On August 12, 2015 Evotec AG (Frankfurt Stock Exchange: EVT, TecDAX, ISIN: DE0005664809) reported financial results and corporate updates for the first half of 2015 (Press release, Evotec, AUG 12, 2015, View Source [SID:1234507209]).
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EVT Execute reports excellent revenue growth, EVT Innovate shows significant transaction success and accelerates investments
– EVT Execute revenues up 49% compared to the prior-year period; Group revenues grew by 37% to EUR 55.0 m (2014: EUR 40.1 m); EVT Innovate initiates two significant Pharma alliances (after period-end) and increased R&D investments by 48% to EUR 10.4 m
– Strong EBITDA before contingent considerations of EUR 9.8 m for EVT Execute; Group EBITDA (adjusted for changes in contingent consideration as well as for one-time effects with regards to the bargain purchase resulting from the acquisition of Evotec (France) SAS) positive at EUR 0.8 m and increased compared to the same period of the previous year (2014: EUR 0.6 m)
– Strongest liquidity position in the Company history at EUR 140.9 m
– One-time positive effect on operating result due to income from bargain purchase
EVT Execute
Excellent performance of service business provides strong basis for future growth
– Drug discovery collaboration with Facio Therapies
– Strong screening pipeline of new deals and continued success in ongoing collaborations
– Milestones achieved in endometriosis collaboration with Bayer HealthCare
– Research initiative with Gladstone Institutes and Dolby Family Ventures in Alzheimer’s disease (after period-end)
EVT Innovate
Despite clinical failure, business model works, first-in-class drug discovery to create long-term value
– Phase IIb study of Sembragiline (EVT302) conducted by Roche did not meet primary endpoint
– Successful partnering of TargetBCD (Diabetes) with Sanofi and TargetImmuniT (Immuno-oncology) with Apeiron and Sanofi, two Cure X/Target X initiatives which combined have the potential to deliver more than EUR 500 m in upfront and milestone payments plus high royalties in addition to significant research payments (after period-end)
Revenue guidance 2015 raised
– All elements of financial guidance as of 12 May 2015 confirmed
1. Operational performance
EVT Execute reports excellent revenue growth, EVT Innovate shows significant transaction success and accelerates investments
Revenues from the EVT Execute segment amounted to EUR 59.2 m in the first half of 2015, an increase of 49% compared to the same period of the previous year (first six months of 2014: EUR 40.0 m). This increase is primarily attributable to growth of the base business, supported by a positive development of the anti-infectives business unit and foreign exchange rate effects. Included in this amount are EUR 12.4 m of intersegment revenues (first six months of 2014: EUR 8.2 m). The EVT Innovate segment generated revenues in the amount of EUR 8.2 m consisting entirely of third-party revenues (first six months of 2014: EUR 8.6 m). Gross margin at EVT Execute was 23.8% while EVT Innovate generated a gross margin of 45.7%. R&D expenses for the EVT Innovate segment increased from EUR 7.0 m in the first six months of 2014 to EUR 10.4 m in the first six months of 2015 due to investments in projects in the oncology space at the Toulouse site as well as increased investments in existing Cure X and Target X initiatives. In the first six months of 2015, the adjusted EBITDA (before changes in contingent consideration) of the EVT Execute segment was high at EUR 9.8 m and significantly improved compared to the same period of the previous year (first six months of 2014: EUR 5.5 m) due to the strong increase in revenues. The EVT Innovate segment reported an EBITDA before changes in contingent consideration of EUR (9.0) m (first six months of 2014: EUR (4.9) m).
Evotec’s Group revenues for the first half of 2015 grew to EUR 55.0 m, an increase of 37% compared to the same period of the previous year (2014: EUR 40.1 m). This increase is due to growth in the core EVT Execute business, the contribution of the Sanofi collaboration, milestone achievements and favourable foreign exchange rate effects. Excluding milestones, upfronts and licences and revenue contributions from the acquired businesses of Bionamics, Euprotec and Sanofi, Evotec’s revenues for the first half of 2015 were EUR 41.1 m and increased by 3% over the same period of the previous year (2014: EUR 39.9 m).
