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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

OR

For the fiscal year ended December 31, 2022

OR

For the transition period from       to       .

OR

Date of event requiring this shell company report

Commission file number 001-34041

Evotec SE

(Exact name of Registrant as specified in its charter)

Not applicable

(Translation of Registrant’s name into English)

Federal Republic of Germany

(Jurisdiction of incorporation or organization)

Essener Bogen 7

22419 Hamburg

Germany

Tel: +49 40 560810

(Address of principal executive offices)

Dr. Werner Lanthaler

Essener Bogen 7

22419 Hamburg

Germany

Tel: +49 40 560810

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

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* Not for trading, but only in connection with the registration of the American Depositary Shares.

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Securities registered or to be registered pursuant to Section 12(g) of the Act.

None.

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None.

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding ordinary shares as of December 31, 2022 was 176,952,653.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐Yes   ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐Yes   ☒ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒Yes   ☐ No

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large, accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by checkmark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240. 10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17   ☐Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes   ☒ No

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TRADEMARKS, SERVICE MARKS AND TRADE NAMES

Evotec, the Evotec SE logo, EVT, Just, the Just logo, J.POD, J.HAL, J.HAL HUMANOID ANTIBODY LIBRARY, JP3, Aptuit, the Aptuit logo, Evotec INDiGO, Aptuit INDiGO, Cyprotex and other trademarks or service marks of Evotec appearing in this annual report are the property of the Company. Solely for convenience, some of the trademarks, service marks, logos and trade names referred to in this annual report are presented without the ^®, ™ or ^SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This annual report contains additional trademarks, service marks and trade names of others. These trademarks, service marks and trade names may be the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights, or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

PRESENTATION OF FINANCIAL INFORMATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations as issued by the International Accounting Standards Board (IASB), as adopted by the European Union (EU) and additionally as issued by the IASB. Our financial information is presented in Euros. For the convenience of the reader, we have translated some of our financial information into U.S. dollars. Unless otherwise indicated, these translations for the financial information as of and for the years ended December 31, 2022, and 2021 were made at the rate of €1.00 to $1.0666, obtained from the European Central Bank on December 31, 2022. The exchange rate is based on a regular daily concentration procedure between central banks across Europe and worldwide, which normally takes place at 2:15 pm Central European Time. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could have been purchased upon exchange of Euros at the dates indicated. All references in this annual report to “$” mean U.S. dollars and all references to “€” mean Euros. Throughout this annual report, references to “ADSs” mean American Depositary Shares or ordinary shares represented by American Depositary Shares, as the case may be.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Many of the forward-looking statements contained in this annual report can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “target,” “would” and other similar expressions that are predictions of or indicate future events and future trends, although not all forward-looking statements contain these identifying words.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors, including, but not limited to, those identified in the section titled “Risk Factors” in this annual report. The forward-looking statements in this annual report include, among others, statements regarding:

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The preceding list is not intended to be an exhaustive list of all our forward-looking statements. The forward-looking statements contained in this annual report speak only as of the date of this annual report, and unless otherwise required by law, we do not undertake any obligation to update them considering new information or future developments or to release publicly any revisions to these statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this annual report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Summary of Risks Associated with our Business.

Our business is subject to several risks which you should be aware of before making an investment decision. These risks are discussed more fully in the section of this annual report titled “Risk Factors”. These risks include, but are not limited to, the following:

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Strategic risks

Failure to achieve strategic targets.

Currently, we have close to 5,000 employees and, in connection with the growth and advancement of our pipeline, we expect to increase the number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational, legal, compliance and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. We are actively developing pipeline assets in many therapeutic areas and across a wide range of diseases. We also routinely pursue new service offerings, such as our expansion into Contract Research Organization (“CRO”) services including, but not limited to, protocol preparation and review and regulatory preparation and submission. Successfully developing candidates for, and fully understanding the regulatory and manufacturing pathways to, all these therapeutic areas and diseases requires a significant depth of talent and experience, resources, and corporate processes to allow simultaneous execution across multiple areas. In case of limited resources, we may not be able to effectively manage this simultaneous execution and the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, legal or regulatory compliance failures, loss of business opportunities, loss of employees and reduced productivity among remaining employees. For example, by expanding into CRO services, we may become liable for acts or omissions made in connection with developing clinical protocols. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects. If our management is unable to manage effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend in part on our ability to effectively manage our future development and expansion. To achieve our strategic targets, we above all must continue to expand our top-quality, innovative services.

Future risks to success in drug discovery and development

We seek to serve as a source of innovative drug candidates to potential partners. We are advancing several active discovery and early-stage development assets that we intend to license to partners for clinical development and commercialization. Some of our assets are not partnered, and if we cannot find a suitable partner or agree on acceptable terms with a partner, we may not be able to generate a return on such assets. Furthermore, the amount of our return on the investments in our own pipeline assets depends on many factors, such as the degree of innovation and strength of our intellectual property position, as well as on external factors outside of our control. For example, our ability to generate a return on the investments in our pipeline assets depends, in significant part, on our partners’ R&D priorities. The market environment, demand and competitive landscape for our individual pipeline assets might change significantly over time as certain diseases become prevalent or other treatment options are demonstrated to be safer and more effective or become more readily available, thereby reducing the market opportunities for our pipeline assets in development. As a result, the commercial objectives of our partners with respect to individual assets and the financial proceeds we may receive from partnering individual assets are highly uncertain, subject to factors outside of our control and could deviate significantly from our projections. Whether we are eligible to receive milestone and royalty payments is subject to our partners’ success in pre-clinical and clinical testing. The outcome of respective tests and trials is inherently uncertain, and we neither control nor drive the development process once our partners enter the clinical trial phase. Our partners also may experience unforeseen challenges during, or because of, any clinical trial that they conduct. This could significantly delay or even prevent successful product development and subsequent market approval. Furthermore, there is a risk that milestone and potential license payments on future drug sales by partners will be lower than anticipated in our strategic planning. This could thus lead to impairments of underlying individual intangible assets, affecting our financial position and jeopardizing the corresponding strategic target in the medium to long term.

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Political risks

Political risks, which Evotec considers to be strategic risks, mainly include geopolitical decisions that lead to global trade conflicts or an uncertain economic situation. In February 2022, Russia launched an invasion of Ukraine. The ongoing armed conflict is having a significant impact on the global economy and financial markets and increases the risk that the current economic challenges will not only persist but intensify in the future. The direct impact of the Russia-Ukraine war has been minor due to Evotec’s limited business relationships in Russia, Ukraine and Belarus and is not expected to pose a major risk to Evotec in the near-term future. However, there are currently noticeable indirect effects, the impact and development of which are difficult to assess. The Russia-Ukraine war has led to a further deterioration of the macroeconomic environment which, due to a persistent inflationary market situation, significantly increased energy prices and transport costs as well as supply bottlenecks and delays, resulting in additional cost burdens and considerable planning uncertainties for Evotec. As global capital markets are in a state of sustained upheaval characterized by rising interest rates and credit spreads as well as higher volatilities, Evotec faces increased counterparty risk through constraints on customers’ ability to pay. The challenging capital market situation could complicate the required refinancing initiative from early-stage biotech companies who are a relevant customer class from Evotec. The potential risk of losing revenues as a result requires continuous monitoring of our customers. There may be significant risks of production interruptions at our sites, particularly because of restricted natural gas supplies. For example, in September of 2022, a series of explosions interrupted the operations of the Nord Stream 1 and 2 natural gas pipelines linking Russian natural gas supply to Germany.

Disruptive market participants

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We face the risk that new market entrants and existing competition may try to replicate our business model or introduce a more innovative offering that renders our services less competitive or obsolete. In addition, our drug discovery and development efforts may target diseases and conditions for which there are existing therapies or therapies that are being developed by our competitors, which may have e.g., greater resources or superior manufacturing capabilities than we do. Further, any drug products resulting from our research and development (“R&D”) efforts might not be able to compete successfully with others’ existing or future products.

Reasonable cost management continued development of capacities and technologies, diversification of revenues as well as revenues from valuable, result-driven alliances are critical factors for us in maintaining a significant role in the world of drug discovery in the pharma and biotechnology sector.

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Failure of mergers and acquisitions

We have strategic growth targets which we intend to achieve through a combination of organic growth and the acquisition of complementary service and research capacities. We intend to undertake additional strategic acquisitions; however, doing so may not realize the intended advantages of such acquisitions and investments, if we are unsuccessful in ascertaining or evaluating target businesses. For instance, our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions. If we fail to realize the expected benefits from acquisitions or investments, whether because of e.g., unidentified risks or liabilities or integration difficulties, our business, results of operations and financial condition could be adversely affected (e.g., impairments on goodwill or intangible assets). Moreover, we may not be able to locate suitable acquisition or partnership opportunities. Following an acquisition, we may not be able to successfully integrate the acquired business or operate the acquired business profitably. In addition, integration efforts often take a significant amount of time, place a significant strain on managerial, operational, and financial resources, might result in the loss of key personnel and can prove to be more difficult or expensive than predicted. The diversion of the management’s attention and any delay or difficulties encountered in connection with any future acquisitions could result in the disruption of our ongoing business or inconsistencies in standards and controls that could negatively affect our operations, including the ability to maintain third-party relationships. If we encounter difficulties integrating newly acquired assets or operations with our platform, our business, and results of operations as a group may be adversely impacted. Moreover, if we invest in new modalities and technologies, it may not be successful in integrating them into our platform offerings or generating customer or partner demand for them, which could result in failure to generate a return on our investment. Some of the businesses we may seek to acquire may be marginally profitable or unprofitable. For these businesses to achieve acceptable levels of profitability, we may need to improve our management, operations, products and/or market penetration. We may not be successful in this regard, and it may encounter other difficulties in integrating acquired businesses into our existing operations. Further, if we undertake acquisitions, it may utilize our cash, issue dilutive securities, assume or incur debt obligations, incur large one-time expenses, and acquire intangible assets that could result in significant future amortization expense. Further, as part of our EVOequity model, from time to time we invest in start-up companies and/or development stage technology. In evaluating these opportunities, we follow an evaluation process that considers factors such as potential financial returns, new expertise in emerging drug discovery and business benefits. Despite our best efforts to calculate potential return and risk, some, or all the companies we invest in may be unprofitable at the time of, and subsequent to, our investment. For example, during the year ended December 31, 2022, we recognized a € 171.3 milion measurement loss, mainly related to the decline in value of our investment in Exscientia plc. We have incurred and may continue to incur losses from these investments, including the potential for future impairment charges on the investments, and the anticipated benefits of the technology and business relationships may be less than expected. We therefore strive to ensure the proper adjustment and smooth integration of the new companies’ technologies, cultures, systems and processes and act as ONE Evotec. Based on the experience of past acquisitions, we make use of all necessary resources and departments to ensure a smooth integration process.

Market risks

Termination of projects and contractual relationships

We depend on certain individual large customers. The loss of any of these customers would have a material adverse impact on our results of operations. Furthermore, certain of our service contracts involve scientific or technical delivery risks. In 2021 and 2022, the revenue contribution of our three largest customers was 25%. Although we generally have long-term contracts with our major customers, there is a risk that customers may terminate projects and contractual relationships earlier than planned for strategic reasons or reasons for which we are responsible. High-quality services, innovative solutions and close interaction with customers are key measures to reduce the likelihood of early contract termination or to identify its risk at an early stage. Nevertheless, the risk cannot be fully controlled due to strategic decisions of our customers that cannot be influenced. If a customer exits a drug discovery and development project, significant future revenues including milestone and royalty payments could be lost.

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Commercial risk from out-licensing and licensed products

We depend in part on out-licensing arrangements for late-stage development, marketing, and commercialization of our pipeline assets. Dependence on out-licensing arrangements subjects us to several risks, including the risk that we have limited control over the amount and timing of resources that our licensees devote to pipeline assets, that our licensees may experience financial difficulties or that our licensees may fail to secure adequate commercial supplies of pipeline assets upon marketing approval. Moreover, we face the risk that our future revenues depend heavily on the efforts of our licensees and that business combinations or significant changes in a licensee’s business strategy may adversely affect the licensee’s willingness or ability to complete the development, marketing and/or commercialization of the relevant pipeline assets. Finally, a licensee could move forward with a competing product candidate developed either independently or in partnership with others, including our competitors.

If we or any of our licensees breach or terminate their agreements with us if any of our licensees otherwise fail to conduct their development and commercialization activities in a timely manner or if there is a dispute about their obligations, we may need to seek other licensees, or we may have to develop our own internal sales and marketing capability for our pipeline assets. Our dependence on our licensees’ experience and the rights of our licensees could limit our flexibility in considering alternative out-licensing arrangements for our pipeline assets. Any failure to successfully develop these arrangements or failure by our licensees to successfully develop or commercialize any of our pipeline assets in a competitive and timely manner will have a material adverse effect on the commercialization of our pipeline assets.

Competitive situation

The world of drug discovery in the pharmaceutical and biotechnology sector has grown rapidly in recent years. As a result, we are closely monitoring the competitive situation and the competitive environment. Our mission is to discover best and first-in-class medicines for a broad range of difficult-to-treat diseases in collaboration with our partners. To that end, we have built a comprehensive suite of fully integrated, next-generation technology platforms that we believe will transform the way new drugs are discovered. By leveraging the advanced capabilities of our integrated platforms, we can provide solutions to our partners that enable significant improvements in the quality of new drugs while accelerating the drug discovery process and reducing the high cost of attrition often associated with traditional drug discovery processes. The industry in which we operate is highly competitive, with many players pursuing similar scientific approaches. If we do not continually offer our partners innovative and cutting-edge solutions and remain at the forefront of precision medicine, our business may be materially and adversely affected. Moreover, our business operations are subject to challenges because of industry pressures. For instance, we expect the industry to continue experiencing pricing pressures due to the persistent trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs, particularly on prescription drugs, has intensified and our partners are impacted accordingly. As our business is dependent on the continued health and growth of the pharmaceutical and biological industry, should the industry contract due to pricing pressure, our business may be materially and adversely affected.

Risks related to a pandemic

The initial stages of the COVID-19 pandemic were an extraordinary shock for the economies of the EU and the rest of the world and had severe economic and social consequences.

The COVID-19 pandemic has led to the implementation of various containment measures, including government-imposed shelter-in-place orders, quarantines, national or regional lockdowns, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers across the world. Although of the pandemic is entering an endemic phase in many Western countries and the most dangerous waves of infection are presumably over in Europe and North America, China has started a new wave of infection following the end of its “zero COVID” policy at the end of 2022, suggesting that COVID-19 may remain an ongoing global problem and risk. An economic crisis in China as a result of COVID-19 may further exacerbate the inflationary environment in Europe as well as produce supply bottlenecks. It also increases the risk of virus variants and increased infections that can spread beyond China. As a result of the COVID-19 pandemic, we have experienced and may in the future (with COVID-19 or other similar pandemics and outbreaks) experience severe disruptions, including:

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Any of these factors could severely affect our operations. We cannot predict the scope and severity of any potential business shutdowns or disruptions because of a newly intensifying COVID-19 pandemic. The extent to which a pandemic may negatively impact our consolidated operations and results of operations or those of our third-party manufacturers, suppliers, partners, or customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Financial risks

Risks of changes in tax laws and interpretations by authorities and R&D tax credit risks

We operate in many different countries and are therefore potentially taxable in several countries and subject to various national tax laws and regulations. Changes in tax laws, jurisdiction and interpretations by authorities or courts as well as findings based on audits by authorities in these countries can lead to additional tax expenses and payments, which can negatively impact our business, our financial position, and results. These unforeseen additional tax expenses can arise for several reasons. Due to the complexity of our business model, this could affect the tax treatment of individualized elements of customer contracts, the taxable presence of a group company in a tax jurisdiction, adjustments to transfer prices, the application of indirect taxes to certain transactions and the non-recognition of the benefits of double tax treaties. Furthermore, R&D tax credits in various countries contribute significantly to our financial performance. Changes can also arise from significant acquisitions, divestments, restructuring and other reorganizations. Due to the global economic downturn caused by the COVID-19 pandemic, the Russia-Ukraine war and the resulting increase in government costs, there is a higher risk that we will receive notifications about the reduction or failure to grant tax relief or receive adverse changes to tax assessments.

Currency risks

We manage currency risks via close, forwards, natural hedges, and other selective hedging instruments. Hedging transactions are entered into for future transactions that can be reliably anticipated based on our order book. Despite active currency management, exchange rate risk cannot be eliminated due to unpredictable volatility. As a result, our business may be affected by fluctuations in foreign exchange rates, which may have a significant impact on our results of operations and cash flows from period to period. Currency exchange movements also impact our reported liquidity in respect of translating liquid assets held in U.S. dollars or pound sterling into Euros. Interest rate risks may arise from inevitable negative interest on investments of available cash after capital increases, financing, etc. The increase in interest rates affects the interest charges on our variable interest-bearing loans and leads to additional interest expenses. Additionally, we regularly maintain cash balances at third-party financial institutions in excess of applicable insurance limits and are therefore reliant on banks and other financial institutions to safeguard and allow ready access to the assets. If banks or financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened.

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Liquidity risk

Revenue fluctuations, expenditures, external events, and changes in the business environment might negatively impact our short-to-medium-term profitability and liquidity. As of December 31, 2022, we had €718.5 million in cash, cash equivalents and investments. However, our operating plan may change because of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, sales of assets, marketing and distribution arrangements, other partnerships and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Our spending will vary based on new and ongoing development and corporate activities. At the end of 2022 Evotec was able to secure € 150 million in additional financing from the EIB. Overall, we believe, we have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. Our business and reported profitability are affected by fluctuations in foreign exchange rates mainly between the US dollar, Pound Sterling, and the Euro.

Legal/compliance risks

Quality risks in R&D

The success of our business hinges upon the fulfillment of both our own and legal quality standards. Parts of our operations are subject to Good Manufacturing Practice (GMP), Good Laboratory Practice (GLP) and Good Clinical Practice (“GCP”) requirements and similar requirements. Regulatory authorities and our customers may conduct scheduled or unscheduled (for cause) periodic inspections of our facilities to monitor our quality control system and verify that we comply with regulatory requirements and with the terms of our quality agreements with our customers. Audit findings that are classified as “critical” may lead to a loss of certification with regulatory agencies or a loss of approved supplier status with our customers and a subsequent loss in revenue. Our manufacturing facilities also require certification and validation activities to demonstrate that they operate as designed. In addition, our manufacturing facilities are subject to regulatory inspections by the FDA, the national competent authorities in EU member states (including AIFA in Italy), the Medicines and Healthcare products Regulatory Agency (“MHRA”) in the United Kingdom, and other comparable regulatory authorities. If we are unable to reliably manufacture products in accordance with the legal and regulatory requirements of the relevant regulatory authorities, we may not obtain or maintain the necessary approvals. Further, our facilities may fail to pass regulatory inspections, which would cause significant delays and additional costs required to remediate any deficiencies identified by the regulatory authorities. In addition, any failure of quality in the product could cause significant delays and additional costs required to remediate any deficiencies. Any failure in quality which can cause damage to the patient may be subject to civil and criminal penalties. Any of these challenges could delay the completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay regulatory approval, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, damage to reputation, financial condition, results of operations and growth prospects.

General Governance and compliance risks (fraud, corporate governance)

Risks of failing to maintain effective internal control over financial reporting as a U.S.-listed company.

We have identified material weaknesses in our internal control over financial reporting as of December 31, 2022. We are subject to requirements under the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”), to perform system and process evaluation and testing of our internal control over financial reporting to allow management to assess the effectiveness of our internal controls. Management has identified certain material weaknesses in our internal control over financial reporting. As a result, management has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective, as more fully described in Item 15.E of this annual report. Management has also accordingly concluded that our disclosure controls and procedures were not effective.

The material weaknesses that have been identified relate to the failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective internal controls as a lack of sufficient accounting and supervisory personnel who have the appropriate level of technical accounting experience and training and a lack of consistent application of accounting processes and procedures.

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Notwithstanding these material weaknesses, we confirm that our consolidated financial statements, as included in this annual report, fairly present, in all material respects, our consolidated financial condition as of December 31, 2022 and 2021, and our consolidated results of operations and cash flows for the years ended December 31, 2022, 2021 and 2020, in conformity with IFRS. Management has developed a remediation plan to address the material weaknesses, including enhancing the risk and control frameworks, which will build on the significant attention that management has devoted to controls to date. While we are taking steps to address these material weaknesses, which could require us to expend significant resources to correct the material weaknesses or deficiencies, any gaps or deficiencies in our internal control over financing reporting may result in us being unable to provide required financial information in a timely and reliable manner and/or incorrectly reporting financial information, which could reduce confidence in our published information, impact access to capital markets, impact the trading price of our securities or subject us to potential regulatory investigations and sanctions. In addition, there can be no assurance that these measures will remediate the material weaknesses in our internal control over financial reporting or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

Litigation and contractual risks

We are exposed to risks from litigation and legislation. As a result, we are exposed to the potential risk that legal action, court rulings or out-of-court settlements may have adverse financial consequences. We are bound by numerous complex contracts with a low degree of standardization, in particular customer contracts. Contractual clauses that are flawed, contentious, or unfavorable for us may entail contractual risks like legal liability risks and financial risks. We and our pharmaceutical and biotechnology customers and partners are subject to extensive regulations by the EMA, the FDA and similar regulatory authorities in other countries for the development, manufacturing, and commercializing of products for therapeutic or diagnostic use. Such regulations include but are not limited to, restrictions on testing on animals and humans, manufacturing, safety, efficacy, labeling, sale, advertising promotion and distribution of our or our partners’ products.

