Evotec Update: Licensing Deal, Collaborations, Milestones

Evotec (EVT.F) is making good progress to achieving its Action Plan 2016 goals following a flurry of activity since the middle of November. It has out-licensed its NMDA antagonist portfolio (including EVT100 family) to Janssen Pharmaceuticals (J&J), formed three new drug discovery alliances and begun a collaboration with Yale, and achieved two milestones. The Janssen licensing agreement should result in Evotec having another product in clinical development by the end of the year. Despite this progress, we have lowered our estimates following the reduction in guidance in October to be more conservative. So, our valuation is reduced by €55m to €430m.

NMDA agonists out-licensed
Evotec’s NMDA antagonist portfolio has been out-licensed to Janssen for the treatment of depression in a deal worth €175m and double-digit royalties, a proportion of which is payable to Roche. Janssen is expected to initiate a Phase II trial in H213 once certain preclinical properties of the portfolio have been confirmed. This family of products includes the EVT100 series, which Evotec had previously been developing in collaboration with Roche for treatment-resistant depression.

Milestones and new alliances to maintain growth
Evotec has formed three new collaborations with biotech companies and the achievement of milestones with Ono Pharmaceuticals and MedImmune have laid the foundations for Evotec to continue its double-digit growth. The programme with Ono has reached preclinical development, so the drug candidate could enter clinical development in 2014.

New academic collaboration with Yale University
Evotec and Yale have entered into an open innovation alliance, in which Evotec will assist Yale in converting research in the fields of metabolism, neurology, immunology and oncology into highly innovative treatments. Evotec has formed two alliances with Harvard University (as part of its CureX strategy), the first of which has already led to a major strategic alliance with Janssen in diabetes.

Valuation: DCF valuation of €430m
Evotec lowered its guidance in Q412, and so we have lowered our estimates to be more conservative, despite its recent newsflow. Thus, we have lowered our valuation by €55m to €430m (€3.64 per share), compared to the current market cap of €331m. The main catalysts in 2013 are expected to be the formation of a second CureX collaboration with a major pharmaceutical company and possible upgrades to sales and profit guidance.

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