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Evotec SE — Investor Presentation 2011
Jun 14, 2011
151_rns_2011-06-14_1d206457-6436-4889-9629-6a0e689f58a7.pdf
Investor Presentation
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Evotec AG Evotec AG
- Recommendation: BUY(BUY)
Risk: Medium (Medium)
Price Target: EUR 3.60 (3.70)
A wave of news in the last weeks
Trial termination/ Acquisition/ Milestone Payment/ New alliances
- Over the last month Evotec has released a few announcements that had a mixed influence on our valuation. The most important news are related to the termination of Phase II trial with EVT 101 (partnered with Roche) and the acquisition of Compound Focus Inc from Galapagos.
- Trial termination with EVT 101: On 18 May Evotec announced voluntary termination of Phase II trial with EVT 101 due to difficulties in recruiting patients. We reduced the value of this compound in our rNPV-SOP valuation. This case demonstrates that it was the right decision for Evotec to distant itself from the development of proprietary projects.
- Acquisition of Compound Focus: For the acquisition of all shares in Compound, Evotec will pay Galapagos an immediate cash payment upfront of EUR 10.25m and an additional EUR 2.25m earn out component. With EUR 10.25m initial purchase price Evotec pays ~1.3x of Compound sales in FY 2010 (or ~1.6x with EUR 2.25m earn out component). Comparing the trailing sales multiple with the one of Evotec"s (EV/Sales of ~4.8x for FY 2010), the deal does not seem overvalued.
- We have adjusted our valuation model. The most considerable changes pertain to a decrease of rNPV of EVT 101 (rNPV before adj.: EUR 0.62/share; after adj.: EUR 0.31/share; -50%) due to the voluntary termination of trial and the increase of PV of Discovery Alliance Business (PV before adj.: EUR 1.85/share; after adj.: EUR 2.14/share; +15%) as a result of the acquisition of Compound Focus from Galapagos. All in all the negative setback resulting from the termination of trial with EVT 101 was to a large extent offset by the acquisition of Compound. Thus, now the core business Drug Discovery Alliance represents higher value contribution to the entire rNPV-SOP valuation (before adj. 50%; after adj.: 59%). Having conducted all necessary adjustments we decreased our price target from EUR 3.70/share to EUR 3.60/share, but retain a BUY recommendation.
| Key data | |||||
|---|---|---|---|---|---|
| Y/E 31.12., EUR m | 2008 | 2009 | 2010 | 2011E | 2012E |
| Revenues | 39.6 | 42.7 | 55.3 | 69.8 | 84.6 |
| Gross profit | 17.6 | 18.4 | 24.3 | 33.2 | 41.5 |
| EBITDA | -68.4 | -38.2 | 6.5 | 8.1 | 10.3 |
| EBIT | -73.2 | -42.3 | 1.7 | 3.5 | 6.1 |
| Net income/loss | -78.3 | -45.5 | 3.0 | 3.5 | 4.9 |
| EPS | -0.82 | -0.43 | 0.03 | 0.03 | 0.04 |
| CPS | -0.43 | -0.20 | 0.00 | 0.02 | 0.06 |
| Gross margin | 44.5% | 43.2% | 44.1% | 47.5% | 49.0% |
| EBITDA margin | -172.7% | -89.6% | 11.7% | 11.6% | 12.2% |
| EBIT margin | -184.8% | -99.1% | 3.1% | 5.0% | 7.2% |
| EV/Sales | 6.5 | 6.0 | 4.7 | 3.7 | 3.0 |
Source: Evotec AG; CBS Research AG;
www.cbseydlerresearch.ag
14 June 2011
| Share price (dark) vs. TecDAX | ||||||
|---|---|---|---|---|---|---|
| Source: CBS Research AG, Bloomberg | ||||||
| Change | 2010 | 2011E | 2012E | |||
| Revenue EBIT EPS Internet: www.evotec.com Sector: Biotechnology WKN: 566480 Reuters: EVTG.DE |
new - - - |
old 55.3 1.7 0.03 |
new 69.8 3.5 0.03 |
old 66.0 2.2 0.02 ISIN: DE0005664809 Bloomberg: EVT GY |
new 84.6 6.1 0.04 |
old 75.9 2.9 0.03 |
| Short company profile Evotec is a drug discovery alliance and development partnership company focused on rapidly progressing innovative product approaches with leading pharmaceutical and biotechnology companies. |
||||||
| Share data: 2.71 Share price (last closing price, EUR): Shares outstanding (m): 115.60 313.16 Market capitalisation (EURm): 257.20 Enterprise value (EURm): Ø daily trading volume (3 m., no. of shares): 489,909 |
||||||
| Performance data: High 52 weeks (EUR): Low 52 weeks (EUR): Absolute performance (12 months): Relative performance: (vs. TecDAX) 1 month 3 months 6 months 12 months |
3.48 1.91 40.9% -5.8% -5.3% -8.7% 22.8% |
|||||
| Shareholders: Roland Oetker/ROI TVM V Life Science Ventures Free float |
13.5% 10.5% 76.0% |
|||||
| Financial calendar: AGM 2Q/2011 Figures |
16 June 2011 11 August 2011 |
|||||
| Author Close Brothers Seydler Research AG Phone: +49 (0) 69-977 84 56 0 Email: |
Igor Kim (Analyst) | [email protected] www.cbseydlerresearch.ag |
Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.
