On March 22, 2016 Evotec AG (Frankfurt Stock Exchange: EVT, TecDAX, ISIN: DE0005664809) reported its financial results for the fiscal year ended 31 December 2015 (Press release, Evotec, MAR 22, 2016, View Source [SID:1234509814]).
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Very strong financial performance in 2015; guidance comfortably achieved
– Substantial Group revenue growth of 43% to EUR 127.7 m (2014: EUR 89.5 m); base revenues up 57% to EUR 115.4 m
– Revenue growth in both operating segments: EVT Execute revenues up 44% to EUR 134.0 m, EV0T Innovate revenues +46% to EUR 21.5 m
– Adjusted Group EBITDA positive and up 13% to EUR 8.7 m (2014: EUR 7.7 m)
– Significantly improved adjusted EBITDA of EUR 23.8 m for EVT Execute (2014: EUR 22.1 m)
– R&D expenses +48% to EUR 18.3 m; increased investment in Cure X/Target X initiatives and newly acquired oncology projects
– High and stable liquidity position at EUR 133.9 m; EUR 134.5 m excluding M&A and related payments (Earn-out Euprotec)
Operational excellence in both business segments
EVT Execute – Further improved global leadership position
– New alliances initiated and important collaborations extended
– Integration of additional capabilities at newly acquired site in Toulouse and new US site in Princeton fully on track
– Important milestone achievements in existing alliances
EVT Innovate – Successful acceleration of first-in-class science
– Partnering of four significant Cure X/Target X initiatives
– Significant expansion of Cure X/Target X portfolio despite setbacks in Evotec’s legacy pipeline
EVT Equity – Company formation "Topas Therapeutics GmbH" to accelerate drug discovery and product development to treat autoimmune diseases (22 March 2016)
– Formation of a spin-off company (Topas Therapeutics GmbH) in the field of nanoparticle-based therapeutics to treat immunological disorders; completed Series A funding of EUR 14 m
Guidance 2016
– Group revenues excluding milestones, upfronts and licences are expected to increase more than 15%
– Research and development (R&D) expenses in 2016 to be approximately EUR 20 m
– Adjusted Group EBITDA (before changes in contingent considerations) is expected to be positive and significantly improved compared to 2015
– Capacity and capability building with up to EUR 10 m capex investments
– Liquidity at 31 December 2016 expected to be at a similar level to the prior year
1. Financial performance 2015
Very strong financial performance in 2015; guidance comfortably achieved
In 2015, Evotec’s Group revenues grew to EUR 127.7 m, an increase of 43% compared to the same period of the previous year (2014: EUR 89.5 m). This increase resulted primarily from a growth in the core EVT Execute business with new partners, a strong contribution from the anti-infective business unit, four new strategic partnerships out of the Cure X/Target X initiatives and favourable foreign exchange rate effects. Excluding milestones, upfronts and licences, Evotec’s revenues for 2015 were EUR 115.4 m, an increase of 57% over the same period of the previous year (2014: EUR 73.4 m). Revenues from milestones, upfronts and licences amounted to EUR 12.3 m, a decrease of 24% compared to the previous year (EUR 16.1 m), which is mainly attributable to lower milestone contributions in 2015.
In 2015, Evotec’s R&D expenses amounted to EUR 18.3 m (2014: EUR 12.4 m). This increase results from significant investments in newly acquired oncology projects through the Sanofi collaboration as well as higher investments in ongoing Cure X and Target X initiatives. Selling, general and administrative (SG&A) expenses increased by 40% in 2015 to EUR 25.2 m (2014: EUR 18.0 m) mainly due to one-time M&A-related costs, ongoing SG&A expenses at the newly acquired Toulouse site, adverse foreign exchange rate movements and higher compensation expenses relating to outstanding share performance awards.
Adjusted Group EBITDA in 2015 amounted to EUR 8.7 m (2014: EUR 7.7 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) SAS in 2015 and Bionamics GmbH in 2014. Evotec’s operating income in 2015 amounted to EUR 11.6 m (2014: operating loss of EUR 6.4 m) and was driven by the one-time effect of the income from bargain purchase resulting from the acquisition of Evotec (France).
Liquidity, which includes cash and cash equivalents (EUR 44.5 m) and investments (EUR 89.4 m) amounted to EUR 133.9 m as of 31 December 2015 (31 December 2014: EUR 88.8 m). This increase is mainly attributable to the cash received from the Sanofi collaboration (EUR 37.3 m). Liquidity adjusted for M&A and related payments amounted to EUR 134.5 m.
Revenues from the EVT Execute segment amounted to EUR 134.0 m in 2015 (2014: EUR 93.3 m) and included EUR 27.7 m of intersegment revenues (2014: EUR 18.5 m). This sharp increase mainly resulted from the contribution of new customers as well as growth in the core EVT Execute business, a strong contribution from the anti-infective business unit and favourable foreign exchange rate effects. The EVT Innovate segment generated revenues of EUR 21.5 m (2014: EUR 14.7 m) consisting entirely of third-party revenues. This increase compared to the prior year mainly results from EVT Innovate projects which were partnered in 2015. Gross margin for EVT Execute amounted to 23.2% while EVT Innovate generated a gross margin of 54.0%. R&D expenses for the EVT Innovate segment amounted to EUR 22.4 m in 2015 (2014: EUR 14.1 m) due to the additional investments in the oncology portfolio from the Sanofi collaboration as well as higher investments in existing Cure X and Target X initiatives. In 2015, the adjusted EBITDA (before changes in contingent consideration) of the EVT Execute segment was strongly positive at EUR 23.8 m and improved compared to the same period of the previous year (2014: EUR 22.1 m). The EVT Innovate segment reported a negative EBITDA before changes in contingent consideration of EUR (15.1) m similar to the previous year (2014: EUR (14.4) m).
