Evotec SE — Call Transcript 2015

Sep 1, 2015

Evotec AG Transcript of the Conference Call First half-year 2015 results, 12 August 2015 – 2.00 p.m. CEST

Speakers: Dr Werner Lanthaler (CEO), Colin Bond (CFO), Dr Mario Polywka (COO), Dr Cord Dohrmann (CSO)

Operator

Ladies and gentlemen, welcome to the conference call of Evotec AG. At our customer's request the conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation there will be an opportunity to ask questions. If any participants have difficulties hearing the conference, please press star key followed by 0 on your telephone for operator assistance. May I now hand you over to Dr Lanthaler who will lead you through this conference? Please go ahead, sir.

Werner Lanthaler

Welcome. My name is Werner Lanthaler. Welcome to Evotec's call for the first half year of 2015. I'm here with my management team Colin Bond, our CFO; Mario Polywka, our COO; and Cord Dohrmann, our CSO, and we will together go through this presentation that is available on the internet for you.

If you go to page 4 of our presentation, it's a great pleasure for me to report back to you that the state of the company is strong. Actually the state of the company is very strong. This applies to both of our segments, EVT Execute and to EVT Innovate. Just to give you a few highlights, it is fair to say that we see an excellent performance of our EVT Execute services and we see a very, very accelerated clear strategy for our EVT Innovate, Cure X and Target X programmes.

Just to give you a few examples of the first half, we are very happy that we could show in EVT Execute new alliances with biotech and Pharma companies, we see milestones coming in, for example, out of our Bayer collaboration, of course we will highlight also through this call the initiated collaboration with Sanofi on multiple fronts, and we see also – which is key for us – that the idea of building more capacity for a global service company with our build up in France and also our increasing build up in the US shows its initial fruits already.

EVT Innovate had to report a failure of a phase IIb missed end point with Roche, which you have seen in Alzheimer's disease, but on the other hand, our portfolio works, because you have also seen in the last few weeks that it was possible to rollover TargetImmuniT, which is a partnership together with Apeiron Biologics, to Sanofi, and a highly innovative diabetes project is also partnered in the field out of EVT Innovate.

When it comes to our existing about 70 options in pre-clinical discovery and clinical stage, you can see that there is clear progress of the portfolio and we are also adding novel academic alliances into this, for example, the Gladstone Institutes. On the corporate level, we see extended industrial reach of our company also by adding new talent to our Supervisory Board and we are very happy that Dr Elaine Sullivan, former Eli Lilly, has joined Evotec.

So taking this into numbers on page 5, and Colin Bond will go into this in more detail, I think there are not many companies globally out there who can report more than 37% growth of the first half year. And, more importantly, who can show that the acceleration of the EVT Innovate strategy paired with the wonderful performing EVT Execute business really is delivering innovation on a version of positive EBITDA through the first half year. We do this with the strongest cash position that the Company has ever had, with more than € 140 m at this stage in our hands, where we also have the freedom to go

into projects that have a long-term view. For example, in EVT Innovate we are touching projects that are not projects that immediately have to show success but that are truly disruptive technologies, as Cord will tell you in a few minutes. Our guidance 2015 is comfortably confirmed at this stage and Colin will also go into the underlying numbers for this.

On this basis, before I hand over to my colleagues, on page 6 let me just highlight that our business model works and we have achieved through our growth a clear number 1 position for both segments. Our EVT Execute services that are the highest quality and most capital efficient, drug discovery, outsourcing tools available for Pharma and biotech, and we are the bridge from academia to Pharma, which EVT Innovate increasingly shows.

At this point let me hand over to Mario who will give you a deeper insight into EVT Execute.

Mario Polywka

Thank you, Werner, and good afternoon to all of you. Just to remind you, as Werner said, EVT Execute is the business segment which delivers on programmes and projects which are based on our partners' intellectual property. But again we should remind you all that the overall platform, which is the worldleading drug discovery platform in our market, supports both EVT Execute and EVT Innovate.

