A deal to dream for and key data due soon
The exceptional deal with Sanofi (PARIS:SASY) for its Toulouse facility at no cost provides Evotec with a platform to accelerate its growth. Evotec gains much-needed capacity, as well as expertise and other capabilities. The company has already seen an improvement in revenue growth over the last two quarters, and the Sanofi deal should enable it to maintain double-digit growth in the coming years. Evotec is also approaching an important data readout from the Alzheimer’s disease (AD) Phase IIb trial with EVT302, which could lead to partner Roche initiating Phase III studies.
Sanofi deal: Cost-free expansion
Evotec has completed the acquisition of Sanofi's Toulouse site with all the running costs covered by €250m in guaranteed revenue over five years. The Toulouse facility also solves Evotec's capacity constraints, enhances its expertise in oncology, adds a compound management facility with access to Sanofi's library of 1.3m compounds and includes c 14 discovery and preclinical oncology assets.
Revenue growth regaining momentum
Evotec ended FY14 strongly, with sales growing by 19.3% in Q414, and delivered revenue growth of 22.3% in Q115; this compares to sales falling by 1.5% in FY13 and increasing by only 4.1% in FY14. The improved performance is due to more major alliances (mainly with biotech companies), more milestones being achieved and the strengthening dollar. We forecast that Evotec will deliver revenue growth of 40.6% in FY15, with the Sanofi deal being the primary cause for the jump in sales.
Important EVT302 data in AD approaches
Roche is due to report data from the Phase IIb trial in AD with Evotec's lead product EVT302 in mid-2015. The compound is believed to slow disease progression by reducing oxidative stress and, if the data support this view, we would expect the product to advance into Phase III and for Evotec's shares to be re-rated. However, it should be remembered that AD is a notoriously difficult indication to treat.
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