Evotec SE — Interim / Quarterly Report 2018

Nov 13, 2018

First nine months 2018 – Delivering

Evotec AG, Quarterly Statement 9M 2018, 13 November 2018

Forward-looking statement

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.

Note:

The 2017 and 2018 results are not fully comparable. The difference stems from the acquisitions of Aptuit (effective 11 August 2017) and Evotec ID (Lyon) SAS (effective 01 July 2018). The results from Aptuit are only included from 11 August 2017 onwards while the results from Evotec ID (Lyon) SAS are only included from 01 July 2018 onwards.

The accounting policies used to prepare this interim information are the same as those used to prepare the audited consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards effective as of 01 January 2018.

From 01 January 2018 onwards, Evotec applies IFRS 15 and IFRS 9. The comparison period 2017 is adjusted for the first time application of IFRS 15.

Thank you Mario!

Your Management Team

1) On the call for the Quarterly Statement 9M 2018

2) Retiring by the end of 2018, which marks end of contract period. Dr Polywka will remain on several Boards and in consulting role for Evotec.

Meet Craig!

Dr Craig Johnstone CChem FRSC, COO1) – Career summary to date

Drug discovery and development leader and scientist

• Direct contributions to > 20 PDCs

• 20 years in Pharma and biotech

• 6 years with Evotec

• Currently Site Head at Evotec (France) SAS in Toulouse and Global Head Integrated Drug Discovery

Career-long champion of innovation efficiency

• Successful track record accelerating drug discovery performance2)
• Champion of Artificial Intelligence and cutting-edge technologies to further enhance drug discovery quality, speed and efficiency
• Created integrated and high-performing unit in Toulouse
• Led change in culture, agility and collaborative business climate for a sustainable future of ex-Sanofi site

1) COO as of 01 January 2019

Agenda

Highlights 9M

EVT Execute & EVT Innovate

Financial performance and outlook

Scientific excellence meets operational excellence

First nine months 2018 – State of play

EVT Execute

• Strong performance across all business lines
• Strong progress within ongoing alliances
• New contracts and increased demand for INDiGO solutions
• Multiple new and extended drug discovery and development agreements
• Clinical milestones in Bayer endometriosis collaboration

EVT Innovate

• Milestones in iPSC alliances and further expansion of platform
• Strong clinical Phase I and Phase II progress
• New long-term partnerships with Celgene in oncology and targeted protein degradation
• Initiation of strategic efforts in infectious diseases
• Acceleration of academic BRIDGE model

Corporate

• Aptuit integration on track
• Action Plan 2022 implemented
• Conversion into European Company (SE) on track
• Listed in MDAX and STOXX Europe 600
• Strong outlook for remainder of 2018 confirmed and strong indications for 2019
• Craig Johnstone COO effective 01 January 2019

Strong performance with new business mix

Financials 9M 2018 & FY 2018 Guidance

• Group revenues up 57% to € 270.0 m (9M 2017: € 171.5 m1))
• Adjusted Group EBITDA2) up 77% to € 68.7 m (9M 2017: € 38.9 m1))
• Increased R&D expenses of € 20.9 m (9M 2017: € 12.5 m1)) due to strategic infectious disease efforts
• Strong liquidity of € 168.6 m after 50% (€ 70 m) repayment of acquisition loan

Guidance 2018 confirmed, strong initial outlook into 2019

• > 30% Group revenue growth (2017: € 257.3 m1))
• Adjusted Group EBITDA2) to improve by approx. 30% (2017: € 58.4 m1))
• R&D expenses of EUR 35-45 m3) (2017: € 17.6 m1))
• Strong underlying business indications for 2019

¹⁾ 2017 figures adjusted for the first time application of IFRS 15

²⁾ Before contingent considerations, income from bargainpurchase &excluding impairments on goodwill, other intangible &tangible assets aswell as the total non-operating result 3) Guidance on R&D expenses was updated on 09 August 2018 from EUR 20-30 m. The additional R&D efforts are not expected to negatively impact the adjusted EBITDA since these extra infectious diseases-related R&D expenses will be covered by other operating income recognised in context of the new agreement with Sanofi.

