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Published to the market and investors on 13^th May 2019 @ 7.00am (BST).

Evotec SE (EVT-DE): Q1/2019E Results Preview
Recommendation: OUTPERFORM
Target Price: EUR28.00
Current Price: EUR22.43 (CoB on 10^th May 2019)

KEY TAKEAWAY

Evotec reports Q1/2019 financial results on Tuesday, 14 May 2019. We forecast total revenues of EUR90m, +14% YoY and adjusted EBITDA of EUR20m, +43% YoY. While we anticipate robust growth for the EVT Execute business, we expect Q1 overall to be weaker than subsequent quarters this year due to modest milestone income in the EVT Innovate business, which we estimate at

EVT Execute to account for the lion share of revenues

We model external revenues of EUR78m, +14% YoY for the EVT Execute business, of which we expect roughly one-third to be related to the acquired Aptuit business, which has been performing above or in line with management expectations. Our adjusted EBITDA forecast is EUR23m, representing a c.26% margin. This assumes that CoGS, R&D and SG&A expenses remain at similar levels as in Q4/2018.

Modest revenues expected for EVT Innovate due to timing of milestone income

For the EVT Innovate business, we model revenues of EUR12m, consisting of an estimated EUR5m in non-milestone-related revenue, plus two disclosed and one undisclosed milestone receipts: (1) $2m from microbiome-focused company Second Genome for the initiation of a Phase II clinical study for an oral therapeutic in development of non-alcoholic steatohepatitis ("NASH"); (2) EUR3m from Bayer related to the advancement of a molecule into Phase II for the treatment of persistent chronic cough, and (3) and undisclosed upfront payment from Galapagos related to a collaboration focused on a novel target for fibrosis and other indications, which we estimate at EUR2m. Our R&D forecast of EUR16m includes EUR7m related to the infectious disease ("ID") unit in Lyon, which is fully reimbursed by Sanofi and booked under other operating income. On our estimates, and predominantly as a result of the timing of milestones, we expect EVT Innovate to report a EUR5m loss. We note, however, that we expect FY2019E EBITDA for the segment to be positive (GPSLe EUR4m).

Risk to the upside given strong funding environment

Overall, we believe that the risk vs. our forecasts is to the upside, as the funding environment has remained strong through Q1/2019 both in the private and the public markets. Young biotech companies in particular - Evotec's fastest-growing customer segment - have adequate cash reserves following a record-breaking year for venture capital funding for life science companies, which reached $17.3bn in 2018 vs. $12.1bn in 2017 and $9.7bn in 2016 (according to EvaluatePharma). That said, it is early in the year and Evotec has historically not updated financial outlook until Q2 or Q3 results.

Kind regards,

Brigitte de Lima, PhD, CFA | Research Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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