revenues
continued proFitable Growth
Evotec Group revenues increased by 9% over the same period of the previous year to € 87.3 m (2011: € 80.1 m). Growth was driven by an increase in revenues within the Company’s drug discovery alliances, contributions from acquisitions as well as foreign currency effects. The total amount of milestone, upfront and licence payments achieved in Evotec’s partnerships was € 20.7 m and decreased in comparison with last year’s level (€ 25.2 m), mainly due to the high 2011 upfront payment from Roche (€ 6.9 m) as part of a development partnership for the treatment of Alzheimer’s disease with EVT302 and a shift in revenue from milestones from Q4 2012 into 2013. Revenue contribution from the acquired businesses of Evotec (München) and Evotec San Francisco amounted to € 11.0 m (2011: € 8.0 m), leading to a like-for-like revenue growth of 6%. At constant 2011 foreign exchange rates the 2012 revenues would have amounted to € 83.2 m primarily due to the US dollar being stronger versus the Euro in 2012.
Key collaborations were announced in 2012 with Bayer, CHDI, Janssen and the NIH. In addition, the Company received two milestones through its long-standing collaboration with Boehringer Ingelheim and also received further milestones from collaborations with Andromeda/ Teva, MedImmune/AstraZeneca, Novartis and Ono. Through these discovery alliances and development partnerships, the Company further strengthened its customer and revenue base and improved the foundation for future growth.
Geographically, 39% of Evotec’s revenues were generated with customers in Europe, 46% in the US and 15% in Japan and the rest of the world. This compares to 55%, 33% and 12%, respectively, in the same period of the previous year. Growth came primarily from the US due to an increase of the EVT Execute business (compound management and a large counter screening initiative with a pharmaceutical company) and an upfront payment from Janssen for the EVT100 compound family. The higher contribution of Japan and the rest of the world revenues to the Group revenues primarily reflects the contribution from the DiaPep277® milestone from revenues
2011
2012
Delta in %: +9 in € m
80.1
87.3
Andromeda/Teva. The lower contribution of European revenues to Group revenues resulted primarily from the recognition in 2011 of the upfront payment for EVT302 and the remainder of the upfront payment for the EVT100 compound family from Roche and from lower milestone payments in 2012 from Boehringer Ingelheim.
revenues by region
46% US/Canada 15% Rest of the World
39% Europe
costs oF revenue/Gross marGin
ramp-up oF evt execute business and diFFerent revenue mix aFter acQuisitions
Costs associated with the Group’s revenues include the cost of personnel directly associated with revenue-generating projects, facilities and overhead used to support those projects and materials consumed in the provision of the product or service. The relative significance of these cost types varies with the service or product provided – for example, laboratory-based projects require higher personnel cost but may require smaller quantities of materials, whereas screening projects involve lower personnel cost but higher relative facility and material costs.
Costs of revenue increased by 25% to € 56.2 m (2011: € 45.1 m) yielding a gross margin of 35.6% (2011: 43.7%). The 8.1% point margin difference in 2012 compared to 2011 is mainly attributable to the decrease in revenues of milestones, upfronts and licences, which have high margin contribution as a percentage of total revenues. In addition, the ramp-up of capacities in EVT Execute, the move into the new Manfred Eigen Campus in Hamburg at the start of 2012 and lower margin compound management revenues following the acquisition of the Evotec San Francisco business reduced the overall gross margin.
Overall, the Company’s revenue mix will lead to a continued lower level of gross margin going forward compared to previous years. In addition, gross margins in the future may continue to be volatile and significantly depend on the amount and timing of potential milestone or out-licensing revenues. in % Gross margin
2011
2012
43.7
35.6
research and development expenses build-up oF cure X initiatives and
investments in platForm r&d
R&D expenditure amounted to € 8.3 m (2011: € 8.4 m). Evotec’s unfunded research focused on selected discovery projects in the key areas of CNS, oncology, inflammation, metabolic and kidney disease such as the CureBeta and CureNephron alliances with Harvard University. These projects progressed according to plan, with the primary focus being on delivering compounds to the clinical pipeline in future years and preparing selected programmes for partnering. The CureBeta initiative was successfully partnered with Janssen in July 2012, and since that date the Evotec employees working on the collaboration have been funded by Janssen. The earlier than expected partnering of CureBeta was the main reason that R&D expenditure in 2012 was at the lower end of the guidance. Internal discovery projects accounted for 36% (2011: 22%) of total R&D spending, while R&D to support specific platform technologies accounted for 23% (2011: 13%) of total R&D expenditure. Platform R&D was primarily focused to expand Evotec’s already broad discovery and biomarker platforms, including antibody screening following the strategic partnership with 4-Antibody and the development of methylomics capabilities to strengthen its epigenomics platform. Clinical R&D expenditure declined to 6% (2011: 30%) of the total R&D spending. The reason for this decrease is that the previous year still included the expenses for the continuation of a study with the EVT100 series after the termination of the Roche collaboration and also costs for the manufacture of EVT501. Finally, 35% (2011: 35%) of total R&D expenditure categorised as overhead consisted of patent costs as well as the expenses for managing the early discovery programmes and the platform technologies (see table below).
