Evotec SE — Interim / Quarterly Report 2015

Aug 12, 2015

EVT Execute & EVT Innovate – Innovation Efficiency

Evotec AG, H1 2015 Interim Report, 12 August 2015

Forward-looking statements

Information set forth in this presentation contains forward-looking statements, which involve a number of risks and uncertainties. The forward-looking statements contained herein represent the judgement of Evotec as of the date of this presentation. Such forward-looking statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from those contemplated in these forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

Welcome

The Management Team

Agenda

Highlights H1 2015

EVT Execute

EVT Innovate

Financial performance and outlook

Excellent performance of EVT Execute services, Cure X/Target X strategy accelerated

First six months of 2015 – State of play

EVT Execute

• New alliances and extensions with biotech and Pharma
• Milestones in endometriosis collaboration with Bayer and smaller milestones with Pharma
• Sanofi collaboration for multiple services up and running
• Integration of site in Toulouse (France) on track
• Opening of new research site in Princeton (USA)

EVT Innovate

• Phase IIb of Sembragiline with Roche missed primary endpoint
• TargetImmuniT alliance in immuno-oncology partnered with Sanofi and Apeiron Biologics
• TargetBCD in diabetes partnered with Sanofi
• Good progress within other clinical and pre-clinical partnerships
• Gladstone Institute (USA) extends academic network

Corporate

Dr Elaine Sullivan (former Eli Lilly) new member of Supervisory Board

Substantial growth, accelerated EVT Innovate strategy

Financial highlights H1 2015 – Guidance 20151)

Financial highlights

• Group revenues +37% to € 55.0 m (2014: € 40.1 m)
• EVT Execute revenues up 49%
• EVT Innovate increased R&D by 48%
• Group EBITDA2),3) positive at € 0.8 m
• Strong EBITDA of € 9.8 m for EVT Execute
• Strongest liquidity in Company history at € 140.9 m

Guidance 20151)

• More than 35% revenue growth excluding milestones, upfronts and licences
• Adjusted EBITDA positive3)
• R&D expenses between € 15 m and € 20 m
• Capex investments up to € 10 m
• Liquidity is expected to be well in excess of € 100 m at the end of 20154)

¹⁾ As a result of the Sanofi collaboration, Evotec raised its revenue guidance that was published in Evotec's Annual Report 2014 two times, firstly on 24 March 2015 and secondly on 12 May 2015. All elements of the financial guidance 2015 as of 12 May 2015 are confirmed

²⁾ 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

³⁾ Before contingent considerations and excluding impairments on other intangible and tangible assets and goodwill as well as the total non-operating result

⁴⁾ Excluding any potential cash outflow for M&A or similar transactions

The business model works – No. 1 in drug discovery

EVT Execute & EVT Innovate

Agenda

Highlights H1 2015

EVT Execute

EVT Innovate

Financial performance and outlook

Expansion in EU and USA

Evotec's global footprint incl. approx. 1,000 employees

Strong base business – EBITDA of € 9.8 m

EVT Execute – Highlights H1 2015

• New alliances initiated and cooperations extended (e.g. Facio Therapies, C4X Discovery, Biogen, Padlock, Spero, UCB...)
• Milestone achievements in existing alliances with Bayer and other Pharma
• Drug discovery services as part of Sanofi alliance up and running
• "Come back" and expansion of Asian business through various new alliances with Japanese Pharma partners
• Strong growth in USA with Pharma and biotech

Posititve outlook

EVT Execute strategy: Expected key milestones 2015

New long-term deals with large and mid-sized Pharma, foundations and biotech

New integrated technology/disease alliances

Milestones from existing alliances

Agenda

Highlights H1 2015

EVT Execute

EVT Innovate

Financial performance and outlook

Despite missed Phase IIb endpoint with Roche, strong portfolio of > 70 product opportunities

Partnership portfolio

	Molecule	Indication	Partner	Discovery	Pre-clinical	Phase I	Phase II	Phase III
	EVT3021)	Alzheimer's disease
	EVT201	Insomnia
al c ni Cli	Somatoprim	Acromegaly
	EVT100	CNS diseases
	EVT401	Inflammation
	ND2)	Oncology
	ND2)	Oncology
al c ni cli	ND2)	Pain
	ND2)	Oncology
	Various	Endometriosis
	EVT770	Diabetes – type 2/1
e-	ND2)	Pain
Pr	ND2)	Inflammation
	Various	Oncology
	Various	Inflammation
	Various	Diabetes – type 2/1
	Various	Diabetes – type 2/1
	Various	Kidney disease
y er	Various	Oncology
v o	Various	Alzheimer's disease
c s	Various	Oncology
Di	Various	CNS/MS	NEU2
	Various	Diabetes	>5 further programmes
	Various	Neurology	>5 further programmes
	Various	Oncology	>10 further programmes
	Various	Pain & Inflammation	>5 further programmes