This platform is now complete through the acquisition and integration of the Toulouse site as shown on page 8, and also the recent completion of the first phase of our biology facility in Princeton, which is now serving a major US Pharma partner. So in total now Evotec is a truly global company with almost 1,000 employees.

Page 9 shows the key highlights. So a very strong business, again as Werner has alluded to. The first half of just under € 60 m of revenue, up nearly 50% compared to the prior year, and with a very healthy EBITDA of 17%, or just under € 10 m.

We have seen a number of new alliances initiated. Of course we don't publish everything that comes our way during the half but key alliances were with Facio to identify treatments for FSHD, with the Gladstone Institutes, with Spero, C4X and Padlock. We also see a significant come back from the Asian market, Japan especially, which manifests itself in an increased number of screening projects compared to previous years. Finally, ongoing programmes with companies such as Navitor, Active Biotech and the NIH continue to provide a strong validation of the excellent value and success we bring to our partners.

On top of this remember our guidance takes you, revenue-wise, to revenues excluding milestones and licences, but we were pleased to report another milestone within our endometriosis collaboration with Bayer, as well as a smaller milestone with an undisclosed partner. We continue to be confident in the strong performance of the EVT Execute segment through the rest of 2015. We anticipate communicating further progress in our ongoing partnerships, as well as some new and exciting ones under discussion, over the next three to six months. I will now hand over to Cord to elaborate on the EVT Innovate segment.

Cord Dohrmann

Good afternoon, everybody. My name is Cord Dohrmann and it's my pleasure to give you an update on EVT Innovate. On page 12 you can see our very broad and deep pipeline of EVT Innovate product opportunities. Most of these projects are very much on track and continue to make progress.

We already reported a while ago that EVT302, a product that is in partnership with Roche, has missed its primary end point in the Phase IIb trial in Alzheimer's disease recently and we cannot at this point comment further on this programme. However, despite this setback, we continue to grow our pipeline

of partner product opportunities. Over the last few days we have announced two discovery stage deals that are based on our EVT Innovate strategy and that we can now add to our partner product profile.

On page 12 you can see that these two deals fall into two key areas of Evotec's indications. First of all, the TargetImmuniT deal is a cancer immunotherapy programme in the oncology field where we are focusing on small molecule-based cancer immunotherapy. The second deal is in diabetes based on TargetBCD, which stands for beta cell differentiation. This particular project is based on accessing an unlimited supply of human beta cells to develop a cell-based therapy in diabetes but also to do functional things based on human beta cells.

Today I would like to give you a little bit more background on these two recent deals in the areas of diabetes and oncology. I will start with the TargetImmuniT programme. It was only in 2013 that cancer immunotherapy was selected as the breakthrough of the year in the Pharma industry. This was driven primarily by clinical results achieved by monoclonal antibodies that target checkpoint inhibitors such as CTLA-4 and PD-1. At Evotec we decided to start our first oncology R&D project in immunooncology as early as 2012, 2013 together with Apeiron Biologics. We termed this project TargetImmuniT and within this project rather than focusing on antibodies targeting PD-1 or other checkpoint targets, we took a very complimentary approach, focusing in particular on the direct activation of T-cells and mature accrual cells by a small molecule. We are proud that we could convince our colleagues at Sanofi to join this effort, adding yet another programme to our more extensive portfolio of cancer projects that we are already pursuing together with Sanofi. TargetImmuniT will involve more than 20 scientists at Evotec and Apeiron supported by Sanofi and we are eligible for significant pre-clinical, clinical and regulatory milestones, as well as royalties upon commercialisation.

On page 15 you can see the cancer immunotherapy market. The potential market for cancer for immunotherapies is of course enormous. It is estimated to grow to roughly € 35 bn in 2023. Currently, later stage pipelines are still dominated by antibodies. However, this will most likely change, as we have seen in other areas, and they will be more focused on small molecule projects in the future.

