Evotec SE reported financial results and corporate updates for the first half of 2019.
STRONG FINANCIAL PERFORMANCE
- Group revenues up 16% to € 207.1 m (H1 2018: € 178.9 m)
- Adjusted Group EBITDA up 51% to € 58.2 m (H1 2018: € 38.6 m)
- Unpartnered R&D expenses of € 18.7 m (H1 2018: € 10.0 m)
- Strong liquidity position of € 341.8 m (31 December 2018: € 149.4 m) following issue of € 250 m promissory note (Schuldschein) and final repayment of € 140 m acquisition bridge facility
STRONG OPERATIONAL PERFORMANCE
- Strong performance across all business lines and important milestone achievements; multiple new and extended drug discovery and development agreements with Pharma, biotech, and foundations
- Very important progress in co-owned clinical pipeline; P2x3 antagonist shows positive proof-of-concept results in Phase II Bayer trial in chronic cough (after period-end); very good progress in multiple other co-owned clinical, pre-clinical and discovery projects; termination of SGM-1019 programme by partner Second Genome and full impairment – all rights returned back to Evotec
- Good progress and multiple new partnership agreements in EVT Innovate, and good progress in building infectious diseases footprint
- Continued focus on expansion of iPSC platform: Acquisition of IP portfolio, iPSC-based products and experienced stem cell team from Ncardia AG (after period-end)
- New academic BRIDGE LAB10x and progress in existing BRIDGE initiatives; equity participation (Eternygen); formation of spin-off company Breakpoint Therapeutics GmbH focused on DNA damage response (after period-end)
IMPORTANT STRATEGIC BUSINESS EXPANSION
- Strategic expansion into biologics space through closing of the acquisition of Seattle-based Just.Bio – Evotec Biologics effective 02 July 2019
- Extension of Management Board contracts, election of new Supervisory Board
- Conversion of the Company into European Company (SE)
FINANCIAL GUIDANCE 2019 INCREASED
- Strong underlying business outlook and integration of Just.Bio – Evotec Biologics revenues support the increase of revenue and EBITDA guidance
- Group revenues from contracts with customers without revenues from recharges are expected to increase by approx. 15% (previously: approx. 10%) (2018: € 364.0 m)
- Adjusted Group EBITDA is expected to increase by >10% (previously: approx. 10%) (2018: € 92.0 m)
- Guidance on unpartnered R&D expenses remains unchanged at € 30-40 m (2018: € 22.9 m)
1. STRONG FINANCIAL PERFORMANCE
In H1 2019, Evotec’s Group revenues significantly increased by 16% to € 207.1 m (H1 2018: € 178.9 m). This increase was driven primarily by the very strong performance in the base business across all business lines as well as higher milestone and licence revenues, also supported by favourable FX rates. Total revenues from milestones, upfronts and licences significantly increased to € 19.1 m in comparison to the previous year (H1 2018: € 15.5 m) and included, amongst others, payments from Bayer, Boehringer Ingelheim, and Celgene.
The gross margin in the first half of 2019 amounted to 30.8% (H1 2018: 28.1%). This increase in margin compared to 2018 reflects significant milestone and licence contributions and good margins in the base business.
Evotec focused its unpartnered R&D expenses of € 18.7 m primarily on internal initiatives in the fields of metabolic diseases, oncology, and neurology as well as academic BRIDGE initiatives in the first half of 2019. Its partnered R&D expenses of € 10.6 m on its infectious disease portfolio were fully reimbursed under other operating income by its partner Sanofi. This split into unpartnered and partnered R&D expenses had not been applied in H1 2018, where total R&D expenses of € 10.0 m were recorded compared to € 29.3 m in the reporting period.
The Group’s selling, general and administrative (“SG&A”) expenses increased subproportionately by 10% to € 29.9 m (H1 2018: € 27.1 m) in the first half of 2019. This increase primarily reflects expenses of Evotec ID (Lyon) for six months as well as an increase in headcount in response to overall Company growth and transaction-related expenses.
In the first six months of 2019, impairments of intangible assets and goodwill of € 11.9 m were recorded (H1 2018: impairment of intangible assets of € 4.2 m). The SGM-1019 programme was fully impaired (€ 10.3 m) as the project was discontinued by Evotec’s partner Second Genome. This impairment of intangible assets in addition triggered a goodwill impairment of € 1.3 m of the cash-generating unit Evotec (US) Innovate. All rights of the underlying asset will be returned to Evotec.
The significant increase in the adjusted Group EBITDA in H1 2019 to € 58.2 m (H1 2018: € 38.6 m) resulted mainly from the very strong performance in the base business, considerably higher milestone and licence contributions, and effects from the first-time application of the new accounting standard IFRS 16 (+€ 6.4 m), yielding an adjusted EBITDA margin of 28.1% (H1 2018: 21.6%).
Evotec’s operating result increased to € 24.0 m in H1 2019 (H1 2018: € 21.7 m) being positively impacted by reimbursed R&D expenses from Sanofi and R&D tax credits. The Company’s net result in H1 2019 amounted to € 10.7 m (H1 2018: € 17.9 m) and was affected by the one-off effect of the impairments on intangible assets and goodwill as well as tax expenses in the first half of 2019.