2. Operational performance 2015
Operational excellence in both business segments
EVT Execute – Further improved global leadership position
In 2015, EVT Execute reported various new alliances based on its drug discovery platform, e.g. with UCB Pharma in compound management, which will be managed at the Toulouse site; with the Beyond Batten Disease Foundation in juvenile Batten disease, and Facio Therapies in the area of muscle-wasting diseases. In addition, various collaborations were extended in 2015, such as with Spero, Padlock, and CHDI, Evotec’s second largest customer in 2015. EVT Execute also reached important milestones in its multi-year collaboration with Bayer in endometriosis, demonstrating again the progress in this strategic collaboration. The integration of new capabilities and capacities from the newly acquired site in Toulouse, France, and the new site in Princeton, USA, into Evotec’s global offering continued successfully in 2015.
EVT Innovate – Successful acceleration of first-in-class science
In 2015, Evotec was able to enter four new strategic partnerships out of its portfolio of Cure X/Target X initiatives: TargetImmuniT (Immuno-oncology with Sanofi and Apeiron Biologics); TargetBCD (Diabetes with Sanofi); TargetFibrosis (Tissue fibrosis with Pfizer) and TargetMB (Inflammation with Second Genome). These partnerships are a testament to Evotec’s strategy to advance proprietary first- and best-in-class projects to tangible inflection points and to partner them with Pharma companies. As part of the strategic collaboration with Sanofi, Evotec also in-licensed a number of pre-clinical oncology assets which enhance Evotec’s pipeline and are the foundation for future partnerships. However, during the course of 2015, Evotec’s legacy pipeline recorded some setbacks. Sembragiline (RG1577/EVT302), a MAO-B inhibitor for the treatment of Alzheimer’s disease partnered with Roche, failed to demonstrate benefit on the primary endpoint in a Phase IIb trial. After period-end, Evotec was informed by Janssen Pharmaceuticals, Inc. that Janssen intends to end the licence agreement regarding the NMDA antagonist with effect from August 2016. Evotec will regain the licence rights. Evotec’s clinical development programmes (EVT201 and EVT401) with the Chinese partners JingXin and CONBA are progressing according to plan. The development project with Second Genome is also fully on track.
3. EVT Equity – Company formation "Topas Therapeutics GmbH" to accelerate drug discovery and product development to treat autoimmune diseases (22 March 2016)
In March 2016, Evotec announced the formation of a spin-off company, called Topas Therapeutics GmbH ("Topas"), focused on the field of nanoparticle-based therapeutics to treat immunological disorders. Epidarex Capital, EMBL Ventures and Gimv participated together with Evotec in a EUR 14 m ($ 15.75 m) Series A round of Topas. Evotec will remain the largest shareholder after the financing round. The new company aims to build a unique pipeline of clinical-stage development projects to treat autoimmune diseases. The proceeds of the Series A funding enable Topas to expand and accelerate its proprietary liver-based tolerance induction platform and to progress with its own product development efforts in multiple autoimmune and inflammatory indications including multiple sclerosis into clinical proof-of-concept ("POC") stage. The establishment of Topas is the first example of an acceleration of Evotec’s business model to take advantage of carving out promising programmes with upside potential on a shared risk and shared success basis.
4. Guidance 2016
Guidance 2016 Actual 2015
Base revenues1) >15% EUR 115.4 m
Adjusted Group EBITDA2) Positive and significantly improved to prior year EUR 8.7 m
R&D expenses Approx. EUR 20 m EUR 18.3 m
Liquidity3) Similar level to prior year EUR 134.5 m
Capex investments Up to EUR 10 m EUR 11.2 m
1) Excluding milestones, upfronts and licences
2) Before contingent considerations, income from bargain purchase and excluding impairments on goodwill, other intangible and tangible assets as well as the total non-operating result
3) Excluding M&A and related payments (Earn-out Euprotec)
Evotec pursues a business model in which revenues and operating profitability are highly dependent on the achievement and timing of milestones.
In 2016, total Group revenues excluding milestones, upfronts and licences are expected to increase more than 15%. This assumption is based on the current order book, expected new contracts and contract extensions.
Evotec expects research and development (R&D) expenses in 2016 to be approximately EUR 20 m in total. The funding will be used to optimally support the competitive positioning of Evotec’s assets. The Company will focus on key programmes and targets to invest in, especially in innovation in the fields of oncology and metabolic disease franchises as well as in its iPS cell based drug discovery initiatives.
Evotec’s adjusted Group EBITDA (before changes in contingent considerations) is expected to be positive and significantly improved compared to 2015.
EBITDA is defined as earnings before interest, taxes, depreciation, and amortisation of intangibles. EBITDA excludes impairments on goodwill, other intangible and tangible assets as well as the total non-operating result.
In 2016, 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 at 31 December 2016 is expected to be at a similar level to the prior year. This forecast excludes any potential cash outflow for 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 separately.