On page 16, we can see how TargetImmuniT fits into the cancer immunotherapy field. The cancer immunotherapy field is really about targeting the immune system rather than targeting the tumour cells directly. There have been great advances with checkpoint inhibitors but also CAR T-cells approaches and to a lesser extent cell-based vaccination approaches. Our approach, once again, is highly complementary to these approaches in that we are directly targeting the activation of the immune system and use specifically T-cells and killer cells by a small molecule. Our approach clearly has first-in-class potential as a stand-alone treatment but also in combination with checkpoint inhibitors from most other approaches in the cancer immunotherapy field. In summary, we are very excited about this opportunity to develop first-in-class approaches in immuno-oncology field, together with our partners, Apeiron and Sanofi, and we are optimistic that there will be more to come.

Now, I would like to turn to our second partnership, on page 17, based on an internal project at Evotec, which is called TargetBCD, beta cell differentiation, in diabetes. You may know that Evotec has a long history in diabetes and beta cells with multiple partnerships. This partnership really stands out in a number of ways. TargetBCD is a programme that was initially initiated at Evotec in 2014 based on our experience in the beta cell regeneration field and key publication of progress in the field that demonstrated that it is possible to turn human iPS cells into mature beta cells in culture. This discovery, which really came originally from Doug Melton's laboratory at Harvard, opened up two potential product opportunities. First of all, a beta cell based therapy and, second of all, drug screening on beta cell protectors or regenerative drugs based on human beta cells.

Last week we announced an agreement on TargetBCD with Sanofi, which is one of the three leading diabetes companies in the world. The agreement comes as an upfront payment of € 3 m, potential pre-clinical, clinical and regulatory milestones of up to € 300 m as well as significant royalties upon commercialisation of either a cell based therapy or a beta cell protective or regenerative drug.

The market opportunity is exemplified on page 18. It is an enormous market opportunity as the prevalence of the disease keeps growing at alarming rates. Currently we have about 400 million diabetic patients worldwide and this number is expected to grow to about 600 million by 2035. Beta cell replacement therapy and/or beta cell protective or regenerative drugs offer disease-modifying product opportunities and therefore go to the heart of this market.

On page 19 you can see that to perform these kind of tests have been very challenging up to now because of limited access to human beta cell it was extremely difficult. We see ability now to derive mature human beta cells from stem cells based essentially on an unlimited supply of human beta cells that can be used for cell replacement therapy and for drug screening. We are especially excited about the development of a cell replacement therapy as here clinical proof of concept has been established under the so-called Edmonton Protocol. Through this protocol patients have been treated, already successfully, with human islets derived from deceased organ donors.

Beyond Evotec and Sanofi there are a number of additional players in this field, such as Novocell (Viacyte), BetaLogics and Sorrento Therapeutics, with ViaCyte currently in the lead with the most advanced produced in the Phase I, II study. We, as well as others, believe that there is significant room for improvement on the ViaCyte product in terms of cells that can be used but also in terms of the encapsulation device which is necessary to protect transplanted cells from immune destruction.

In conclusion, EVT Innovate strategy continues to deliver exciting collaborations and product opportunities which are first-in-class, potentially disease-modifying and carry significant upside for Evotec. On page 20, you can see our current portfolio of EVT Innovate projects. We continue to build our portfolio here and be excited about many more ongoing internal R&D projects. We are also very optimistic that our EVT Innovate strategy will continue to deliver these types of partnerships in the short and medium term and are looking forward to many of them. With this I would like to thank you very much and will hand over to Colin Bond.

Colin Bond

Good afternoon, everyone. On page 23 you see the P&L for the group for the first six months of 2015. Revenues increased by 37% compared to the prior-year period to € 55 m. This increase was due to the Sanofi collaboration, strong growth in the base business, milestone contributions and favourable FX effects. The gross margin for the first six months of 2015 of 28.7% was slightly reduced compared to the prior year period of 29.4%. This was primarily due to one-time start-up costs in respect of the new facility in Princeton.

