress here in the private space. I want to highlight, for example, Breakpoint Therapeutics, or I want to highlight NephThera. I want to highlight CureXsys. These are all companies where you will hear a lot about them in the future because they are very often going for first-in-class technologies and first-in-class targets that we are co-owning and building on our platforms.

When it comes to Evotec as a company, you should see that we are building a long-term sustainable company. And sustainability, as you see on the next page, was something that we highlighted about a year ago. And we can also relate this to people, when Volker Braun enters the company and we gave ESG also an officer, so to say. We did not want to make a lip service and a new job. We wanted to make ESG as part of our strategy.

And what you see on this page is just a few highlights that we are translating here -- company belief, company culture into actions. And it is great to see that our 4,100 employees are fully on board with this because we are creating a place to work, which is more. And when I say more, it's more sustainability, it is more caring about the world than only making novel drugs, which is, of course, our core purpose.

But we can also do a lot when it comes to energy, we can do a lot when it comes to quality of how we leverage our company here into educating not only within the company, but also our supply chain partners, for example, or our families that are working here together with our colleagues at work.

So putting ESG in the center of our company is a good idea because it makes us stronger in the long run. And with this, we are strong also for the short-term because we can confirm our outlook for '22 and already today, give you a very strong visibility of a great order book coming in 2022 when it comes to our top line.

And with this, I really want to highlight one more time that it is great that you follow us on the next page. We want to also highlight here that by this time, we have to inform you that our Capital Markets Day has been shifted to the 2nd of March because we were advised that we shouldn't do it so close to our NASDAQ IPO because everything that is not in the F1 would have potentially been here a bit conflictual, and we don't want to risk that. So please mark your calendars for the 2nd of March. We will have a great R&D Day together with you that will show you the power of our platforms when it comes to integration of technology and when it comes to precision medicine in building a co-owned pipeline.

With this, let me thank you very much for following Evotec, and we are open for all questions. And let me again highlight here and thank Craig and Cord for being on the line as well for your questions.

(Operator Instructions) Our first question is from Joseph Hedden of Rx Securities.

First one on guidance. And seeing as you reported year-to-date revenues of EUR 431 million. To get to the top end of your revenue guidance is about EUR 140 million away now, and you've booked EUR 160 million in Q3. Generally, being as Q4 is quite strong for Evotec, is it fair to say that guidance on the top line is now pretty conservative? Or is there some kind of effects here that are missing?

Maybe I hand this over to Enno because he is the conservative guy.

Thank you very much, Werner, and welcome, Joseph, on the call. And indeed, currently, from what we see, we are clearly expecting our revenue guidance to be on the upper part of our range.

But please bear in mind that we are fully investing at this stage into growth. And with this, I think the only question for us is how to translate strong top line into bottom line. And here, I think for us, we see that investing into growth for the long run is the right thing to do.

And if I could just have one more on the recent payments for the growth progress with the BMS neurodegeneration deal. Those are additional program designations. Could you perhaps explain to us a little bit more about what that means? Is that the same kind of progress that the recent IND -- are these projects going to the clinic? How many? Any details you can give would be great.

So maybe I hand over this question to Cord to elaborate a bit how a multitarget alliance on our iPSC platform really works and how these payments come together. If you can take that question, Cord?

Sure. Good morning, good afternoon, everybody. So the neuro lines with BMS started about 5 years ago, and we are really immensely proud that from essentially a 0 start, almost essentially from an initial phenotypic screening approach, we have already introduced the first molecule into the clinic in essentially less than 5 years' time, which is, I would say, it was a very ambitious time line, and we have actually surpassed our goals in that regard.

And in parallel, as you could see from the slide Werner presented, the Alliance has consistently growing in terms of number of programs that we have added to the portfolio. And the most recent announcement of milestones achievements is essentially just elucidating on the fact that a number of programs now still at preclinical stages have reached key value inflection points where essentially BMS not only up [in] on the target, but related small molecules.

And here, these programs are going to be, I would say, at least a couple of years behind the initial IND filing. But it's -- we are immensely proud that the number of programs, but also the stage of the program is steadily advancing, and this is just another confirmation of that. Unfortunately, I won't be able to disclose neither targets nor exact stage of programs at this point in time.