Regulatory risks

New laws and regulations to that we, our customers, our and partners are subject to may change in the future affecting the viability of market entry for new products developed in our EVT Innovate segment or the ability to continue certain projects in the EVT Execute segment that may consequently be terminated at an early stage.

Product liability risks

It is possible that we will be responsible for potential product liability stemming from product research, development or manufacturing and may face an even greater risk if any drug candidate that we develop is commercialized. If we cannot successfully defend ourselves against claims that drug products we develop with our partners caused injuries, we could incur substantial liabilities. Regardless of the merit or eventual outcome of such claims, any liability claims may result in e.g., decreased demand for any drug product that we may develop with our partner, loss of revenues, significant time and costs to defend the related litigation, initiation of investigations by regulators and injury to our reputation and significant negative media attention. We are covered by liability insurance, but notwithstanding such coverage, our financial position or results could be negatively affected by product liability claims. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects.

Ownership and patent risks

If our business activities conflict with patents or other intellectual property rights of third parties, activities may be suspended or there may be a legal dispute. Also, if we believe that its patents or other intellectual property rights have been infringed upon by a third party, we might file lawsuits. These actions could have an influence on our financial position or results.

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Uncertain protection for Evotec´s intellectual property

Our success depends in part on our ability to develop, use and protect our proprietary methodologies, software, compositions, processes, procedures, systems, technologies, and other intellectual property. To protect our intellectual property position, we primarily rely upon trade secrets, confidentiality agreements and policies, invention assignments and other contractual arrangements, trademark registrations and copyrights. Although our patent portfolio is not material to certain of our business as a whole, we have filed patent applications in the United States, Europe and abroad related to our pipeline assets, processes, or other technologies (including methods of manufacture). Our collaboration partners also file patent applications on their development assets on which we may earn milestones and royalties. We may not be able to apply for patents on certain aspects of our current or future pipeline assets, processes or other technologies and their uses in a timely fashion or at a reasonable cost. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings before various patent offices or in courts in the United States, Europe, or other jurisdictions. The degree of future protection for our intellectual property and other proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Additionally, our intellectual property may not provide us with sufficient rights to exclude others from copying our processes and technologies or commercializing pipeline assets. If we do not adequately obtain, maintain, protect, defend and/or enforce our intellectual property and proprietary technology, competitors may be able to use our proprietary technologies and erode or negate any competitive advantage we may have, which could have a material adverse effect on our financial condition and results of operations.

Risks in a patent prosecution process

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our current or future licensors or partners will be successful in prosecuting, obtaining, protecting, maintaining, enforcing and/or defending patents and patent applications necessary or useful to protect our proprietary technologies (including pipeline assets and methods of manufacture) and their uses. Furthermore, the patent prosecution process is also expensive and time-consuming, and we may not be able to file, prosecute, maintain, protect, defend, enforce, or license all necessary or desirable patents or patent applications, as applicable, at a reasonable cost or in a timely manner or in all potentially relevant jurisdictions.

Risks in case of changing patent laws

The patent position of pharmaceutical and biotechnology companies is generally highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. Moreover, there are periodic changes in patent law, as well as discussions in the Congress of the United States and in international jurisdictions about modifying various aspects of patent law and such changes in patent laws or in interpretations of patent laws may diminish the value of our intellectual property. There is no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain.

Risks in detecting infringement, misappropriation and other violation.

Our ability to enforce our owned (solely or jointly), and in-licensed patent and other intellectual property rights depends on our ability to detect infringement, misappropriation and other violation of such patents and other intellectual property. It may be difficult to detect infringers, misappropriators and other violators who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement, misappropriation or other violation in a competitor’s or potential competitor’s product or service, and in some cases, we may not be able to introduce obtained evidence into a proceeding or otherwise utilize it to successfully demonstrate infringement. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. If any of our owned (solely or jointly) or in-licensed patents covering our pipeline assets, processes or other technologies are narrowed, invalidated, or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our pipeline assets, processes or other technologies, our competitive position could be harmed or we could be required to incur significant expenses to protect, enforce or defend our rights.

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Risks in securing licenses.

We currently have rights to certain intellectual property, through our owned (solely or jointly) and in-licensed patents and other intellectual property rights relating to the identification and development of our pipeline assets, processes, or other technologies. Our pipeline assets, processes or other technologies could require the use of intellectual property and other proprietary rights held by third parties and their success could depend in part on our ability to acquire, in-license or use such intellectual property and proprietary rights. In addition, our pipeline assets may require specific formulations to work effectively and efficiently, and these intellectual property and other proprietary rights may be held by others. We may be unable to secure such licenses or otherwise acquire or in-license from third parties any compositions, methods of use, processes, or other third-party intellectual property rights that we identify as necessary or consider attractive, on reasonable terms, or at all, for pipeline assets, processes, and other technologies that we may develop. The licensing and acquisition of third-party intellectual property rights is a competitive area, and several more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we, or our partners, may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

Third-party challenge to Evotec’s or Evotec’s licensors’ patents

Our owned (solely or jointly) and licensed patents and patent applications may be subject to validity, enforceability, and priority disputes. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability. Some of our patents or patent applications (including licensed patents and patent applications) may be challenged at a future point in time in opposition, derivation, re-examination, inter partes review, post-grant review or interference or other similar proceedings. Any successful third-party challenge to our or our licensors’ patents in this or any other proceeding could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks from unknowing all third-party intellectual property rights

We may not be aware of all third-party intellectual property rights potentially relating to our assets. Publications of discoveries in the scientific literature often lag the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until approximately 18 months after filing or, in some cases, not until such patent applications issue as patents. We might not have been the first to make the inventions covered by each of our pending patent applications and we might not have been the first to file patent applications for these inventions. To determine the priority of these inventions, we may have to participate in interference proceedings, derivation proceedings or other post-grant proceedings declared by the United States Patent and Trademark Office (USPTO), or other similar proceedings in non-U.S. jurisdictions (e.g., within the jurisdiction of the “Deutsches Patent und Markenamt” DPMA or European Patent Office EPO), that could result in substantial cost to us and the loss of valuable patent protection. The outcome of such proceedings is uncertain. No assurance can be given that other patent applications will not have priority over our patent applications. In addition, changes to the patent laws of the United States allow for various post-grant opposition proceedings that have not been extensively tested, and their outcome is therefore uncertain. Furthermore, if third parties bring these proceedings against our patents, regardless of the merit of such proceedings and regardless of whether we are successful, we could experience significant costs and our management may be distracted. Any of the foregoing events could have a material adverse effect on our business, financial condition, results of operations and prospects.

Future litigation by third parties

Our commercial success depends in part on our ability and the ability of future partners to develop, manufacture, market and sell our assets and use our assets and technologies without infringing, misappropriating, or otherwise violating the intellectual property rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology industry, as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post-grant review, and re-examination proceedings before the USPTO, or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our assets, manufacturing methods, software and/or technologies infringe, misappropriate, or otherwise violate their intellectual property rights.

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Limited lifespan of patents

Most international jurisdictions provide a 20-year nominal patent term, though many require payment of regular, often annual, annuities to maintain pendency of an application or viability of an issued patent. In some jurisdictions, one or more options for extension of a patent term may be available, but even with such extensions, the lifespan of a patent, and the protection it affords, is limited. Even if patents covering our or our partners’ assets, processes and other technologies and their uses are obtained, once the patent term has expired, we may be subject to competition from third parties that can then use the inventions included in such patents to create competing products and technologies. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

HR risks

Loss of highly qualified staff (key employees)

The loss of any of our key employees could impede the achievement of our short-term financial targets as well as our medium- and long-term strategic goals. Our ability to compete in the highly competitive biotechnology and pharmaceutical industry depends upon our ability to identify, attract, develop, motivate, adequately compensate, and retain highly qualified managerial and scientific personnel. We are highly dependent upon members of our management and qualified scientific personnel to perform R&D work and therefore are exposed to the risk that losing employees may mean the loss of critical knowledge. We may not be able to retain these employees due to the competitive environment in the biotechnology industry. The loss of any of our employees’ services may adversely impact the achievement of our strategic objectives. We currently do not have “key person” insurance on any of our employees. We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes and operations, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. To reduce this risk, we have established defined documentation processes, shared knowledge platforms, lab journals, clearly defined job functions and project meetings to secure some of the relevant knowledge, findings, and data. At the same time, long-term incentive (LTI) awards for senior employees serve as a long-term retention measure. For reasons of risk mitigation and business strategy, we have set up our organization such that key employees develop a common level of knowledge, with well-defined rules of substitution and succession. Evotec also strives to reduce its employee attrition in general throughout the company thanks to a combination of measures in compensation and benefits packages, career development and leadership development initiatives.

Information technology risks

Cyber risks, data integrity and protection and loss of data

We collect and maintain information in digital form that is necessary to conduct our business, particularly for purposes of our PanOmics, PanHunter, J.DESIGN and induced Pluripotent Stem Cell (iPSC)-based drug discovery platforms, and we are highly dependent on our information technology systems. In the ordinary course of our business, we collect, store, and transmit large amounts of confidential information, including intellectual property, proprietary business information, human samples and personal information. We have also outsourced elements of our information technology infrastructure, including our internal computer system, and as a result, several third-party vendors may or could have access to confidential information.

Our information technology systems, including our internal computer systems, and data have been, and may continue to be, vulnerable. As previously disclosed, on April 6, 2023, we were the victim of a ransomware incident that has continued to impact our operations. Upon learning of the incident, we immediately retained a team of third-party forensic, incident response and security professionals and engaged external counsel to respond to and contain, as well as to investigate and determine the full scope of, the incident. We also notified law enforcement officials and confirmed that we have certain insurance coverage for such incidents. However, there is no guarantee that we will be fully reimbursed for all expenses incurred in connection with the incident. The incident has caused, and may continue to cause, delays in our operations and result in a deferral or loss of revenue and incurrence of incremental costs that may adversely impact our results of operations, cash flows and financial condition and the trading price of our Common Stock.

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As a result of the ransomware incident and any future cyber security incidents, information stored on our networks may be manipulated, publicly disclosed and permanently lost. Any such breach or other loss of information could result in legal claims or proceedings and liability under laws that protect the privacy of personal information, as well as regulatory penalties. We cannot guarantee that third parties will not be able to gain unauthorized access to or otherwise breach our systems in the future. Any such unauthorized access or breach could adversely affect our business, results of operations and financial condition.

There is no assurance that there will not be cyber security incidents or vulnerabilities that will have a material adverse effect on us in the future.

GDPR and other similar jurisdictions

Considering the significantly expanded regulations under General Data Protection Regulation (GDPR) and other similar jurisdictions, we are permanently reviewing the handling of relevant internal and external data and our respective flow, storage, and access. If we fail to comply with the GDPR and the applicable national data protection laws of the European Union member states, or if regulators assert, we have failed to comply with these laws, it may lead to regulatory enforcement actions or other administrative penalties. This may be onerous, may interrupt, or delay our development activities, and may adversely affect our business, financial condition, and results of operations. We must comply with the GDPR and the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains GDPR in the United Kingdom’s national law. The European Commission has adopted an adequacy decision which will automatically expire on June 27, 2025, unless the European Commission re-assesses and renews/extends that decision. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law therefore remains unclear, and it is unclear how the United Kingdom data protection laws and regulations will develop in the medium-to-longer term, and how data transfers to and from the United Kingdom will be regulated in the long term. These changes may lead to additional costs and increase our overall risk exposure. Other jurisdictions outside the European Union are similarly introducing new or enhancing existing privacy and data security laws, rules, and regulations, which could increase our compliance costs and the risks associated with non-compliance. Privacy and data security laws are rapidly evolving, and the future interpretation of those laws is somewhat uncertain. We cannot guarantee that it is, or will be, in compliance with all applicable international regulations as they are enforced now or as they evolve. There is significant uncertainty related to the way data protection authorities will seek to enforce compliance with privacy and data security laws, including the GDPR. Enforcement uncertainty and the costs associated with ensuring compliance with privacy and data security laws, including the GDPR may be onerous and adversely affect our business, financial condition, results of operations and prospects. If any of these events were to occur, our business and financial results could be significantly disrupted and adversely affected. In this regard, we have intensified our employee training efforts to increase awareness of the need to review and adjust internal data protection procedures and improve restricted access applications. In addition, we have defined routines and installed internal and external contact persons in the event of certain potential types of data breaches.

Operational risks

Procurement risks

Our business depends on a reliable supply of various materials for our laboratories and production. Due to our business model, short-term order inquiries are unavoidable, such that delivery bottlenecks can lead to delays in projects and production and thus have a negative impact on our capacity planning and earnings situation. Price increases for laboratory and production materials, but also for electricity and gas, represent a financial risk for us. We face this risk by working closely with our suppliers and using different sources of supply. Due to regulatory requirements, however, we are not always able to switch to other sources of supply, so it cannot fully mitigate the risk. We try to limit the risk by reviewing and monitoring our supplier relationships, a continuous exchange with the operational areas for the early identification of needs and constant market analyses. In the context of the Russia/Ukraine conflict we are facing high procurement risks in the short term due to increasing electricity and gas prices for entities purchasing gas and electricity on the Spot market. In the event of a short-to-medium-term gas shortage, it may result in interruptions such as a production stop in Evotec’s sites if Evotec is unable to switch sufficiently to alternative sources of supply. Such a gas shortage could also have a direct impact on Evotec’s suppliers and could disrupt the entire supply chain. We also see a risk of increasing transportation costs due to higher transport times and on the charging of energy costs from our suppliers.

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Process risks

We recognize the importance of balanced knowledge management, for example in the context of external reporting deadlines or adequate runtimes of processes. Due to our steady growth, we must continuously adjust our organizational and functional management as well as standards, business processes and structures in accordance with our current and future scale. For example, our global finance function has initiated organizational improvement measures and additional change management measures to avoid knowledge monopolies and make the finance organization more robust and flexible. This is also meant to prevent process risks such as inefficiencies and ensure accurate and high-quality financial data.

Major disasters on sites

In the event of a direct or secondary disaster that results in stoppages of our activities on one or multiple sites, or in damages and/or interruptions to the operations of key suppliers, we may be forced to suspend or incur significant delays in parts or all our activities. In each case, there is a potential risk that our financial position and operating results may be substantially affected. We therefore rate this risk as high from a financial standpoint. In addition, the implementation of R&D plans may be impacted by damages to our research facilities as well as medical and other institutions at which testing is conducted. In case of major disasters such as extreme weather events, earthquakes (especially in risk areas like Seattle, United States), or plane crashes, we may suffer loss of business due to an inability to execute contracts and fulfill client deliverables. We have created business continuity plans as well as disaster recovery plans and have insurance for these rare events.

Environmental, health and occupational safety risks

We continuously enhance our operational risk management and optimize the accountability and performance assessment mechanism of all departments and functions. We actively gather data on operational risk to enable proactive risk prevention opportunities. The long-term objective is to monitor the level of operational risk across the Group monthly to gain insights preventively, thereby reducing our operational risks and saving costs in the long term. The nature of our operating activities exposes Evotec to a wide range of health, safety, and environmental risks. Our EHS teams and management systems help identify these risks and drive performance improvements by setting and advising on industry standards and compliance requirements by minimizing the complexity of such standards and requirements. Looking forward we are building governance and competence in the EHS function as we look to establish a deeper focus on proactive risk management, aligned with the global trends, and emphasize ongoing compliance developments and client expectations in this space.

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As previously disclosed, on April 6, 2023 we were the victim of a ransomware incident that has continued to impact our operations. Upon learning of the incident, we immediately retained a team of third-party forensic, incident response, and security professionals and engaged external counsel to respond to and contain, as well as investigate and determine the full scope of, this incident. We also notified law enforcement officials and confirmed that we have certain insurance coverage for such incidents.  

As a result of the incident, certain of our data was encrypted so that we could not access it, some of our data was exfiltrated from our systems, and business activities at several of our facilities were temporarily disrupted. As of the date hereof, we are able to decrypt the data that was encrypted and are confident to gain full access to all our data. We are still conducting an investigation of the incident with assistance from our outside professionals. Preliminary findings indicate that the unauthorized third-party gained access to certain personal employee information as well as certain customer-related data. There is currently no indication of any misuse of this information. Preliminary findings also indicate that the incident has been contained. We are recovering the impacted data, and we are not currently aware of any evidence of the impacted data being publicly released. We continue to investigate what information may have been accessed or exfiltrated and resolve open items related to the incident. Despite this disruption, we continued our business. Working alongside our security professionals, we are planning to bring our systems back online with enhanced security controls in due course. Due to the recency of the event, we are unable to evaluate the associated expenses yet.

However, we intend to make additional investments in the future to further strengthen our cyber security. We remain committed to protecting the security of the personal information entrusted to us and providing high-quality products and services to our customers. We are actively managing the incident and will continue to do so.  We remain committed to protecting the security of the personal information entrusted to us and providing high-quality services to our customers.

Our principal executive offices are located at Essener Bogen 7, Hamburg, Germany. Our telephone number is +49 40 560 81-0. Our website address is http://www.evotec.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this annual report. We have included our website address as an inactive textual reference only.

Our agent for service of process in the United States is Evotec (US) Inc., 303B College Road East Princeton, NJ 08540 Tel: (732) 329-2355.

We are an industry-leading drug discovery and development partner for the pharmaceutical and biotechnology industry. Our mission is to discover, develop and manufacture medicines that matter for a broad range of difficult-to-treat diseases in highly efficient collaborations with our partners. We focus on data-driven disease understanding, precision medicine and improving disease relevance during the early stages of drug discovery and development to increase probabilities of success up (“POS up”) and to positively impact patients’ lives.

We built a “shared economy” business-to-business model in R&D, designed to result in efficient collaborations to discover in collaboration with our partners best and first-in-class medicines while participating in the success of drug candidates through the creation of a royalty pool. Our network includes more than 800 partners ranging from leading pharmaceutical companies, small and large biotechnology companies, academic institutions, patient advocacy groups and venture capitalists as well as mission-driven foundations and not-for-profit organizations. Together with our partners, we dedicate our work to a wide spectrum of diseases with unmet medical needs, including indications affecting many patients in large parts of the world with little to no access to sufficient care.

To that end, we have built a comprehensive suite of fully integrated technology platforms with four focus areas: PanOmics-driven drug discovery, discovery applications and “off-the-shelf” cell therapies based on induced-pluripotent stem cells (iPSC), Just – Evotec Biologics with Artificial Intelligence (“AI”) and continuous manufacturing for a more cost-efficient access to antibodies and an integrated business-to-business platform for increased probabilities of success from target to the patient (End-to-End Shared R&D). By sharing access to these platforms, we provide solutions to our partners, which we believe will transform the way new drugs are discovered and which enable significant improvements in the quality of new drugs. The aim is to provide better access in many underserved areaswhile accelerating the drug discovery and development process and reducing the high failure rates that are still observable in the industry today.

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Traditional drug discovery and development is a lengthy, costly, and complex process that is subject to a high degree of uncertainty and high failure rates. In addition, identifying novel compounds requires extensive screening and in vitro and in vivo testing, which can be both labor-intensive and time-consuming. In most R&D models today, for every successful medicine that is commercialized, 5,000 to 10,000 compounds fail in drug discovery. Moreover, it takes approximately 12 years of intense R&D, and approximately $ 2 billion for a new medicine to reach patients.

Our platforms include AI and Machine Learning (“ML”) expertise and capabilities such as deep learning and computational knowledge integration along the entire research and drug discovery value chain. We collaborate with our partners in all early research phases from sourcing novel ideas to early clinical development. Our platforms specifically designed for precision drug development and to lead to differentiated results by integration into established R&D capabilities that are leveraged by our experienced scientists. Our drug discovery therapeutic area expertise and capabilities include diabetes and its complications, fibrosis, infectious diseases, CNS diseases, oncology, pain and inflammation, immunology, rare diseases, respiratory diseases, and women’s health.

For the near future, a substantial majority of revenues generated from the offerings to our partners will be based on “fee-for-service” agreements or FTE-based arrangements, recognized in one of our reporting segments, EVT Execute. Subject to the degree of integration of proprietary technologies, or if alliances are built based on in-house R&D projects as part of EVT Innovate, we may also benefit from milestone, license, and royalty payments in addition to the compensation via FTE rates. In the years ended December 31, 2021, and 2022, 8.1% and 2.7%, respectively, of our total group revenues from third parties were derived from milestone, license, and royalty payments.

In 2022, we expanded our network of manufacturing facilities to five. We have the capacity for continuous manufacturing of biologics is in the United States, in Redmond (Washington). Our API (Active Pharmaceutical Ingredient) manufacturing capabilities are in Europe in Abingdon, United Kingdom and Verona, Italy as well as in Halle/Westphalia in Germany after the closing of the acquisition of Central Glass in November 2022, which now operates under the name of Evotec Drug Substance (Germany) GmbH (Evotec DS). In May 2022, we announced the acquisition of Rigenerand, now operating as Evotec (Modena) Srl., adding GMP manufacturing capabilities for cell and gene therapy. We now have the capability to manufacture drug products across all relevant modalities to support the clinical development and commercialization of both our own and our partners’ assets.