Evotec ended H1 2019 with strong liquidity of € 341.8 m (31 December 2018: € 149.4 m), which was composed of cash and cash equivalents (€ 322.3 m) and investments (€ 19.5 m). In the first half of 2019, liquidity was primarily affected by the completion of the repayment of the € 140 m debt bridge facility drawn down in context of the acquisition of Aptuit in August 2017, the successful issue of the Company’s debut promissory note (Schuldschein) worth € 249.1 m, net, at very attractive interest rates of below 1.5%, as well as new bank loan agreements and the draw-down of another tranche of the European Investment Bank R&D loan.
2. STRONG OPERATIONAL PERFORMANCE – EVT EXECUTE & EVT INNOVATE
The EVT Execute segment continued its strong progress of previous quarters in the first half of 2019. Evotec signed multiple new (e.g. Astex, Exscientia, Yale) and extended (e.g. Dermira, Enterprise Therapeutics, Fibrocor, STORM Therapeutics) drug discovery and development agreements and recorded milestone achievements in the first half of 2019, such as in the chronic cough alliance with Bayer and the pain alliance with Boehringer Ingelheim, contributing to the strong performance of this segment. All business lines recorded a very strong performance in the first half of 2019 and efficiency and quality improvement initiatives continued to be undertaken at various sites.
EVT Innovate again recorded the acceleration of first-in-class science across various ventures in H1 2019. Existing co-owned clinical, pre-clinical and discovery pipeline projects continued to record strong progress in the first half of 2019 (e.g. Phase II start in Carrick alliance, initiation of toxicology testing with a lead compound in Evotec/Exscientia alliance). After period-end, Evotec was notified by its partner Bayer about positive Phase II proof-of-concept results with a P2X3 antagonist for the treatment of chronic cough. However, the SGM-1019 programme with Second Genome was terminated in H1 2019, triggering a full impairment of this programme and all rights of the underlying asset will be returned to Evotec. New agreements were signed in the first half of 2019, e.g. with Galapagos, Indivumed, and The Mark Foundation. In addition, Evotec continued to broaden its infectious disease footprint and entered into new alliances with GARDP, GNA NOW (after period-end), Helmholtz Centre for Infection Research, and The Bill & Melinda Gates Foundation.
Regarding its strong focus on its iPSC research, Evotec continued to invest in the further development of its iPSC platform to prepare internal projects for future partnering and achieved further important progress in its iPSC-based Celgene alliance. Furthermore, after period-end and effective 01 July 2019, Evotec acquired certain assets from the stem cell company Ncardia AG to advance its iPSC platform, including intellectual property relevant for iPSC-based phenotypic drug discovery, an existing cellular product business around iPSC-derived cells, as well as a strong team of 15 stem cell biology experts operating from laboratories at the BioCampus Cologne.
Furthermore, Evotec’s BRIDGE model gained even more momentum in H1 2019 with the initiation of the Digital BRIDGE LAB10x with Sensyne Health plc, the University of Oxford, Oxford University Innovation Ltd, and Oxford Sciences Innovation and further projects being selected in its existing BRIDGE initiative LAB150. Following its strategy of spinning-off promising assets into virtual biotech companies, Evotec spun off Breakpoint Therapeutics GmbH with a VC consortium (total volume of € 30 m in series A funding round) shortly after period-end. This new company focuses on the further development of Evotec’s DNA damage response portfolio, comprising discovery-stage assets and drug targets that promise broad therapeutic application in a variety of cancers. Evotec holds below 50% of the company. In the first half of 2019, Evotec also participated in a further financing round of its portfolio company Eternygen.
3. IMPORTANT STRATEGIC BUSINESS EXPANSION
Effective 02 July 2019 (after period-end), Evotec closed the transaction to acquire Just Biotherapeutics (Just.Bio – Evotec Biologics), which had been signed on 20 May 2019. The Seattle site is currently being integrated into Evotec’s global offering, strengthening Evotec’s multimodality approach to R&D by adding biologics to its current offering in small molecules and cell therapy.
EXTENSION OF MANAGEMENT BOARD CONTRACTS, ELECTION OF NEW SUPERVISORY BOARD
In the first half of 2019, the Supervisory Board extended the existing contracts with the Management Board members Dr Cord Dohrmann (CSO) for a term of five years and Enno Spillner (CFO) for a term of three years. Furthermore, Evotec’s shareholders at the Annual General Meeting 2019 elected a new Supervisory Board for a term of five years. The existing members Prof. Dr Wolfgang Plischke (Chairman), Prof. Dr Iris Löw-Friedrich (Vice Chairman), Dr Michael Shalmi and Dr Elaine Sullivan were re-elected. Dr Mario Polywka, Evotec’s COO until 31 December 2018, and Roland Sackers, CFO and Managing Director of QIAGEN N.V., were elected as new members of the Supervisory Board.
CONVERSION OF THE COMPANY INTO EUROPEAN COMPANY (SE)
Effective 29 March 2019, Evotec completed its conversion into a company under European law (Societas Europaea, “SE”) with its registration in the commercial register.
5. FINANCIAL GUIDANCE 2019 INCREASED
The strong underlying business outlook and the integration of Just.Bio – Evotec Biologics revenues support the increase of revenue and EBITDA guidance.