Dear ladies and gentlemen, welcome to the Annual Report 2017 of Evotec AG Conference Call. At our customer's request, this conference will be recorded. [Operator Instructions]. May I now hand you over to Dr. Werner Lanthaler, CEO of Evotec AG, who will lead you through this conference. Please go ahead, sir.

Welcome. Thank you for dialing in to our full year 2017 conference call to report on Evotec. We have uploaded a presentation to the Internet, and it would be great if you can follow this conference call with this presentation because we will use some of the slides. Excellence in external innovation. That's what we put as a theme out there that should guide us through the conference call to come. And I'm here with my colleagues, Mario, Cord and Enno, my management team that has done excellent work last year and is preparing for more good work to come in 2018 and the years forward. But at the same time, let me say also thank you to our 2,300 coworkers in Germany, the U.K., Italy, France, the U.S. and Switzerland because what you see is the joint effort of a team that is united in the spirit of bringing excellence to the biotech industry. So the goal of this call is that we will briefly look back to 2017; we'll give you some highlights of the seeds that we have planted for 2018 and the years to come; and very importantly, we will also give you a long-term view of what we call Action Plan 2022, which should illustrate to you that we really feel that it's just the beginning of the mega trends that we are leading in excellent innovation. If you go to Page 4 of your presentation, you see the highlights of a fast-growing platform we are -- ultimately we are building a co-owned pipeline. And in one way to summarize the state of the company, it's fair to say that the situation of the company is strong. I think it's even fair to say that the situation of the company is very strong. Mario will…

Well, thank you very much, Werner. I like the formula as well. And good afternoon to everybody listening in. My pleasure, once again, to give you an update on the performance of the Execute segment in 2017, which, although outstanding in its own right, also sets the foundation for 2018 and beyond and as Werner has described, with Action Plan 2022. Slide 13 is a depiction of Evotec's end-to-end platform offering in drug discovery and development. As you can see, with the acquisition of Aptuit, Evotec can now support our partners totally from target through to IND and in some cases, beyond. This is under one integrated offering, and this is a truly unique business solution in our industry. Moving to Page 14 and some of the metrics behind the performance of Evotec Execute. This illustrates, the slide, the continued strong performance of the business segment with a 46% growth in revenues to more than €250 million and a concomitant rise in EBITDA to greater than €63 million. This tremendous performance is driven by the core business contributions from Cyprotex and Aptuit and also milestone achievements. Moving on to Slide 15. 2017's performance, as you can see and as you have heard throughout 2017, was underlined by strong delivery of long-term collaborations such as those with CHDI, UCB, Bayer, Sanofi, Forge as well as new integrated partnerships with the likes of companies such as Abivax, Blackthorn Therapeutics, Dermira, STORM, Tesaro and of course, many others that we cannot name. Milestones with UCB, Bayer and Boehringer Ingelheim were also delivered. And we're very pleased to say that Cyprotex has delivered ahead of plan, and we see a shift in this excellent profiling resourcing business from tactical to more strategic projects. The next slide, Page 16, shows that the addition of Cyprotex…

Thank you, Mario, and good afternoon to everybody on the call. It is my great pleasure to give you an update on Evotec Innovate. 2017 has been a truly great year for Evotec Innovate. In 2017, we have -- Evotec Innovate has made great progress on all fronts. We continued to expand our academic BRIDGE efforts and thereby continuously expanded our pool of high-potential, next-generation projects. We also continued to expand our pipeline of co-owned projects to now over 80 projects. All of these projects carry very significant commercial upside for Evotec. In addition, we expanded our Evotec Innovate R&D portfolio into new disease areas and that's added projects in respiratory disease, retinal disease as well as in anti-infectives. Furthermore, we continue to expand the scope of Innovate discovery platform. In particular, we expanded our iPSC-based drug discovery platform, but we also continue to invest into high [indiscernible] approaches and artificial intelligence platforms. Finally, we also expanded our portfolio after the financing of coinvestments that further expand our pipeline of Innovate projects that carry basically some upsides for Evotec. Unfortunately, we will not be able to go through and cover all progress here in Evotec Innovate in detail, but we will try to summarize some key points in the next 2 slides, starting with our continuously growing pipeline on Slide 21. Just as a brief reminder here, the key objective of Innovate is to build significant financial and commercial upside for Evotec through the co-ownership of high-potential drug product opportunities. Essentially, all of these drug products on this slide share three important principles, first of all, basically all product opportunities in this pipeline are potential first-in-class drug products in areas of high unmet medical need with very significant market potential; secondly, for most of these projects, our [indiscernible] partners hold…