With close to 5,000 employees, we leverage our technologies and platforms to develop medicines that matter across multiple modalities, with the aim of ultimately making the right drug available to the right patient. Our drug candidates can be created at as low as half the cost of current benchmarks for discovery through Investigational New Drug (IND) applications and those currently generated by industry players, and at a faster speed at up to 30% less time than existing benchmarks for discovery through IND application. Certain of our operations are carried out under GMP and GLP regulations that are certified and periodically audited by regulatory agencies such as the FDA, MHRA, AISA and our customers.

As of December 31, 2022, Evotec’s work has resulted in 18 disclosed pipeline assets in clinical development, and over 120 pipeline assets in the discovery and preclinical phases.

We report the results of our work and collaborations through two operating segments:

We leverage our offerings described throughout this annual report across both EVT Execute and EVT Innovate. Revenue generated through our collaboration arrangements based on our four focus areas PanOmics, iPSC, Just – Evotec Biologics and End-to-End Shared R&D. These areas may contribute to either the EVT Execute segment or the EVT Innovate segment, depending on the nature of the contract with our customer, the ownership of the intellectual property, the stage of the project and our right to generate revenue from development success. We believe our partnership model is unique and allows us to balance and diversify the risks associated with drug discovery.

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Focus areas: PanOmics, iPSC-based “off-the-shelf” cell therapies based on induced-pluripotent stem cells, Just – Evotec Biologics and End-to-End Shared R&D

¹ Sponsoring and execution of clinical trials as well as distribution and marketing iare under the responsibility of partners, still sharing upside in case of success.

Recent scientific and technological advancements have significantly eased approaches towards the understanding of diseases at a molecular level, either by investigating the entire complement of a specific type of biomolecule or the totality of a molecular process or signaling cascades within an organism. Working toward the vision of deep human disease understanding and designing highly effective therapies, Evotec leverages several -omics fields and cross-omics insight generation, referred to as PanOmics.

Examples of well-established fields include genomics, transcriptomics, proteomics, and metabolomics. Evotec’s PanOmics platform generates genomics, transcriptomics, proteomics, and metabolomics data of the highest quality on an industrial scale to profile and selects promising new drug candidates derived from comprehensive cell biological profiles from molecular patient databases – Evotec’s Molecular Patient Databases (E.MPD).

The results often lead to the stratification of sub-populations within a broader group of patients and eventually may lead to the development of personalized therapies. This change in paradigm has increased the need for new AI/ML-based platforms, tools, and methods to better understand, interpret, and translate the vast amounts of information and data that is being generated to better understand the molecular biology, cell regulation and the pathogenesis of individual diseases. PanHunter, Evotec’s integrated data analytics platform, makes the Company’s -omics data available in a user-friendly manner at the enterprise level. Users can freely interact with and combine data in a modular, app-based system where results are available immediately and can be interpreted or used as input for subsequent steps. This rapid feedback is a crucial feature distinguishing PanHunter from other similar tools.

The improved understanding of sub-populations’ disease profiles has resulted in the need for better patient-specific disease modeling. Our AI/ML and precision medicine platforms are therefore complemented by our high-volume/high-quality and proprietary iPSC technology platform, which utilizes patient-derived cell-based assays for disease modeling. iPSC cell assays are crucial to accurately modeling diseases based on the use of human tissue and represent therefore an alternative to animal models to profile drug candidates in the pre-clinical stage.

Moreover, the analysis of disease signatures and individual patient signatures improves patient stratification, driven by biomarker identification (EVOgnostic) as well as human in vitro model-based safety prediction (E.SAFETY).

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Molecular disease understanding for lower attrition / higher Probability of Success (“PoS”)

iPSC are also the basis for next-generation allogeneic cell-based medicines. Our cell therapy platform leverages our proprietary iPSC technology for this purpose. Here we focus on developing off-the-shelf cell therapies with long-lasting efficacy like immune cells in oncology (e.g., NK cells, T cells and others), beta cells for diabetes, cardiomyocytes in heart repair, and retina cells in ophthalmology as well as iPSC-derived exosomes. Our lead cell therapy candidate is a cell replacement therapy for type 1 diabetes that is currently in preclinical development. A first collaboration in immuno-oncology was signed with an undisclosed partner, while in 2022 the foundation was laid together with the university hospital in Hamburg (UKE) for the development of a next-generation regenerative therapy for patients recovering from a heart attack.

Somatic cells from a healthy donor can be used to produce induced-pluripotent stem cells (iPSCs). These cells can be amplified indefinitely and can then be differentiated into many different human cell types. This platform is therefore ideally suited to manufacture iPSC-derived cell therapeutics at large scale to treat and potentially address a whole plethora of different diseases.

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1) Each cell type can deliver multiple differentiated products

In the field of biologics discovery, development, and manufacturing, we apply our machine learning and integrated technology platform J.DESIGN to bring further value to our partnerships by designing, developing, and manufacturing biologics in a cost-effective and efficient manner. Because we utilize J.DESIGN throughout the entire drug discovery and development process of a biologic, by the time it reaches the manufacturing stage in any given program, we have already predicted and reduced the risk of most scaling problems that may occur. As a result, we can deliver flexible, right-sized manufacturing with faster turnaround times and without sacrificing the quality of the products. This new paradigm broadens the scope of disease areas for biologic drug candidates driven by significantly higher yields and lower costs. It will also accelerate the growth of biosimilars given cost advantages and it makes orphan diseases more amenable to biologics despite small addressable populations. For the same reasons, smaller patient populations resulting from precision medicine-based patient stratification will also benefit.

To enhance our manufacturing capabilities further, in August 2021, we opened our first J.POD, a late-stage clinical and commercial manufacturing facility that uses single-use technology located in Redmond,Washington, United States. Because our facility contains clinical and commercial processes, both can be operated at the same scale to facilitate seamless transfer and eliminate scale-up risk. The building is approximately 130,000 square feet in size and will house more than 200 employees at full capacity. The site, which will be able to produce on a large enough scale to meet most of our commercial needs in a single facility and will mainly supply markets in North America.

As global demand for flexible biologics capacity and for more affordable access to medicines increases, we have started construction of a second J.POD facility in Toulouse, France in September 2022. Europe is the second largest biologics market and lessons learned from the COVID-19 pandemic led to increasing demand for local capacity and security of supply to improve pandemic preparedness in case needed. The decision to set up this infrastructure at our own site in Toulouse, France was strategic, as the Toulouse footprint creates operational efficiency and co-location with oncology and immunology expertise, adding further synergy with our strategic needs. The second J.POD is expected to be completed by 2024.

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Our End-to-End Shared R&D platform leverages a comprehensive set of capabilities across all stages of discovering new medicines, from initial biological validation and target selection to clinical trial planning, safety assessment and manufacturing. We believe that we differentiate from our competition because we combine multimodality expertise, disease expertise and interdisciplinary integration (e.g., molecular design, chemistry, biology, pharmacology, Adsorption, Distribution, Metabolism, Excretion (“ADME”), toxicology, formulation development, API manufacturing, etc.) across the various stages of discovery and development. Highly qualified and experienced scientists lead and coordinate across these processes. Furthermore, the application of AI/ML and model-building capabilities to predictive science aims at improving discovery projects in terms of probability of success, speed, cost, and quality.

Our sources of revenue generation vary on the types of contracts we have with our partners. Although contracts vary, often times they are linked to intellectual property (“IP”):

In collaborations where ownership of IP resides with one of our partners, we provide stand-alone or fully-integrated drug discovery and development solutions to our partners. Our solutions range across most modalities and from early target identification to the manufacturing of compounds and commercial products. Well-defined work packages are typically provided and compensated on a “fee-for-service”, basis and they are distinct in scope and nature. Typical examples of such services include, among others, high-throughput screening campaigns, Adsorption, Distribution, Metabolism, Excretion and Toxicity tests (“ADME-tox tests”) and Active Pharmaceutical Ingredients (“API”) manufacturing. In addition, fully integrated drug discovery projects, in which partners work with Evotec to conduct interdisciplinary research in pursuit of novel therapeutics, usually under multi-year contracts, are typically compensated on an FTE-basis. These models apply if no intellectual property is involved, or none of our essential proprietary technology platforms are used. The partners’ intellectual property rights therefore protect the resulting therapeutics.

We leverage our proprietary technology platforms and related IP to develop new drug discovery projects, assets, and platforms, both internally and through collaborations with leading pharmaceutical and biotechnology companies and academic institutions. These collaborations are typically based on agreements with partners, which involve a combination of upfront payments, ongoing research payments (based on FTE-rates), and significant financial upside through milestones and royalties. These collaborations enable the sharing of cost and risk as our partners typically absorb the costs of clinical development and commercialization.

We also leverage ownership of IP, by making equity investments in products, technology platforms and companies through which we obtain early access to innovation. We facilitate the acceleration of innovation by providing capital as well as access to our technology platforms, expertise, and network. We see significant potential for value creation from these new partnershipsWe expect to realize returns on investments both from successful exits from its portfolio companies (e.g., trade sale, M&A or IPO) and fee-for-service and FTE-rate-based revenues from our portfolio companies. As of December 31, 2022, we had 33 equity engagements with over 120 active projects in our pipelines.

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Value creation pillars of business-to-business model in Biotech

1 Reaching from out-licensing of own IP to joint creation of IP.

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We have experienced significant growth in the recent past. From 2021 to 2022, our revenues increased by €133.4 million, or 22%, from €618.0 million in 2021 to €751.4 million in 2022. Our growth is underpinned by a stable customer base of 819 in 2022 as compared to 842 in 2021. We have maintained a repeat business percentage of 92% (2021: 91%), which we believe affirms the quality of our services and evidences high customer satisfaction. Revenues with our top 10 customers contributed 39% of total revenues in 2022 as compared to 42% in 2021. To facilitate future growth, we intend to expand our investments into proprietary “unpartnered” R&D, which drives the development of our pipeline. From 2021 to 2022 our unpartnered R&D expenses increased by €11.8 million, or 21%, from €58.1 million to €70.2 million. Because of such investments, our number of partnered pipeline assets increased to more than 130, while the pool of yet unpartnered programs exceeds 60 assets, Equity participation increased to 33 as of December 31, 2022.

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Broad pipeline of development

Since 2015, the number of our pipeline assets has more than doubled to over 130 with 18 assets in clinical development as of December 31, 2022. Of the pipeline assets, one obtained market approval in South Korea in 2022, one is in Phase III, four are in Phase II, one is in Phase I/II and eleven are in Phase I.

We initially developed most of the candidates for which we have the right to receive royalty or milestone payments. We subsequently licensed or assigned those candidates to partners for continued pre-clinical and clinical development. They also include candidates that have been initially developed by our partners and that have become the subject of a joint research project pursuant to which we are eligible for royalty or milestone payments. We also disclose candidates that are being developed by partners in whom we have solely an equity stake and no right to milestone or royalty payments with respect to their candidates in development but where we could benefit from value accretion related to the progress of these assets.

Beyond therapeutic areas, we have also successfully expanded our pipeline across multiple modalities. In 2015, our therapeutic assets were exclusively small molecules. In contrast, in 2022, more than ten assets were derived from cell and gene therapy, more than 20 from biologics, more than 90 from small molecules and more than ten early-stage projects where several modalities are being investigated. We expect the relative share of pipeline-related revenues as a percentage of total revenue to increase as the Company’s pipeline matures and as the revenue mix within all focus areas increasingly includes success-based components, too.

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Our Competitive Strengths

Based on many technological advances and new biological insights, the opportunity to change the odds and improve the success rates in drug discovery has been made more achievable. In our view, our set-up as a fully integrated drug discovery and development innovation hub makes us well-positioned to achieve superior results. We believe we have built the most agile platform in the industry, and we distinguish ourselves from our competition through our competitive strengths, as described below:

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Our Growth Strategy

Our growth strategy aims to address the entirety of the R&D continuum by tackling the broadest range of disease areas utilizing a modality-agnostic approach. We believe we have built one of the most efficient integrated drug discovery, development and manufacturing infrastructures that generates the highest quality results in the fastest and most cost-efficient way. In addition, by leveraging the value of our platforms and sharing intellectual property, we seek to de-risk our portfolio through the breadth and diversity of pipeline assets. We aim to have over 170 pipeline assets by the end of 2025. Royalties contribute a small fraction of revenues today, but we anticipate they will become more meaningful by 2025.

Our strategies include:

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Current Industry Dynamics Suggest the Need for a Disruptive Approach to R&D

The budget that pharma and biotech companies devote to R&D is determined by the amount of revenue they expect to earn from a new drug, the expected cost of discovery and development to the launch of the drug, and policies that influence the supply of and demand for drugs. In contrast to the development cost, which increased from $ 1.3 billion in 2013 to more than $ 2.2 billion in 2022 for the benchmark of the top 15 pharma and biotech companies, the average global peak sales per drug in the last decade declined by more than 25% from $ 520 million per drug in 2013 to $ 389 million in 2022. In line with this trend, commercial returns as measured by internal rate of return (IRR) have decreased by 42% – from 6.5% in 2013 to 3.8% in 2022. Global R&D spend grew by 63%, from $ 86 billion in 2013 to $ 139 billion in 2022.

This all points to the need for a drastic shift in the R&D model to increase simultaneously increase the quality of drugs being developed while improving the potential for commercial returns. Around COVID time, the industry opened the perspective on disruptive R&D models. We saw progress in the willingness to collaborate, which however has partially cooled again. Across the board, we believe that the need for disruption remains as much in place as ever.

Evotec’s solution – Providing what the industry really needs.

We believe the existing capital-inefficient R&D model with its fully integrated, pharma-like value chains is no longer sustainable and, most importantly, no longer competitive especially when it comes to the development of medicines for small patient populations, be it precision medicines for specific patient segments or medicines for rare diseases. We deliver critical solutions such as enhanced speed to the clinic, better prediction of clinical efficacy and reduced manufacturing costs. We can deliver these critical solutions through a combination of:

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We believe that the future of drug discovery and development requires the integration of different disciplines and approaches to generate treatments that are patient-relevant, disease-modifying and have curative potential. Our proprietary discovery and development platforms leverage data, operational efficiencies, and technological capabilities with the goal of driving rapid progress and successful outcomes in the early stages of the R&D process.

The key criterion for our decision-making is patient-relevant data, which facilitates a more stringent project prioritization cascade than typically observable in the industry. We can generate disease profiles at a large scale, providing a significant foundation of knowledge on which to base disease modeling and other drug discovery efforts. Our large suite of automated platforms ensures data integrity, prompt test responses and productivity. We create unique analytical packages for both our own programs and our partners’ programs, customized for each phase of development. Backed by a fully integrated drug discovery platform, all approaches are designed to contribute to the goal of improving productivity for our partners and increasing the number of our own assets, derived from our platforms, alliances as well as equity investments.

Finding the right drug for the right patient platforms underpinning our PanOmics- driven drug discovery for deep disease understanding and effective therapies

We believe our patient-centric and disease relevance-focused approach will guide us to find the right drug for the right patient at the right dose much earlier in the drug discovery and development process by determining disease relevance right at the outset of the drug discovery and development phase instead of during clinical development, which has been the traditional approach. PanOmics- driven drug discovery for deep disease understanding and effective therapies and data analytics via PanHunter in combination with high-throughput iPSC-based disease modeling drive the foundation of our industrial scale AI, ML and precision medicine platform. These hold the key to driving innovation within many of our internal R&D and partnered programs.

Evotec’s precision medicine paradigm determines disease relevance right at the outset to increase clinical success rates.

PanOmics data generation—Industrialized high-throughput multi-omics platform.

Our approach to precision medicine is based on multi-omics. Generally, -omics technologies are widely available and often used, however they are not routinely applied to drug discovery and development. For example, when it comes to genome sequencing, the industry has simply not sequenced enough genomes and effectively connected these to medical data to learn what the average genome tells us about expressed phenotypic characteristics. This means that genome sequences only provide a glimpse of a patient’s predispositions to disease and do not measure disease status or disease progression. For this, transcriptome and proteome data are needed.

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Transcriptomics and proteomics allow us to measure directly how a genome interacts with the environment in the context of an organ, tissue, or cell. As transcriptomics and proteomics are unbiased and provide comprehensive readouts, they are crucial for a better understanding of disease processes and disease-relevant molecular mechanisms. These technologies have not been scaled to a similar extent as genome sequencing. We believe the development of higher throughput transcriptomics and proteomics will allow for the routine use of these technologies across the drug development value chain. The two key drivers are lower costs to generate data and the adoption of machine-learning tools that support the analysis of big -omics data.

We have been particularly focused on industrializing our transcriptomics and proteomics platforms so that they can be fully integrated into our mainstream drug discovery processes. We believe our proprietary multi-omics data generation platform, PanOmics, is industry-leading in terms of throughput, robustness, and cost efficiency, in the fields of transcriptomic and proteomic analysis.

ScreenSeq—High-throughput transcriptomics

High-throughput transcriptomics is necessary to build large molecular patient and drug discovery databases effectively. We have built an industry-leading high-throughput transcriptomics platform called ScreenSeq, which is able to run single-cell sequencing analysis on tissues from thousands of patients.

ScreenSeq is run in a 384 well, high-throughput format, designed to run screens of up to 100,000 samples or compounds, which more than covers the requirements for any typical screen. The detection limit is around 15,000 genes, exceeding the requirements needed for most purposes. ScreenSeq works for most tissues from animals or humans, which allows us to effectively bridge the gap between pre-clinic and clinic. Finally, we have ensured that all of this can be done at reasonable costs for the vast amount of information a transcriptome analysis provides for every single compound.

ScreenPep—High-throughput proteomics

Like ScreenSeq for high throughput transcriptomics, our scientists have developed ScreenPep, providing what we believe is unparalleled throughput in proteomics, while maintaining the highest quality standards regarding proteome coverage and reproducibility. As the proteome provides particularly essential information on the status of a cell or tissue, we have worked to improve the throughput of our proteomics platform.

E.MPD – Evotec’s Molecular Patient Database

E.MPD Case study: Leading position in the field of CKD

An example of the capabilities of our PanOmics platform is our molecular patient-derived disease database in the field of CKD. CKD is far from uniform, so we believe that gaining a better insight into the molecular level is the only way to develop curative therapies. For example, the category of glomerular kidney diseases consists of many different diseases that are driven by vastly different disease mechanisms. Only if these mechanisms are better defined and understood will we be able to develop better medicines.

To develop a comprehensive patient derived database in the field of CKD, we entered a collaboration with the National Unified Renal Translational Research Enterprise (NURTuRE) consortium in the United Kingdom in 2017. NURTuRE brings together a consortium of leading kidney disease companies, academic institutions, and pharmaceutical companies to share and advance cutting-edge disease processes, platforms, and networks to advance research in nephrology. At the start of our collaboration, the consortium had assembled one of the largest CKD databases worldwide with about 4,000 patients comprised of complete clinical patient profiles including all standard diagnostics and test results as well as treatments. The NURTuRE consortium consists of United Kingdom-based academic institutions coordinated by Kidney Research UK and select industry partners. The aim of the consortium is to provide access to thousands of kidney patient-derived samples and data sets to characterize human pathology and to provide detailed histological and molecular analysis.

Utilizing the PanOmics data generation platforms, we conducted molecular profiling of patient tissues and samples in the database and thereby generated crucial molecular patient data required to drive precision medicine approaches in CKD. We have continuously expanded this database, which is based on data from over 10,000 CKD patients. To our knowledge, this constitutes by far the largest CKD patient molecular database worldwide and now constitutes more than six hundred billion data points according to our internal calculations.

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Based on the strength of our molecular CKD patient database, we have built four partnerships in kidney diseases in the last five years with prominent pharmaceutical companies such as Bayer, Novo Nordisk, Eli Lilly, Chinook and CSL via our JV NephThera. Our collaborations are structured as multi-target agreements pursuant to which an undefined number of targets may be pursued. Our agreements allow us to scale our business via entering multiple collaborations in the same disease area. We and our partners share responsibilities during discovery and pre-clinical development. If a candidate progresses to clinical development, our partner is fully responsible, financially, and operationally, for development, regulatory approval, and commercialization, and we have the right to receive R&D and sales milestones, as well as royalties on commercial sales. Depending on the nature of the product candidate (e.g., small, or large molecule), potential R&D milestones range from €3.8 million to €37 million on a per product basis. If the candidate receives approval, we are generally entitled to sales milestones that range from $60 million to $250 million per-product, along with royalties between 0.5% and 10% of net sales. The research term is approximately five years. The agreements expire upon the expiry of the last patent of the asset developed under the agreement, unless terminated earlier by either party. The agreements permit our counterparties to terminate the agreement without cause by giving written notice, usually six months. Either party may terminate the agreements prematurely for cause after the other party’s uncured material breach or bankruptcy or insolvency. See “Risk Factors—our business depends on our and our partners’ success in innovation and drug development, which is highly uncertain.”

E.MPD - Expanding from CKD to other disease areas.

While our molecular patient database in CKD is the advanced, we aim to advance several additional proprietary molecular patient databases in other disease areas (e.g., Oncology, Cardiology). The opportunity to derive new targets and therapies in these disease areas is tremendous, and we aim to capitalize on these databases via additional strategic alliances.

Deep understanding of biology with molecular signatures - Molecular Patient Database (E.MPD)

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PanHunter — Advanced multi-omics data analysis and prediction platform

With industrialized systems for generating high-throughput data, the amount of genomics, transcriptomics, proteomics, and metabolomics data (hereafter omics data) generated is growing exponentially. More omics data have been generated in the last two years than in all previous years combined. To ensure disease relevance and patient centricity in the drug discovery process, such omics datasets must be correlated with preclinical and clinical metadata as early as possible. These datasets then contain an overwhelming amount of information about each patient’s condition, molecular biology context, and causes of disease. To gain insights from this vast number of high-dimensional datasets, sophisticated computational analysis is required.

