Executive Summary / Key Takeaways

• Evotec is undergoing a significant strategic transformation, pivoting towards a capital-efficient, technology-driven model focused on sustainable profitable growth, particularly in its Just Evotec Biologics (JEB) segment and streamlined Discovery and Preclinical Development (DPD) operations.
• The company's H1 2025 results reflect this transition, with JEB revenues growing 16% to €102.2 million, offsetting an 11% decline in DPD revenues to €269 million amidst a soft early-stage biotech market. Adjusted Group EBITDA reached €1.9 million, supported by strong cost controls and JEB's contribution.
• A key strategic move is the planned sale of the J.POD Toulouse facility to Sandoz (SDZNY) for approximately US$300 million, coupled with a technology license, which is expected to immediately enhance revenue mix, profit margins, and capital efficiency.
• Evotec's technological differentiators, including its Molecular Patient Database (E.MPD) and industry-leading continuous biologics manufacturing, are central to its competitive advantage and drive high-value strategic partnerships.
• The company reiterates its full-year 2025 guidance of €760-€800 million in revenues and €30-€50 million in Adjusted Group EBITDA, targeting an 8-12% revenue CAGR and over 20% EBITDA margin by 2028.

A Strategic Pivot for Growth

Evotec SE, founded in 1993 with roots in high-throughput screening, has evolved into a key player in the drug discovery and development sector. The company, publicly listed on the Frankfurt Stock Exchange since 1999 and NASDAQ since 2021, has historically pursued strategies focused on innovation and global leadership, achieving tenfold growth over certain periods. However, this expansion was accompanied by a decline in profitability and margins in the six years leading up to 2024. A 2023 cyber-attack further impacted its development business, with recovery proving slow.

In response to these challenges and a mismatch between capacity and revenues in a soft market, Evotec initiated a "Priority Reset" program in Q1 2024. This program aimed for €40 million in savings through portfolio adjustments, footprint optimization, and headcount reductions, including 600 FTEs since March 2024. A significant strategic move to enhance liquidity was the sale of its minority equity stake in Recursion (RXRX) in Q4 2024, generating approximately €70 million.

In April 2025, Evotec unveiled a new strategy centered on "uncompromising excellence" and pairing "scientific excellence with operational excellence" to achieve sustainable profitable growth. This involves sharpening its focus on pioneering drug discovery and development through cutting-edge technology, disruptive science, and AI-driven innovation. The strategy delineates two core business segments: Discovery & Preclinical Development (DPD), formerly Shared R&D, and Just Evotec Biologics (JEB).

The biopharmaceutical market environment remains challenging in 2025, characterized by selective funding for small biotech companies. Venture fundraising has stabilized at pre-pandemic levels, but early-stage investments continue to lag, leading to cautious spending in early-stage R&D. Despite these headwinds, the global R&D spending is expected to grow 3-4% annually, with a renewed focus on early drug discovery. The outsourcing trend is also accelerating, converting fixed costs to variable costs, positioning the addressable drug discovery market for a 5-7% CAGR between 2024 and 2028.

Technological Edge: Fueling Innovation and Differentiation

Evotec's core competitive advantage stems from its differentiated technology platforms, which are central to its strategy of scientific leadership. These platforms enable the company to offer superior value propositions beyond traditional Contract Research Organization (CRO) services, fostering strategic partnerships and generating additional value pools through milestones and royalties.

The Molecular Patient Database (E.MPD) is a cornerstone of Evotec's precision medicine approach. It boasts unparalleled breadth and depth of patient-related data, encompassing high-quality clinical information, phenotypic data, biopsies, and a wide range of multi-omics data (genome, transcriptome, proteome). With data from over 27,000 patients across chronic kidney disease, immune-mediated inflammatory diseases, and metabolic disorders, E.MPD has reached critical mass, allowing exploration into new disease areas like women's health and obesity. This rich dataset accelerates drug discovery, supports target identification and validation, and differentiates Evotec from publicly available datasets.