Adjusted Group EBITDA in the first six months of 2015 amounted to EUR 0.8 m (first six months of 2014: EUR 0.6 m). EBITDA was adjusted for changes in contingent consideration as well as for one-time effects with regards to the bargain purchase resulting from the acquisition of Evotec (France) in 2015 and Bionamics GmbH in 2014. Evotec’s operating income for the first half of 2015 amounted to EUR 12.9 m (2014: operating loss of EUR 3.6 m) and is mainly due to the preliminary income from bargain purchase resulting from the acquisition of Evotec (France).
Liquidity including cash and cash equivalents and investments amounted to EUR 140.9 m at the end of June 2015, marking the strongest liquidity position in the Company’s history. This increase in liquidity is mainly attributable to the cash inflow resulting from the Sanofi transaction.
2. EVT Execute and EVT Innovate
EVT Execute
Excellent performance of service business provides strong basis for future growth
Drug discovery collaboration with Facio Therapies
At the end of April 2015, Evotec and Facio Therapies announced the start of an agreement aimed at the identification of compounds showing activity as a potential treatment to stop the progression of Facioscapulohumeral dystrophy ("FSHD"), a muscle wasting disease. The compounds that show promising activity in this screen are expected to be available in the first half of 2016. These compounds will require extensive further testing to produce compounds that are suitable for the development of a therapeutic for the treatment of FSHD.
Strong screening pipeline of new deals and continued success in ongoing collaborations
The EVT Execute segment continued its strong performance in the first half of 2015. Many new alliances were signed with companies such as Spero, Padlock and C4X Discovery. The screening pipeline grew substantially with screens initiated by, amongst others, UCB and Biogen. Established collaborations with Navitor and Active Biotech were extended and a major work order was agreed through our long-term compound management partnership with NIH. Furthermore, the build-up of the new protein production facility in Princeton (USA) is proceeding according to plan and has already delivered on its first projects to a major US Pharma client.
Milestones achieved in endometriosis collaboration with Bayer HealthCare
In the first half of 2015, Evotec reached two important milestones in its multi-target collaboration with Bayer for the transition of early lead candidate molecules into lead-structure optimisation for two key targets. These milestones were achieved under the five-year agreement between Evotec and Bayer signed in October 2012. The goal of this collaboration is to identify three pre-clinical candidates for the treatment of endometriosis within the five-year alliance which Bayer will then bring to the IND stage. Both parties contribute innovative drug targets and high-quality technology infrastructures and share the responsibility for early research and pre-clinical characterisation of potential clinical candidates in the disease area of endometriosis.
Research initiative with Gladstone Institutes and Dolby Family Ventures in Alzheimer’s disease (after period-end)
After period-end, Evotec announced that it is going to be part in a research initiative initiated by Gladstone Institutes and Dolby Family Ventures, called the Cure Network Ventures, Inc., a newly established for-profit company. This initiative bridges the gap between basic science and advanced drug discovery by combining a highly innovative scientific research programme with state-of-the-art drug discovery capabilities and a funding source interested in identifying new therapeutic avenues for Alzheimer’s disease.
EVT Innovate
Despite clinical failure, business model works, first-in-class drug discovery to create long-term value
Phase IIb study of Sembragiline (EVT302) conducted by Roche did not meet primary endpoint
At the end of June 2015, Roche analysed the initial results of the Phase IIb trial with Sembragiline (RG1577, EVT302), a MAO-B inhibitor for the treatment of Alzheimer’s disease. In this study, Sembragiline failed to demonstrate benefit on the primary endpoint (Alzheimer’s Disease Assessment Scale – Cognitive Behaviour Subscale, ADAS-cog-11) after 52 weeks of treatment. Preliminary safety analyses showed that Sembragiline was well tolerated with no safety signals identified.