PanHunter addresses these challenges as it is an enterprise-level multi-omics data analysis platform that enables scientists to work with large data sets in a very user-friendly way. The platform consolidates the analysis of various data sets, including clinical data (demographic information, medication, co-morbidities), metadata (gene/protein information, experimental parameters), chemical data (structures, compound information, drug databases), as well as knowledge from the public domain (datasets and literature information), biomolecular databases and other resources (e.g., Wikipathways).

Having developed and successfully deployed PanHunter internally and in industry-defining drug discovery partnerships over many years, Evotec made PanHunter available to its collaborators and partners as a software-as-a-service (SaaS) product in 2022, after investing significantly in the platform’s additional scalability, security, and performance.

Once data is uploaded to PanHunter, the platform allows users to freely interact and combine data in a web-based system. Results are presented immediately and can be interpreted or used as input for subsequent steps of data analysis. This rapid feedback is a key advantage of PanHunter that distinguishes it from other tools, particularly the classical pipelining approach in bioinformatics. Users, typically biologists, computational biologists, or bioinformaticians, can accelerate their research by having all the tools available in one system: from initial dimensionality reduction plots to differential gene expression analyses to very detailed molecular pathway analyses, signature generation, gene set enrichments, meta-analyses, and many options for creating plots to visualize and support results. For specific data, such as single-cell or single-nucleus transcriptomics, specialized applications are provided to facilitate the analysis of large datasets. Using machine learning, the PanHunter platform helps derive drug signatures or cell-type annotations that serve as references for future studies. In this way, PanHunter provides sophisticated data mining to a wide range of scientists who do not necessarily have a bioinformatics background. It also provides an entry point into more advanced machine learning or AI approaches.

An example of the versatility of PanHunter, here in combination with PanOmics, is our industry-leading position in the prediction of drug-induced liver injury (“DILI”) given the appropriate inputs. Liver toxicity accounts for about 18% of drug withdrawals from the market. By the time these failures occur, costs are already material. With better tox-prediction available at the discovery stage, these failure rates have the potential to be reduced dramatically. In our models, the combination of PanOmics with PanHunter has resulted in a superior prediction rate for DILI of 86%. This compares with the current gold standard relying on high-content imaging endpoints, which has a 70% prediction rate, and animal models, which has prediction rates as low as 50%.

Aside from toxicity prediction, we believe that better ways to evidence the efficacy of drug candidates are needed. In our view, this can only be achieved by linking patient-derived data generation with a suitable data analysis platform like PanHunter. Over 54% of drugs in Phase III, clinical trials fail. Of these, 57% fail due to inadequate efficacy, which means that many projects continue for many years pursuing the wrong target or developing compounds that are simply not good enough. Ultimately, only approximately 9% of Phase I biologics receive approval. For this reason, there should be more emphasis than ever on demonstrating the disease relevance of targets and compounds at a much earlier stage in the R&D process.

In addition, we believe it is necessary to measure disease relevance relative to the molecular patient profiles that we know are associated with the disease. As outlined above, we believe this can be achieved through a greater focus on unbiased and comprehensive measurements such as transcriptomics and proteomics, which are uniquely suited to measuring disease status and progression because they capture more complex molecular disease profiles. We believe that AI-based analytical tools can support the identification of mechanisms and targets that can be uniquely linked to patient subpopulations defined by molecular phenotypes to achieve relevant outcomes in a reasonable timeframe.

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iPSC—A new paradigm in human disease modeling

To accelerate the paradigm, shift toward precision medicine, since 2012 we have developed an industrialized platform that builds patient-derived assay systems and disease models through iPSC technology. We believe that our iPSC platform is one of the largest and most sophisticated in the industry, and we have focused on industrializing iPSC-based drug screening so that we can increase the reproducibility and robustness of such screening. We have achieved industrialization by standardizing and scaling up the process of creating patient-derived iPSC for disease modeling and drug screening.

We initially developed our iPSC platform to overcome deficiencies associated with disease models for CNS indications but have since expanded its applicability to cover multiple therapeutic areas such as cardiovascular, metabolic, oncology, endocrinology, and ophthalmology, among others. We anticipate that iPSC-based disease models will have broad applicability in multiple diseases that have been untreatable due to the absence of robust disease models or due to prior disease models not leading to viable treatment approaches.

Neurological diseases, such as Alzheimer’s, amyotrophic lateral sclerosis (ALS) and Huntington’s disease, remain a major challenge for therapeutic drug development due to poor understanding of disease pathophysiology and insufficient representation of these diseases in animal models. Furthermore, in several cases, positive efficacy results observed in pre-clinical animal models have not been reproduced in clinical trials. Based on our expertise in CNS diseases, we believe that existing disease models in this field are suboptimal because the use of immortalized or primary cells has limited disease relevance and is not scalable. For these reasons, we believe it is essential to develop better predictive, ideally human, disease models that generally reflect human disease and disease phenotypes more accurately. Accordingly, we attempt to achieve this objective through the application of our iPSC platform, which is focused on patient-derived iPSC models because they are more suitable for modeling neuronal diseases than other systems.

iPSC Technology shifts the drug discovery paradigm:

iPSCs can be reprogrammed from various patient cells (e.g., skin biopsies or blood) and can proliferate unlimitedly and differentiate into almost any cell type of the human body. Most importantly, they have been shown to replicate disease mechanisms that are found in humans. With our iPSC system, animal models are only used for pharmacokinetic and pharmacodynamics studies to determine whether a compound reaches the specific tissue and is effective there. Such compounds are then tested on various patient in vitro models before moving into clinical trial testing. This allows us to stratify patient populations and explore at the outset whether a drug is effective for all patients or only subpopulations. With this, we obtain highly valuable information for clinical trial design, so we can ensure that we not only select the relevant patients for clinical studies but also use this new drug with relevant patients in a commercial setting.

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For accurate disease modeling, it is essential that all protocols we establish work across multiple iPSC lines to capture the highly diverse genetic causes for many diseases. Together with our partners, we have generated over 350 high-quality iPSC lines according to patient consents and standardized reprogramming methods. The over 350 patient-derived iPSC bank covers a broad range of diseases including Amyotrophic lateral sclerosis, Frontotemporal dementia, Parkinson’s disease, Huntington’s disease, retinopathies, lysosomal storage diseases and other neurodegenerative diseases. We are also advancing our stem cell research platform for disease modeling and screening to develop reliable, scalable, and automated manufacturing processes. All our protocols have been simplified, shortened wherever possible and optimized for high reproducibility and cellular yield. This is an essential requirement for large-scale manufacturing in a bioreactor format and the generation of large-scale batches of qualified cells for screening. All cells are seeded onto 384-well plates and handled in an automated fashion.

We expect that a clinical trial with EVT8683, a small molecule drug candidate derived from a phenotypic screen using an iPSC-based disease model will commence in 2022. The candidate has a novel mechanism in neurodegeneration derived from our iPSC-based disease models. This program is expected to progress to the clinic in less than five years as part of our broad and exclusive neurodegenerative disease collaboration with BMS. More broadly in iPSC, we have developed over 350 patient-derived cell lines for disease modeling across more than 15 disease areas, for which our main alliances include neurodegeneration and Huntington’s disease. To continue to build our capabilities, we intend to expand our iPSC capacity in Hamburg, Germany, by constructing a new building “The Lighthouse of iPSC” with an expected year of completion of 2024.

Just – Evotec Biologics

Just – Evotec Biologics is our advanced approach to designing, discovering, developing, and manufacturing modern bio-therapeutics. We believe that Just – Evotec Biologics positions us well to establish further significant long-term, integrated partnerships with the expansion of our solutions into highly efficient and flexible biologics manufacturing. This differentiated offering is available to our partners on a fee-for-service and/or FTE-rates-based model as well as through arrangements that involve milestones and royalties.

Evotec acquired Just Biotherapeutics (subsequently renamed Just—Evotec Biologics) in 2019, which represented our entry into the large and growing market for commercial biologics and expanded our multi-modality capabilities. The founding and original concept of Just—Evotec Biologics was to create an agile, flexible, and cost-effective method of biologics discovery, development, and manufacture to enable affordable global access to modern biologics therapies. This powerful, horizontally integrated end-to-end system is called J.DESIGN.

J.DESIGN is our in-house integrated technology platform designed to accelerate development and provide superior manufacturing process control to produce higher-quality molecules at the lowest possible cost. J.DESIGN is directed particularly toward antibody and antibody-like biotherapeutics. One of the key strengths of the platform is the broad scope and integration from discovery through manufacturing and facility design. All operations are integrated under their individual elements, which are known as J.DISCOVERY, J.MD, JP3 and J.POD.

The resulting efficiency of our fully integrated end-to-end platform offers partners the opportunity to capitalize on more agile and cost-effective manufacturing, scaled accordingly for the stage of development and size of the patient population. This flexibility is of critical importance as novel biologics increasingly enter highly complex disease indications with less certain outcomes. Additionally, we anticipate that increased speed and flexibility as well as reduced costs of the discovery and development processes will allow us to gain significant market share in rare disease and orphan indications as well as in the field of biosimilars where pricing can be competitive.

We are applying AI and ML to create and select high-quality molecules in discovery that in turn drive more productive manufacturing processes. Our technology enables continuous feedback, machine learning and model refinement to drive further improvements in speed, quality, and cost. This learning loop is best represented as a circular “flywheel,” which gets better and more efficient with each turn.

We anticipate that the current technological focus of the J.DESIGN platform will have the capability to address greater than 70% of all biologic products in the coming years.

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J.DISCOVERY—Antibody Discovery

To create antibody therapeutics, we utilize our J.DISCOVERY approach to build a large and diverse antibody library we call J.HAL (Just-Humanoid Antibody Library). The DNA sequences coding for the antibodies in J.HAL is computationally created using machine-based deep neural network learning through algorithms termed Generative Adversarial Networks (GANs). The GANs used to build J.HAL are trained on hundreds of thousands of natural human antibody sequences. Since we can train J.HAL with different sets of antibodies exhibiting a variety of biophysical properties, we can bias J.HAL to generate DNA sequence coding for antibodies that can be developed and manufactured efficiently and may have superior properties for addressing a specific disease target. We call the billions of antibody sequences in our J.HAL library “Humanoid” because they are indistinguishable from human antibodies, even though they are created computationally. The full power of disease knowledge and pharmacology expertise across Evotec ensures comprehensive pharmacological and safety understanding in tandem with developability and manufacturability. As we have control over the processes of discovery, development, and manufacturing, we can feed this information back and dramatically expand J.HAL based on experience and validation. The desired outcome is the creation of antibodies that are safe, developed quickly and cost-effectively and with the potential of greater efficacy.

J.MD—Molecule Design

J.MD is the molecule design aspect of J.DESIGN that reviews and improves native antibody sequences—derived from either J.HAL or any other source – to enhance their manufacturability and stability. Using Abacus, an in-house suite of proprietary computational tools, we create learning algorithms that enable scientists to predict the best molecules and conditions for development. Molecules are then evaluated using assays that indicate how well a molecule is expressed, purified, and formulated. Any information learned from evaluating the molecules is subsequently used to improve further the toolset for future molecules.

JP3—Process and Product Platform

JP3 is J.DESIGN’s processing and product design arm complete with proprietary cell lines, vectors, and media with process options for fed-batch, intensified fed-batch, and continuous culture. This technology also includes chromatography, filtration, and viral clearance capabilities for the removal of impurities. To optimize the storage stability of products, JP3 comes with biophysical and formulation development tools. The designing tools also feature high-resolution analytical capabilities including a mass spectrometry-based multi-attribute method (“MAM”).

J.POD—Manufacturing and Plant Design

The ultimate physical representation of the transformation of the biologics discovery and development continuum is the J.POD facility. To remain competitive, companies require flexible manufacturing solutions with the right capacity at the right time and smart, high-yielding processes to increase efficiency by cost-effective and faster manufacturing without any sacrifices to quality and safety. J.POD is the manufacturing and plant design aspect of J.DESIGN, which achieves these objectives.

J.POD accelerates the development of highly productive processes that can be executed in relatively small unit operations and still make enough product to meet almost all commercial market needs in a single facility. These highly intensified processes reduce the size of unit operations to fit into relatively small, flexible “PODs” or cleanrooms and become the core manufacturing space in a J.POD facility. Since the entire process train uses single-use technology, central and capex intense utilities like “clean in place” or “sterilize in place” systems are eliminated, as well as the large amount of stainless-steel piping and large stainless-steel vessels that must be precisely built and validated. In addition, PODs, and the equipment they contain can be built and assembled while the plant is being constructed so that the time and complexity of validation are dramatically reduced. The modular, flexible, and less capital intense setup creates the opportunity for a global network of J.POD facilities, leading to better and cost-effective access to biologics in areas of the world that have not been served thus far.

Finally, instead of increasing the size of bioreactors and processing steps to expand capacity (as in traditional large-scale manufacturing facilities), additional bioreactors of the same size are essentially “cloned.” In essence, we “scale-out” rather than “scale-up” and effectively reduce scale-up risks by manufacturing at the same scale from early clinical development through commercial manufacturing. Our processes are highly “intensified,” using continuous perfusion and connected downstream processing to make large amounts of high-quality drug substance with a relatively small bioprocessing footprint.

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We completed construction on our first J.POD manufacturing facility located in Redmond, Washington. The facility became operational in August 2021. Ground-breaking of the second facility in Toulouse, France took place in September 2022, and we anticipate the European facility to be complete in the second half of 2024. Our vision is to create a global network of highly standardized manufacturing sites that can serve local demand.

We have established agreements with Advanced BioScience Laboratories, Inc. (“ABL”) and Ology Biosciences in 2020. ABL is a global contract development and manufacturing organization (“CDMO”) that services both the U.S. government and the biopharmaceutical industry. Under the agreement, Just – Evotec Biologics will design a manufacturing process required to produce Phase I current Good Manufacturing Practice (cGMP) clinical supply of a broadly neutralizing antibody (bnAb) against HIV. The agreement with Ology Biosciences covers the evaluation and analytical characterization of antibodies against SARS-CoV-2. Under the terms of the agreement with Ology Bio, Just – Evotec Biologics acts as a subcontractor to Ology Bio and utilizes its in silicon toolset to screen a panel of anti-SARS-CoV-2 antibodies provided by Ology Bio that were generated from convalescing COVID-19 patients.

In August 2020, the U.S. Department of Defense awarded Just—Evotec Biologics an order for the development of a highly efficient manufacturing process for monoclonal antibodies against COVID-19, followed by a manufacturing agreement in January 2021. The mAbs will be tested in clinical trials and, if approved, could be used for the treatment and/or prevention of SARS-CoV2 infections. Just – Evotec Biologics intends to use its experience in process development and clinical manufacturing to enable the realization of these potentially critical protein therapeutic treatments against SARS-CoV2 infections.

In October 2020, Just—Evotec Biologics received funding from the Bill and Melinda Gates Foundation as part of the COVID-19 Therapeutics Accelerator initiative to support the development and manufacture of monoclonal antibody (“mAb”) candidates for the prevention of severe COVID-19 cases in vulnerable populations in low and middle-income countries. Under the grant, Just – Evotec Biologics uses its proprietary software toolset Abacus™ to perform an in-silico analysis of several lead candidate sequences of potent anti-SARS-CoV-2 mAbs provided to the foundation by several leading academic medical centers around the world. Abacus™ analysis identifies key sequences that can affect developability and, if required, make recommendations to optimize the anti-SARS- CoV-2 antibody candidates. In addition, Just – Evotec Biologics will perform cell line development for two lead molecules.

In our view the ultimate external proof of concept was achieved after the opening of the J.POD facility in 2022 with the signing of two contract extensions/expansions.

In August 2022, Just – Evotec Biologics, expanded its multi-year partnership with Alpine Immune Sciences for the development of a commercial process for ALPN-303, an engineered TACI domain with significantly improved potency against the B cell cytokines BAFF and APRIL, being developed for the treatment of systemic lupus erythematosus and other B cell-mediated inflammatory and autoimmune diseases. The contract is a continuation of the first-in-human program initiated in 2020 in which Just – Evotec Biologics delivered drug substance materials using the J.DESIGN continuous manufacturing platform for Alpine’s ongoing Phase I study and anticipated Phase II studies of ALPN-303. Under the expanded contract, Just – Evotec Biologics will leverage its data-driven technology platform to develop a commercial manufacturing process for ALPN-303. The program includes upstream and downstream processes, analytical methods, and formulation development with a view to supporting commercial manufacturing of ALPN 303. Commercial process development activities will be performed at Just – Evotec Biologics’ J.POD biomanufacturing facility in Redmond, Washington.

In September 2022, the U.S. Department of Defense (“DOD”) has awarded Just – Evotec Biologics a contract valued up to $ 49.9 million for the rapid development of mAb-based drug product prototypes targeting plague. Plague, an infectious disease caused by the bacterium Yersinia pestis (“Y. pestis”), is one of the designated targets of interest under the DOD’s Accelerated Antibodies Program. Under the contract, Just – Evotec Biologics will develop mAb-based drug product prototype(s) from sequence discovery or evaluation of existing mAbs to completion of Phase I first-in-human (“FIH”) clinical trials. To enable rapid development, Just – Evotec Biologics will leverage its data-driven, highly automated end-to-end biologics technology platform, J.DESIGN, that includes antibody discovery (J.HAL), molecular optimization, cell line and process development, and continuous manufacturing at its J.POD Redmond, Washington (U.S.) facility. In addition, Evotec will provide pre-clinical and clinical capabilities for mAb prophylactic approvals.

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iPSC-based “off-the-shelf” cell therapies based on induced-pluripotent stem cells

In addition to disease modelling, we use our iPSC platform to develop the next generation of cell-based therapies. Our iPSC cell therapy portfolio spans metabolic diseases, immuno-oncology, and heart repair. We plan to further expand and invest in our cell therapy infrastructure with a focus on off-the-shelf cell therapies with long-lasting efficacy like immune cells in oncology (e.g., Natural Killer T cells), beta cells for diabetes, cardiomyocytes in heart repair, and retina cells in ophthalmology as well as iPSC-derived exosomes. We have expanded our cGMP production capacities with the acquisition of Rigenerand (now operating under Evotec Modena Srl.) offering the ability to scale up and accelerate development of material sufficient to run phase II clinical trials.

Our most advanced candidate in the field of iPSC-based regenerative medicine is our QRBeta initiative, aimed to cure patients suffering from type I diabetes. In in vivo models, we have demonstrated a durable normalization of blood glucose levels with our iPSC-derived islet-like clusters that can also confer long-lasting normoglycemia at human glucose set points. s The first generation of iPSC based regenerative medicines in diabetes was partnered in May 2022. On 17 May, Evotec and Sernova announced an exclusive strategic partnership for iPSC-based beta cell replacement therapy. Our iPSC-based beta cells will be combined with Sernova’s proprietary Cell Pouch™, a medical device enabling vascularization of the cell implant and thus ensures long-term survival and optimal function in patients. The decision was made based on favorable results seen from the combination of primary donor islets and Cell Pouch, which has achieved long-lasting therapeutic results in patients enrolled in Sernova’s US-based Phase I/II clinical trial. Meanwhile, visible progress has been achieved in our project together with Sernova:

Based on these achievements, we target to start a first phase I clinical trial with the combination of our iPSC derived islet-like clusters transplanted in Sernova’s Cell Pouch by 2024.

In 2021, we advanced our cardiomyocytes-based program by entering a collaboration with the University Medical Centre Hamburg-Eppendorf, UKE. The collaboration was formed to develop a first-in-class cell therapy for the treatment of heart failure. Under the terms of the partnership, Evotec and UKE will leverage their complementary strengths for the development of a new cell therapy approach using iPSC-derived heart muscle cells for the treatment of heart failure. We expect to leverage our industry-leading human iPSC platform to establish GMP-compatible process development and upscaling for large-scale generation of clinical-grade heart muscle cells known as cardiomyocytes. We also plan to contribute genetically modified GMP iPSC lines, which contain alterations preventing rejection of the cardiomyocyte-containing product by the patient’s immune system and include additional safety mechanisms to control unwanted proliferation of graft cells. By using GMP-grade iPSC lines, the collaboration is intended to deliver off-the-shelf products that can be implanted in broad patient populations with little to no immunosuppression. UKE will contribute its heart injury animal models to assess product efficacy as well as an innovative strategy to prevent arrhythmia. In vivo validation and development activities will be shared jointly between Evotec and UKE. We will be responsible for GMP and pre-clinical activities as well as for any potential subsequent collaboration with a commercial partner for this program.

In immuno-oncology, we are building a portfolio of “off the shelf” iPSC-derived immune effector cells to overcome the hurdles of current autologous cell therapies in oncology such as long vein-to-vein times, limited manufacturing reliability, logistic challenges, and high price points. In the future, we plan to target the development of a comprehensive portfolio of innovative immuno-oncology programs. At this stage, our portfolio comprises of iPSC derived Natural Killer Cells (EVOcells iNKs), Macrophages (EVOcells iM) as well as αßT-cells and γδT-cells. We have signed a first collaboration in this field with a leading pharma company after period-end.