Our next question is from Ram Selvaraju from H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. So just to follow-up on the BMS partnership as was highlighted previously. So what neurological disorders are likely to make the most sense to target with 8683? And what level of risk mitigation would the pursuit of simultaneous development in multiple neurological businesses provide? That's the first question.

The second one, with respect to your Lab 1407 agreements with the University of Birmingham. So we presume, you are targeting (inaudible) with small molecules. So unlike (inaudible) is difficult to tolerate from a drug [developer] standpoint.

I'm very sorry. The line that you are using as a telephone line is for us very difficult to understand. So I didn't get the first 2 questions at all. Cord, did you get anything?

I think I got the first question regarding the most attractive indications for EVT 8683, but that's about it.

Yes. Okay. Can I make a suggestion that you either send in your questions fast, and we do this then directly via email, if we have them during the call, but the line is really not good. Sorry about that.

I could try to answer the first question.

Maybe you do that. And the line has dropped, so he will dial in again or he will send in.

Yes. Okay. So very briefly regarding the first question if I understood the question correctly. It's about what are the most attractive. No degenerative indications for EVT 8683 that recently -- a molecule recently BMS opted in on and after IND -- successful IND filing.

And here, we are talking about a mechanism that is targeting the unfolded protein response pathways, which is I would say, a highly attractive mechanism, not just for multiple neurodegenerative disorders. The current plan as far as I can disclose it is that we will move forward with BMS here on a more specific indication.

So initially, there will be, of course, Phase I studies, but then we intend to move forward most likely into more specific indications, such as ALS, in particular, is of interest, of course. But I would say, more generally, the mechanism has tremendous promise in many other neurodegenerative indications, including Alzheimer's. So it's really pretty broad.

Great. With this, maybe we take the next question and wait for Ram's email.

Our next question is from Christian Ehmann of Warburg Research.

I have 3 questions at the moment. So first, could you give us a little bit more detail about the extent of your supply chain issues you mentioned in the beginning of your talk? Second, I noticed that when you talked about all the modalities you're offering, Antisense therapy is absent from the presentation and from your mentions here. So what's the point here? So is there anything you have changed in the past that you want to tell us at this moment about this or what's going on here?

And the third one would be -- so I mean, you reported some considerable achievements with the BMS partnership based on your iPSC platform. But what kind of maybe other partnerships, other companies we can expect in the future to somehow broaden your customer base in this area?

Let me take the second question first because there is, of course, full activity behind Evotec and Antisense projects that we're working on. Our partnership here with Secarna is ongoing, our platform expansion together with Secarna is ongoing. So sorry if I didn't mention it enough, but there is nothing that should hold us back from also being fully committed to this modality because it's highly innovative.

And might be the right modality for certain targets in certain indications. And that's, I think, always the point we want to make. Every target deserves the best modality, and that's what you can find on our unbiased way of looking at the optionalities between modalities for targets. But there's nothing wrong on -- well, I should have probably stressed it even more, but please don't get it wrong.

When it comes to supply chain issuance, let me stay here on a general comment and then hand over to Enno briefly. I think we see a world where coming all out of the pandemic, many people have stockpiled many things. And of course, some people have stockpiled for some areas of their activities a bit too much and others a bit too little.

And that's, I think, we are navigating through this, is something that we have done extremely well so far. So I would not be able to mention massive delays or anything with our partners. That's just not happening at Evotec. So really big thank you to the whole team who is doing this within the company, extremely diligent, extremely well.

The second point I want to mention is, of course, with a huge exposure into the U.K. We are adopting here to a country which opted to go out of the EU, which doesn't make it always easier for us, but we're adopting extremely well. But these are, of course, all process changes that we are seeing now, and they all don't come for free. That's also something that we see. And nevertheless, the value that we generate by doing this is, of course, significantly higher than the costs that we have to incur here on top.

Maybe Enno if you have anything to add.

Not too much to add. I mean, it's really a mix of many parts. And the one, clearly, as the last example that Werner alluded to is the Brexit part, which is not a huge impact, but it makes life a little bit more complicated. Just to give you an example, if you ship things rather fast on a higher frequency like we do with [super tax]. And then all of a sudden you take, instead of 2 days where you have perfect dry icing packaging, it takes 4, 5 or 6 days, and it's not as reliable. Then you have to rethink your logistical chain. And these things take extra efforts.