Complementing E.MPD is Evotec's iPSC (induced Pluripotent Stem Cell) platform, which models diseases in over 25 cell types, covering more than 250 genetic disease models. The PanOmics platform provides high-throughput profiling of patient samples and comprehensive compound profiling in in vitro and in vivo models, having generated over 3 million transcriptome and 500,000 proteome profiles. These are analyzed using the PanHunter platform, an AI-supported analytics tool for multi-dimensional data.

In biologics, Evotec's Just Evotec Biologics (JEB) segment is a world leader in developing and enabling technologies for end-to-end continuous manufacturing. This technology offers significant benefits in agility, scalability, and efficiency, enabling partners to bring medicines to market faster, smarter, and more sustainably with top quality. JEB is actively shaping a new subsegment within the robust, double-digit growth biologics CDMO market. Furthermore, JEB's in-house developed cell lines and serum-free media demonstrate industry-leading performance, elevating the output and efficiency of biologics manufacturing.

Evotec also leverages AI and computational modeling for discovery and toxicity prediction. The company welcomes the FDA’s Roadmap to Reducing Animal Testing in Preclinical Safety Studies, which aligns with its 30-year commitment to ethical research. Evotec's platform for predicting drug-induced liver injury (DILI), utilizing liver organoids and omics-based analysis, achieves over 87% predictive accuracy, with a target to surpass 90%. This significantly outperforms competitors' standard platforms, which typically reach around 75% accuracy.

The "so what" for investors is clear: these technological advantages create a strong competitive moat, enabling Evotec to forge high-value strategic partnerships (e.g., with Bristol Myers Squibb (BMY), Novo Nordisk (NVO), Pfizer (PFE), and Bayer (BAYRY)) and generate substantial financial upside through milestones and royalties. The strategic pivot in JEB towards a CapEx-lighter model, focusing on monetizing its technology, aims for a higher return on investment. Evotec's R&D spending is strategically directed towards developing these proprietary platform technologies, with limited investment in unpartnered assets, primarily for scientific proof points. The asset pipeline is on track with 6 programs in clinical trial stage and 6 in preclinical stage.

Financial Performance: Overcoming Headwinds, Building Momentum

Evotec's financial performance in the first half of 2025 reflects a company in transition, balancing market headwinds with strategic growth initiatives. Group revenues decreased by 5% to €371.2 million compared to H1 2024. This was primarily driven by an 11% decline in the Discovery and Preclinical Development (DPD) segment revenues, which reached €269 million. The DPD decline was attributed to a temporary effect in the BMS collaboration and persistent softness in the early drug discovery market. Excluding the temporary BMS impact, the normalized year-on-year decline in DPD was 6%.

In contrast, the Just Evotec Biologics (JEB) segment demonstrated robust growth, with revenues increasing by 16% to €102.2 million in H1 2025, exceeding expectations. This growth was fueled by higher demand and excellent performance with non-Sandoz and DOD customers, with the remaining business showing an impressive 87% growth year-over-year. Three major pharma companies significantly contributed to this JEB growth.

Adjusted Group EBITDA for H1 2025 totaled €1.9 million, in line with expectations. This was largely due to a stronger-than-expected contribution of €7.5 million from JEB, which helped offset the lower operational leverage resulting from softer DPD revenues. R&D spending was strategically reduced by 35% to €19 million in H1 2025, aligning investments with areas most relevant for partners. The group's gross margin decreased to 9.6% from 12.9% in H1 2024, primarily due to lower top-line performance in DPD. However, JEB's gross margin slightly improved to 9.1% from 8.9% due to a favorable revenue mix. The net income loss improved to €75.1 million in H1 2025, mainly due to the absence of non-recurring reorganization costs from the prior year.

Liquidity and capital resources show a disciplined approach. Net cash used in operating activities significantly improved to €5.3 million in H1 2025, compared to €98.6 million in H1 2024, benefiting from a lower net loss and favorable changes in working capital, including expected receipts from BMS.