Yes. Thank you very much, Cord, and welcome from my side to all of you as well. I now have the great pleasure to introduce you to our 2017 consolidated audited financial numbers for the whole Evotec Group, including Cyprotex and Aptuit. And starting on Slide 35. First of all, and as already indicated by Werner, we overall do report a record year for the Evotec Group with the highest revenue and record EBITDA in Evotec's history. We grew our revenues by 57% and in line with this goes our 60% increase in the adjusted EBITDA from €36.2 million to €50 million -- €58 million. Thus, we outperformed our guidance and overachieved our revenue and EBITDA targets. This strong financial performance is based on a broad growth mix of -- within Evotec, and I'll get back to that later on. Our numbers reflect that Evotec is not only growing in one particular field, but based on various pillars, contributing to the positive results in 2017. What I would like to point out here is the fact that we, in 2017, do experience an increasing impact on our financial figures caused by our latest strategic activities and some other onetime effects. For example, we contracted purchase price allocations with regard to the acquisitions, from which we find now a lean amortization in our cost of goods, obviously reducing our gross margin a little bit. SG&A increased also due to significant one-off effects from our strategic measures. And please also bear in mind that in 2016, our operating income was significantly positively affected by changes in contingent considerations due to the revaluation of EVT770, triggering the release of €12.4 million earn-out provisions. In addition, other operating income keeps profiting from an increase in our R&D tax credits that we achieved, moving up…

I'm also with Evotec since many years and part of the 2,180. And let me guide you to Page 46 by rounding up this full year information call with an outlook for 2018, which is strong. 3x30 stand for more than 30% growth in group revenues, approximately 30% growth in our adjusted EBITDA, which should be the number to focus on going forward, and a focused R&D investment of between €20 million and €30 million for first-in-class innovation. This is a high expectation that we have set ourselves, and we are very confident to meet this because at today's situation for our capacity, we have the best booking rates in history. So the only remainder for the year that will create volatility is how many milestones will be achieved. The scientific risk, which will stay and is good to stay behind this company. On Page 47, we want to illustrate to you that sometimes, a facelift is a good idea. So we also have given a facelift to our website, and we are inviting you to visit us as often as you want, as often as you can, to come to evotec.com. On that note, please continue to follow us on Page 48, you'll see the date that mark our reporting lines, but you will hear very often also in the interim from us if we have important deals or milestones to report. And with this, thank you so much for following Evotec in 2017 and supporting us for Action Plan 2022, and we are looking forward to your questions. Thank you so much.

[Operator Instructions]. The first question is from Falko Friedrichs, Deutsche Bank.

I will have three please. The first one, can you quantify the FX impact that you had in 2017? And if spot rates remain where they are at the moment, could you give us the ceiling for what we can expect in 2018? Secondly, out of the roughly €28 million milestones that you achieved in 2017, could you disclose how many of those you achieved in the Execute segment? And then thirdly, does your 2018 guidance include the expected contributions from the recently announced deal with Sanofi? And can you also share why adjusted EBITDA shouldn't grow more than sales in 2018?

So question one, I will then hand back to Enno. Question two, I will hand back to Mario. Question three, it's very simply answered that today, we don't include our transaction as it is in exclusive negotiations, which we hope to close in H1 2018. But I can already tell you now that we are intending to put the payments that we are receiving from Sanofi fall on the top line. We are intending to put note of that under operating income because we are building a pipeline of products together here, which will be the ultimate value driver from this transaction. On that note, let me hand back for question number one to Enno.

Welcome, Falko. Pleasure having you on the call. So in total, we had P&L express -- FX loss of minus €8.7 million, and the major part goes to unrealized FX losses, the translational FX effect is from currency or from cash hold in other currencies like U.S. dollars for instance, which is almost €5 million. The other significant portion is realized FX losses from dividend payments intercompany. That's the 2 major portions. Obviously, currently with the outlook, the challenge is that we have a very volatile U.S. dollar, which is stronger than expected. And at the end of the year, we're at about €1.20. Now it is €1.24, so we're trying to recover that as good as possible right now. But it's hard to predict how this will impact our final number.