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End-to-End Shared R&D - Integrated business-to-business platform for increased probabilities of success from target to the patient

We believe that our End-to-End Shared R&D platform, differentiates us from competition as the organization is able to deliver fully integrated drug discovery and development programs to our partners. Our platform possesses capabilities across the early stages of discovery, including modern methods for molecule design, biomarker selection, human pharmacokinetics (PK) testing, clinical trial planning, safety assessment and manufacturability in the early stages of precision medicine discovery. This is achieved by seamlessly integrating firmly-established R&D capabilities, such as screening platforms, deep disease knowledge and translational models, with cutting-edge proprietary technologies that can—in combination with knowledge of our experienced scientists—result in significantly improved speed, quality, and cost of drug discovery. Our highly qualified and experienced team is what makes it unique. Our fully integrated, industrialized, high quality and comprehensive infrastructure is utilized across all our core collaboration routes.

Our expertise in deep learning and computational approaches and the integration of such knowledge across the full value chain of drug discovery and development are industry-leading. We possess computational capabilities in the essential aspects of drug discovery and early development, including, for example, molecular design, product optimization, extensive human pharmacokinetic parameters and dose predictions, toxicity prediction and design tools. Our biomarker strategy and resources provide tailor-made biomarker solutions using state-of-the-art technologies. From our position of strength in chemistry and small molecules, we have added capabilities for additional modalities, such as biologics, proteins, RNA, and antibody-drug conjugates. Our drug discovery therapeutic area expertise and capabilities covers diabetes and its complications, fibrosis, infectious diseases, CNS diseases, oncology, pain and inflammation, immunology, rare diseases, respiratory diseases, and women’s health. Continuous training in technology and leadership for scientists at all levels is designed to meet or exceed industry standards.

At Evotec, we approach drug discovery and development as a continuum instead of disparate processes. We focus on problem solving and careful planning at the very earliest stage to design for the maximum potential success of subsequent clinical development. By focusing on the continuum, we allow for smooth transitioning from discovery and preclinical development into the clinic through our INDIGO solution. We believe INDIGO provides best-in-class governance structures and capabilities to supply fit-for-purpose resourcing, key expertise, decision-gated strategies, clear and timely communication and seamless interactions between our partners and our functional teams. Within the structure of a project or partnership, we focus on the success of the inventive step in every discipline through a combination of knowledge, experience, computational power, and process excellence.

Our integrated approach to R&D has helped us to outperform well-recognized industry benchmarks. Recent benchmark data show that the costs and timelines for drug discovery have not improved in the last ten years. Including the cost of attrition, it takes companies approximately $75 million to initiate a single regulatory toxicology study and around 5.5 years to proceed from a target to a first good laboratory practice toxicology dose or IND submission. In contrast, our integrated offering through EVOiR&D has achieved portfolio delivery to IND submission at up to half the cost and in up to 30% less time. This time saving is crucial as the potential to reach an IND up to 18 months faster means acceleration of the potential availability of innovative breakthrough medicines to the patient community and for difficult-to-treat diseases. It also generates significant benefits to our partners and ourselves in a highly competitive marketplace where many players are pursuing the same scientific concepts and there is a race to be first-to-market.

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EVOiR&D’s Potential Impact on Early-Stage Clinical Development

(1) Including attrition; DMTA = Design make test analyze; Source Clarivate, 2018

Business models

Our business model is based on three value-creating pillars.: A “Fee-for-service” and FTE-based funding model; Pipeline building and EVOequity.

“Fee-for-service” and FTE-based funding model

Revenues consist mainly of service fees and FTE-based research payments.

We maintain a large portfolio of partnered pipeline assets generating revenues from upfront and milestone payments as well as several unpartnered pipeline assets that we are progressing for future partnering. We expect the relative share of revenues from milestones and royalties as a percentage of total revenue to increase as our pipeline matures over time.

As an external innovation partner to the life science industry, we provide stand-alone or fully integrated drug discovery and development solutions to our partners using our industrialized, high quality and comprehensive infrastructure. Various capabilities can be grouped into an integrated service combining various steps along the drug discovery and development chain. The “fee-for-service model” usually applies where no intellectual property of Evotec is involved or no essential proprietary technology platforms (e.g., PanOmics, PanHunter, iPSC, proprietary molecular patient data) are used.

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Our solutions can provide unparalleled breadth and depth to clients. We can support our partners’ programs at all phases of the chemical value stream (hit creation, expansion, hit-to-lead, lead optimization and development readiness) and from early target identification through to the manufacturing of compounds for clinical and commercial purposes. We also possess capabilities across all modalities, target types, routes of administration and disease areas. Typical examples of fee-for-service work packages would include, without limitation, high-throughput screening campaigns, sample management, ADME-tox tests or certain chemistry development services.

In addition, to reflect the unpredictable nature of multi-year research efforts, many fully integrated projects with partners are structured around flexible FTE pools, compensated at blended FTE rates. Progress is monitored closely through active project management and joint steering committees with the partner, thus ensuring the most relevant science and capabilities are brought to bear against the needs of the project at the right time. We believe the quality and breadth of this real drug discovery engine is highly differentiated in the market.

In 2022, 73% of our third-party revenues were derived from EVT Execute, which mainly includes fee-for-service and FTE-rates-based revenues. Just – Evotec Biologics is also recognized within EVT Execute. Most revenues are still derived from FTE rates and FFS contracts. Gradually, revenues derived from manufacturing add to total segment revenues.

FTE-rates-based revenues are also a source for revenues within EVT Innovate, in addition to milestones and potential royalties. Driven by favorable market dynamics and robust demand for pharmaceutical outsourcing services, we expect the fee-for-service and FTE-rates-based business to grow by mid to high single digits in the near term. Fee-for-service and FTE-rates will continue to remain a value driver going forward but as drug discovery and development evolve, we foresee certain work packages transitioning away from fee-for-service into more integrated alliances.

With an increase in demand for Evotec’s proprietary and premium platforms, (e.g., PanOmics and PanHunter, molecular patient data and iPSC drug discovery), we have sought to enter contracts with customers for these services that expand beyond FTE rates to also include success-based components, such as milestones and potential royalties. As an example, target identification and validation services have historically been offered on an FTE-rates basis. However, with transcriptomic and proteomic profiling across cells and tissues followed by bioinformatics-driven data mining and hypothesis building potentially becoming the new gold standard, these services now involve our proprietary and premium platforms. In connection with such platforms, we seek to structure integrated alliances in which we will generate FTE-based revenue from the delivery of services, as well as potential milestones and royalties. The most prominent example of such an evolution is our alliance with BMS targeting neurodegenerative diseases, which has so far resulted in a first clinical phase I trial with additional assets being progressed in the discovery and development stages.

Key Performance Metrics for our Fee-for-Service and FTE-based Business models

1)  Share of Annual Repeat Business

We have demonstrated solid customer retention rates, as defined by the percentage of revenues from customers with whom we had a relationship within the prior year, above 90% in each of the last three years. We review our repeat business on a yearly basis. Repeat business was 92% in 2022 and 91% in 2021, respectively.

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2)  Customer Evolution and Contribution

The number of our customer alliances has expanded significantly in recent years, providing further validation of our services provided. During 2022, we added 325 new customers compared to 337 in 2021. The number of customer alliances that generate revenues of more than €1.0 million per year has continued to rise and reached 118 in 2022 (2021: 97), or 14% (2021: 12%) of total customers in the last two years, pointing to increasing entrenchment with each customer.

3)  Reduction of Customer Concentration

Our customer and revenue bases have become more diversified over the last three years as revenues have grown significantly. Our top ten customers’ contribution to total revenues amounted to 39% in 2022 versus 46% in 2019, pointing toward a steady decrease in revenue concentration among top customers. The decrease versus 2021 (42%) was achieved despite a significant milestone payment from BMS after a successful transition into the clinical trial stage in 2021. Our largest customers by revenue, BMS, Merck and Exscientia, accounted for 25% of group revenues in 2022. Other than BMS, no single customer contributed more than 10% of group revenues.

Pipeline building—Co-owned and Shared assets

We leverage our proprietary technology platforms to develop new drug discovery projects, assets, and platforms, both internally and through collaborations. This approach allows us to create starting points for the later development of strategic partnerships with leading pharmaceutical and biotechnology companies. These collaborations generally involve a combination of upfront payments, ongoing research payments, and significant financial upside through milestones and royalties. They enable the sharing of cost and risk. The aim of these collaborations is to develop R&D projects faster and more efficiently and to generate faster returns on investments. With an increasing demand for our proprietary technology platforms, we expect to enter collaborations involving success-based milestone payments and royalties. Our goal is to increase the revenue contribution from these collaborations over time through the maturation of our pipeline significantly by 2025.

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Benefits to us from our EVOroyalty business model include:

We believe we possess one of the broadest and deepest pipelines in our industry. Since 2015, the number of our assets has more than doubled to more than 130 with one approved asset and 18 disclosed assets in clinical development at the end of 2022. As of December 31, 2022, of the pipeline assets, one obtained approval in South Korea, two of the clinical programs were in Phase III, four were in Phase II, one in Phase I/II and eleven were in Phase I. We define our pipeline to include candidates that we wholly own and those for which we have the right to receive royalty or milestone payments. For candidates for which we have the right to receive royalty or milestone payments, we, in most cases, will have initially developed them and subsequently licensed or assigned to partners for continued pre-clinical and clinical development. They also include candidates that have been initially developed by our partners and that have become the subject of a joint research project pursuant to which we are eligible for royalty or milestone payments.

Beyond therapeutic areas, we have also successfully expanded our pipeline across multiple modalities. In 2015, our therapeutic assets were exclusively small molecules. In contrast, in 2022, more than ten assets were derived from cell and gene therapy, more than 20 from biologics, more than 90 from small molecules and more than ten early-stage projects where several modalities are being investigated. Given the breadth and depth of our pipeline across therapeutic areas, modalities, and stages of development, we believe that the risk-reward profile of our pipeline is unique in the industry.

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Pipeline Projects - Number of projects is constantly growing

The table below outlines our pipeline assets by therapeutic area and stage of development. Our partnered pipeline includes those assets we have developed and licensed or assigned to partners for clinical development and commercialization as well as the assets of our partners for which we are entitled to receive potential royalty or milestone payments (dark blue boxes). Our unpartnered pipeline consists of assets we are developing internally but with whom we have not yet partnered. Our equity pipeline is comprised of the assets under development by companies in which we have made an equity contribution through EVOequity. We expect to realize returns on our equity pipeline primarily from successful exits but also from fee-for-service and FTE-rate-based revenues from these companies. Our BRIDGES pipeline represents the assets under development through our joint ventures with academic institutional partners as part of our project incubation program to promote the early development of academic research. Note that the assets shown here as part of our equity and BRIDGEs pipelines are not included in the number of our pipeline assets described elsewhere in this annual report.

¹⁾ Also includes Women‘s Health, Respiratory projects.

EVOequity

We facilitate the acceleration of innovation as an operational venture capital provider providing capital and access to our industrialized and integrated technology platforms, expertise, and network. We make equity investments in products, technology platforms and companies through which we obtain early access to innovation and derive upside through our role as an operational partner. We see significant potential for value creation from EVOequity over the coming years from new partnerships, clinical successes, and positive commercial developments because we expect to drive the valuation of individual portfolio companies. We expect to realize returns on investments both from successful exits from our portfolio companies and fee-for-service and FTE-rates-based revenues with our portfolio companies.

As shown in the graphic below, we recognize various starting points to fuel our EVOequity portfolio. One of the key sources is risk-shared venture creation involving spinouts of our proprietary assets into separate legal entities or joint ventures with partners. We also invest in early-stage development companies that start out as our customers and engage us to conduct for them drug discovery work on our platforms. Investing in those companies helps us create long-term relationships and facilitates access to innovation in the treatment areas in which we specialize. These companies may originate from our BRIDGEs program, where Evotec collaborates with academic institutions to facilitate the acceleration of academic innovation without compromising precision or safety. We also identify investment opportunities by evaluating external opportunities.

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EVOequity’s strategy started with the creation of Evotec’s spinouts of Topas Therapeutics in 2016. Since then, our portfolio of equity holdings has grown steadily, and as of December 31, 2022, we have 33 equity engagements with 120 active projects in our EVOequity pipeline. Most projects are in oncology, immunology, and inflammation. Assets from Carrick Therapeutics, Exscientia, Immunitas and Topas Therapeuticsare the most advanced, with seven projects having reached the clinical stage (Phase I and II). Our ownership ranges from 1% to 50% in equity per company, and we typically aim for an investment period of five to seven years. Investments with a share greater than 20% are recognized in our accounts “at equity”. Since the inception of our EVOequity strategy, we have invested €160.5 million and expect to accelerate those investments over the coming years.

Many of our portfolio companies have started out as our customers or have become customers either in parallel or after our equity investment. For example, Vifor Pharma – Now CSL Ltd. – has been a customer of Evotec for many years, and more recently, we have collaborated on early development in nephrology, which has led to the establishment of our joint venture, NephThera. In 2022, Vifor was acquired by CSL Ltd.., and continued collaborating with us on unchanged terms. With other equity holdings such as Blacksmith and Aeovian, we have an operational relationship through signing a master service agreement in parallel to our investment into the company.

Typically, we support the development of our equity investors’ in-house projects from early discovery up to IND-enabling studies and chemistry, manufacturing, and control.

An important structural difference to conventional venture capital models is our operational relationship with the portfolio companies and that our investment decisions often benefit from robust datasets that we have generated in-house on our industrialized and scalable platforms. Because we believe that we can make better-informed decisions through this approach, we see realistic chances of investment returns that could exceed venture-capital-like returns. Our typical equity investment is structured in such a way that we aim to obtain control of material stakes between 20% and close to 50% in the first financing round. Subject to dilution in subsequent rounds, these holdings may vary. On a case-by-case basis, we may invest in subsequent financing rounds. In the case of spinouts, we contribute in kind to leverage our in-house capabilities and accelerate innovation.

BRIDGEs

We believe that academic settings serve as a major source and point of origination and discovery of new targets and drugs. For example, approximately 25% of drugs ultimately approved by the FDA originate from academia, according to a study published in Nature investigating the contribution of different types of organizations to drug innovation. Universities are a major source of current and future drug targets. We seek to address the lack of funding and access to expertise for translational projects from academia, which is one of the main hindrances to efficient innovation. While there is a lot of support to initiate basic research projects, funding options tend to narrow down as the development of translational projects progress and there is often a lack of commercial understanding on how to advance assets to the next stage. At the same time, there is a need for validation of academic findings on industry-grade platforms to increase data quality and reproducibility, which we address with our model.

We have positioned ourselves as a leading company for the accelerated translation of academic assets by initiating “BRIDGEs,” our project incubation program designed to accelerate and promote the early development of academic research. BRIDGEs stand for “Biomedical Research, Innovation and Development Generation Efficiency.” Through BRIDGEs, we utilize our technology platforms to facilitate the acceleration of academic innovation. The global rollout of BRIDGEs is currently underway with a geographic focus on North America and Europe and Asia as an expansion target. BRIDGEs provide us with access to a broad portfolio of first-in-class therapeutics across academic institutions. We serve as the exclusive technology partner to advance projects to the next value inflection points, which enables the formation of spinout companies or collaboration with pharmaceutical companies. The entire process facilitates the decision-making process of investors trying to assess the quality of the respective projects. Through BRIDGEs, we have achieved a significant reduction in average project evaluation time an accelerated path from plan to first experiments and a speedy progress towards conclusion of experiments on industry-best-practice platforms..

Operationally, BRIDGEs fall into two categories: (i) Contractual partnerships with academic institution(s) and investors or pharma companies and (ii) equoty investments into start-up studios which focus on accelerating academic projects. To date, we have created six BRIDGE partnerships (LAB282, LAB150, beLAB2122, LAB1407, Danube Labs and a BRIDGE with Amplitude) and three investments into start-up studios (Autobahn Labs, Argobio and Extend). A spinout from the University of Oxford called Dark Blue Therapeutics originated entirely from LAB282.

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LAB282

In November 2016, we announced the formation of LAB282, a research laboratory developed in partnership with Oxford University Innovation and Oxford Sciences Innovation (“OSI”). Housed at Oxford University, the lab is dedicated to accelerating the translation of basic biomedical research from Oxford University into new therapeutics across any therapeutic area or modality. Projects are sourced exclusively from Oxford University researchers and are aided by a drug discovery expert in residence seconded by Evotec to the lab. The goal is for LAB282 to generate and accelerate the achievement of pre-clinical proof of concept results for new drugs and to generate eventual spinout companies. To date, LAB282 is responsible for 38 active or completed projects. Pursuant to the partnership, we exclusively contribute our drug discovery expertise and platforms to select projects and develop them further. We will be entitled to equity in new LAB282 spinout companies together with Oxford University and its academic researchers and together with OSI will have the right to co-invest in seed financing rounds. The pipeline assets being developed pursuant to the partnership are in the pre-clinical stages.

Autobahn Labs

In June 2020, we announced the launch of Autobahn Labs, a novel virtual incubator developed in partnership with Samsara BioCapital, a leading life sciences investment firm and KCK Ltd., a family investment fund. Autobahn Labs operates out of the San Francisco area and partners with top academic and research institutions to catalyze early-stage drug discovery and development. Since launch, Autobahn Labs has established multiple strategic collaborations with leading research institutions, including a first-in-kind collaboration with the University of California Los Angeles to identify and advance patient therapies for a variety of indications and another collaboration with the University of California San Francisco to identify promising early science and form new joint-owned ventures. Autobahn Labs has two active or completed projects to date.

beLAB2122 / beLAB1407

In April 2021, we announced the launch of beLAB2122 and in May 2021, we announced the launch of beLAB1407. Both LABs are translational BRIDGEs funded with $20 million each, in collaboration with BMS. In collaboration with BMS, beLAB2122 brings together leading academic institutions from the Rhine-Main- Neckar region of Germany. Also, in collaboration with BMS, beLAB1407 brings together leading academic institutions from the Midlands in England and Scotland. Both BRIDGEs have the goal of efficiently advancing first-in-class therapeutic options across all therapeutic areas and formats into investable drug discovery and early development projects. In Germany, mediated and supported by BioRN, the Life Science Cluster Rhein Neckar, beLAB2122 brings together the European Molecular Biology Laboratory, the German Cancer Research Centre, the Goethe University Frankfurt, the University of Heidelberg, and the University of Tübingen in one collaboration with industry partners. beLAB1407 brings together the universities of Birmingham, Edinburgh, Nottingham, and Dundee in a collaboration with industry partners.

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Summary of Equity Holdings, including BRIDGEs as of December 31, 2022

Intellectual Property

We seek to protect and enhance the value of our proprietary drug discovery programs as well as our technology platforms, including proprietary processes, technologies, inventions, and methods, and their application to the R&D of treatments for serious diseases and methods of manufacture through the filling of intellectual property. We pursue a multi-layered intellectual property strategy to protect our technology platforms and their application to the R&D of treatments for serious diseases. One focus of our intellectual property strategy is to provide protection for our platforms and pipeline assets currently in development. We also pursue intellectual property protection for assets that may be used in future development programs and/or that may be of interest to our partners, or otherwise may prove valuable in the field.

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Patent filings protect various aspects of our technology platforms and our pipeline assets, while other aspects remain trade secrets. We also pursue other methods of protection, including seeking trademark registrations, as appropriate. Many of our intellectual property assets were developed and are owned solely by us, some have been acquired and are solely owned by us, some have been developed via collaboration and are jointly owned, and some have been licensed from third parties. We will continue to make additional patent application filings and pursue opportunities to acquire and license additional intellectual property assets, technologies, platforms, or pipeline assets, as developments arise or are identified.

As of December 31, 2022, our owned patent portfolio included more than 60 patent families, each of which includes at least one filing in the United States or Europe, and several of which are pending or granted in multiple jurisdictions.

Below, we provide a summary of the contours of our current intellectual property portfolio as it relates to different aspects of our business.

Discovery Platform

Our discovery platform is comprised of multiple integrated building blocks. These combined platforms allow us to deliver operational efficiencies and advanced technological capabilities to drive rapid progress and successful outcomes in the early stages of the R&D process where innovation steps are the largest and most important. In support of our discovery platform, we own a patent estate for molecular detection and other platform technologies. In addition, we have developed several patent-protected biological assays, specifically, methods to measure the chemical or biological activity of any combination of targets and compounds.

In support of our discovery platform, we own proprietary trade secrets and methods for analyzing samples. PanOmics is our proprietary approach to analyzing samples from human patients, rodents and in vitro cultures using genomics, transcriptomics, proteomics, and metabolomics. We have proprietary protocols, that we protect as trade secrets, which have been established and validated to allow for the preparation of fully intact RNA, metabolites, and proteins from several tissues from both rodent models and human patient material that are in many cases unique to Evotec. We have primary and other cell types, and proprietary immortalized cell lines that we processed in a way to allow us to perform single-cell and single-nuclei sequencing as well as so-called ScreenSeq and ScreenPep analysis. Our proprietary ScreenSeq and ScreenPep technologies are process-optimized and fully validated high-throughput transcriptomics and proteomics platforms, respectively. We have a growing proprietary database comprising diverse proprietary -omics data based on in vitro, in vivo, and human sample analysis.