Successful partnering of TargetBCD (Diabetes) with Sanofi and TargetImmuniT (Immuno-oncology) with Apeiron and Sanofi, two Cure X/Target X initiatives which combined have the potential to deliver more than EUR 500 m in upfront and milestone payments plus high royalties in addition to significant research payments (after period-end)
In August 2015, Evotec and Sanofi announced a strategic risk-shared collaboration in the field of diabetes (TargetBCD). The goal of this collaboration will be to develop a beta cell replacement therapy based on functional human beta cells derived from human stem cells. In addition, Sanofi and Evotec will also use human beta cells for high-throughput drug screening to identify beta cell active small molecules or biologics. The agreement between Evotec and Sanofi triggers an upfront payment of EUR 3 m, potential pre-clinical, clinical, regulatory and commercial milestones which could total over EUR 300 m as well as significant royalties and research payments.
Effective after period-end, Evotec, Apeiron Biologics and Sanofi entered into a strategic collaboration to develop novel small molecule-based cancer immunotherapies (TargetImmuniT). This collaboration includes major research and development efforts to advance a first-in-class small molecule approach to treat solid and haematopoietic cancers by enhancing the anti-tumour activity of human lymphocytes. The agreement triggers two years of substantial research payments for Evotec and Apeiron Biologics with the opportunity to receive pre-clinical, clinical, regulatory and commercial milestones which could total over EUR 200 m as well as royalties upon commercialisation.
JingXin Pharmaceuticals shows good progress of Phase II study with EVT201
In the first half of 2015, JingXin Pharmaceuticals Co., Ltd. (China) informed Evotec about positive development progress of EVT201 for the treatment of insomnia in China.
3. Sanofi transaction – Accelerator for EVT Execute and EVT Innovate segments
On 31 March 2015, Evotec closed a five-year, major multi-component strategic alliance with Sanofi effective 01 April 2015. One of the major cornerstones of this alliance is the acquisition of Sanofi’s research site in Toulouse, France, including more than 200 highly experienced employees to support the expansion of Evotec’s drug discovery capabilities and capacities.
The integration of the new research site is proceeding successfully and the first small third-party projects were launched in the second quarter of 2015, ahead of expectations. The bargain purchase resulting from the acquisition was not allocated to segments. The initial accounting is provisional with regard to the fair values used to measure the assets and liabilities of the combination. It may therefore be subject to material changes.
4. Revenue guidance 2015 raised
Evotec’s financial guidance was updated in March 2015 and May 2015 due to the financial impact of the Sanofi transaction.
In 2015, total Group revenues excluding milestones, upfronts and licences are expected to increase more than 35%.
Evotec’s Group EBITDA before changes in contingent considerations is expected to be positive. EBITDA is defined as earnings before interest, taxes, depreciation and amortisation of intangibles. EBITDA excludes impairments on other intangibles, tangible assets and goodwill as well as the total non-operating result.
Evotec expects research and development (R&D) expenses to grow to EUR 15 m – EUR 20 m in 2015.
In 2015, Evotec will continue to invest in its technology platforms and capacities in order to drive its long-term growth strategy. It is therefore planned that up to EUR 10 m will be invested in further capacity increases and the upgrade of Evotec’s technological capabilities.
Liquidity is expected to be well in excess of EUR 100 m at 31 December 2015. This forecast excludes any potential cash outflow from M&A or similar transactions.
The Company’s mid-term financial plan does not envisage the need for any additional external financing for Evotec’s operating business. However, all strategically desirable moves such as potential company or product acquisitions will need to be considered on a case by case basis.
The statements on business direction and strategy, expected research and development, business opportunities and dividends continue to be valid as published in Evotec’s Annual Report 2014 on pages 68 to 70.