It's Mario here on the milestones question. So for 2017, the Execute milestones were approximately 50% of the milestones achieved, which is around €11 million. So what you should take from that is first of all, the milestones achieved in 2017 went up compared to 2016. And importantly now, the percentage coming through from the more mature Innovate programs and shown the success of them is now starting to dominate. That, of course, with the upside in terms of more clinical and milestones and royalties gives us great confidence in believing for the years ahead. I think important to add on this is our performance with alliances have certain output goals and what you see reflected in the milestones achieved is especially in the endometriosis collaboration with Bayer, where we hope in 2018, the output goal of having three targets in the clinic will be achieved. And with this, we can also declare that a collaboration has successfully ended, which again, typically, we end this collaboration stuff on the side and don't report about this, but this would be just fantastic to see the driver here of the milestones also leading into clinical products where we then continue to get clinical milestones.

The next question is from Franc Gregori from Trinity Delta.

I've got a number of questions, but I will start with two and then come back into the queue, and the two are for Mario. The first is with INDiGO. Now that you've got the process is launched and everything going through, can you give some color as to why people are attracted to it? And also, if you can see any differences between what you thought were the reasons that they would be attractive to it and what turned out to be the reasons given? And secondly again to Mario is on Cyprotex. I'm very pleased to see that it's performing better than expected. Can you identify why that is? And if the learnings that you're getting from that can be applied to other acquisitions? I'm obviously wanting to know what the effect would be on Aptuit.

Franc, thank you very much. You phased out the milestones individually first, that's quite [indiscernible]. And so I'm pleased to hopefully be able to meet your expectations.

I'm sure you will, Mario.

Thanks very much, no need to be polite. Anyway, INDiGO, yes, what we find with INDiGO, what was a key attraction of the acquisition of Aptuit is this ability to go from effectively, a preclinical development candidate very rapidly into a submission of an IND or CTA or ready for Phase I. And we had found ourselves in terms of development of some of our compounds, the doctrine, you end the discovery phase and then somebody looks up and says, "Right. Now we need to make active pharmaceutical ingredients, now we have issues with formulation, how do we go out and find a CRO for tox, et cetera." What we found here with Aptuit is all of the -- well, first of all, under one roof with strongly experienced people and what we can do especially within our own discovery projects is start to look at these areas. So as we go towards but not yet at nomination of our preclinical candidate, we're able to assess the synthetic tractability of a compound, whether we have formulation issues, whether there's any early tox findings we should use. And hence, when we do nominate the compound, we are ready to go. We have a synthetic process in place, we have people making the API, formulation is being addressed and we're project managing into the various tox basis. So this really shortens the time lines, and of course, it means we're bringing projects to the clinic much more quickly and into -- and more efficiently. So it's exactly how we thought it was. We're also finding that it's a great attraction for when defining early discovery deals. Because now from the outset, we are able to offer our partners a program that starts from screening and we'll partner with them all the way through to the clinic, whereas previously, we stopped at the preclinical development candidate. So we're finding two aspects of the cross-selling there. At Cyprotex, it has been a great success. Actually, what's behind that? Well, again, we did our due diligence well, and we realized that there was great people involved in the organization. We were able to help them move out of old premises into much more state-of-the-art premises, which means they can deliver more efficiently. We are able to cross-sell, especially with the huge commercial network that Evotec has. And we focused increasingly on more strategic selling rather than tactical selling. So I think we've got the balance there. But primarily, I think we've been able to maintain the motivation of a fantastic group of scientists who continue to deliver tremendous data, whether it's on a completely stand-alone basis or as part of integrated drug discovery. So our learnings are as always, it's fundamentally about the people. And if the people remain motivated and we can introduce them into the Evotec way of thinking, and you heard and saw Werner's formula at the beginning of the presentation, then that's really what makes a successful integration.

Thank you very much.

Next question is from Igor Kim, ODDO BHF.

I've got a couple of questions. First, does your outlook includes the potential milestone payments from Celgene and from Bayer in endometriosis collaboration? And second question is given the €28 million of milestone payments that you had in 2017, which was quite remarkable, do you think it's realistic that you will be above that figure in 2018? The third question is on CapEx, what we could expect for CapEx for 2018?