SG&A costs increased by 39% compared to the prior year period to € 12.4 m. This was largely due to one-time transaction and compensation costs related to the collaboration with Sanofi of € 1.8 m and ongoing SG&A costs for Evotec (France) of € 800,000.

A one-time bargain purchase of € 18.5 m was recorded in respect of the acquisition of Evotec (France). This represents the difference between the amount paid for Evotec (France) and the next book value of the assets acquired at the closing. This amount was eliminated in the calculation of EDITDA, which for the first six months increased to € 800,000 compared to € 600,000 in the prior year period.

At this stage I would like to just highlight an error in the report that's published on our website. On page 6 we say that the revenues, excluding milestones, upfronts and licences, increased by 3% to € 41.1 m compared to € 39.9 m in the prior year. This is actually an error, these were the total numbers for the business and the correct numbers are € 36.7 m for the first half of 2015 compared to € 34.3 m in the prior-year period, which is an increase actually of 7%. We will change the report on the website immediately after this call.

Slide 24 shows the P&L for the first six months according to the EVT Execute and EVT Innovate segments. The EVT Execute segment reported strong revenue growth for the first six months of 2015

compared to the prior-year period. In addition the gross margin was stable at 23.8%, despite the costs related to the aforementioned Princeton start-up and the relatively low level of milestones in the first half of 2015. As a result the EVT Execute segment reported a strong positive EBITDA of € 9.8 m or 16.6% as a percentage of revenue. Meanwhile, in accordance with our strategy, the EVT Innovate segment reported a high gross margin of 45.7% as a result of upfront payments received in connection with a key collaboration. In addition there was a high and increased level of R&D investment in Cure X and Target X initiatives.

Page 25 shows the P&L of the Group for Q2 2015. Revenues increased by 49% compared to the prioryear period at € 33.4 m. However, EBITDA decreased from € 1.9 m in Q2 2014 to € 1.1 m in Q2 2015, as a result of the one-time transaction and compensation costs related to the collaboration with Sanofi.

Slide 26, the left-hand box shows the three-year trend in revenues. As previously mentioned overall revenues increased by 37% for the first six months of 2015 compared to the same period of the prior year. The right-hand box shows the three-year trending gross margin. A slight reduction in gross margin to 22.6%t in the first six months of 2015 compared to 23.2% is, of course, due to the one time start-up costs for Princeton that I've previously addressed.

Slide 27 highlights how the strategies of the EVT Execute and EVT Innovate segments are reflected in the key figures for the first six months of 2015. The EVT Execute segment reports strong revenue growth, a stable gross margin, a low level of R&D expenditure and a relatively high and improving EBITDA as a percentage of sales. The EVT Innovate segment reports relatively low revenues but with a high gross margin percentage and an increased level of investment in Cure X and Target X initiatives.

Slide 28 is a summary of that guidance which is unchanged and expected year-over-year growth in base revenues, excluding milestones, upfronts and licences, was increased from +20 to +35% on 12 May 2015. Adjusted EBITDA will be positive in 2015 and liquidity is expected to be well excess of € 100 m at the end of 2015. R&D investments in 2015 will be in the range of € 15 to € 20 m and capex will be up to € 10 m. At this point, I'd like to hand back to Werner who will give an update on the outlook for the remainder of the year.

Werner Lanthaler

Thank you very much. Let me round up with a strong outlook for the second half of 2015 and what we think is still to come this year. We see in our EVT Execute business a clear trend towards a lot of larger deals that are lined up for later 2015, beginning of 2016 where our platform makes a difference and shows that efficiency can be reached by working together with Evotec. From our EVT Innovate segment, we see the need of the bridge between academia and Pharma, and Evotec playing a key role in translating breakthrough science into pharmaceutical grade projects. On that note, I think for 2016 you will still hear a lot of us and we also can at that this stage already say that 2016 is a great year to come. Let me thank you, let me thank my team, let me thank the scientists that are working for Evotec and our partners that work with Evotec. And let me thank you also on the telephone call because the reason that we are here as a public company is also due to the fact that you promote what we are doing out there in the capital markets. Thank you so much. We are of course open now for all questions and we look forward to questions if you push the buttons on your key pad.