ONE fully integrated platform

Unique business model

Agenda

Highlights 9M

EVT Execute & EVT Innovate

Financial performance and outlook

Continued strong growth

EVT Execute – Key performance indicators 9M 2018

2) Not adjusted according to IFRS 15

3) 2017 figures adjusted for the first time application of IFRS 15

4) Before contingent considerations, income from bargain purchase & excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result

Strong and well-balanced customer mix

EVT Execute – Selected KPIs 9M 2018

Revenues by customer segment ytd1) (in %)		Customer type ytd1) (in %)		Revenues by region ytd1) (in %)
		100%	Mid-sized Pharma	16%	100%	RoW	100% 3%
Remaining	39%		Foun dations	7%		USA	42%
Top 11-30 customers	18%		Biotech	38%
Top 10 long-term strategic alliances	43%		Top 20 Pharma	39%		Europe	55%
9M 2018			9M 2018		9M 2018

The leading "one-stop-shop" for external innovation

Evotec's integrated offering and core competences along the value chain

Evotec offers end-to-end platform solutions including and high-end CMC manufacturing

Delivering excellence to our > 200 partners

EVT Execute – Major achievements 9M 2018

	000
Target ID and validation	Hit identification	Compound management	Chemistry
ADME-Tox and DMPK cyprotex	Proteomics	Reagent production	In vitro pharmacology
In vivo pharmacology	$\circledcirc$ $@=$ $@=$ INDiGO	CMC aptuit	℧ Integrated services

• Strong performance across all business and service lines
• New contracts and increased demand for INDiGO solutions and development services (e.g. Ankar, Astex, Yumanity)
• Signing of multiple new and extended drug discovery and development agreements (e.g. CHDI, Novo Nordisk, and Ferring (after periodend))

INDiGO meets demand for higher quality and speed

Initial achievements of Aptuit integration – Example

Roll-out of INDiGO

• Reducing time from nomination to regulatory submission to less than 52 weeks1)
• Launch of INDiGO services in Q1 2018; new contracts signed in 2018 and increased demand for INDiGO solutions (e.g. Ankar, Astex, Carna Biosciences, Inflazome, Yumanity, …)
• Strong cross-selling potential

Strong outlook for rest of year and deep into 2019

EVT Execute – Expected key milestones 2018

• New long-term alliances integrating the offering of Aptuit, strategic launch of INDiGO
• New performance-based integrated technology/disease alliances

Expansion of foundations and biotech network in USA/Europe

Milestones from existing alliances

Milestones, new partnerships and accelerated R&D

EVT Innovate – Key performance indicators 9M 2018

• Growth driven by milestones in key alliances, new long-term partnerships and solid base revenues
• Continued strong focus on iPSC, R&D platforms and academic BRIDGEs
• New strategic efforts in infectious diseases with increased R&D expenses from H2 2018 onwards (additional ID-related R&D expenses covered by other operating income in context of new agreement with Sanofi)

¹⁾ Before contingent considerations, income from bargain purchase &excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result 2) Not adjusted according to IFRS 15

³⁾ 2017 figures adjusted for the first time application of IFRS 15

EVT Innovate ventures gaining momentum

EVT Innovate – Major achievements 9M 2018

• High-value milestones in iPSC alliances
• Continued expansion of iPSC platform
• New partnerships with Celgene in oncology and targeted protein degradation
• New pipeline-building innovation efforts in infectious diseases
• Expansion of academic BRIDGE model
• Participation in additional financing rounds of Forge Therapeutics, FSHD Unlimited, and Topas Therapeutics

Strong progress in building co-owned pipeline

Partnership portfolio of approx. 100 co-owned, fully invested projects

	Molecule	Therapeutic Area/Indication	Partner	Discovery	Pre-clinical	Phase I	Phase II
	EVT201	CNS – Insomnia
	BAY-1817080	Chronic cough					Phase II start
	EVT401	Immunology & Inflammation
al	ND1)	Oncology
c	Various	Women's health – Endometriosis					Phase I start
ni	Various	Women's health – Endometriosis
Cli	Various	Women's health – Endometriosis
	ND1)	Immunology & Inflammation
	Various	Oncology
	Various	Respiratory					Second Phase I start
	ND1)	CNS – Pain
	ND1)	Immunology & Inflammation
al	ND1)	Pain
c	Various	Women's health – Endometriosis
ni	EVT801	Oncology
cli	EVT701	Oncology
e-	EVT601	Oncology
Pr	Various ND1)	Oncology – Immunotherapy
	Various	Anti-infectives	>5 programmes				NEW – From ID collaboration
	Various	CNS, Metabolic, Pain & Inflammation	>10 further programmes
	Various ND1)	Nephrology
	Various ND1)	Immunology & Inflammation
	Various ND1)	Metabolic – Diabetes (type 2/1)
	Various ND1)	Metabolic – Diabetes (type 2/1)
	Various ND1)	Nephrology
	Various ND1)	Metabolic – Diabetes					NEW milestone achievement
y	Various	Oncology					NEW partnership
er	Various	Immunology & Inflammation – Tissue fibrosis
v	Various	Neurodegeneration					NEW milestone achievement
o c	LpxC inhibitor	Anti-bacterial
s	Various	All indications					NEW Academic BRIDGE
Di	ND1)	Dermatological diseases					NEW partnership
	ND1)	Facioscapulohumeral Dystrophy					NEW – In vivo proof of principle
	INDY inhibitor	Metabolic
	Various	Fibrotic disease	Fibrocor Therapeutics
	Various	Antiviral
	Various	Anti-infectives	>10 programmes				NEW – From ID collaboration
	Various	Internal: Oncology, CNS, Metabolic, Pain & Inflammation	>30 further programmes