Termination of Phase II trial with EVT 101
On 18 May 2011 Evotec AG announced that the first proof-of-concept study in treatment-resistant depression (TRD) with EVT 101 (financed by Roche) was voluntarily terminated due to difficulties in recruiting patients.
According to Evotec, the company retains all rights in the EVT100 series, especially the back-up compound EVT103, and will enter into partnering discussions for these assets in another clinical development partnership.
The termination of the trial has not influenced our estimates, as we have not projected any potential milestones and sales in our financial forecast. However our rNPV sum-of-the-parts valuation included the risk-adjusted NPV of EVT 101. Therefore we have reduced the value of this compound in our rNPV-SOP valuation (for more details see section "Adjustments in rNPV-SOP valuation"). This case demonstrates that it was the right decision for Evotec to distant itself from the development of proprietary projects.
Acquisition of compound management business from Galapagos
Following its strategy to strengthen the company"s core business, Drug Discovery Alliance, Evotec announced the acquisition of Compound Focus, Inc. (Compound), the compound management business of BioFocus, a Galapagos Company. The strategic rational of the acquisition is to expand its integrated drug discovery alliance solutions with best in class, profitable offering in compound management.
For the acquisition of all shares in Compound, Evotec will pay Galapagos an immediate cash payment upfront of EUR 10.25m and an additional EUR 2.25m earn out component payable over next two years depending on revenues and certain corporate milestones. Compound will be renamed into "Evotec (San Francisco) inc." as US entity within the Evotec group. Business will be fully integrated into the company"s global operating structures.
With EUR 10.25m initial purchase price Evotec pays ~1.3x of Compound sales in FY 2010 (or ~1.6x with EUR 2.25m earn out component). Comparing the trailing sales multiple with the one of Evotec"s (EV/Sales of ~4.8x for FY 2010), the deal is not overvalued. Furthermore, the expected synergies make this acquisition even more valuable for Evotec. Therefore we positively assess the transaction and increase the value estimation of the core business Drug Discovery Alliance. This has resulted in an increase of value contribution of the company"s core business to the entire rNPV-SOP valuation (for more details see section "Adjustments in rNPV-SOP valuation").
Multiple synergies are expected
The acquisition of Compound should among others:
1) Strengthens Evotec"s market position and expands into new market niche with significant potential; 2) Benefits on cross selling synergies. Government organisations and existing Compound"s customers can access other Evotec services and vice versa (Cross selling synergies); 4) Increase revenues and profitability. In 2010 Compound"s top line amounted to ~EUR 7.8m with an operating profit of EUR 2.6m (operating margin is ~33%).
Termination of Phase II trial with EVT 101
Acquisition of Compound Focus from Galapagos
The deal is favourably valued
Multiple synergies are expected
Adjustemtnt in rNPV-SOP valutaion
In view of numerous events over the last weeks we have adjusted our valuation model. The most considerable changes pertain to a decrease of rNPV of EVT 101 (rNPV before adj.: EUR 0.62/share; after adj.: EUR 0.31/share; -50%) due to the voluntary termination of trial and the increase of PV of Discovery Alliance Business (PV before adj.: EUR 1.85/share; after adj.: EUR 2.14/share; +15%) as a result of the acquisition of Compound Focus from Galapagos.
All in all the negative setback resulting from the termination of trial with EVT 101 was to a large extent offset by the acquisition of Compound, which from our point of view should add to the overall value of Evotec. Thus, now the core business Drug Discovery Alliance reflects higher value contribution to the entire rNPV-SOP valuation (before adj. 50%; after adj.: 59%). Having conducted all necessary adjustments we have decreased the entire rNPV-SOP value from EUR 3.71/share to EUR 3.61/share.