Operator

We will now begin our question and answer session. If you have some questions for our speakers, please dial 01 on your telephone key pad now to enter the queue. Once your name has been announced you can ask the question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift

the handset before making your selection. One moment please for the first question. The first question is from Volker Braun of Bankhaus Lampe. Your line is now open.

Volker Braun

Yes, hello, thanks for taking my question. Two if I may? First is related to the revenues, related to milestones and upfronts, could you provide us with a split by segment, so split by EVT Execute and EVT Innovate. Secondly, with regards to the two new alliances with Sanofi and oncology and diabetes, how far away are we from a potential entrance of the first candidate in two clinical trials in either of the two collaborations?

Werner Lanthaler

First question Colin will give an answer, the second question I will answer.

Colin Bond

Yes. The first question, Volker, regarding the split in base revenues, excluding milestones, upfronts and licences. We don't give that according to the two segments, we just do it for the total business.

Volker Braun

What a pity.

Werner Lanthaler

And on the stage of the collaborations with Sanofi and how soon we can expect clinical projects here, let me maybe initiate the answer and then hand over to Cord. I think both of the collaborations are early stage but really disruptive technologies, and from a ranking at this stage I would say the earliest potential clinical trial could be seen in cell therapy, in diabetes and TargetImmuniT on small molecules for cancer immunotherapy and also other small molecule therapies in diabetes would take a while. But having said that no one is further advanced than Evotec and our partners in these breakthrough technologies at this stage. I believe Cord has nothing to add.

Volker Braun

Okay. Thank you very much.

Werner Lanthaler

Thank you.

Operator

The next question is from Michael Higgins of Roth Capital. Your line is now open.

Michael Higgins

Thank you, Operator. Congratulations, guys, on an excellent quarter. You're clicking in all cylinders. A bit surprised to see the extent investors were so hopeful over EVT302's phase IIb study. You've had a lot going on and I'll ask on a few topics. First off, the integration of the Sanofi employees that were not initially into the EVT Execute or EVT Innovate programmes, how has the integration of those employees been coming along?

Mario Polywka

Hi, Michael, it's Mario here. Well, it's gone tremendously well, in fact probably better than we would have anticipated. So at the moment we have third-party business, ex of Sanofi in the Toulouse side, we have the significant MSA service contract with Sanofi, which is much larger than we originally anticipated and, of course, we have a significant amount of oncology EVT Innovate work that is being progressed there. So at the moment it's fair to say that almost all employees are very actively engaged in either third-party work or R&D work.

Michael Higgins

Okay, I agree.

Mario Polywka

I would also say that we have been recruiting as well over the last six weeks to two months, to start complementing and augmenting the skills set on the site. So it was a very positive start in the first three months in Toulouse.

Michael Higgins

Okay, thanks. You know, I'm still seeing the EVT Execute's gains match very well with EVT Innovate's losses. Going forward I'm getting a sense that you may be deploying your capital, that you've been taking a look or will be taking a look further at additional strategic opportunities. In what way might you leverage your model as we go forward with these strategic acquisitions?

Werner Lanthaler

I mean, let me first comment probably by saying it's a coincidence that this numbers at this stage match because we are not holding back any innovation idea or anything where we, at this stage, would think that we can create significant value for the shareholder. Having said that, the idea of fantastic partners going together with us in massive resource pools on big ideas is something which is sometimes necessary to win in these ideas. So let's take, for example, our beta cell differentiation project. Winning this idea especially means putting know-how, competence, clinical, regulatory and the whole supply chain expertise and know how behind such a project, which brings you very fast into dimensions of between 20 and 40, and sometimes even larger numbers, of scientists that have to be put behind these projects. Of course, here, working together with companies makes total sense, not only from a cost perspective but especially from a competence perspective because these are then true pharma projects that are built to go for product.