17 1) Not disclosed

Note: Several projects have fallen back to Evotec, where Evotec does not intend to run further clinical trials unpartnered, e.g. EVT302, EVT101, …

New strategic partnerships

Celgene & Evotec – Overview of new alliances

Strategic oncology partnership	Targeted protein degradation partnership
(initiated May 2018)	(initiated Sept 2018)
 Long-term drug discovery and development partnership to identify new therapeutics in oncology  Focus on solid tumours, leveraging industry leading phenotypic screening platform with unique libraries & target deconvolution capabilities	 Promising approach addressing "undruggable" targets via targeted protein degradation  Leveraging Evotec's proprietary Panomics platform, including data analytics platform 'PanHunter'
Commercials	Commercials
	
\$ 65 m upfront payment, Evotec eligible to	Undisclosed upfront payment, significant milestone
receive significant milestone payments as well	payments as well as tiered potentially double-digit
as tiered royalties on each licensed programme	royalties on each licensed programme
	
Celgene holds exclusive opt-in rights	Celgene holds exclusive opt-in rights

Components to redefine drug discovery paradigms

Cutting-edge technologies and leading platforms

iPSC	Panomics
Translational models Patient-derived disease models, personalised medicine – 'Clinical trial in dish'	Molecular phenotyping Molecular readouts with high-throughput 'omics' to re-defining pharmacology and definition of health and disease
Artificial Intelligence/Machine learning	Protein Homeostasis
Synchronising algorithms with data	New targets and new pharmacology

BRIDGE concept becoming established

LAB282, LAB150, LAB591 and LAB031 – Progress YTD 2018

Strong performance, but "just the beginning"

EVT Innovate – Expected key milestones 2018

• New clinical initiations and good progress of clinical pipeline within existing partnerships
• Expansion of academic BRIDGE network
• Strong R&D progress within Cure X/Target X platforms and new EVT Innovate partnerships
• Continued expansion of iPSC (induced pluripotent stem cells) platform

Agenda

Highlights 9M

EVT Execute & EVT Innovate

Financial performance and outlook

Strong financials with new business mix

Condensed income statement 9M 2018 – Evotec Group

in € m1)
	YTD 2018	YTD 20175)	% vs. 2017
Revenues	270.0	171.5	57%
Gross margin2)	31.0%	34.8%	–
 R&D expenses	(20.9)	(12.5)	67%
 SG&A expenses	(40.8)	(29.3)	39%
 Impairment of intangible assets	(4.2)	(1.2)	–
 Income from bargain purchase3)	15.4	–	–
 Other op. income (expenses), net	26.3	8.8	–
Operating income	59.5	25.5	133%
Adjusted Group EBITDA4)	68.7	38.9	77%
Net income	52.3	12.7	–

• Growth in base business, Aptuit contribution (2018: € 83.6 m) and milestones
• Expected increase in R&D following addition of ID
• SG&A increase due to acquisitions and organic growth
• One-time effect Bargain purchase with regards to Evotec ID (Lyon); Purchase price allocation (PPA) still preliminary
• Other operating income increased due to Evotec ID (Lyon), higher R&D tax credits and release of earn-out accruals following impairments

2) Gross margin in 2018 considers amortisation of acquisitions from Aptuit & Cyprotex. Gross margin in 2017 only considers amortisation from Cyprotex acquisition & approx. 2 months from Aptuit. 3) No impact on adjusted Group EBITDA

