Evotec Reports Strong Third Quarter 2008 and Improves Full-Year Guidance
Evotec AG (Frankfurt Stock Exchange: EVT; NASDAQ: EVTC) today reported results for the third quarter and nine months ended September 30, 2008.
Evotec revenues for the first nine months of 2008 were EUR 25.2 million, 9% above last year’s level (2007: EUR 23.2 million) following a strong third quarter. At 2007 constant currencies revenues would have been 18% higher (EUR 27.3 million) than the prior year. Revenues in the third quarter increased 44% from the prior year to EUR 10.7 million from EUR 7.4 million. The increase in both periods is primarily due to milestone revenues related to our collaboration with Boehringer Ingelheim in the third quarter of 2008.
The operating loss for the first nine months of 2008 amounted to EUR 35.2 million (2007: EUR 36.7 million). The decrease from the prior year, despite a higher current year investment in research and development, is a result of higher revenues, lower cost of revenues and a decrease in amortization expense related to intangible assets.
Net loss amounted to EUR 29.0 million (2007: EUR 33.2 million). The decrease in the net loss was primarily due to the other income from financial assets relating to the valuation of Direvo convertible bonds in connection with the sale of Direvo Biotech to Bayer HealthCare.
Cash and investments (including auction rate securities) as of September 30, 2008 amounted to EUR 97.6 million (December 31, 2007: EUR 93.7 m).
On August 1, 2008, we reported that Pfizer initiated a Phase I clinical trial of a small molecule VR1 (vannilloid receptor 1) antagonist for pain as part of its collaboration with Evotec. On October 9, 2008 (after period end), we announced that we also achieved a second important clinical milestone this year from our US operations with the initiation of Phase I clinical studies on our proprietary, small molecule P2X7 receptor antagonist for treatment of rheumatoid arthritis and other inflammatory conditions.
On September 2, 2008, we announced the achievement of the third milestone related to our collaboration with Boehringer Ingelheim. On October 30, 2008 (after period end), we announced that two further research milestones have been achieved in this collaboration. This brings the total amount of milestone payments earned in 2008, related to this collaboration, to EUR 8.5 million.
On September 11, 2008 we announced the start of a Phase II quit rate study with EVT 302 in patients wishing to stop smoking. The study is intended to provide the proof-of-concept for the efficacy of this compound in smoking cessation.
On September 16, 2008 we announced that as a result of the sale of Direvo Biotech to Bayer HealthCare, Evotec would realize approximately EUR 5 million through the sale of Direvo convertible bonds, which we received as part of the consideration of the sale of our equity holding in Direvo in May 2007.
“We are very pleased with what we accomplished this quarter. We continue to make progress with our clinical and discovery CNS portfolio. After starting two new Phase I programs, we now have five compounds in clinical development. EVT 302 entered Phase II proof-of-concept studies in smoking cessation and we are preparing Phase II proof-of-concept studies for EVT 101 to start in early 2009 in pain and other indications. Partnering discussions with our lead compound EVT 201 for the treatment of insomnia advanced and narrowed during the quarter and we feel confident that those might lead to a signed contract in early 2009. While the market environment for any partnering of insomnia drugs remains challenging, we continue to believe in the attractiveness of our drug candidate that addresses many of the concerns associated with current insomnia therapies. For other clinical and preclinical programs we are also seeing growing partnering interest,” said Jörn Aldag, President & Chief Executive Officer of Evotec AG. “We are also proud of the exceptionally strong third quarter 2008 performance. We achieved several milestones from our collaboration business which combined with the sale of Direvo convertible bonds and a strengthening of the US Dollar led us to improve our financial guidance for the year. Even amidst global financial uncertainty, Evotec is well financed with a liquidity position of EUR 98 million that will allow us to drive our assets through development in this difficult market environment.”
2008 financial targets
A strong performance of the research collaborations business and the cash we will be receiving related to the sale of Direvo Biotech to Bayer HealthCare have lead us to improve our financial targets for the current year.
Due to higher-than-anticipated milestones from the Boehringer Ingelheim collaboration and a solid overall performance in our collaborations business revenues are now expected to reach EUR 38 to 40 million (previously: EUR 34 to 36 million). As expected, R&D expenses will increase from 2007, driven by progress in the clinical pipeline and the Renovis acquisition. However, due to a reduced discovery spend, the shift of a clinical milestone payment to Roche into early 2009 and overall cost containment, we now expect R&D expenses to be lower and in the range of EUR 40 to EUR 45 (previously: EUR 46 to EUR 51 million). Excluding the effect of any non-cash impairment charges in both years this would translate into an improved 2008 operating result over 2007.
Due to the events noted above and the favorable US dollar exchange rate, we have increased our cash and investments target, including auction rate securities, to the range of EUR 90 million to EUR 95 million (based on September 30, 2008 exchange rates). Our previous year-end 2008 liquidity guidance was that cash and investments, including auction rate securities, would exceed EUR 80 million at constant currencies (as of the date of our Q2 2008 report). Assuming the Company’s ambitious portfolio development goals and no major partnering event, the liquidity position is expected to be sufficient to fund Evotec’s development programs until the end of 2010.
All 2008 results shown and discussed above in this press release are compared to the 2007 continuing operations. On November 30, 2007 Evotec sold a major line of business, its Chemical Development Business, to Aptuit. From the effective date onwards, this business was no longer consolidated in the Evotec Group accounts and income and expenses for that business are retrospectively disclosed as discontinued operations in the statements of operations. In addition, on May 2, 2008, the Company completed the acquisition of Renovis, Inc. The operating results of Renovis from the period May 2, 2008 through September 30, 2008 are included in the accompanying consolidated interim statements of operation for the nine months ended September 30, 2008 and the assets and liabilities of Renovis at September 30, 2008 are included in the accompanying consolidated interim balance sheet. Therefore, the 2007 and 2008 results are not fully comparable.
Information set forth in this press release contains forward-looking statements, which involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited to, statements about our expectations and assumptions concerning regulatory, clinical and business strategies, the progress of our clinical development programs and timing of the results of our clinical trials, strategic collaborations and management’s plans, objectives and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: risks that product candidates may fail in the clinic or may not be successfully marketed or manufactured; risks relating to our ability to advance the development of product candidates currently in the pipeline or in clinical trials; our inability to further identify, develop and achieve commercial success for new products and technologies; competing products may be more successful; our inability to interest potential partners in our technologies and products; our inability to achieve commercial success for our products and technologies; our inability to protect our intellectual property and the cost of enforcing or defending our intellectual property rights; our failure to comply with regulations relating to our products and product candidates, including FDA requirements; the risk that the FDA may interpret the results of our studies differently than we have; the risk that clinical trials may not result in marketable products; the risk that we may be unable to successfully secure regulatory approval of and market our drug candidates; and risks of new, changing and competitive technologies and regulations in the U.S. and internationally.
The list of risks above is not exhaustive. Our Annual Report on Form 20-F, filed with the Securities and Exchange Commission, and other documents filed with, or furnished to the Securities and Exchange Commission, contain additional factors that could impact our businesses and financial performance. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.