Let me highlight here another partnership which we really like a lot, together with Bayer or another partnership together with Johnson and Johnson, or a partnership that we have with Boehringer Ingelheim ongoing or with UCB. These are product driven partnerships. That's the key of the message and not just where we are optimising cost. Having said that, we think the recent months have shown

to us that EVT Innovate works, so the business model works and that we can, by using reliable resources on our platform, more capital efficient than anyone else, roll over projects into the Pharma industry. And that's something where we will continue -- we might continue in a way that we will seek, at a later stage, value points before partnering and this will be driven by who is the most efficient party to bring later stage value points forward and also here, note, on who is the cost bearer of this value point.

But this depends on data that we will generate on this project and here, I think, we can allow ourselves the right strategy for every project by basically looking at data and going to the next data point either alone or with partners. That will be, of course, the strategy going forward. We are very happy to have a strong cash position at this stage because it gives us flexibility to be even more focused but create more shareholder value.

Michael Higgins

Okay, makes sense to me, thanks. And then just one follow-up on the Alzheimer's venture. What kind of economics are involved there with this venture, including your investments, potential returns and secured returns from this?

Werner Lanthaler

With Alzheimer venture, you mean our partnership with Johnson or are you meaning the failed phase IIb with Roche?

Michael Higgins

With Gladstone.

Werner Lanthaler

Oh, with Gladstone, sorry. With Gladstone at this stage I would say it's an early-stage partnership where Gladstone is accessing our platform and we have multiple options for a joint business plan can arise but it would be too early to comment on that.

Michael Higgins

Okay, very good.

Werner Lanthaler

But I think what is just endorsement enough here is to have another leader in the field of novel Alzheimer research joining forces with Evotec, which is coming to the same source, so to say, on a platform basis like Johnson & Johnson innovation, like Roche and like other collaborators who are accessing this platform.

Michael Higgins

Okay, very good. Thanks for the colourful feedback. I'll jump back in the queue. Thanks, guys.

Werner Lanthaler

Pleasure.

Operator

As a reminder, if you would like to ask a question, please press 01. The next question is from Victoria English of MedNous.

Victoria English

Good morning, good afternoon, I don't know which it is. Good afternoon. Three questions. The first concerns the revenue forecast or the revenue performance, I mean, in the first half. What percentage of the 37% increase is accounted for by favourable exchange rates? That is the first question. The second question concerns the € 10 m that you are forecasting to spend on capacity development, capacity increases, where will that take place? And the third question concerns Alzheimer's and whether you have a view – this is a speculative question really – on what approach we should be taking in Alzheimer's. Should we be asking ourselves if the targets that we are currently looking at are not simply good enough or not – or should we be looking at diagnostics?

Werner Lanthaler

Thank you so much. Question 1 and 2 go to Colin, question 3 goes to Cord.

Colin Bond

Hello, Victoria, it's Colin here. As I said early on in my part of the presentation, the corrected increase on the base revenues was 7%. Now, obviously that includes a currency impact but what it doesn't include is what Mario referred to, which is all the MSA work that we doing for Sanofi in Toulouse, which is really part of our core business. So eliminating the currency impact but bringing in the additional work that we're doing for Sanofi, we believe our growth in the core business is more like 8- 9%.

Victoria English

Thank you.

Colin Bond

Then, secondly, the € 10 m capex spending, broadly that's being spent in accordance to the relative size of the different sites. There's no specific site in which it's being concentrated. It's really across the board according to the need and the size of the site.

Victoria English

Thank you.