Capital expenditure decreased by 50% to €37.6 million in H1 2025, as investments in the Toulouse JEB site neared completion. Total liquidity stood at €348 million as of June 30, 2025.

Notably, Evotec's financing is no longer restricted by covenants, following the cancellation of its unutilized €250 million Revolving Credit Facility.

Outlook and Guidance: A Clear Path to Enhanced Profitability

Evotec has confirmed its full-year 2025 guidance, projecting Group revenues in the range of €760-€800 million (adjusted from an earlier €840-€880 million). R&D expenditures are expected to be between €40-€50 million, with Adjusted Group EBITDA targeted at €30-€50 million. This guidance reflects management's confidence in improved cost performance and a changing revenue mix towards higher-margin activities.

For the DPD segment, similar dynamics to H1 2025 are anticipated for the second half of the year, with a modest recovery in funding expected over the coming quarters. The JEB business is projected for a significant step-up in growth during H2 2025, building on its 16% H1 growth. However, JEB is not expected to contribute materially to the group's adjusted EBITDA in 2025 due to ongoing ramp-up costs for the Toulouse site, as the company pre-invests for future committed demand.

Cost-out initiatives are progressing well, with over €60 million in total cost reductions planned for 2025, including €30 million from the Priority Reset program and an additional €10 million in recurring DPD savings. An FTE reduction of 600 since March 2024 further underscores these efficiency efforts.

A pivotal development for the outlook is the planned sale of Just Evotec Biologics EU (Toulouse facility) to Sandoz AG, publicly announced on July 30, 2025. This non-binding agreement, expected to close in Q4 2025, includes approximately US$300 million in consideration for the site, along with technology license fees, multi-year development revenues, milestones, and royalties. This transaction is anticipated to immediately improve Evotec's revenue mix, profit margins, and capital efficiency.

Looking further ahead, Evotec reiterates its bold yet grounded 2028 outlook, targeting a Group revenues CAGR of 8-12% (2024-2028) and an Adjusted EBITDA margin above 20%. This aspiration is underpinned by differentiated offerings, operating leverage, and continued innovation. The company's asset pipeline remains on track, with 6 programs in clinical trial stage, and a non-risk adjusted potential of over €500 million in milestones in the next three years, increasing to over €1.2 billion in the next five years.

Competitive Landscape: Differentiated Offerings in a Dynamic Market

Evotec operates in a highly competitive landscape against major Contract Research Organizations (CROs) such as Charles River Laboratories , IQVIA Holdings , WuXi AppTec , and Thermo Fisher Scientific . Evotec's strategic positioning is that of a specialized partner, emphasizing high-value collaborations and technological differentiation rather than a broad, vertically integrated service offering.

Compared to Charles River Laboratories (CRL), Evotec's partnership-driven model, particularly with major pharmaceutical firms, offers a strong alternative to CRL's more extensive preclinical research and safety assessment services. Evotec's specialized focus on therapeutic areas and its agility in forming strategic alliances foster deeper collaborations, potentially leading to superior growth and more robust cash flow from recurring revenue streams. While CRL boasts a broader service range and established global footprint, Evotec's tailored collaborations provide a unique value proposition, especially in complex therapeutic areas.

Against IQVIA Holdings (IQV), Evotec differentiates itself through hands-on drug discovery partnerships, contrasting with IQVIA's data-heavy analytics approach. Evotec's direct therapeutic expertise can translate to faster development timelines. While IQVIA's integration of technology provides an edge in data-driven insights, Evotec's model focuses on collaborative R&D, which can result in stronger customer loyalty through bespoke partnerships. Evotec's focused R&D investments could lead to higher efficiency in cash flow from partnerships.

