Evotec Fast Forward

Evotec has raised €30m in new equity to accelerate its CureX/TargetX strategy, which is focused on discovery alliances with academia. The additional capital will allow Evotec to build more alliances more rapidly, thereby enhancing its long-term growth prospects. There are now three CureX and two TargetX initiatives, one of which (CureBeta) has already resulted in a major alliance with Janssen. We expect further collaborations and/or deals in H213. Our valuation increases from €451m to €480m.

€30m raised from Biotechnology Value Fund...
BVF is now a major strategic shareholder in Evotec (9.1%) following its €30m investment in 11.8m new shares at €2.55/share. With this transaction BVF becomes the third largest institutional shareholder behind TVM Capital (9.4%) and ROI/Oetker (c 14%). BVF also has an option to buy an additional 11.8m shares from TVM at €4.00/share within the next 30 months; full exercise of this option would result in Evotec having a cornerstone investor holding c 18% of the shares.

…to accelerate CureX and TargetX strategy
While Evotec was already well capitalised (liquid funds of €56.1m at end-Q213), the extra funds provide it with the flexibility to invest in more CureX/TargetX research collaborations with academia. Evotec is targeting eight alliances by end-2013 and, encouragingly, has just announced its fifth deal (CureMotorNeuron). The CureMN partnership (the fourth with Harvard) aims to identify novel therapies to treat amyotrophic lateral sclerosis (ALS). We anticipate further collaborations in Q413.

Enhancing growth prospects
We view the CureX/TargetX initiatives as a key component of Evotec’s long-term growth prospects. Their potential has been indicated by the CureBeta (diabetes) alliance with Harvard, which resulted in a major alliance with Janssen. Evotec received €8m upfront and is eligible for milestones of €200-250m per product plus royalties. Further partnering deals (eg CureNephron) are possible in H213.

Valuation: Revised DCF valuation of €480m
The increase in our valuation by €29m to €480m reflects the greater long-term growth prospects associated with the fund-raising and planned CureX/TargetX expansion. Our FY13 forecasts are materially unchanged. For FY14, we have increased R&D and SG&A expenditure to reflect additional spending on new projects; we now expect operating profit (pre-goodwill and exceptionals) to remain close to flat year-on-year at €9.1m.

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