1) Sembragiline/RO4602522; Missed Phase IIb endpoint

2) Not disclosed

Two significant new alliances

EVT Innovate – Fields of core expertise

TargetImmuniT: Joining forces for novel small molecule-based cancer immunotherapies

Strategic partnership to support broad development track

Background

Based on partnership between Apeiron and Evotec initiated in 2012/13

Mission

Development of small molecule-based cancer immunotherapies for next-generation immunooncological therapies to complement current offerings of checkpoint inhibitors

Agreement with Sanofi

• Multi-year research payments for Evotec and Apeiron
• Significant pre-clinical, clinical and regulatory milestones exceeding € 200 m
• Significant royalties upon commercialisation
• Integrated collaboration involving more than 20 scientists between Evotec, Sanofi and Apeiron

The use of the immune system to fight cancer

The market opportunity – Cancer immunotherapy

• Immuno-oncology will become a new pillar of cancer therapy Market potential estimated to be \$ 35 bn in 2023
• Current cancer immunotherapies and late-stage pipelines are dominated by biologics
• Monoclonal antibodies are considered 'first wave' of targeted therapies
• Cell therapies on the rise (e.g. CAR T-cells)
• Small molecules will follow

Small molecules complementing cancer immunotherapies

Apeiron Biologics, Evotec and Sanofi – First-in-class approach

Cancer immunotherapy – Restoring the immune system's ability to eliminate cancer cells

TargetBCD: Restoring beta cell function via replacement therapy and function restoring drugs

Strategic collaboration between Sanofi and Evotec in diabetes

Background

• Evotec has long-term expertise in beta cell biology and regenerative medicine – TargetBCD was initiated in 2014
• Sanofi is one of Top 3 global diabetes players

Mission

Development of beta cell replacement therapy and drug discovery based on functional human beta cells derived from stem cells

Agreement with Sanofi

• Upfront fee of € 3 m
• Potential pre-clinical, clinical, regulatory and commercial milestones exceeding € 300 m
• Significant royalties upon commercialisation
• Integrated collaboration resources involving more than 15 scientists at Evotec and Sanofi

Disease-modifying therapies are urgently needed

The market opportunity – Diabetes

• Prevalence of diabetes is increasing at alarming rates
• Diabetes is driven by loss in beta cell function
• Current insulin market exceeds >\$ 22 bn in 2014
• Human beta cells offer disease-modifying product opportunities
• Beta cell replacement therapy
• Beta cell protective/ regenerative drugs

Addressing the diabetes pandemic by restoring beta cell function

Human stem cell derived beta cells for transplantation

Human beta cells from stem cells

• Edmonton protocol provides clinical POC for beta cell therapy
• Transplantation of beta cells can effectively restore blood glucose control
• Clinical trial with embryonic stem cell derived beta cell therapy has been initiated
• Viacyte: VC-01TM in Phase I/II
• Key issues
• Immature beta cells with limited functionality
• Requires large impractical device
• New differentiation protocols create mature beta cells
• Fewer cells need to be transplanted
• Encapsulation becomes more manageable

EVT Innovate works

"The Bridge"

2011	2012	2013	2014	2015
CureBeta (Harvard Stem Cell Institute)	CureNephron (Harvard, BWH, USC, AstraZeneca) TargetASIC (BMBF/undisclosed Pharma partner) Somatoprim (Cortendo) TargetPicV (Haplogen)	TargetImmuniT (Apeiron/Sanofi) TargetDBR (Yale) TargetSP (Internal) TargetFX (Internal) TargetPGB (Harvard) TargetKDM (Dana-Farber, Belfer) CureMN (Harvard) TargetEEM (Harvard) TargetAD (NBB/J&J)	TargetBCD (Sanofi) TargetSX (undisclosed) TargetDR (Internal) TargetATD (Internal) TargetKX (undisclosed) TargetCytokine (DRFZ) Fraunhofer Initiative	French Academic Bridge Ohio State University New York University Gladstone Institutes …

First-in-class discovery to build sustainable pipeline

EVT Innovate strategy: Expected key milestones 2015

Phase IIb data with Roche in AD alliance

Strong progress of clinical pipeline within partnerships

Expansion of network of top-class academic alliances

Partnering of Cure X/Target X initiatives

Agenda

Highlights H1 2015

EVT Execute

EVT Innovate

Financial performance and outlook

Group revenues +37%, positive EBITDA, one-time effect leads to positive net income