Cord Dohrmann

Victoria, this is Cord speaking. Your question regards to Alzheimer's disease and what's the right approach to Alzheimer's disease. I think it's fair to say that Alzheimer's disease is a very complex disease and under Alzheimer's disease it's probably clear that it lumps together many different mechanisms that are drivers of the disease. So I think we need to drive the progress in Alzheimer's disease from many different fronts. First of all, I think it is very important to be able to stratify the disease more clearly about the mechanisms that are contributing and based on this identify what are the targets that can really make a difference on these mechanisms to ameliorate the progress of the disease. In order to be able to really judge progression of the disease, so far we are relying on very soft end points in the clinic and here I think it is important to have a more stringent biomarker strategy which once again goes hand in hand with the mechanisms and targets that should be pursued. Then, finally, it's really about also thinking about what patients are the right patient population to include in certain studies. Is it really the earlier stage patients that we should have a closer look at or is it the later stage? And this once again may differ depending on the underlying mechanisms and targets. So I would say we are actually making progress by learning more and more about the disease, how it is put together, what are the key drivers and how to generate read-outs that go beyond behavioural assessments, etc. So I think we at Evotec are very much on the forefront still in regards to novel mechanisms, novel targets, and this is what we are banking on and hope to hear compliments the portfolio of targets that are clearly driven by the Pharma industry at large.

Victoria English

Thank you very much.

Operator

The next questions from Heinz Müller of DZ Bank. Your line is now open.

Heinz Müller

Hello, Heinz Müller speaking. Good afternoon, I have two questions. The first question is with regard to the expansion for R&D in the segment EVT Innovate which increased by roughly 50% from € 7 m to € 10.4 m, so is this a one-time effect or will you maintain this growth rate? The second question is regarding the P&L in the second quarter. You show very high growth rates regarding the different cost types like perhaps costs of goods sold, which increased by roughly 59%. So if I adjust the figures by the one-time effect of the Sanofi purchase, your operational EBIT is negative minus € 2.2 m versus minus € 83,000 in the last year. So was it the Sanofi acquisition this negative effect or am I wrong? Thanks.

Werner Lanthaler

The first question goes to Cord, second question goes to Colin.

Cord Dohrmann

With regards to R&D intensity, this is a difficult question to answer because really the R&D intensity is a function of opportunity as we see it come along. We are currently running a fairly large portfolio of EVT Innovate projects. When we roll these projects over into Pharma partnerships this leads usually to quite a strong reduction in the R&D budget, unless we keep fitting them into future opportunities. As we have been in the past very successful in driving early-stage partnerships, we are now looking for more and more opportunities that would allow us to bring projects further along in the value chain

before partnering and this may require additional investment. So ultimately I would say from our current outlook, we would probably like to maintain the level of R&D intensity, but that may increase if we do see opportunities.

Werner Lanthaler

And it's fair to say it could also decrease given the speed of how we roll over projects into the industry at this stage.

Heinz Müller

Okay.

Colin Bond

Yes, and the second question regarding the underlying EBITDA, of course it's something that we don't publish but we focus on very much internally to look at the one-offs that occurred each year. And last year we had the benefit of the fact that the collaboration that we had with the CureBeta was terminated and we recognised all the deferred revenues in the first half of the year that gave us a significant positive. In addition our collaboration with 4-Antibody was terminated and we received a € 1 m payment. So those were two very significant favourables we had in the first half of last year. In the first half of this year, we've had the one-time costs relating to the Sanofi collaboration transaction and compensation costs of € 2 m, which are negative. In addition we had the start-up of Princeton that I mentioned during my part of the presentation. Adjusting for all those effects, you know, there was a slight improvement in the underlying margin in the first half of 2015 compared to 2014.

Heinz Müller

Okay, thank you.

Operator

There are no further questions. I hand back to the speakers.

Werner Lanthaler

We want to thank you again for following Evotec. We will now round up this conference call by highlighting again that we think and can prove that our business model works and we are very happy that we were able to report a strong first half of EVT Execute and then very strong first half of EVT Innovate to you. Thank you so much.

Operator

Ladies and gentlemen, thank you for your attendance. This call has concluded; you may now disconnect.