Then we have COVID and COVID directly does not do a lot to us, but obviously, some basic materials, like, for instance, just plastics for packaging are short. And you really have to make sure that you have in time, sufficient supply of these materials. So really hedging these orders, looking far ahead, but also not overstocking. That's the balance that we have to go here. So it's all these little things that make it in total a little bit more effort requesting demands here.

And coming to your third question, I will then hand over to Cord. But to introduce his answer, I had the pleasure of sitting yesterday together with our group here led by Sandra Lubitz, who is the basically platform group for the whole iPSC area. And once you go through an hour of understanding what the technology does, what full automatization does, you can see why we very often say, this is just the beginning of what this technology platform will do.

And that's why 1 large area that we have highlighted so far is clearly just 1 out of many that will come. And with this, I hand over to Cord maybe to elaborate a bit on that.

Yes. So generally, our iPSC platform continues to grow consistently. And I think the most recent evidence, and I'm not quite sure when it exactly was, but I think about 3 or 4 weeks ago that we announced just another expansion with BMS into another area. So essentially another assay system that we have built, reflecting a disease filling or patient disease-relevant assay system for drug screening purposes.

And here, we've been very fortunate that our partner, BMS opted in on many of these assays as we build them. But nevertheless, we are consistently also in discussions with other partners on the iPSC platform and continue to do so. And we are very confident that we will sign additional contracts here in the future. When exactly they will come, I don't want to comment on yet. But we are pretty confident.

Yes. And maybe Christian, to give a bit more color here. The typical partners has to be long-term dedicated partners in certain disease areas. Otherwise, it doesn't make sense for us. So you should not expect here small companies partnering with us on iPSC platforms. It will be companies fully dedicated to certain disease areas. So I think partner category #1 here is the traditional top 20 pharma players that we are working with.

And the second category, which is increasingly important to us, and we are working also with, for example, the Huntington Disease Foundation very, very closely on many technology areas, are mission-driven foundations who we give access for their mission-driven indications also on our iPSC platform if this makes sense for them. Because there's a long-term mission, there's a clear technological fit and everything that these mission-driven foundations need, they can get with Evotec platforms.

So that's also a business area, which is growing extremely nicely and where we also feel that our mission as Evotec to enable partners in finding new drugs is really as efficient as it can be. So that's a bit the color we can give you here. And don't forget, our QRbeta project is also up and running and progressing very nicely. And the same is true, as I already said, for cell therapy and oncology.

When you're talking about growth in the iPSC platform, do you mean amount of cell lines or what kind of KPIs do you use as a benchmark here?

Yes. So with 300 fully cultivated, fully active cell lines, the vision of creating patients in a dish, for example, is accelerating as we speak. So we feel that we here are coming to scale. And with this also coming to levels of this platform that it will be just making a huge world-leading difference.

That's, of course, one KPI. The second is how many assays are fully robust up and running. That's another KPI because an assay is basically guiding us into a field of biology that we can then accelerate and translate into indications. So here, we are way beyond the 15 now, and that's really world leading. I want to stress this.

And the third indication, of course, is then commercial input and output. And I don't know many investments that we have made, which we started in 2012, where we are getting close, I would say, to earning our money back already. When I only look at the BMS partnership, we probably are way beyond that already. But again, this investment will be multiplying many, many times into the future and has already multiplied, if I'm correct here when it comes to the value that we have generated.

Our next question is from Victoria English of Evernow Publishing.

Yes. Werner, if I may return to the royalty pool. If I recall from our last telephone conversation 3 months ago, the pool is owned by Evotec, if I'm correct. What would your intention be once the pool gets substantially larger for the uses of these proceeds? Is it to invest in small companies, for example?

Yes. Thank you so much for the question, and welcome again on the line. Hope to see you again in person very soon. Let me say that first. Secondly, having the optionality with the right pool will, for us, be, I think, really tangible from the year '24, '25 onwards. So it's a bit early to make too many statements before we are there. But of course, conceptually, we have started to basically put the lowest cost of capital to work wherever we can.

