Evotec SE: Results and corporate updates

Evotec SE reported financial results and corporate updates for the first nine months ended 30 September 2019.

VERY STRONG FINANCIAL PERFORMANCE

Group revenues: 16% increase to € 321.4 m (9M 2018: € 278.1 m)
Adjusted Group EBITDA up 36% to € 93.2 m (9M 2018: € 68.7 m)
Unpartnered R&D expenses of € 25.7 m (9M 2018: € 16.0 m)
Strong liquidity position of € 282.6 m (31 December 2018: € 149.5 m)

OPERATIONAL PERFORMANCE - DRIVING DRUG DISCOVERY AND DEVELOPMENT FAST FORWARD

Multiple new alliances in EVT Innovate and EVT Execute
Just – Evotec Biologics off to a very good start
Achievement of multiple important milestones (e.g. Bayer, Boehringer Ingelheim, Celgene, Indivumed)
Co-owned pipeline projects progressing very well, e.g. with positive Phase II POC results in chronic cough with Bayer
Extension of iPSC-based neurodegeneration partnership with Celgene into 2023; triggering additional $ 30 m payment
Joint venture created with Vifor Pharma focused on novel nephrology therapeutics (after period-end)
Expansion of BRIDGE roll-out with new BRIDGEs LAB10x and LAB555 (after period-end)
Continued company formations and equity participation e.g. in Aeovian, Eternygen, Facio, Immunitas; and spin-off formation Breakpoint Therapeutics GmbH focused on DNA damage response
Building a leading position in anti-infectives discovery and development (e.g. alliances with GARDP, GNA Now, Helmholtz, and the Bill & Melinda Gates Foundation)

INCREASE IN EBITDA GUIDANCE FOR FULL-YEAR 2019

Full-year 2019 guidance for revenue and unpartnered R&D costs confirmed; EBITDA guidance increased to approximately 15% (previously: >10%)

FINANCIAL PERFORMANCE

In the first nine months of 2019, Evotec’s Group revenues continued their strong performance and increased by 16% to € 321.4 m (9M 2018: € 278.1 m). This positive development is mainly due to the very strong performance in the base business across all business lines, solid milestone payments, and first revenue contributions by Just – Evotec Biologics (€ 10.4 m). Revenues from milestones upfronts and licences, which can vary significantly from quarter to quarter, decreased to € 22.3 m in comparison to the previous year (9M 2018: € 27.2 m) and included, amongst others, payments from Bayer, Boehringer Ingelheim, and Celgene. The gross margin in the first nine months of 2019 amounted to 30.7% (9M 2018: 30.1%). This increase in margin compared to 2018 is based on very good capacity utilisation and favourable FX. In the first nine months of 2019, Evotec focused its unpartnered R&D expenses of € 25.7 m primarily on initiatives in the fields of metabolic diseases, oncology, and platform projects. Its partnered R&D expenses of € 15.6 m on its infectious disease portfolio were shown under R&D while the expenses fully reimbursed by its partner Sanofi were recognised under other operating income. This split into unpartnered and partnered R&D expenses had not been applied in the first nine months of 2018, where total R&D expenses of € 16.0 m were recorded compared to total € 41.3 m in the reporting period. The Group’s selling, general and administrative (“SG&A”) expenses increased by 13% to € 46.2 m (9M 2018: € 40.8 m) in the first nine months of 2019. This increase is mainly due to overall company growth including staff increases, upgrading of systems, consultancy fees, plus expenses from acquired companies, equity and financing transactions. Impairments of intangible assets and goodwill of € 11.9 m were recorded (9M 2018: impairment of intangible assets of € 4.2 m). This one-off impairment was mainly due to the termination of the SGM-1019 agreement by our partner Second Genome, the programme was fully impaired (€ 10.3 m). This impairment of intangible assets in addition triggered a goodwill impairment of € 1.6 m of the cash-generating unit Evotec (US) Innovate. All rights of the underlying asset were returned to Evotec. The strong increase in the adjusted Group EBITDA to € 93.2 m (9M 2018: € 68.7 m), resulted mainly from the very strong performance in the base business, solid milestones and licence contributions, a positive EBITDA contribution by Just – Evotec Biologics and effects from the first-time application of the new accounting standard IFRS 16 (+€ 10.1 m). In the first nine months of 2019, Evotec’s operating result was € 46.4 m (9M 2018: € 59.5 m). A year on year comparison is not meaningful, as 2018 was significantly positively affected by a one-off impact from the bargain purchase ID Lyon in 2018 (€ 15.4 m). The Company’s net result for the first nine months of 2019 amounted to € 29.7 m (9M 2018: € 52.3 m) and also cannot be compared like for like as it was affected by the one-off effect of the impairments on intangible assets and goodwill. Evotec ended the third quarter of 2019 with a strong liquidity position of € 282.6 m (31 December 2018: € 149.5 m), which was composed of cash and cash equivalents (€ 249.6 m) and investments (€ 33.0 m). In the first nine months of 2019, liquidity was primarily affected by the completion of the repayment of the remainder of the € 140 m debt bridge facility drawn down in context of the acquisition of Aptuit in August 2017 as well as the repayment of flexible bank loan agreements, the successful issue of a promissory note (Schuldschein) worth € 250 m, gross, at very attractive interest rates of below 1.5%, as well as the draw-down of another tranche of the European Investment Bank R&D loan and the acquisition of Just – Evotec Biologics.