¹⁾ Differences may occur due to rounding

⁴⁾ Before contingent considerations, income from bargain purchase & excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result 5) 2017 figures adjusted for the first time application of IFRS 15

Strong performance across the board

Segment information 9M 2018 – Evotec Group

in € m1)

	EVT Execute	EVT Innovate	Inter segment elimination	Not allocated	Evotec Group
Revenues	254.3	51.3	(35.6)	–	270.0
Gross margin	24.6%	48.8%	–	–	31.0%
 R&D expenses	(0.6)	(24.1)	3.8	–	(20.9)
 SG&A expenses	(34.5)	(6.3)	–	–	(40.8)
 Impairment of intangible assets	–	(4.2)	–	–	(4.2)
 Income from bargain purchase	–	–	–	15.4	15.4
 Other op. income (expenses), net	13.0	13.3	–	–	26.3
Operating income	40.4	3.7	–	15.4	59.5
Adjusted EBITDA2)	62.1	6.6	–	–	68.7

• Growth in EVT Execute due to strong base business including Aptuit
• Milestone growth and new partnerships in EVT Innovate
• R&D increased following infectious disease efforts
• Bargain purchase not allocated to segments and one-time effect
• Other operating income increase due to cost coverage in ID by Sanofi and higher R&D tax credits
• Positive adjusted EBITDA in EVT Innovate following milestone achievements

PAGE 24 1) Differences may occur due to rounding

2) Before contingent considerations, income from bargain purchase & excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result

Strong base business & milestones drive strong Q3

Condensed income statement Q3 2018 – Evotec Group

in € m
	Q3 2018	Q3 20172)	 Strong revenue growth of
Revenues	96.3	67.2	43% due to base busi ness, Aptuit contribution
Gross margin	34.7%	33.4%	and milestones  Gross margin reflects
 R&D expenses	(10.9)	(4.0)	milestones and stronger Aptuit contribution
 SG&A expenses	(13.6)	(13.5)	 R&D expenses increased by addition of ID
 Impairment of intangible assets	–	(1.2)	 SG&A similar to prior quarters
 Income from bargain purchase	15.4	–	 One-time effect – Income from bargain purchase
 Other op. income (expenses), net	13.6	3.3	with regards to Evotec ID (Lyon) – PPA still
Operating income	37.8	7.1	preliminary  Higher contributing R&D
Adjusted Group EBITDA1)	30.1	12.7	tax credits  Increase in adjusted
Net income	34.4	2.4	Group EBITDA of 137%

1) Before contingent considerations, income from bargain purchase &excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result 2) 2017 figures adjusted for the first time application of IFRS 15

Strong growth continued, new margin composition

Revenues & Gross margin overview 9M 2018

• Strong margin despite different business mix following recent acquisitions
• Gross margin excluding total amortisation of acquisitions would be 34.3%
• Adverse FX effects on YTD 2018 revenues (€ 3.9 m) and gross margin (0.8%-points)

¹⁾ Gross margin in the future may be volatile due to the dependency of potential milestone or out-licensing revenues. In addition, the amortisation of the purchase price allocation (PPA) of the recent strategic acquisitions impacts costs of revenue and thus the gross margin.

²⁾ Not adjusted according to IFRS 15

³⁾ 2017 figures adjusted for the first time application of IFRS 15

Guidance confirmed

Guidance 2018

1	Double digit top line growth	 More than 30% Group revenue growth
2	Profitable and growing	Adjusted Group EBITDA1)  expected to improve by approx. 30%
3	Focused investments	Group R&D expenses of € 35-45 m2)  (previously: € 20-30 m)

27 1) Before contingent considerations, income from bargain purchase &excl. impairments on goodwill, other intangible & tangible assets as well as the total non-operating result 2) Guidance on R&D expenses was updated on 09 August 2018. The additional R&D efforts are not expected to negatively impact the adjusted EBITDA since these extra infectious diseases-related R&D expenses will be covered by other operating income recognised in context of the new agreement with Sanofi.

Stay tuned

Financial calendar 2019

Annual Report 2018	28 March 2019
Quarterly Statement Q1 2019	14 May 2019
Annual General Meeting 2019	19 June 2019
Half-year 2019 Interim Report	13 August 2019
Quarterly Statement 9M 2019	12 November 2019

Your contact:

Dr Werner Lanthaler Chief Executive Officer

+49.(0).40.560 81-242 +49.(0).40.560 81-333 Fax werner.lanthaler@evotec.com