WuXi AppTec (WXIC) offers end-to-end services, including significant manufacturing capabilities, often with cost advantages. Evotec's strategy of deep therapeutic partnerships, particularly in complex diseases, aims for innovation speed and effective outcomes. While WuXi's cost-effectiveness can position it well in price-sensitive markets, Evotec's offerings are more premium, focused on high-value therapeutic areas. Evotec's R&D-focused model can result in higher efficiency in cash flow from partnerships, though WuXi's scale might lead to stronger overall growth rates from diversified revenue streams.

Thermo Fisher Scientific (TMO), primarily a provider of scientific instruments and laboratory solutions, differs from Evotec's service-based model. Evotec's partnership-based services offer more integrated solutions for drug development workflows. While Thermo Fisher's technological prowess in tools like genomics is significant, Evotec's strength lies in its collaborative strategy and holistic partnership approach.

Evotec's competitive advantages, or "moats," include its strong partnership network, which enhances customer loyalty and recurring revenue streams, and its proprietary drug discovery platforms. For instance, its DILI prediction platform's >87% accuracy significantly outperforms competitors. The continuous manufacturing technology in JEB is shaping a new subsegment in biologics, offering distinct technical, operational, and financial benefits. However, vulnerabilities include a degree of dependency on major partners and potential gaps in technological scalability compared to larger, more diversified rivals. High R&D costs and regulatory hurdles in the drug discovery industry act as significant barriers to entry, helping Evotec defend its specialized position.

Risks and Strategic Mitigation

Evotec faces several pertinent risks, primarily stemming from the challenging market environment and the complexities of its strategic transformation. The continued softness in early-stage biotech funding remains a significant headwind for the DPD segment, potentially impacting revenue growth. While management observes a modest recovery in venture capital inflows, early-stage investments continue to lag. Evotec mitigates this by focusing on high-value strategic partnerships and integrated deals, which are less susceptible to transactional market volatility.

Operational challenges include volatile change orders in DPD, although these have normalized in the second half of 2025. Price sensitivity in the transactional DPD business also poses a risk, which Evotec addresses by enhancing operational efficiency and standardizing services to offer competitive pricing while prioritizing higher-value, technology-driven segments.

Geopolitical uncertainties, such as potential implications of the BIOSECURE Act or U.S. budget cuts, are monitored, though Evotec anticipates a limited direct impact due to its service-based business model. The company's dependency on major partners for significant revenue streams, while a strength, also represents a concentration risk. This is being addressed by diversifying the customer base within JEB, as evidenced by the 87% growth with non-Sandoz and DOD customers in H1 2025.

The strategic transformation itself carries execution risk. However, the "Priority Reset" program is on track to deliver €40 million in annual savings, with an additional €10 million in recurring DPD savings for 2025, demonstrating effective cost control. The ramp-up costs for the JEB Toulouse facility will impact near-term profitability, but this is a planned pre-investment to serve future committed demand and is expected to yield long-term benefits. The planned sale of the Toulouse site to Sandoz is a strategic move to de-risk capital intensity and improve financial metrics.

Conclusion

Evotec is at a pivotal juncture, actively transforming its business model to leverage its deep scientific and technological expertise for sustainable, profitable growth. The strategic pivot towards a capital-efficient Just Evotec Biologics segment, coupled with a streamlined and technologically focused Discovery and Preclinical Development business, positions the company for enhanced margins and above-market growth rates. Despite a challenging early-stage biotech funding environment, Evotec's H1 2025 performance, particularly the strong growth in JEB, underscores the initial success of this reorientation.

The planned divestiture of the J.POD Toulouse facility to Sandoz, a move expected to immediately improve financial metrics, exemplifies Evotec's commitment to an asset-lighter, higher-margin strategy. With robust guidance for 2025 and ambitious 2028 targets, the company is building a foundation for long-term value creation. Investors should recognize Evotec's differentiated technological platforms, strategic partnerships, and disciplined operational execution as key drivers for its future success, even as it continues to adapt to dynamic market and competitive forces.