OPERATIONAL PERFORMANCE

Overall, the EVT Execute segment continued its strong progress in existing alliances and signed new or extended established partnerships. The strong performance was highlighted through the signing of a strategic multi-year drug discovery collaboration across multiple therapeutic areas with Takeda. Evotec will use its leading integrated drug discovery platform to deliver clinical candidates for Takeda to pursue into clinical development. Evotec is eligible to receive pre-clinical, clinical, and commercial milestones that can total in excess of $ 170 m per programme as well as tiered royalties on future sales. The Just – Evotec Biologics integration into the Evotec Group is fully on track. In the first three months since the acquisition, Just – Evotec Biologics signed new agreements e.g. with Teva and Biocon Biologics. EVT Innovate continued to deliver strong progress within its collaborations, signed important new contracts and extensions plus achieved major advances in Evotec’s co-owned pipeline. Bayer achieved positive Phase II POC results with its P2X3 antagonist in chronic cough showing good efficacy and safety. Evotec’s academic BRIDGE portfolio has been expanded through LAB555 (after period-end), the first BRIDGE built in Israel. The partnership aims to expedite drug discovery and development by providing efficient translation of early stage Hebrew University research. Evotec continues to invest in promising companies with operational synergies. Evotec was participating in Aeovian’s series A financing after successfully delivering Aeovian’s first candidate drug, and formed its second spin-off Breakpoint Therapeutics, a virtual company focusing on the development of Evotec’s DNA damage response portfolio. Furthermore, Evotec invested in the NewCo Immunitas Therapeutics, a Boston-based monoclonal antibody company. Furthermore, Evotec expanded its position, being at the forefront of women’s health and anti-infective drug discovery. Evotec entered an alliance with Celmatix, a partnership to develop pre-clinical programmes in prevalent but underserved conditions affecting women’s reproductive health, including polycystic ovary syndrome, endometriosis, and infertility. In the field of anti-infectives, Evotec closed additional collaborations, e.g. kicking off “GNA Now”, a new initiative for the development of novel antibacterial agents. The increasing recognition of antibiotic resistance as growing threat to public healthcare systems enabled Evotec to receive grants for projects to further accelerate drug discovery efforts in this area of high medical need. After period-end, Evotec and Vifor Pharma launched a joint venture focused on the discovery and development of novel nephrology therapeutics. Both companies will hold a 50% share, with Vifor Pharma benefiting from access to an external R&D capability for the development of a Nephrology pipeline, while Evotec will gain access to a commercial partner for assets developed through the Joint Venture. The initial funding of € 25 m for pre-clinical development will be covered by Vifor Pharma, while Evotec contributes its PanHunter bioinformatics platform and high-quality data sets from thousands of human kidney disease patients to the Joint Venture.

INCREASE IN EBITDA GUIDANCE FOR FULL-YEAR 2019

Full-year 2019 guidance for revenue and unpartnered R&D costs confirmed; EBITDA guidance increased to approximately 15% (previously: >10%). Source: Evotec from November 12th 2019, www.evotec.com/en/invest/news--announcements/p/evotec-se-reports-first-nine-month-2019-results-and-corporate-updates-5864