What do I mean with this? Royalties for us will be basically highly profitable at low-cost of capital. And if we can reinvest this into companies that we are building, that's, of course, a fantastic use of capital.

A second use of capital would be to say some of these royalties will be capitalized because we don't have immediate cash need, which, again, would be a great option to have, for example, also to return this to our shareholders in partial dividends or in partial returns, but that's just one optionality in the longer run.

And the third idea of this royalty pool is to grow it and continue to full speed invest, for example, into massive scaling of our precision medicine platforms. Because I don't think that we are at the end of, for example, molecular patient databases that have to be mined. I think we're at the beginning of that.

So I think for the next decade, we have a very good idea of what to do with this in building a highly innovative company. And that's why I think we have started to think about it, but we are not there yet. I think that's also fair to mention.

(Operator Instructions) Our next question is from Chris Redhead goetzpartners.

Kind of a macro question here a little bit. The whole kind of COVID vaccine effort has sort of -- as far as I can work out, to turbocharge the nucleic acid-based therapies in a way that -- because it was quite sluggish for a long time. But it seems that given the sort of volumes of people receiving these kinds of mRNA vaccines and what have you, are you seeing that kind of increase in activity in those therapies, and the interest, and the acceptance of those therapies? And on the back of that, what are you -- what's your strategy in terms of expanding into that space?

Yes. Maybe Cord, I can hand that question over to you.

So first of all, I think your acceleration is, of course, completely right. So the nucleic acid-based therapies have come to front and center attention of the pharmaceutical industry. And here, in particular, messenger RNA-based therapies, as the messenger RNA-based vaccines from Moderna and BioNTech are the most successful approaches here, or products currently.

Nevertheless, I would say -- so first of all, I think we have to mention that at Evotec, we do not pursue messenger RNA-based therapies. Historically, we have not been in the vaccine business, vaccination business. And messenger RNA-based therapies for therapeutic intervention have not been successful at all so far.

There are many approaches or many -- they have been tried in many areas. But so far, they have not been successful. And so this is why that's one of the areas we have not invested too much into. But rather, honed in and focused more on proven drug modalities where it's clear that there is going to be a benefit, ultimately.

With the advent of the messenger RNA-based vaccines, however, it is something that we are evaluating and watching very closely if there are opportunities for Evotec to move into that area. But we have not done any move as of yet, as of today.

Okay. There is one more question, which just came in via e-mail, which Enno will take. Maybe repeat the question.

That's what I intended to do with the question basically on 2 parts. The first of all is about materials and costs for raw materials developing, so basically about inflation. And the second part is the same direction about labor costs increasing and going up.

We clearly obviously are monitoring both, and we do recognize an increase of cost in the base materials that we are ordering. But so far, still in a field that is kind of moderate and which we can handle. And I mentioned before already that we do hedge certain parts of our orders and an order very early with early stockpiling. So already today, covering a lot of the needs for 2022.

But obviously, we also keep closely monitoring this field as it can have significant impact if it continues to grow beyond what we are currently seeing in the markets. And yes, that's what we are, on a regular basis reviewing.

And the same is true also for recruitment of employees, of new employees and also maintaining and retaining the existing ones where we also clearly recognize that salaries are increasing, and there's a certain level of inflation, which we have to consider also in our future cost development going forward, both to be closely monitored. It's clearly on the desk here on management awareness.

Thank you so much. Next question, please, if there is anything coming in from the audience.

There are no further questions from the audio lines at the moment.

Okay. Great. If there are no further questions, let me please invite you to send in your questions whenever you want to Volker and his team here, really doing the best of aligning your questions with what we can answer and how it will be played back. That's one thing.

The other thing is, let me thank you so much for following Evotec throughout this year. Let me guarantee you that the year is not over yet and that you will hear significantly more from us still in this last few months. But Christmas is coming for all of us, and this will be our last conference call on quarterly results before Christmas.

So on that note, let me prelude to the year-end on this occasion as well. And lastly, let me already remind you again for our Capital Markets Day on the 2nd of March, which will then be the first conference call that we will hold in the new year because that's before our full year disclosure that we will make then later next year. Thank you so much. Have a great day, and I wish you all the best.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.