* Discovery projects are those that have not reached the clinical phase r&d expenses by categories
T€ 2011 2012 Clinical projects 2,512 516 Discovery projects * 1,897 2,972 Platform R&D 1,101 1,942 Overhead expenses 2,927 2,910 total 8,437 8,340 sG&a expenses
2011
2012
16.3
15.8
Delta in %: +3 in € moperatinG income/expenses apart From r&d and sG&a
In 2012, amortisation increased to € 2.8 m, compared to € 1.7 m in the previous year. This was primarily due to the amortisation of the customer list of Evotec San Francisco as well as the amortisation of the 4-Antibody licence.
The impairment in the amount of € 3.5 m is primarily a result of a decision made by Pfizer Inc (“Pfizer”) to terminate the VR1 programme following its recent portfolio review (for more details, see also “Impairment review” on page 57 of this report).
In October 2012, Evotec received notice that the partnering agreement for EVT401 with an animal health company was terminated following a portfolio review. This development required the fair value of the asset to be recalculated on the basis of an assessment of future partnering prospects as at Q4 2012. The valuation supported the intrinsic value of this programme. The licence and collaboration agreement for EVT401 in an animal health indication had been signed in Q3 2011 and was a triggering event that resulted in a reversal of impairment of intangible assets of € 1.5 m in 2011.
Other operating income and expenses, net in 2012 of € (3.3) m (2011: € (3.3) m) resulted primarily from three effects:
1. Expense of approximately € 2.3 m from the parallel rental in Hamburg for the old facility and the new Manfred Eigen Campus and the resulting planned under-utilisation of parts of those buildings during the transition period.
2. Expense of € 2.3 m relating to the fair value adjustment in the context of the contingent consideration (earn-out) due to the sellers of Evotec (Göttingen), primarily due to EVT770 reaching pre-clinical development candidate stage in the collaboration with MedImmune/ AstraZeneca.
3. Income of € 1.2 m relating to the fair value adjustment in the context of the contingent consideration (earn-out) due to the sellers of Evotec San Francisco.
operatinG result
aFter adjustments positive but below 2011
Evotec’s operating result for 2012 amounted to € (3.2) m (2011: € 5.2 m). In addition to a lower gross profit, 2012 included an impairment of intangible assets in the amount of € 3.5 m, while the prior year period included a net impairment of only € 0.6 m. In line with the latest guidance, the operating result before impairment and changes in contingent consideration was positive at € 1.4 m (2011: € 5.8 m). It remained below the prior year mainly due to the lower gross profit as explained above.
For a more detailed description of Evotec’s R&D activities and key R&D facts and figures, including a five-year overview of the R&D key financials, see also “Research and development – activities” on page 34 of this report).
sellinG, General and administrative expenses the impact oF acQuisitions and investment in the
business development team
Selling, general and administrative (SG&A) expenses of the Group increased by 3% to € 16.3 m (2011: € 15.8 m). This is primarily due to the higher cost base following the acquisitions of Evotec (München) and Evotec San Francisco, an increase in the size of the Business Development team as well as foreign currency effects.
net result
stronG deFerred tax income
Net income amounted to € 2.5 m (2011: € 6.7 m). The improvement over the operating result primarily resulted from significant deferred tax income (see below).