We own and leverage proprietary software and datasets. PanHunter is our proprietary software solution that enables exploratory insight analysis for researchers in a convenient, web-based environment. Our software may integrate some open-source software and openly available published algorithms with our proprietary modules and data. Our proprietary modules include an infrastructure to map and interlink meta information for e.g., genes, proteins, or targets within omics data and across species barriers, a framework to store, manage, and access omics data, and an architecture for storing, cleaning, managing, and providing access to clinical data. The software includes several tools to enhance analysis, including tools for differential analysis (e.g., used to compare diseased vs. healthy samples), statistical analysis tools, and a machine learning computing tool. The PanHunter software leverages our proprietary datasets to create a prediction model for cell-type annotation.

In support of our discovery platform, we have proprietary materials and cells. EVOcells is our proprietary cell lines platform and includes our proprietary iPSC platform. We expanded our iPSC platform through the acquisition of diverse assets including intellectual property from third parties.

Pipeline Assets

We have used our proprietary research platform to generate and identify patentable drug candidates with the potential for collaboration. Numerous patent applications have been generated and filed because of such activities. In some cases, we have elected to retain the pipeline asset intellectual property, and in other cases, we have out-licensed our intellectual property to third parties or transferred ownership of the intellectual property to third parties in exchange for milestone payments, royalties, or equity in their business.

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As with other biotechnology and pharmaceutical companies, our ability to establish and maintain our proprietary and intellectual property position for our technology platforms and pipeline assets will depend on our success in obtaining effective patent claims and enforcing those claims if granted. There can be no assurance that any of our current or future patent applications will result in the issuance of patents or that our future issued patents (if any) will provide meaningful protection of our pipeline assets or technology. For more information regarding the risks related to our intellectual property, see the section entitled “Risk Factors—Risks Related to Our Intellectual Property.”

Government Regulation

Government authorities in the European Union, the United States and other countries and jurisdictions extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, record-keeping, labeling, advertising, promotion, distribution, marketing, post- approval monitoring and reporting and import and export of pharmaceutical products. Compliance with applicable statutes and regulations and other requirements of regulatory authorities requires the expenditure of substantial time and financial resources.

Regulation of Drugs and Biologics

In the European Union, pharmaceutical products are subject to a comprehensive scheme of regulatory requirements mainly set out at EU level, but country-specific regulations at EU member state level remain essential in many respects. These regulations exercise oversight over all aspects of our operations including, but not limited to, research, development, testing, manufacturing, and quality control. They also govern all aspects of the operations of our customers and the partners with whom we co-own pipeline assets, including assessing safety and efficacy for purposes of marketing approval, labeling, storage, record keeping, commercialization, distribution, post-approval monitoring, advertising, pricing, and more.

The process governing the approval of medicinal products in the United States generally mirrors the process in the European Union. In the United States, the FDA regulates pharmaceutical products. The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal and state statutes and regulations apply to us, our customers, and our partners who develop our pipeline assets. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications (NDAs) or biologics license applications (BLAs), warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on our partners or us. Before a new drug or biologic may be marketed, it must undergo extensive testing and regulatory review to determine that it is safe and effective and be approved by the FDA or other regulatory authority.

Preclinical Research

Before testing any product candidate or therapy in humans, it must undergo extensive preclinical testing. Preclinical research involves in vitro (test tube) and animal studies to evaluate the chemistry formulation and toxicity of the drug over a wide range of doses and to detect whether the product is likely to cause any of a variety of adverse conditions or diseases, including birth defects and cancer. Initial preclinical studies are conducted before any clinical testing occurs, while longer-term testing is conducted in parallel with clinical studies.

A robust package of preclinical data is required before clinical trials can begin. In the European Union, if preclinical results warrant continuing development of the product candidate, before a clinical trial may commence, applicants are required to submit a clinical trial application (“CTA”) to each country’s national health authority and an independent ethics committee. The CTA must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier with supporting information, in particular preclinical data and information about the manufacture and quality of the medicinal product under investigation. In the United States, if preclinical results warrant continuing development of the product candidate the results of the studies are submitted to the FDA as part of an investigational new drug application, or IND. An IND includes, among other things, items such as preclinical data, manufacturing information, a proposed clinical protocol and an investigational plan and must be reviewed by the FDA and become effective before proposed clinical testing can begin.

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Regulation of Testing Facilities

Our facilities are audited by regulatory agencies such as the FDA, MHRA, and similar foreign regulatory authorities as well as our customers to ensure compliance with requirements designed to ensure the quality and integrity of the testing process and data such as GLP and GMP and other requirements adopted by the EMA, the FDA, the Ministry of Health in the United Kingdom and by similar regulatory authorities in other countries, as applicable. GLPs and GMP require standardized procedures for all equipment, processes, and analytical tests, for recording and reporting data, and for retaining appropriate records.

Clinical Trials, MMA, NDA or BLA Preparation and Submission

In the European Union, all phases of clinical development are monitored and audited extensively by regulatory authorities of the relevant member states. Authorities scrutinize all clinical activities and data, and our partners must submit annual reports to the controlling authorities of the relevant member states detailing the progress of the trial. Our partners must also submit any information that suggests a significant risk to human patients or any clinically important increase in the rate of serious suspected adverse reactions to regulatory authorities as and when they discover such information. The United States has adopted a similar regulatory scheme to the European Union. Our partners typically carry out clinical development of our pipeline, including the conduct of human trials and interaction with regulatory authorities.

Clinical trials are typically divided into three phases. Phase I clinical trials include basic safety and pharmacology testing in approximately 20 to 80 human subjects per trial, usually healthy volunteers or stable patients, and include trials to evaluate the metabolic and pharmacologic action of the product in humans, how the drug or biologic works, how it is affected by other drugs, how it is tolerated and absorbed, where it goes in the body, how long it remains active, and how it is broken down and eliminated from the body. Phase II clinical trials include basic efficacy (effectiveness) and dose-range testing in a limited patient population (usually 100 to 200 patients per trial) afflicted with a specific disease or condition for which the product is intended for use, further safety testing, evaluation of effectiveness, and determination of optimal dose levels, dose schedules and routes of administration. If Phase II trials yield satisfactory results, Phase III trials can commence. Phase III clinical trials include larger scale, multi-center, comparative clinical trials conducted with patients afflicted by a target disease, designed to permit a valid statistical test of safety and effectiveness required by the EMA, the FDA, and other regulatory authorities and to provide an adequate basis for product labeling. The FDA and similar foreign regulatory authorities receive reports on the progress of each phase of clinical testing and may require the modification, suspension, or termination of clinical trials if, among other things, an unreasonable risk is presented to patients or if the design of the trial is insufficient to meet its stated objective.

Upon completion of Phase III clinical trials, the drug sponsor will assemble the data from all phases of development, along with the chemistry and manufacturing and nonclinical data and the proposed labeling, among other things, into a single large document, the marketing authorization application, or MAA, and/or the NDA or BLA. Under EU law, marketing authorizations can be obtained through the centralized marketing authorization procedure from the European Commission (based on the opinion of EMA’s Committee for Medicinal Products for Human Use) or through the national, mutual recognition or decentralized marketing authorization procedures from the competent authorities of the relevant member states. Centralized authorization is compulsory for certain drug types. The EMA (or the relevant authorities of the member states) and the FDA scrutinize data from all phases of development, as well as the facilities where the product is manufactured, to determine whether the manufacturer has complied with regulations and whether the drug or biologic is safe and effective for the specific use under study. The EMA (or the relevant authorities of the member states) or the FDA may refuse to accept the MAA, NDA or BLA for filing and substantive review if certain administrative and content criteria are not satisfied. Even after accepting the submission for review, the EMA (or the relevant authorities of the member states) or the FDA may require additional testing or information.

Regulations require a manufacturer to collect and periodically report to the EMA, FDA, and similar regulatory authorities in foreign countries additional safety data on the drug or biologic for as long as the manufacturer markets the product (post-marketing surveillance). These reports must include data from all countries in which the product is sold. Additional post-marketing trials (Phase IV) may be required as a condition of the product’s approval to assess safety or verify clinical benefit or may be undertaken voluntarily after initial approval to find new uses for the product, to test new dosage formulations or to confirm selected nonclinical benefits. Product approval may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.

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Data Privacy and Security Laws and Regulations

As a primarily business-to-business focused organization, we do not market, sell, or distribute products or services directly to patients or consumers. Accordingly, the personal information that we collect and process, including human tissues and patient samples, is generally limited to what is necessary to conduct business with other businesses within our industry.

Nevertheless, we hold confidential personal information relating to persons who have been and/or still are employed by the company. The possession, retention, use and disclosure of such information are highly regulated, particularly in the EEA. The GDPR controls how personal data must be handled and places significant restrictions on the export of personal data from within the EEA to other third countries that have not been found to provide adequate protection forsuch personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remain uncertain. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

Other Environmental, Health and Safety Laws and Regulations

We may be subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

We maintain liability insurance (including, where applicable, workers’ compensation) to cover us for costs and expenses we may incur due to injuries to our employees, but this insurance may not provide adequate coverage against potential liabilities. We also tailored several continuities plans for different locations to mitigate serious environmental issues.

In addition, we may incur substantial costs to comply with current or future environmental, health and safety laws and regulations.

Current or future environmental laws and regulations may impair our research, development, or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties, or other sanctions.

Competition

The market for biotech/pharmaceutical R&D partnering, and services is competitive, based on modality-by-modality or technology-by-technology comparison. However, we believe we are well-positioned to offer our partners an integrated solution that cannot be replicated by combining selected elements made available by other service providers. We believe our services are differentiated based on the degree of integration, the number of modalities, precision, relevance, agility, and capacity to generate new data and the ability to exploit it with advance computing.

We believe that Evotec is one of very few companies that has assembled such a seamlessly integrated precision medicine platform.

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We compete in an industry characterized by rapidly advancing technologies, intense competition, and a complex intellectual property landscape. With respect to other players in specific fields in the industry, we consider our competition to be as described below:

Manufacturing

We currently operate five commercial manufacturing facilities, one of which is in the United States (Redmond, Washington, large molecules) and the others are in Europe including Abingdon, the United Kingdom and Verona, Italy; small molecules. We enhanced the scale and efficiency of our small molecule manufacturing with the acquisition of an additional site in Halle, Germany in 2022. cGMP manufacturing capabilities were added via the acquisition of Rigenerand Srl. in Medolla, near Modena in 2022. Another manufacturing facility for large molecules is under construction in Toulouse, France.

Our J.POD late-stage clinical and commercial manufacturing facility for biologics has the potential to transform the cost and agility of biologics manufacture through continuous biomanufacturing with single-use technology. At full utilization the facility will contain clinical and commercial processes, operated at the same scale to facilitate seamless transfer, and eliminate scale up risk. Located in Redmond, Washington, the building is expected to be approximately 130,000 square feet and will house approximately 200 employees at full capacity. The site, which will be able to produce on a large enough scale to meet most of our commercial needs in a single facility and will mainly supply markets in North America.

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As global demand for flexible biologics capacity and for more affordable access to medicines increases, we are constructing a second J.POD facility in Toulouse, France. Europe is the second largest biologics market and a strong desire for local capacity and security of supply is evident in this market. The decision to set up this infrastructure at our own site in Toulouse was a strategic one, as the Toulouse footprint creates operational efficiency and co-location for oncology and immunology expertise and adds further synergy with our strategic needs. We expect the second J.POD facility to be completed by 2024.

We are committed to continually developing our manufacturing operations to support our clinical and commercial-scale manufacturing needs. We expect to require an additional €50 million of capital expenditure (“CapEx”) for adding the remaining four trains to the targeted full capacity of the J.POD 1 facility in Redmond, Washington in 2023 and a further €60 million to €70 million is estimated to be invested in the second J.POD in Toulouse.

Certain of our operations are carried out under GMP and GLP regulations that are certified and periodically audited by regulatory agencies such as the FDA, MHRA, AISA and our customers. Further, we have established an internal quality assurance system that monitors our compliance with these regulations.

Evotec SE is a publicly listed European stock corporation operating under German law. Our headquarters are in Hamburg, Germany. We have operating sites in Göttingen, Halle, Hamburg, Cologne, and Munich (Germany), Lyon and Toulouse (France), Abingdon and Nether Alderley (United Kingdom), Verona and Medolla (Italy), Orth an der Donau (Austria), as well as in Branford, Princeton, Redmond, Seattle, and Watertown (U.S.). The group has been successful in creating both operational and technological synergies between the sites and geographical regions by way of organic growth and strategic acquisitions. A listing of our significant subsidiaries and their jurisdiction of incorporation is included in Exhibit 8.1 to this 20-F filing.

Our headquarters are in Hamburg, Germany, where we occupy office and laboratory space. We manage further laboratories and office facilities in Göttingen, Munich and Cologne and Halle in Germany, Toulouse and Lyon in France, Abingdon and Manchester in the United Kingdom, Princeton, Watertown, Branford, Seattle, and Redmond in the United States, Verona, and Medolla in Italy. Manufacturing areas are available in Verona, Abingdon, Seattle, and Redmond sites. Some key steps to build this facilities setup were:

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The following table summarizes information with respect to the principal facilities leased and owned¹⁾ by us at the end of 2022:

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We lease an aggregate of approximately 93,800 square meters, in Europe and the United States. Our leases expire on various dates from 2023 to 2043 (indicatively).

To facilitate the continued growth of our company, we regularly invest in upgrading and expanding our technology and infrastructure. For example, we have made major enhancements to our technology platform regarding the areas of translational biology, high-content imaging and proteomics. Additionally, we have made our scientific operations more efficient by adding additional state-of-the-art sample management technology. We continued our investments in the expansion and development of individual locations into 2022. We have ongoing expansion projects in Hamburg, Toulouse, Manchester, and Abingdon.

We have completed construction of our first J.POD facility in North America, an integral part of the J.DESIGN platform of Just—Evotec Biologics. We expect this facility will fulfill our production requirements for the coming years and strengthen our position as a major partner in drug discovery and development with pioneering technologies in the field of biologics. This new facility became operational in August 2021. In 2022, we started the construction of our second J.POD facility in Toulouse. We also continue to further upgrade and digitize our administrative tools and systems. We will continue to make CapEx to secure the further growth and scalability of our company, including €120--125 million in CapEx in 2023 for replacements and growth. We expect to require an additional €50 million of CapEx in 2023, respectively, for further development in our first J.POD facility in Redmond, Washington and approximately €65 million for our second J.POD facility in Toulouse, France. Planning of construction in France began in April 2021 and construction started in September 2022 (supported by related funding from French authorities). The second J.POD is expected to be completed by 2024. For facility expansions at other sites, we expect to invest a total of €40 million to €45 million between Alderley Park and Abingdon in the United Kingdom, in Toulouse in France, in Hamburg, Göttingen and Munich in Germany, in Verona in Italy as well as in Framingham and Princeton in the United States.

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We plan to fund additional CapEx through cash on hand and debt financing.

Environmental Issues

To the best of our knowledge, currently there are no foreign, federal, state or local environmental laws, rules or regulations that will materially affect our results of operations or our position with respect to our competitors. However, we can provide no assurance of the effect that any possible future environmental laws will have on our operating results.

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In the future, we expect EVT Innovate to generate more revenue from milestones and royalties as our pipeline assets mature. Revenue generated through our collaboration arrangements may contribute to either the EVT Execute or EVT Innovate segment, depending on the nature of the contract with our customer, the ownership of the intellectual property and the stage of the project. Expenses, such as labor and material expenses, arising from the work on contracts for which the customer owns the intellectual property are recorded as cost of revenues whereas expenses arising from pursuing internal R&D activities are recorded as R&D expenses. Additionally, when entering into customer contracts and partnership agreements based on internal R&D activities, the related costs, such as labor, materials and reimbursable overhead expenses, are also recorded within cost of revenues.

For the year ended December 31, 2022, we reported € 751.4 million in revenue, representing growth of 21.6% from the year ended December 31, 2021, and €175.7 million in net losses, representing a decrease of €391.2 million compared to the year ended December 31, 2021. We also reported Adjusted EBITDA of €101.7 million for the year ended December 31, 2022, representing a decrease of €5.6 million compared to the year ended December 31, 2021. Adjusted EBITDA is a measure that is not defined under IFRS. For further information about how we calculate Adjusted EBITDA, the limitations of its use and its reconciliations to comparable IFRS measures, see “–Key Performance Metrics and Non-IFRS Measures.”

Key Factors Affecting Our Results

Factors affecting our results of operations and financial condition include the factors described below.

Market Demand for External Innovation

Our financial results are impacted by our partners and customers’ needs for external innovation through collaborating or outsourcing their R&D initiatives and/or highly innovative manufacturing activities and our ability to meet those needs. We will sustain growth only if our existing partners and customers continue to rely on our expertise and capacity and if additional companies select us as their partner of choice for drug discovery and development.

For the past decade, the global pharmaceutical industry has been struggling with declining efficiency in introducing new products to the market. As a result, pharmaceutical companies of all sizes have been and continue to be under pressure to re-evaluate and adjust their business strategies, in particular by accessing innovative technologies such as AI and ML and pursuing innovative treatment modalities, such as personalized medicine, cell therapy and gene therapy. New companies have been formed to specifically develop these technologies and modalities. Moreover, there is an increased focus on early prediction parameters to determine the success or failure of new drugs. To access innovation in a capital-efficient manner, industry players increasingly rely on external sources, such as our innovation hub, for innovative R&D and manufacturing expertise and capacity.

We believe that market demand for external innovation will continue to drive demand for our assets and services, facilitate additional collaboration opportunities and potentially improve the volume and terms of partnerships that we are able to secure. We believe this trend will increase the likelihood of strategic, integrated, long-term collaborations and drive our continued growth.

Efficiency and Scientific Excellence of our own R&D Activities

Our performance is dependent not only on the market’s need for external innovation, but also on our own ability to provide innovative solutions. For this reason, investing in technologies and platforms is a core part of our strategy. In 2021 and 2022, we invested €72.2 million and €76.6 million in R&D, respectively, and we intend to continue to dedicate a significant number of financial resources to ensuring that our offering continues to meet the industry’s needs.

For example, we are allocating a significant number of resources to improving our PanOmicsand PanHunter platform, our capabilities for AI-driven development of biologics and our iPSC platform. Investments in maintaining and expanding our technological leadership increases our short-term expenses while opening possibilities for future revenue growth and sustainability.

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Scientific Results and Third-Party Decisions

An important pillar of our growth strategy is the generation of milestones and royalties. Our pipeline currently includes more than 130 assets.We define our pipeline to include candidates that we wholly own and those for which we have the right to receive royalty or milestone payments. Pipeline assets with respect to which we have the right to receive royalty or milestone payments include those that we will have initially developed and subsequently licensed or assigned to partners for continued pre-clinical and clinical development as well as those that have been initially developed by our partners and that have become the subject of a joint research project. We do not count in our pipeline candidates being developed by partners in whom we have solely an equity stake through EVOequity and no right to milestone or royalty payments with respect to their candidates in development.

Our financial results depend on the success of our partners’ clinical development of our pipeline assets, receipt of regulatory approval and commercialization. A partner may choose to end the development of a specific program for scientific or commercial reasons, and we typically have no ability to influence such decisions, which may be driven by factors such as pipeline prioritization and the ability to obtain additional required capital. Our future financial results therefore depend, in part, on the judgment and financial health of our partners. We mitigate this risk through diversification in our portfolio.

To the extent that our pipeline assets are recognized on our balance sheet in line with IFRS requirements, impairments directly affecting our results of operations may occur if our expectations for future cash flows change significantly. This may be due to our partners’ decision to discontinue a program for scientific or commercial reasons, or their inability to obtain adequate funding.

Revenue Mix and Gross Margin

We generate revenue either from fee-for-service and/or FTE-rates-based contracts, by receiving milestones and royalties on assets or any combination thereof. Revenues can be further differentiated based on our technologies and platforms. Changes in the allocation of revenues between contract types and technologies mainly affect our cost of sales, gross profit, and gross margin.

In each of the years ended December 31, 2021 and the year ended December 31, 2022, 76% and 73% of our third-party revenues were derived from EVT Execute, which mainly includes fee-for-service and FTE-rates-based revenues. In the mid-to-long-term, we are focused on generating an increasing share of our revenues from milestones and royalties on our assets. In some cases, especially in our EVT Innovate segment, we enter contracts with short-term lower FTE rates in exchange for higher financial upside through future milestone or royalty payments. Our strategy is to share the risk and reward and collaborate our assets as early as possible in the preclinical or development process to generate subsequently substantial medium-term revenues from FTE-based research payments and development milestone payments and long-term revenues from sales milestones and royalties. In the initial discovery and development stage, we do not earn any revenue from these arrangements. In the long term, however, we expect our gross margin to improve since no significant expenses will be incurred in relation to milestones and royalties because our partners typically absorb the costs of clinical development and commercialization.

Additionally, we have invested in our biologics manufacturing facilities (J.POD) which, once at full operational capacity, we expect to generate higher average gross margins than our existing business.

Acquisitions and Disposals

Strategic acquisitions are part of our strategy for growth and strengthening our competitive position. We continually evaluate the market for attractive opportunities that are accretive to our business. We typically acquire companies that expand our value chain through access to new technologies and/or additional capacity, extend our offering and value chain, provide access to new customers, or allow for the extension of our geographical reach.

In July 2022, we completed the acquisition of Rigenerand, now operating as Evotec (Modena) Srl., adding GMP manufacturing capabilities for cell and gene therapy. Evotec now has the capability to manufacture drug products across all relevant modalities to support the clinical development and commercialization of both our own and our partners’ assets. The total consideration was €23.0 million in cash.