We decrease our price target from EUR 3.70/share to EUR 3.60/share, but retain a BUY recommendation.
rNPV SOP valuation decreased due to the termination of EVT 101 trial
New rNPV-SOP reflects higher value contribution from the core business
| Adjustments in rNPV-SOP valuation | |||||||
|---|---|---|---|---|---|---|---|
| Before Adjustement | After Adjustment | ||||||
| Valuation method |
Sum of the parts valuation per share |
Relative value contribution |
Sum of the parts valuation per share |
Relative value contribution |
|||
| Discovery alliance business 0 |
DCF0 | 1.85 | 50% | 2.14 0.0 | 59%0% | ||
| EVT 101/103 (Partner: Roche) 0 |
rNPV0 | 0.62 | 17% | 0.310 | 9%0% | ||
| DiaPep277 (Andromeda/Teva) 0 |
rNPV0 | 0.37 | 10% | 0.370 | 10%0% | ||
| H3 antagonist | rNPV0 | 0.13 | 4% | 0.12 0.0 | 3%0.0 | ||
| EVT 201 (Partner: Zhejiang Jingxin Pharmaceutical) 0 |
rNPV0 | 0.18 | 5% | 0.18 0.0 | 5%0% | ||
| Cash and cash equivalents net of debt* 0 |
0 | 0.57 | 15% | 0.48 0 |
13% 0 |
||
| Total value | 3.72 | 100% | 3.61 | 100% |
Adjusted figures are in red
* Cash and cash equivalents less EUR 10.25m of immediate payment for acquisition of Compound Focus
Source: CBS Research
Other recent events
13th clinical trial from Boehringer Ingelheim
At the end of May Evotec announced that a back-up compound in its strategic alliance with Boehringer Ingelheim (BI) has advanced into a Phase I clinical trial a milestone payment of EUR 2.0m. The compound, which was discovered and optimised within the alliance, is being developed as a novel treatment for neuropathic pain.
It is the 13th milestone payments achieved within the alliance with BI, which Evotec entered in 2004. Since the beginning of 2011 it is already the second milestone payment received from BI. Overall the total amount of milestone payments generated from Boehringer Ingelheim has increased over the last years. We expect that this growth trend will increase in the near future (See table below).
Furthermore, it is already the second milestone payment which is attributable to the advancement of compound into Phase I clinical trial, which also enhances the overall value of the alliance with BI.
13th milestone payment from Boehringer Ingelheim
| Milestones payments from Boehringer Ingelheim since the beginning of the collaboration | ||
|---|---|---|
| Year | Number of milestone payments from BI |
| Start of collaboration with BI | 2004 | 0 |
|---|---|---|
| 2005 | 1 | |
| 2006 | 1 | |
| 2007 | 0 | |
| 2008 | 3 | |
| Extension of the collaboration | 2009 | 2 |
| 2010 | 4 | |
| 1H/2011 | 2 | |
| Total | 13 | |
Source: Evotec; CBS Research
Strategic Alliance with PsychoGenics
On 25 May 2011 Evotec announced that it has entered into a strategic alliance with PsychoGenics Inc. to provide integrated CNS drug discovery solutions to pharmaceutical and biotech companies. The two companies will work together in a seamless fashion to provide existing and new clients access to their complementary drug discovery platforms for the identification and development of new therapeutics to treat CNS disorders.
Medicinal Chemistry Collaboration with Active Biotech
On 6 June the company announced that it has entered into a medicinal chemistry collaboration with Active Biotech AB, following the successful conclusion of a High Throughput Screening campaign to identify small molecule modulators of a priority biological target, selected by Active Biotech, involved in immune disorders and cancer.
Based on excellent progress made using its state-of-the-art Screening Platform in 2010, Evotec will now apply its integrated medicinal chemistry platform to optimise initial screening hits with the aim of progressing into a lead optimisation programme. No financial details are disclosed.