Key financials H1 2015: Condensed income statement (IFRS)

in € m

	H1 2014	H1 2015	% vs. 2014
Revenues	40.1	55.0	37%
Gross margin	29.4%	28.7%	–
 R&D expenses	(6.3)	(8.5)	35%
 SG&A expenses	(8.9)	(12.4)	39%
 Amortisation of intangible assets	(1.4)	(1.5)	8%
 Impairment of intangible assets	–	(0.1)	–
 Income from bargain purchase	0.2	18.5	–
 Other op. income (expenses), net	1.0	1.1	10%
Operating income (loss)	(3.6)	12.9	–
EBITDA1)	0.6	0.8	31%
Net income (loss)	(4.4)	13.6	–

• Revenue growth driven by base business, Sanofi collaboration, milestone contribution, and favourable fx effects
• Higher investment in EVT Innovate R&D
• Increase in SG&A driven by Sanofi transaction including higher compensation expenses
• Income from bargain purchase with regards to Evotec (France) still preliminary

¹⁾ 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

Sharp revenue increase in EVT Execute

Condensed income statement based on segments for H1 2015

in € m			Inter
	EVT Execute	EVT Innovate	segment elimination	Not allocated	Evotec Group
Revenues	59.2	8.2	(12.4)	–	55.0
Gross margin	23.8%	45.7%	16.6%	–	28.7%
 R&D expenses	(0.2)	(10.4)	2.1	–	(8.5)
 SG&A expenses	(9.3)	(3.1)	–	–	(12.4)
 Amortisation of intangible assets	(1.3)	(0.2)	–	–	(1.5)
 Impairment of intangible assets	–	(0.1)	–	–	(0.1)
 Income from bargain purchase	–	–	–	18.5	18.5
 Other op. income (expenses), net	0.7	0.4	–	–	1.1
Operating income (loss)	3.9	(9.5)	–	18.5	12.9
EBITDA1)	9.8	(9.0)	–	–	0.8

• Revenue in EVT Execute: Primarily attributable to growth in base business (e.g. in anti-infectives and Sanofi collaboration)
• Increased investment in Cure X/Target X initiatives in EVT Innovate
• Strong adjusted EBITDA of € 9.8 m in EVT Execute

1) Adjusted for changes in contingent considerations; Group 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

Revenue increase of 49% in Q2

Key financials Q2 2015: Condensed profit & loss statement (IFRS)

In € m
	Q2 2014	Q2 2015	 Revenue
Revenues	22.5	33.4	increase of 49%
Gross margin	31.9%	27.4%	compared to Q2 2014  Q2 2014 margin
 R&D expenses	(3.3)	(4.7)	extraordinarily
 SG&A expenses	(4.5)	(7.3)	impacted by termination of
 Amortisation of intangible assets	(0.6)	(0.9)	CureBeta collaboration
 Impairment of intangible assets	–	(0.1)	 Increase in SG&A driven by Sanofi
 Income from bargain purchase	0.2	18.5	transaction including
 Other op. income (expenses), net	1.0	1.5	higher compensation expenses
Operating income (loss)	(0.1)	16.2	 Income from bargain
Net income (loss)	(0.4)	14.6	purchase with regards to Evotec (France) still
EBITDA, adjusted1)	1.9	1.1	preliminary

1) EBITDA was adjusted for changes in contingent considerations 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.

Strong revenue growth and solid gross margin

Revenues & gross margin H1

Key figures illustrate clear strategy for both segments

Performance overview EVT Execute & EVT Innovate

Guidance confirmed1)

Guidance 2015

1	Double digit top line growth	 More than 35% growth excluding milestones, upfronts and licences
2	Profitable	Positive adjusted EBITDA2)   100 m3) Liquidity is expected to be well in excess of €
3	Accelerated investments	 Increased R&D investments of approx. € 15–20 m in strategic Cure X and Target X initiatives to accelerate long-term clinical pipeline building  Continued capacity and capability building with up to € 10 m

¹⁾ As a result of the Sanofi collaboration, Evotec raised its revenue guidance that was published in Evotec's Annual Report 2014 two times, firstly on 24 March 2015 and secondly on 12 May 2015. All elements of the financial guidance 2015 as of 12 May 2015 are confirmed

²⁾ Before contingent considerations and excluding impairments on other intangible and tangible assets and goodwill as well as the total non-operating result 3) Excluding any potential cash outflow for M&A or similar transactions

Strong outlook for H2 2015

Expected key milestones in 2015

EVT Execute

• New long-term deals with large and midsized Pharma, foundations and biotech
• New integrated technology/disease alliances
• Milestones from existing alliances

EVT Innovate

• Strong progress of clinical pipeline within partnerships
• Phase IIb data with Roche in AD alliance
• Expansion of network of top-class academic alliances
• Partnering of Cure X/Target X initiatives