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In November 2022, we enhanced the scale and efficiency of our small molecule manufacturing with the acquisition of Central Glass Germany GmbH from the Japanese chemical manufacturing company Central Glass Co. Ltd. for a purchase price of € 1. This site is located in Halle, Germany. The entity, now renamed to Evotec DS, will operate in close collaboration with our API teams based in Abingdon, and Verona, to offer our partners a fully integrated service, from the preclinical development stage all the way to commercial production.

In addition, we have acquired, and may continue to acquire minority stakes in early-stage development companies through our EVOequity program, which is described in further detail under Item 4 of this annual report. These companies can either be entities with no prior relationship to spinouts or us from our other programs, such as our BRIDGEs program. The related transactions may result in significant influence over the acquired entity in line with the IFRS definition presented in IAS 28 (generally 20% or more of voting rights) and therefore require us to account for these investments using the equity method. In this case, in addition to the balance sheet impact, our share of the investee’s profit or loss will affect our results of operations under “share of the result of associates accounted for using the equity method,” but will have no effect on our Adjusted EBITDA. Fair value adjustments of our equity investments that are not accounted for using the equity method also affect our results of operations from time to time. For example, during the year ended December 31, 2022, we recognized €174.7 million from a measurement loss, related to our investment in Exscientia plc During the year ended December 31, 2021, we recognized €225.4 million from a measurement gain from our investment in Exscientia plc. Fair value adjustments of a similar magnitude may or may not occur in the future.

Foreign Currency Exchange Rates

Due to our international business operations, we are subject to both foreign exchange transaction and translation risks. Our reporting currency is the Euro; however, we also incur revenues and expenses in U.S. dollar and pound sterling. Other currencies are of less relevance.

Transactional risk arises when we and our subsidiaries execute transactions in a currency other than our respective functional currency. Our principal exposure to translation effects relates to pound sterling and the U.S. dollar. In 2021, 50% and 12% of our revenue and 22% and 20% of our cost of revenue was in U.S. dollars and pound sterling, respectively. In 2022, 48% and 15% of our revenue and 24% and 18% of our cost of revenue was in U.S. dollars and pound sterling, respectively.

Where we are unable to match sales received in a foreign currency with expenses paid in the same currency, our results of operations are affected by currency exchange rate fluctuations. We also use derivatives such as currency futures and swaps to mitigate foreign exchange risk.

R&D Tax Credits

We receive R&D tax credits for qualifying research related expenses in France, the United Kingdom, Italy, and Germany. The credits are recognized under other operating income. These credits amounted to €42.9 million in 2022 as compared to €32.0 million in 2021.

In general, the R&D tax credit policies in the countries where we operate have been stable in recent years, with some countries expanding their R&D tax credit policies to our benefit. For example, due to changes to Italian tax laws, a new tax credit was granted in Italy for which we are eligible starting from June 2021. In Germany, a new scheme was introduced in 2020. We received confirmation from the public authorities in 2022 that Evotec International qualified for a € 1million grant in each of the years 2020, 2021 and 2022. Further changes or full or partial expirations of these programs may affect our future financial performance.

COVID-19 Pandemic

As of the date of this annual report, the COVID-19 pandemic has had a limited adverse impact on our financial results. Overall, in 2022, we again exceeded our revenue target, however the introduction of temporary shiftwork resulted in fewer billable hours in 2021 and 2022 and we incurred minor costs related to protective equipment, such as the provision of masks and rapid tests. However, decreases in certain project-related costs from reduced spending on travel, training, and conferences, continued to have offset any of the negative impact on our Adjusted EBITDA. The 2022 results contain a similar level of COVID-related impacts as in the previous year, with no adverse effect on demand and no severe disruptions either in business operations or in the supply chain.

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The COVID-19 pandemic increased opportunities and advances in drug development and vaccine production against this disease and increased awareness related to the need of pandemic preparedness in general. Like other companies in our industry, we are contributing to combating COVID-19 through several activities. For example, in July 2020, our wholly-owned subsidiary Just— Evotec Biologics received an order from the U.S. Department of Defense for the development and manufacture of monoclonal antibodies (mAbs) for the treatment and prevention of COVID-19. In late December 2021, Evotec received a € 7.5 million grant from the German Federal Ministry of Education and Research for the development of a therapeutic against COVID-19. In 2022, the final approval of SKY Covione (COVID-19) with SK bioscience in South Korea, resulting in first royalties.

The COVID-19 pandemic was an extraordinary event across the world and had severe economic and social consequences. As a result of the COVID-19 pandemic, we have faced challenges to our business and may also in the future. For more information, see “Risk Factors—Risks related to the COVID-19 pandemic.”

Description of components of Results of Operations

Revenues

Revenues consist mainly of service fees and FTE-based research payments.

We maintain a large portfolio of partnered pipeline assets generating revenues from upfront and milestone payments as well as several unpartnered pipeline assets that we are progressing for future collaboration. We expect the relative share of revenues from milestones and royalties as a percentage of total revenue to increase as our pipeline matures.

Costs of Revenue

Costs of revenue include the cost of personnel directly associated with revenue-generating projects, facilities and overhead used to directly support those projects, and outsourced services used as well as materials consumed in the provision of the products or services as well as amortization and depreciation.

R&D Expenses

Our R&D expenses comprise expenses incurred in connection with our in-house discovery platforms and developing new unpartnered pipeline assets as well as overhead expenses for both our partnered and unpartnered R&D projects.

We receive grants and funding from government authorities as well as private foundations for the support of some selected R&D projects. These grants are linked to projects and are recognized as a reduction mainly of R&D expenses when they are received.

We expense our research activities as incurred. Due to the high uncertainty associated with early-stage development activities in the pharmaceutical sector, the precondition for the capitalization of development expenses as outlined in IAS 38 is generally not satisfied. Therefore, we have not capitalized internally generated development costs to date.

R&D projects that are acquired in a business combination are capitalized at fair value when those R&D projects are expected to generate probable future economic benefits to our business. R&D costs acquired in a business combination are not amortized until they are sustainably generating benefits.

We expect R&D expenses to increase continuously for the near future as our current pipeline progresses and we develop new pipeline assets.

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Selling, General and Administrative Expenses

Our selling expenses mainly consist of personnel costs (including share-based compensation), social security, travel costs and consultancy expenses of our business development team. General and administrative expenses primarily consist of personnel-related costs (including share-based compensation) for procurement and logistics, finance, legal, human resources, information technology, investor relations, risk management and other administrative functions, professional fees, accounting and legal services, insurance and facility costs related to space used by the support functions. These costs relate to the day-to-day administrative operation of the business and are unrelated to the R&D of any individual asset.

Impairment of Intangible Assets and Goodwill

Impairment of intangible assets and impairment of goodwill consists of the losses resulting from the differences between the carrying amount of related assets and their recoverable amount, which is the higher of the asset’s fair value less cost to sell or value in use. An impairment of goodwill may occur in case the expected performance of the underlying cash-generating unit falls below the expectation at the time of the acquisition of the relevant business. Impairments of intangible assets typically occur when scientific programs do not meet expectations in terms of scientific results or timelines for partnering, thereby impacting expectations for future cash flows.

Other Operating Income

Other operating income mainly consists of tax credits received from tax incentive programs in the context of qualifying R&D expenses in different jurisdictions and refunds from third parties for cost charges.

Tax credits can regularly be offset partially or fully from tax payments to fiscal authorities. We account for income from such R&D tax credit programs as other operating income instead of offsetting them from income tax expenses.

In addition, we recharge current costs incurred at the ID Lyon sites to Sanofi in connection to our agreements signed in 2018. Sanofi agreed to license to us most of its infectious disease research and early-stage development portfolio and transfer its operational infectious disease research unit to us, in addition to providing significant mid-term funding to ensure support and progression of the portfolio for which it retained certain option rights on the development, manufacturing, and commercialization of anti-infective products. We recognize these amounts in other operating income when they are a direct reimbursement of costs. There is no underlying direct exchange of these services for this income and therefore a recognition as revenue is not suitable. The related expenses are recognized under R&D expenses.

Other Operating Expenses

Our current other operating expenses mainly consist of the expenses that we recharge to our partners for specific projects, such as the ID Lyon agreement. These expenses include facility costs, consultancy expenses, personnel costs, and incidental wage costs; outsourced services, materials consumed and depreciation. The related income is recognized under other operating income.

Interest Income and Expenses

Interest income consists of interest accrued or paid on cash deposits and short-term investments as well as other financial instruments.

Interest expenses consist primarily of interest from our Euro denominated short-term and long-terms loans and promissory notes. A portion of our finance expenses are related to interest expense on our revolving credits, which we utilize at certain points in the year as needed. Interest expenses also arise from interest rate swaps, from our lease obligations according to IFRS 16 and for the unwind of discounts of our earn-out liabilities.

Measurement result from Investments

Our measurement result from investments includes fair value adjustments for investments measured in accordance with IFRS 9.

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Share of the Result of Associates Accounted for Using the Equity Method

Share of the result of associates accounted for using the equity method consists of our participation in the profits or losses generated as well as fair value differences where applicable.

Foreign Currency Exchange Gain (Loss), Net

Our business and reported profitability are affected by fluctuations in foreign exchange rates mainly between the U.S. dollar, pound sterling and the Euro. A strengthening/weakening of these currencies as compared to each other and against other currencies, leads to foreign currency exchange gains or losses in our consolidated income statement.

Tax Income (Expense)

Tax income (expense) represents the tax charge or credit on our profit or loss for the year and includes both current and deferred taxation. Tax income (expense) is recognized in the income statement unless it relates to items recognized directly in equity when it is recognized through the statement of comprehensive income. Deferred tax income (expense) consists of the tax impact of tax loss carryforwards and temporary differences. In the future, we expect to continue to benefit from certain tax loss carryforwards as we have incurred negative income in certain group entities including Evotec SE in the past, which is discussed in more detail under “Result of Operations—Income and deferred taxes” below. We expect our income taxes to continue to increase on an absolute Euro basis as we continue to grow.

Result of Operations

For a discussion of our results of operations, including selected segment information, for the year ended December 31, 2021, including a year-over-year comparison between 2021 and 2020, and (ii) our liquidity and capital resources for the years ended December 31, 2021, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.

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The following table summarizes our consolidated statements of operations for each period presented:

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Revenues

Revenues increased by €133.4 million, or 22%, from €618.0 million in 2021 to €751.4 million in 2022. The increase is mainly due to the organic growth of our ongoing business from fee-for-service and FTE-rate-based research services of €126.1 million and favorable foreign exchange effects of € 40.6 million, whereas milestone revenues decreased by €31.4 million..

Revenues from fee-for-service and FTE-rate-based research services increased by €126.1 million, or 24%, from €515.3 million in 2021 to €641.4 million in 2022. This increase resulted mainly from the EVT Innovate segment and here in particular from our BMS collaborations.

Revenues from milestone and license payments decreased by €31.4 million, or 63%, from €49.5 million in 2021 to €18.1 million in 2022 primarily due to the lower realization of milestone revenues in our BMS collaboration in 2022 compared to 2021.

Total revenues in the EVT Execute segment increased by €125.4 million, or 21%, from €610.2 million in 2021 to €735.6 million in 2022. EVT Execute revenues from external customers increased by €75.6 million due to strong performance in the fee-for-service and FTE revenue business, including an increase in revenues of €51.4 million for the drug discovery services and of €24.2 million for the pharmaceutical and pre-clinical services. The increase in intersegment revenues amounted to €49.8 million (revenues for services performed by EVT Execute for projects accounted for within EVT Innovate) which totaled €188.9 million and €139.1 million in 2022 and 2021, respectively. The 36% increase in intersegment revenues resulted from the support of EVT Innovate’s growth in external collaborations, in particular in the BMS collaborations, as well as internal R&D projects. Milestone revenues amounted to €6.1 million and €4.2 million for 2022 and 2021, respectively.

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Revenues in the EVT Innovate segment increased by €57.7 million, or 39%, from €147.0 million in 2021 to €204.7 million in 2022 primarily from the fee-for-service and FTE revenue business. Revenue from fee-for-service and FTE-rate-based research services increased by €90.8 million, or 90%, from €101.3 million in 2021 to €192.1 million in 2022. This growth was driven by higher base revenues and project-related revenues from BMS and other strategic pharma deals. Milestone revenues in the EVT Innovative segment decreased from €45.2 million in 2021 to €12.0 million in 2022. Milestone revenues in 2021 were exceptional with three BMS neuro-related milestones aggregating €35.0 million and three Takeda mRNA-related milestones aggregating €6.6 million.

Costs of Revenue

Costs of revenue increased by €110.9 million, or 23.8%, from €466.5 million in 2021 to €577.4 million in 2022. The increase in Costs of revenue was attributable to the recognition of expenses related to expanding Evotec’s precision medicine platforms as well as the Just – Evotec Biologics manufacturing facility in Redmond (U.S.), significantly higher energy costs, unfavorable exchange rates and costs related to the strong growth of the overall business. Gross margin decreased to 23.2% in 2022 from 24.5% in 2021. Excluding effects related to the capacity build-up at Just – Evotec Biologics total gross margin amounted to 30.8% vs. 28.4% during the previous year.

Costs of revenue in the EVT Execute segment increased by €123.2 million, or 25.5%, from €482.6 million in 2021 to €605.8 million in 2022. Gross margin decreased from 20.9% for 2021 to 17.7% for 2022. The increase in Costs of revenue was mainly caused by the strong growth of the EVT Execute business and by ramp-up costs at Just – Evotec Biologics in Redmond. Higher energy costs and inflation on materials and EVT-supplied services also contributed to the increase. EVT Execute gross margin excluding Just - Evotec Biologics was25.7% in 2022, a 2.5 basis point improvement compared to 23.2% in 2021. Costs of revenue in the EVT Innovate segment increased by €35.2 million, or 31.9%, from €110.4 million in 2021 to €145.6 million in 2022 because of higher expenses for the BMS collaborations and other pharma collaborations as well as license fees to partners. Gross profit in 2022 was significantly impacted by significant contributions from the BMS collaborations which resulted in an increased Gross margin of 28.7% in 2022 compared to 24.9% in 2021 despite the reduction in milestone revenues of € 33.2 million.

R&D Expenses

In 2022, Evotec continued to progress its projects e.g., in central nervous system disorders, diabetes, immunological diseases, infectious diseases, inflammation, kidney diseases, metabolic diseases, oncological diseases, rare diseases and women’s health. We are building a long-term pipeline of first-in-class or best-in-class assets and/or unique proprietary platforms; the ultimate goal of the EVT Innovate segment is to build a proprietary platforms and early-stage assets to enable upside-bearing strategic deals.

R&D expenses increased by €4.4 million, or 6.2%, from €72.2 million in 2021 to €76.6 million in 2022, primarily because of higher expenses for proprietary EVT Innovative projects, including PanHunter, PanOmics and Cell Therapy. Proprietary innovative project expenses increased from €61.5 million in 2021 to €62.1 million in 2022 and accounted for 81.0% and 85.2% of total R&D expenses for the years ended December 31, 2022, and 2021, respectively. This increase reflects the continued investments in Evotec’s capabilities to improve our efficiency and precision medicine platforms. Platform R&D expenses that can be attributed to EVT Execute decreased from €2.5 million in 2021 to €2.3 million in 2022. Indirect expenses (consisting of overhead expenses not specifically allocated to projects) increased from €8.1 million in 2021 to €12.2 million in 2022. Indirect expenses represented 15.9% and 11.3% of the total R&D expenses for the years ended December 31, 2022, and 2021, respectively.

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The following table presents our R&D expenses by category for the periods shown:

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Unpartnered R&D expenses increased by €12.1 million, or 20.8%, from €58.1 million in 2021 to €70.2 million in 2022. The increase is mainly due to the increased research investments into IPSC projects (Neuroscience), EVOcells (Oncology), PanHunter and PanOmics projects and several other platform projects of EVT Innovate.

R&D expenses for partnered assets declined from €14.1 million in 2021 to €6.4 million in 2022 as the portion of projects in bacterial infections funded by partners decreased in comparison to the prior year period. Partnered R&D expenses are fully assigned to EVT Innovate and refunds by our research partner Sanofi in respect of such expenses are recorded under other operating income. The ID Lyon site was acquired in 2018 from Sanofi and the agreement with Sanofi ends by mid-2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) increased by €50.8 million, or 48%, from €105.4 million in 2021 to €156.2 million in 2022, mainly due to higher personnel-related expenses and consultancy expenses. Personnel-related expenses increased by €18.8 million in 2022 from €65.3 million in 2021 to €84.1 million in 2022, mainly due to continued growth in employee headcount in all areas of the enabling functions. Consultancy costs increased by €16.5 million, from €12.1 million in 2021 to €28.6 million in 2022, due to the implementation of SOX compliance and other acts associated with being a publicly listed company in the United States since November 2021, the start of SAP implementation in the year 2022 and to M&A activities. Travel and training costs increased due to the overall growth in headcount and decreased travel restrictions due to COVID-19. Insurance costs increased by €6.6 million from €3.7 million to €10.3 million because of the public listing in the United States. Furthermore, IT and license costs increased by €3.8 million from €7.7 million in 2021 to €11.5 million in 2022, due to significant investments in IT systems with related license costs.

Impairment of Intangible Assets and Goodwill

Impairment of intangible assets decreased by €0.7 million, to €0.0 million in 2022. Impairment losses of €0.7 million in 2021 were because of reduced pre-clinical activity related to DG070, an R&D project developed in the EVT Innovate segment which previously had been acquired. The impairment losses in 2021 were allocated to the EVT Innovate segment.

There were no impairment losses from goodwill in either 2022 or 2021.

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Other Operating Income

Other operating income increased by €8.1 million, or 11.0%, from €73.5 million in 2021 to €81.6 million in 2022. This increase was primarily due to higher R&D tax credits accounted for in 2022 in the amount of €42.9 million as compared to €32.0 million recorded in 2021 driven by a higher volume of eligible projects in France in 2022, the new R&D tax credit scheme which Aptuit Verona site is eligible for in Italy from June 2021 onwards and in Germany which Evotec International is eligible for from 2020 onwards.

This favorable variance was partially offset by lower fair value adjustments made for the earn-out of Just-Evotec Biologics in the amount of €0.7 million compared to €2.6 million in 2021.

Other Operating Expenses

Other operating expenses decreased by €3.7 million, or 65.5%, from €5.7 million in 2021 to €2.0 million in 2022 and resulted mainly from other accruals.

Interest Income

Interest income increased by €6.01 million, or 266.9%, from €2.3 million in 2021 to €8.3 million in 2022. This increase is due to the increase in interest rates in the United States and the Eurozone, applicable for our USD and EUR currency holdings and the higher overall cash position, after our U.S. listing of ADSs in November 2021. In addition, interest income earned on convertible loans provided to equity investments increased in comparison to 2021.

Interest Expense

Interest expense increased by €3.8 million, or 42.1%, from €9.3 million in 2021 to €13.1 million in 2022. Two interest rate swaps with a notional amount of € 22.5 million each which were concluded in the first quarter of 2021 were canceled in the third quarter of 2022. This resulted in an expense of € 4.9 million in 2022. Interest expense from lease liabilities increased by € 0.7 million. This was partly offset by lower interest expenses on bank loans which decreased after the repayment of the € 35 million tranche of the promissory note in June 2022.

Measurement result from Investments

Measurement result from investments decreased by €396.0 million, from €223.8 million in 2021 to €(172.2) million in 2022 mainly due to the fair value decrease of our investment in Exscientia plc. The fair value of Exscientia plc was reduced by €174.7 million due to the share price drop year on year from $ 19.76 to $5.33 as of December 31, 2022. In addition, a measurement gain of €2.6 million was recorded for our investment in Blacksmith Medicines after its merger with Forge Therapeutics. In 2021, a measurement gains of €223.8 million was recorded as a result of the initial public offering of Exscientia plc in the United States on September 30, 2021, and the subsequent decline in the share value.

Share of the Result of Associates Accounted for using the Equity Method and Impairment of Financial Assets

Share of the result of associates accounted for using the equity method and Impairment of Financial Assets decreased by €13.3 million, or 46.9%, from €28.4 million in 2021 to €15.1 million in 2022, reducing net income in both years. In 2022, the Company recorded a gain from the reversal of Impairment of Financial Assets of €0.9 million related to Facio Therapies whereas in 2021, the review of equity participations resulted in an Impairment of investments using the equity method of €11.9 million, consisting of Celmatix Inc. in the amount of €7.4 million, Eternygen GmbH in the amount of €2.3 million and Facio Therapies in the amount of €2.2 million. In addition, net losses from equity participations decreased by €0.6 million.

Foreign Currency Exchange Gain (Loss), net

Foreign currency exchange gains were €13.1 million in 2022 in comparison with €7.8 million in 2021. The increase in foreign exchange gains in 2022 was a result of the increasing U.S. dollar exchange rate against the Euro by approximately 6% through the year.

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Current tax expense and Deferred Taxes

Current tax expense and deferred tax expense increased by €0.2 million or 1.1% to €21.7 million for the year ended December 31, 2022, compared to €21.5 million for the year ended December 31, 2021, primarily due to higher deferred tax expenses. Deferred taxes increased from €5.5 million in 2021 to €7.7 million in 2022 due to release of deferred tax assets in Evotec International due to a decrease in tax loss carry-forwards, partly offset by a deferred tax income which resulted from intangible assets of Aptuit UK. Current tax expense decreased from €16.4 million in 2021 to €14.0 million in 2022 due to the decreased profitability of Evotec France and Cyprotex UK and decreased GILTI tax burden for Aptuit Global Inc.