The total non-operating result amounted to € (1.8) m (2011: € 0.0 m). It decreased primarily due to exchange rate effects. While Evotec recorded
2011
2012
Delta in %: -161 in € m operating result(3.2)
5.2
multiple-year overview results of operations
in T€ 2008 2009 2010 2011 2012
* Operating result excl. impairments and reversal of impairments and changes in contingent considerations
revenues 39,613 42,683 55,262 80,128 87,265
Cost of revenues 21,977 24,262 30,916 45,143 56,242
Gross profit 17,636 18,421 24,346 34,985 31,023
Research and development expenses 42,537 20,947 6,116 8,437 8,340
Selling, general and administrative expenses 19,950 16,695 15,956 15,760 16,301
Amortisation of intangible assets 553 455 672 1,703 2,768
Impairment of goodwill (net) 20,288 48 - - -
Impairment of intangible assets (net) 7,295 18,185 - 557 3,505
Impairment of tangible assets (net) - (395) - - -
Restructuring expenses 132 4,849 - - -
Other operating income and expenses (net) 91 (64) (113) 3,321 3,311
operating result (73,210) (42,299) 1,715 5,207 (3,202)
Operating result adjusted * (45,627) (24,461) 1,715 5,764 1,401
Non-operating income and expense (net) (2,760) (2,520) 2,152 49 (1,812)
profit (loss) before taxes (75,970) (44,819) 3,867 5,256 (5,014)
Tax income (expense) (2,317) (678) (882) 1,395 7,492
net result (78,287) (45,497) 2,985 6,651 2,478
Gross margin 44.5 % 43.2 % 44.1 % 43.7 % 35.6 %
Operating margin (184.8 %) (99.1 %) 3.1 % 6.5 % (3.7 %)
Operating margin adjusted (115.2 %) (57.3 %) 3.1 % 7.2 % 1.6 %
EBITDA margin (165.8 %) (51.4 %) 18.1 % 17.3 % 6.3 %
R&D cost ratio 107.4 % 49.1 % 11.1 % 10.5 % 9.6 %
SG&A cost ratio 50.4 % 39.1 % 28.9 % 19.7 % 18.7 %
Personnel costs to total costs 34.1 % 41.1 % 45.8 % 42.9 % 42.2 %
a loss of € 1.2 m in 2012, the prior year period was positively impacted by a gain of € 1.4 m which was recorded in accordance with IAS 21 as a result of the reduction in the capital reserve of one subsidiary due to the payment of a dividend to Evotec AG.
The earn-outs, which are related to the Evotec (Göttingen), Evotec (München) and Evotec San Francisco acquisitions, caused interest expenses in the amount of € 1.1 m (2011: € 1.3 m) because of the unwind of the discount since the acquisition date. The interest result, excluding the interest expenses related to earn-outs, amounted to € 0.1 m (2011: interest expense of € 0.2 m).
The tax result amounted to € 7.5 m in 2012 (2011: € 1.4 m). In 2012, Evotec incurred a deferred tax income of € 8.3 m (2011: € 2.5 m); thereof € 4.8 m was due to the merger of Evotec (Göttingen) with Evotec NeuroSciences to Evotec International GmbH. As a result of the merger losses carried forward of Evotec NeuroSciences can be used to a higher level than anticipated at the end of 2011.
cashFlow
stronG operatinG cash Flow
Group cash flow provided by operating activities improved significantly in 2012 compared to the prior year. It was positive at € 12.0 m (2011: € 10.1 m) and this was due to the € 12.0 m upfront payment received from Bayer in the fourth quarter of 2012.
Cash flow provided by investing activities was € 5.8 m (2011: € (15.1) m).
The proceeds from sale of current investments in the amount of € 81.4 m were reinvested in the amount of € 62.5 m. Through the sale of these investments capital expenditures, earn-out payments and a technical access fee to an antibody platform were financed. Capital expenditures remained at a similar level to 2011 and amounted to € 8.2 m (2011: € 8.1 m). Earn-out payments to the former Evotec (München) and Evotec San Francisco shareholders amounted to € 3.0 m. To obtain access to 4-Antibody’s antibody platform Evotec paid € 2.0 m.
Net cash flow provided by financing activities amounted to € 2.6 m (2011: € 2.1 m) and related mainly to a net increase in bank loans (€ 1.9 m) and to proceeds from stock options exercise (€ 0.8 m). The Company successfully increased its access to debt financing during 2012 and further improved the terms and conditions on which this financing is or will be made available.
The impact of exchange-rate movements on the net increase in cash and cash equivalents in 2012 was € 1.0 m. This was primarily due to the US dollar strengthening against the Euro.
condensed statement of cash Flows
in T € 2011 2012
net cash provided by (used in)
– Operating activities 10,146 11,957
– Investing activities (15,068) 5,775
– Financing activities 2,139 2,603 net increase/decrease
in cash and cash equivalents (2,783) 20,335
Exchange rate difference (531) 953 cash and cash equivalents
– At beginning of year 21,091 17,777
– at end of year 17,777 39,065
– Investments 44,651 25,094 liquidity at end of year 62,428 64,159
2011
2012
Delta in %: -63 in € m
net result
6.7
2.5
This translates into a total net income per share for Evotec of € 0.02 (2011: € 0.06) based on a weighted average number of shares of 117,295,847 (2011: 116,022,213).