So milestones are depending on outcomes of experiments. Predicting the outcomes of experiments is not our business. Our business is to run at highest-quality experiments. And that's why we are very cautious in giving you a guidance of what the number of milestones is that we are expecting. One thing we can say is that the portfolio of options for milestones in 2018 is larger than the portfolio was then in 2017. By the way, the correct number of milestones is €21 million that we achieved in 2017, not €28 million. And what we do, we have a certain expectation that is risk-adjusted and probability-adjusted in our guidance always in there. But again, there will be volatility, and we don't know if these milestones are coming. But historical experience tells us that from the pool of options that we have, a certain number should be achieved, and they are included in the guidance that you see there. When it comes to the CapEx question, I hand over to Enno.

Yes. So in 2017, we had a CapEx of €17.6 million. That obviously contains mainly Evotec and only in the last quarter also contribution by Aptuit. So we will continue to significantly invest to pay up-to-date and state-of-the-art with our equipment, plus obviously, equipping our growth as we are growing at different sites. So that for 2018, you can expect a significantly up -- a significant uptick in this CapEx as we will have the first full year at Aptuit, where we also anticipate to grow this part of the organization. So we should be clearly above the numbers from 2017.

But note that the CapEx are long-term investments. So the true impact, you will see in 2019, 2020, 2021 of these CapEx investments.

The next question is from Samir Devani, Rx Security.

I'm just going to ask one, which is on the CHDI contribution to the results, if you could attach a figure to that and what do you expect when you're -- at the end of the year?

I'll pass on the question to Mario.

Okay. Thanks for the question. Of course, we don't give individual details of programs. But CHDI, as we have announced on many occasions, is a significant program. We have more than 50 people working for CHDI in the quest to try and find a cure for Huntington's, and we're very proud to be part of that initiatives. It continues to 2018. We have to give you some more update for that later on in the year. It is a strong contributor. It is in the single-digit percentage contribution to the Evotec group revenue and also EBITDA line.

But one thing we should probably highlight that there is a passion and a commitment between the CHDI and Evotec that we will not give up to work on Huntington's disease until we have a drug, and that's the commitment that we bring to this. And it's really one of these examples where we are doing everything in our power to make a foundation fulfill its mission.

There's a follow-up from Franc Gregori.

It's Franc Gregori from Trinity Delta again. Two questions, one maybe for Cord or it maybe for Werner. When we look at the EIB loan of €75,000, can you give me a feel for the type of investments that you're going to make? I don't want details as in what but more the magnitude. So is it going to be three at €25 million, 10 at €7.5 million, that type of thing. And importantly, do you need to have a large stake or would you just take a very small stake in a larger business?

Thank you. Go to Enno.

Yes. So first of all, the volume, as a reminder, is 75 or up to €75 million in total over four years, and we will try to distribute it over that period. It allows us to invest directly into our own R&D projects but as well, as you indicate, into equity stakes. So last year, as you can see there also on our report, we drew down about €16 million from EIB for 2017 and the amount for 2018 probably is in the similar ballpark if you look at our basic R&D expenditures plus some equity. And then finally, it depends on the opportunities that we identify on the equity part, which we then cannot fully foresee at this point in time, if we find new attractive targets that we want to participate in. The code will always be 50% that we can draw down into a form of investment and refinanced by EIB. The holdings of the share that we wanted to have in these companies is definitely a minority share, so we do not want to fully consolidate these companies or get full control but normally, stay below 25%. Obviously, we have some exemptions from the rule. It's already in our portfolio at this point in time.

But it is fair to say that the best project is always the closest project. So Evotec Innovate, that's what we try to leverage, especially with the EIB money and there, we see plenty of opportunities. So it's more the exception if we go outside and if we don't invest inside into Evotec Innovate.

Can we follow up on that? If we are to be looking outside, do you ever see a situation which a fantastic opportunity, which ticks all of your strategic objectives, make you go into a negative EBITDA?

We are there, and that's our only passion and driver to create value for our shareholders. And if we would have to change a parameter like that, we would do it if this would create a higher value for our shareholders. At this stage, you see us operating on a big portfolio so that an individual project, which we can drive on the other cost on our platform is difficult to identify to make us go into negative EBITDA, but we would not rule it out.

At the moment, we have no further questions. [Operator Instructions].

If there are no questions, then let me thank you for staying with us for an hour on this report that is going to be a bit longer call than normally. But on the other hand, we wanted to provide you with the full depth and the breadth of what's ongoing at Evotec at this stage. And as you noticed, there is a lot that is already in the pipeline, and there is more to come. Thank you so much, and we look forward to hearing from you soon. All the best.

Good bye.

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.