The decrease in the effective tax rate between 2022 and 2021 is due mainly to the increased expense from other financial assets in paricular by the fair value of Exscientia plc which resulted in significant nondeductible expense in 2022.

We recognize deferred tax assets to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused carry forward tax losses and unused tax credits can be utilized. This judgment is made annually and based on budgets and business plans.

For a segment revenue analysis see “—Revenues.”

Segment operating income in the EVT Execute segment decreased by €30.6 million, or 49%, from €63.1 million for the year ended December 31, 2021, to €32.5 million for the year ended December 31, 2022. Gross profit amounted to €129.9 million and increased slightly by 2% to previous year (€127.6 million). The business growth did not result in a higher gross profit due to continued and increased start-up costs for the J.POD 1 U.S. facility. Selling, and general administrative expenses amounted to €125.3 million and increased by €41.3 million primarily due to higher personnel related expenses, IT expenses, insurance, and consultancy expenses, also in connection with our U.S. listing. R&D expenses increased from €2.9 million in 2021 to €5.3 million in 2022. In addition, other operating income increased by €8.5 million and other operating expenses decreased by €2.4 million (net increase of €10.9 million), primarily due to higher R&D tax credits in France and Italy.

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Segment operating loss in the EVT Innovate segment decreased by €10.4 million, or 53%, from €(22.1) million for the year ended December 31, 2021, to €(11.7) million for the year ended December 31, 2022, primarily because of a €22.6 million increase in gross profit driven by higher revenues and margins from the BMS collaborations. Furthermore, R&D expenses increased by €4.4 million primarily due to higher platform R&D expenses for proprietary innovative projects. Selling, general and administrative expenses increased by €9.4 million, mainly due to higher personnel-related expenses, IT expenses, insurance, and consultancy expenses, including in connection with the U.S. listing. Other operating income and expenses (net) increased by €1.0 million because of higher R&D tax credits partially offset by reduced reimbursements from Sanofi related to ID Lyon. No impairment losses of intangible assets were recorded in 2022. Impairment losses amounted to €0.7 million in 2021 and were because of reduced pre-clinical activity related to DG070, an R&D project developed in the EVT Innovate segment which was acquired in previous years.

The following table provides the reconciliation of segment Operating income (loss) to Segment Adjusted EBITDA for the periods presented below:

The following tables detail our Segment Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020 for each segment:

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Segment Adjusted EBITDA in the EVT Execute segment decreased by €16.5 million, or 13%, from €124.8 million in 2021 to €108.3 million in 2022, primarily because of an increase in Selling, general administrative expenses of € 41.4 million supporting the general business growth and the U.S. listing. This was partly offset by a higher gross profit excluding depreciation and a higher other operating income as described in the paragraph Operating result by segments above.

Segment Adjusted EBITDA in the EVT Innovate segment increased by €10.8 million or 62%, from a loss of €17.5 million in 2021 to a loss of €6.6 million in 2022, primarily because of a €22.6 million increase in gross profit. This was partly offset by higher investments in R&D activities and Selling, general administrative expenses as described in the paragraph Operating Result by segments.

In 2021, we implemented changes to our internal management reporting and now allocate amounts for recharges to the segments. We made retrospective adjustments to our segment results for the year 2020.

Revenues

We recognize revenues in line with the requirements of IFRS 15: “Revenues from Contracts with Customers.” Our revenues were €751.4 million and €618.0 million in 2022 and 2021, respectively.

Unpartnered R&D Expenses

We distinguish between partnered and unpartnered R&D. Partnered R&D is where we bear the expenses and are refunded by our partners. Unpartnered R&D is conducted at our own expense, and if successful, we partner with such projects through our EVOequity program. We consider unpartnered R&D a measure of our investment in future potential EVT Innovate projects.

Our unpartnered R&D expenses were €70.2 million and €58.1 million in 2022 and 2021, respectively.

Net Income

Our net income decreased by €391.2 million, or (182)%, from €215.5 million in 2021 to €(175.7) million in 2022. This decrease mainly resulted from the decrease in other income and expenses, primarily from fair value adjustments on long-term investments in the amount of €383.2 million.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) adjusted for interest, taxes, depreciation and amortization of intangibles, impairments on goodwill and other intangible and tangible assets, total non-operating results and change in contingent consideration (earn-out).

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Adjusted EBITDA is a non-IFRS measure presented as a supplemental measure of our performance. Adjusted EBITDA should not be considered as an alternative to net income as a measure of financial performance. Adjusted EBITDA is presented because it is a key metric used by our Management Board to assess our financial performance. Management believes Adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business. Our definition of this non-IFRS financial measure may not be comparable to similarly titled measures of other companies, thereby, reducing the usefulness of our Adjusted EBITDA as a tool for comparison.

Adjusted EBITDA decreased by €5.6 million, or 5%, from €107.3 million in 2021 to €101.7 million in 2022. While Gross profit increased by €22.5 million mainly as a result of significantly increased revenues, R&D expenses increased in 2022 when compared to 2021 by €4.4 million and SG&A increased substantially by €50.8 million, or 48%, from 105.4 million in 2021 to €156.2 million in 2022 mainly due to the overall SG&A staff increase and consultancy expenses across all disciplines.

The following table provides the reconciliation of net income to Adjusted EBITDA for the periods presented below:

Number of Customers

Our number of customers slightly decreased slightly from 842 in 2021 to 819 in 2022. An entity with multiple subsidiaries, segments, or divisions is defined and counted as a single customer, even if we have separate agreements with multiple subsidiaries, segments, or divisions that are part of the same entity.

Number of Customers Who Contributed More Than €1 million to Our Revenue

The number of customers who contributed more than €1 million to our revenue was 118 and 97 in 2022 and 2021, respectively.

Our largest customers by revenues, Bristol Meyer Squibb (BMS), Merck and Exscientia, collectively accounted for 25% of revenues from contracts with customers in 2022. In 2021, BMS, Merck and Sanofi were our largest customers by revenue, together contributing 25% to our revenues. The percentage of our revenues generated from our three largest customers remained consistent.

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Repeat Business

We define annual repeat business as the percentage of revenues with customers who have purchased products and services from us at least once in both the current year and the previous year. We review repeat business on a yearly basis. Repeat business was 92% and 91% in 2022 and 2021, respectively. We believe our significant amount of repeat business is primarily due to our ability to achieve success and high satisfaction of our partners and customers. The extent to which we generate repeat business from our customers will be an important factor in our continued revenue growth.

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European Investment Bank Loans

In 2017, we signed a financing agreement with a line of credit amounting up to €75.0 million with the European Investment Bank (EIB). Under the agreement, the total amount was provided in various tranches from 2017 until 2020. The final tranche was drawn in September 2020. Each tranche carries a fixed interest rate of 1.6%. Such interest is due and payable semi-annual or where a tranche is canceled or prepaid. The maturity date for each tranche is seven years from the respective disbursement date of the relevant tranche. We are subject to two financial covenants, net debt leverage and equity ratio. As of December 31, 2022, we comply with the financial covenants. The financing agreement also includes a success share, which is paid as a percentage of future proceeds from the R&D projects for the years 2024 to 2030 and equity investments if these succeed for the period until 2030.

In December 2022, we signed a second financing agreement with the European Investment Bank. This line of credit amounts up to €150.0 million. Under this agreement, the total amount will be provided in various tranches from 2023 until 2025. Each tranche carries a fixed interest rate of 0.8%. Such interest is due and payable semi-annual or where a tranche is canceled or prepaid. The maturity date for each tranche is seven years from the respective disbursement date of the relevant tranche. We are subject to one financial covenant, the net debt leverage ratio. As of December 31, 2022, we did not draw any tranche under this new loan facility. The financing agreement also includes a success share, which is paid as a percentage of future proceeds from the R&D projects for the years 2028 to 2037 and equity investments if these succeed until 2037.

R&D Innovation Financing

Our R&D innovation financing loans amounted to €6.7 million with a fixed interest rate of 1.2% as of December 31, 2022, and final maturity dates ranging from 2025 to 2029. The R&D innovation financing relates to three individual R&D projects that were financed by IKB Deutsche Industriebank AG through KfW Bank. As of December 31, 2022, we drew down all tranches in an aggregate principal amount of €8.6 million in line with project progress and repaid €1.9 million of the loan during the fiscal year ended December 31, 2022.

In March 2021, we entered and drew down on a new long-term innovation-financing loan provided by IKB Deutsche Industriebank AG through KfW Bank for €20.4 million with a fixed interest rate of 1.4%. With the loan, we received a grant from KfW Bank for €0.2 million. This loan is unsecured, not directly related to a specific R&D project and must be repaid in installments between 2023 and 2031.

With the acquisition of Rigenerand Srl in July 2022 we took over three unsecured research loans totaling €1.3 million. The first loan is from Sanfelice 1893 Banco Popolare, and amounted to € 0.3 million with a fixed interest rate of 3.65% and final maturity in September 2023. The second loan is also from Sanfelice 1893 Banco Popolare, and amounted to € 0.5 million with a fixed interest rate of 3.05% and final maturity in May 2027. The third loan is from Banco BPM S.p.A., and amounted to € 0.5 million with a fixed interest rate of 1.3% and final maturity in November 2026.

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Other Contractual Obligations and Commitments

Our contractual obligations, other than the financing agreements and related interest rate swaps detailed in the “Liquidity and CapEx” section, consist mainly of lease obligations capitalized under IFRS 16. Lease obligations are our future minimum commitments under lease agreements within the scope of IFRS 16 and are reflected on the balance sheet in our audited consolidated financial statements included elsewhere in this annual report. Lease agreements, which were not recognized in accordance with the exemptions in IFRS 16, are not material and therefore not presented here. In addition, we regularly enter several smaller contractual obligations related to our operations or facilities, such as the supply of inventories, power supply and insurance. Our contractual obligations as of December 31, 2022, include lease obligations for lease liabilities of € 62,914 thousands, reflecting our future minimum lease commitments. As of December 31, 2022, € 1,561 thousands of the committed lease payments associated with lease liabilities and other lease obligations will occur in the next 12 months, € 16,373 thousands between January 1, 2023, and December 31, 2026. The remaining lease payments of € 44,979 thousands will occur after December 31, 2026.

We license or acquire certain third-party intellectual property to utilize in our business. Under these agreements, we are required to pay milestones, dependent on development progress and/or royalties and milestones dependent on present and future net income or on sublicensing fees received from third parties. Additionally, we have agreements with several third parties to access their technology and knowledge for use in our business or within our collaborations. Under these agreements, we are required to pay a share of our revenue generated using these technologies and knowledge to the respective third parties. The revenue-share obligations are usually low double-digit percentages of revenue received but can be up to 50%. However, it is not possible to predict the maximum potential number of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each agreement. There are no off-balance sheet obligations other than those disclosed above.

CapEx

To facilitate the continued growth of our company, we regularly invest in upgrading and expanding our technology and infrastructure. In 2022 we invested in the expansion of both process development and production capacity of the J.POD Redmond, WashingtonA, United States, as well as the initiation of construction works and equipment purchases for J.POD Toulouse, France. In addition, major investments were made to support continued growth and maintain the highest technology and infrastructure standards for scientific operations. One of the most notable examples was the expansion of our PanOmics capacity in line with the increasing demand from partnerships in this highly strategic field, particularly in Gottingen, Munich, and Toulouse. To support ongoing high growth rates of the End-to-End R&D business, investments in facilities expansion to host core scientific operations such as in vitro biology, drug metabolism and pharmacokinetics (DMPK), chemistry and safety assessment have been delivered in 2022, thus enabling efficient expansion in Abingdon, Gottingen, Toulouse, and Verona. From an energy-efficiency and sustainability perspective, we were pleased to invest in the conversion from a traditional gas boiler to the TED (Toulouse Energie Durable) network in Toulouse, saving both short-term costs and as much as 2000 tons of CO2 emissions annually. Finally, as part of a of multi-year program of investments, we continued to deploy CapEx to expanding, upgrading and digitizing supporting administrative tools and systems in order efficiently support and optimize future growth and scalability. We will continue to make CapEx to secure the further growth and scalability of our company, including €120 to125 million in CapEx in 2023 for replacements and growth. We expect to require an additional €50 million of CapEx in 2023, respectively, for further development in our first J.POD facility in Redmond, Washington and approximately €65 million for our second J.POD facility in Toulouse, France. Planning of construction in France began in April 2021 and construction started in September 2022 (supported by related funding from French authorities). The second J.POD is expected to be completed by 2024. For facility expansions at other sites, we expect to invest a total of €40 million to €45 million between Alderley Park and Abingdon in the United Kingdom, in Toulouse in France, in Hamburg, Göttingen and Munich in Germany, in Verona in Italy as well as in Framingham and Princeton in the United States.

We plan to fund additional CapEx through cash on hand and debt financing.

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Cash Flow from Operating Activities

Net cash flows from operating activities are primarily derived from partnered projects and the sale of products and services rendered. Our cash flows from operating activities are significantly influenced by our use of cash for operating expenses and working capital to support the business.

For the fiscal year ended December 31, 2022, operating activities generated €203.1 million in cash and cash equivalents. The amount primarily resulted from a prepayment of $ 200 million from BMS for the expansion of our protein degradation collaboration. Net Loss amounted to €175.7 million, after consideration of non-cash charges of €287.5 million, which included the fair value adjustment of our investment in Exscientia plc of €174.7 million, and changes in operating assets and liabilities of € 104.5 million. The increase in operating assets and liabilities was mainly driven by the above-mentioned prepayment from BMS for the extension of the protein degradation collaboration, partially offset by an increase in receivables of €38.4 million due to the overall revenue growth and prepayments from BMS/Celgene and an increase in other assets of €80.3.

For the fiscal year ended December 31, 2021, operating activities generated €122.2 million in cash and cash equivalents. The amount primarily resulted from net income of €215.5 million, after consideration of non-cash charges of €92.7 million, which included the fair value adjustment of our investment in Exscientia plc of €225.4 million, and changes in operating assets and liabilities of €2.3 million. The increase in operating assets and liabilities was mainly driven by increases in payables mainly related to the J.POD^® construction expenses of(€34.9 million and contract liabilities and deferred revenues mainly due to a prepayment of BMS for the extension of the Oncology cooperation €63.1 million offset by an increase in receivables €48.0 million due to the overall revenue growth and prepayments from Celgene, an increase in inventory €11.7 million, other current assets €29.0 million and changes in non-current tax assets primarily in relation to R&D tax credits €19.0 million.

Cash Flow from Investing Activities

During the year ended December 31, 2022, cash used in investing activities amounted to €415.8 million which consisted of purchases of current investments in the amount of €355.8 million, purchases of investments in associated companies and other long-term investments of €58.8 million (including in respect of €20.4 million invested in Sernova Corp., €11.3million invested in Dark Therapeutics Ltd, €4.4 million invested in IMIDomics, €3.6 million invested in Autobahn Labs LLC, €3.4 million invested in Tubulis GmbH as well as several other invested with amounts below €3 million).), purchases of property, plant and equipment in the amount of €181.4 million (including in respect of €73.7 million invested in the J.POD 1 U.S. facility in Redmond as well as in Just – Evotec Biologics in Seattle and J.POD 2 EU facility in Toulouse) and the issue of convertible loans to affiliated companies of €4.1 million partially offset by €205.2 million of proceeds from the sale of current investments.

During the year ended December 31, 2021, cash used in investing activities amounted to €243.9 million which consisted of purchases of current investments in the amount of €123.7 million, purchases of investments in associated companies and other long-term investments of €20.7 million (including in respect of €3.7 million invested in Breakpoint, €2.7 million invested in Topas, €2.0 million invested in Leon, €1.3 million invested in Facio and €1.1 million invested in Immunitas and €4.0 million invested in CureXsys), purchases of property, plant and equipment in the amount of €118.9 million (including in respect of €63.3 million invested in the new J.POD 1 U.S. facility in Redmond as well as in Just – Evotec Biologics in Seattle) and the issue of convertible loans to affiliated companies of €7.4 million partially offset by €27.3 million of proceeds from the sale of current investments.

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Cash Flow from Financing Activities

Our primary financing activities consist of issuances of share capital, proceeds from/payments of bank loans and payments of finance lease liabilities.

Net cash used in financing activities for the year ended December 31, 2022 was €52.4 million which consisted of the repayment of loans amounting to €34.1 million and repayment of lease obligations amounting to €19.0 million. The repayment of loans included the three-year tranche of the promissory note of €35.0 million. Proceeds from a capital increase and proceeds from option exercise amounted to €0.4 million and €0.3 million, respectively.

Net cash provided by financing activities for the year ended December 31, 2021 was €398.4 million which consisted of proceeds from capital increase amounting to €403.1 million due to the listing in the United States in November 2021, proceeds from borrowings amounting to €30.8 million (including a final tranche of the KfW/IKB R&D loans in the amount of 1.8 million, a new long-term IKB Innovation loan in the amount of 20.4 million and the first tranche of the BPI France loan for the J.POD EU in the amount of 8.6 million), proceeds from option exercises amounting to €1.2 million, partially offset by repayment of loans of €16.0 million (including the regular repayment of the Haspa term loan in the amount of 5 million and the IKB loan in the amount of 10 million) and repayment of lease obligations amounting to €20.7 million.

[See Item 4 “Business Overview” and “Operating and Financial Review and Prospects—A. Operating Results” in this Item 5.]

See the description of “Operating Results” in this Item 5 within this annual report.

The consolidated financial statements have been prepared in accordance with IFRS and its interpretations as issued by the IASB. For a discussion of our significant accounting policies and other estimates, please see “Summary of significant accounting policies” in note 2 in the notes to our consolidated financial statements included in this annual report.

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The business address of the members of our Management Board is the same as our business address: Essener Bogen 7, 22419 Hamburg, Germany.

The following is a summary of the business experience of the members of our Management Board (as of end 2022):

Dr. Werner Lanthaler has served as Chief Executive Officer of Evotec since March 2009. Prior to joining Evotec, from 2000 to 2009, Dr. Lanthaler served as Chief Financial Officer at Intercell AG, a biotechnology company focused on the development of prophylactic and therapeutic vaccines against infectious diseases. Dr. Lanthaler serves on the board of directors of AC Immune SA (since early 2018). Recently he served on the board of directors of Topas Therapeutics GmbH (from 2015 to 2020) and Argenx SE (from 2014 to 2023), where he also served as vice-chairman and chairperson of the Audit Committee. Dr. Lanthaler holds a doctorate degree in economics from Vienna University, a master’s degree from Harvard University, and a degree in psychology.

Dr. Cord Dohrmann has served as Chief Scientific Officer of Evotec since September 2010. From 2000 to 2010, Dr. Dohrmann served in various management positions including as the Chief Scientific and Chief Executive Officer at DeveloGen AG, a drug discovery company focused on the development of novel therapies for diabetes and obesity. Evotec acquired DeveloGen in 2010. Dr. Dohrmann serves on the Supervisory Board of Eternygen GmbH and Breakpoint Therapeutics,. Dr. Dohrmann is a member of the German Council of Science and Humanities. Dr. Dohrmann holds an undergraduate degree in biology from Tübingen University, a master’s degree in molecular biology from the Max-Planck Institut and a doctorate in cellular and molecular biology from Harvard Medical School.

Dr. Craig Johnstone has served as Chief Operating Officer of Evotec since January 2019. Dr. Johnstone joined Evotec in 2012 as the Senior Vice President of Drug Discovery and Innovation Efficiency. In 2015, he was appointed Directeur General and Site Head of Evotec (France) SAS and, in January 2017, he became the Global Head of Integrated Drug Discovery. Dr. Johnstone does not hold any memberships in supervisory bodies. Dr. Johnstone holds a bachelor’s degree in pure and applied chemistry, as well as a doctorate degree in organic and organometallic synthesis from the University of Strathclyde.

Enno Spillner has served as Chief Financial Officer of Evotec since July 2016, with oversight over various functions and departments, including finance, legal and compliance, information technology, Supply Chain Management, internal audit and risk management. Prior to his tenure at Evotec from 2013 to 2016, Mr. Spillner served as chairperson of the Management Board, Chief Executive Officer, and Chief Financial Officer and, from September 2005 to March 2013, as Chief Financial Officer of 4SC AG, Munich-Martinsried, a publicly listed company on the Frankfurt Stock Exchange and a developer of innovative, small-molecule drugs to combat cancer. Since 2014, Mr. Spillner also has served as a Non-Executive Member of the Board of Directors and chairperson of the Audit Committee at Euronext and, since December 2020, Nasdaq-listed Nanobiotix SA, Paris. Recently he served on the supervisory board of Leon-Nanodrugs GmbH, Munich. Mr. Spillner holds a Dipl.-Kaufmann degree (master’s degree in business) from the University of Bamberg.

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Dr. Matthias Evers was appointed as Chief Business Officer of Evotec on May 1, 2022. Matthias is responsible for business development, digital technology, and strategy across the entire company. Prior to joining Evotec, Matthias accumulated 20 years of experience as Senior Partner with the consulting firm McKinsey & Company, Inc. where he co-led R&D in Life Sciences globally and served on the Firm’s most senior Knowledge and People Committees, respectively. Matthias was a Postdoctoral Fellow at the Center for Molecular Neurobiology Hamburg (ZMNH) and holds a Ph.D. based on his work in molecular biology and bioinformatics from the University of Bochum (Germany) where he also earned his MSc in Biochemistry.