Strategic alliance with PsychoGenics
Collaboration with Active Biotech
Appendix
rNPV-SOP Valuation
| Valuation method applied |
Sum of the parts valuation in EUR m |
Sum of the parts valuation per share |
Relative value contribution |
|
|---|---|---|---|---|
| Discovery alliance business |
DCF | 247.3 | 2.14 | 59% |
| EVT 101/103 (Partner: Roche) |
rNPV | 36.3 | 0.31 | 9% |
| DiaPep277 (Andromeda/Teva) |
rNPV | 42.8 | 0.37 | 10% |
| H3 antagonist | rNPV | 13.7 | 0.12 | 3% |
| EVT 201 (Partner: Zhejiang Jingxin Pharmaceutical) |
rNPV | 21.1 | 0.18 | 5% |
| Cash and cash equivalents net of debt |
55.5 | 0.48 | 13% | |
| Total value | 416.7 | 3.61 | 100% |
Source: Evotec; CBS Research
Profit and loss account
| IFRS EUR 1,000 | 2008 | 2009 | 2010 | 2011E | 2012E |
|---|---|---|---|---|---|
| Total revenues YoY grow th |
39,613 -27.2% |
42,683 7.7% |
55,262 29.5% |
69,824 26.3% |
84,614 21.2% |
| Cost of revenue | -21,977 | -24,262 | -30,916 | -36,657 | -43,153 |
| as % of sales | -55.5% | -56.8% | -55.9% | -52.5% | -51.0% |
| Gross profit | 17,636 | 18,421 | 24,346 | 33,166 | 41,461 |
| as % of sales | 44.5% | 43.2% | 44.1% | 47.5% | 49.0% |
| Research and development expenses | -42,537 | -20,947 | -6,116 | -10,000 | -11,846 |
| as % of sales | -107.4% | -49.1% | -11.1% | -14.3% | -14.0% |
| Selling, general and administrative (S,G&A) | -19,950 | -16,695 | -15,956 | -19,062 | -22,846 |
| as % of sales | -50.4% | -39.1% | -28.9% | -27.3% | -27.0% |
| Other operating expenses | -28,359 | -23,078 | -559 | -632 | -661 |
| as % of sales | -71.6% | -54.1% | -1.0% | -0.9% | -0.8% |
| EBITDA | -68,404 | -38,234 | 6,480 | 8,129 | 10,337 |
| as % of sales | -172.7% | -89.6% | 11.7% | 11.6% | 12.2% |
| Depreciation and amortisation | -4,806 | -4,065 | -4,765 | -4,656 | -4,229 |
| as % of sales | -12.1% | -9.5% | -8.6% | -6.7% | -5.0% |
| EBIT | -73,210 | -42,299 | 1,715 | 3,473 | 6,108 |
| as % of sales | -184.8% | -99.1% | 3.1% | 5.0% | 7.2% |
| Net financial results | -2,760 | -2,520 | 2,152 | 1,102 | 271 |
| EBT (Earnings before income taxes) | -75,970 | -44,819 | 3,867 | 4,575 | 6,379 |
| as % of sales | -191.8% | -105.0% | 7.0% | 6.6% | 7.5% |
| Income taxes | -2,317 | -678 | -882 | -1,052 | -1,467 |
| as % of EBT | 3.0% | 1.5% | -22.8% | -23.0% | -23.0% |
| Net income/loss | -78,287 | -45,497 | 2,985 | 3,522 | 4,912 |
| as % of sales | -197.6% | -106.6% | 5.4% | 5.0% | 5.8% |
| Basic earnings per share (EUR) | -0.82 | -0.43 | 0.03 | 0.03 | 0.04 |
Source: Evotec; CBS Research
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This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the "author"). None of Close Brothers Seydler Research AG, Close Brothers Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document.
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Recommendation System:
Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 6 months:
BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%.
Recommendation history over the last 12 months for the company analysed in this report:
| Date | Recommendation | Price at change date | Price target |
|---|---|---|---|
| 30 July 2010 | BUY (Initiating Coverage) | EUR 2.00 | EUR 2.80 |
| 12 August 2010 | BUY (Company Update) | EUR 2.26 | EUR 2.90 |
| 05 October 2010 | BUY (Company Update) | EUR 2.22 | EUR 2.90 |
| 28 October 2010 | BUY (Company Update) | EUR 2.30 | EUR 3.00 |
| 11 November 2010 | BUY (Company Update) | EUR 2.49 | EUR 3.00 |
| 15 December 2010 | BUY (Company Update) | EUR 2.85 | EUR 3.20 |
|---|---|---|---|
| 17 January 2011 | BUY (Company Update) | EUR 3.33 | EUR 3.70 |
| 11 February 2011 | BUY (Company Update) | EUR 3.25 | EUR 3.70 |
| 10 March 2011 | BUY (Company Update) | EUR 3.00 | EUR 3.70 |
| 24 March 2011 | BUY (Company Update) | EUR 2.94 | EUR 3.70 |
| 24 March 2011 | BUY (Company Update) | EUR 2.94 | EUR 3.70 |
|---|---|---|---|
| 13 May 2011 | BUY (Company Update) | EUR 3.00 | EUR 3.70 |
| 14 June 2011 | BUY (Company Update) | EUR 2.71 | EUR 3.60 |
Risk-scaling System:
Close Brothers Seydler Research AG uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 6 months:
LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark
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