Dear, ladies and gentlemen, welcome to the Evotec AG Conference Call. At our customer’s request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] May I now hand you over to Mr. Werner Lanthaler, who will lead you through this conference. Please go ahead, sir.

Welcome from Hamburg. This is Evotec speaking – this is Evotec’s management on our Q3 conference call. We have uploaded a presentation for this conference call and I hope that you can access this presentation and can follow us with the slides through the next about 30 minutes, where we want to guide you through our highlights of the first nine months of 2015. I’m here together with my management colleagues, Mr. Colin Bond, our CFO; Mr. Mario Polywka, our COO; and Cord Dohrmann, our Chief Scientific Officer. Let me start by guiding you to Page number 4 of this presentation and let me introduce this call by stating that the state of the company is strong. The cadence for state of the company is actually very strong and it’s due to the fact that our business model works. In 2012, we have segmented the company in two very distinctive ways of how we optimize the usage of our platform. One is Evotec Execute led by Mario and the other one is Evotec Innovate led by Cord. What we see is that this business model brings clarity to what we’re doing and clarity mix of more efficient, more customer-oriented and basically allowed us to lead drug discovery globally. When you go to Page number 5 of your presentation, you should see the highlights of the first nine months snapshot here by underlying that we see a strong operational performance and strong partnering success in the first nine months. So for Evotec Execute, we can highlight new alliances, important extensions, and successfully integrating new offerings into our business that Mario will then elaborate. At the same time on Evotec Innovate, our academic bridge from bringing best-in-class assets via our platform to pharma works. And here we can already demonstrate a lot…

Thank you, Werner, and good afternoon everyone. So as Werner has said, we’d like to expand little more than usual on the Execute business, perhaps give you some background on the market in which we operate and how Evotec Execute which to remind you is a segment that works on collaborations and partnerships where the customer or partner brings the intellectual property to the collaboration. We’d like to share you how Evotec Execute is outperforming the market trends and a little bit on how we’re doing this. So on this slide, it doesn’t really need much explanation to any of you, you know that outsourcing is being the norm for the life science industries for the last 20 years or so and the trend continues to reduce fixed cost towards variable costs for companies that have the flexibility to move resources as portfolio strategies change and of course increasingly the need to access Target X and drug discovery expertise from outside of the industry. Now most people would suggest that the trend in growth and the outsourcing market is anywhere between 5% to 10% and Evotec Execute is a business that currently is growing and developing in line if not above that market trend. We turn to Slide 9, this is showing the key performance indicators of revenues and EBITDA and shows a quite significantly revenue and EBITDA compared to the nine month period in 2014, should point out that the revenue number includes intersegment revenues of approximately EUR19.5 million. The growth in revenues from EUR61.5 million to EUR93 million is a 52% increase and of course it’s being driven in some part by the significant expansion of what we do with Sanofi through the recent transaction but also fundamentally through the growth of the core business FX effects and…

Hello. My name is Cord Dohrmann and I will give you a brief update on the Innovate business model on Evotec. On Page 16, you can see that we currently staying with our product portfolio, which continues to grow. As Werner already mentioned, we have a significant setback in our product portfolio in our Alzheimer’s disease collaboration with Roche. Unfortunately, Evotec 302 did not reach significance on its primary endpoint and key secondary endpoint. However, the key message today is that within the Innovate business segment is that we have significantly expanded our partner product pipeline in 2015, in particular we have signed four key strategic deals for the lease area with key players of the industry, one partnership is the Second Genome, a development partnership in microbiome related disorders. In the [indiscernible] we signed two key collaborations with Sanofi, one in diabetes and one in cancer immuno oncology. And finally in September, we signed a very significant partnership with Pfizer, including fibrosis. On the next slide, you can see that all of these still are based on potentially disease notifying product opportunities in areas of huge unmet medical need. The immuno oncology approach is a small molecule approach that stimulates the immune system to attack and destroy tumor cells and it’s very – is a highly complementary approach to the very successful checkpoint inhibitors that are currently going through clinical development. In diabetes, the food and dietary focused approach that covers [indiscernible] product development opportunity as well as duct cleaning iPS [indiscernible]. In organ fibrosis, we signed a major partnership with Pfizer, which is initially committed for at least 12 years and cover a number of disease mechanisms. And finally, in the Inflammation/GI to our microbial related disorders base, we signed a product development partnership with Second Genome a key player in microbiome related disorders. On the next page, you can see how Evotec Innovate has developed over the past four to five years. We have initiated Evotec Innovate business model in 2011 and since then have initiated more than 20 Innovate related projects. By now we have partnered more than 10 of these projects – Innovate projects and continuously expanding our portfolio of Cure X/Target X initiatives in the future to additional academic partnerships in [indiscernible]. Finally on Page 19, you can summarize that despite a significant setback of Evotec 302 now partnership with Roche, we have made sustained major progress in number of areas, in particular, we have extended our academic network of academic alliances with [indiscernible], the Gladstone Institute and [indiscernible] just been accomplished. But most importantly, we have rolled over four CureX/Target X initiatives into longer-term strategic partnerships with key pharma players, and we continue to spend our portfolio of CureX/TargetX initiatives and see significant interest in partnerships in huge areas. With that, I’d like to hand over to Colin.

Thank you, Cord. Good afternoon, everyone. On Slide 21, we see the P&L group for the first nine months of 2015. Revenues increased by 50% in the first nine months of 2015, compared to the prior year period to €55 million. This increase was due to the various agreements under the Sanofi collaboration, strong growth in the base business, and favorable effects in FX. The gross margin for the first nine months of 2015 increased to 29.7% compared to the prior year period of 28.3%. This was primarily due to multiple agreements with – within the Sanofi collaboration and also the favorable FX impact, due to the strong dollar versus the euro, and was achieved despite the lower level of milestones in the first nine months of 2015 compared to 2014. SG&A increased by 49% compared to the prior year period to €12.4 million. This was largely due to the one-time transaction and compensation costs related to the collaboration with Sanofi of €1.8 million, and also the ongoing SG&A costs of annuity acquired at Evotec, France of €1.8 million. As highlighted on the Q2 call a one-time bargain purchase of €18.5 million was recorded in respect to the acquisition of Evotec, France. This amount is eliminated in the calculation of EBITDA, which for the first nine months increased to €3.4 million compared to €300,000 in the prior year period. Slide 22. Slide 22 presents the P&L for the first nine months according to the Execute and Innovate segments. As – now we have previously said, the Execute segment reported strong revenue growth for the first nine months of 2015. In addition, the gross margin was stable at 23.4%, despite the one-time costs related to the startup. And at the Princeton side of €1.1 million and the relatively low level of…

Thank you very much. [indiscernible] produced a lot of value every day, which is visible to our alliance partners and to the science community. I would like to say that there is a lot of hidden value in the company that we cannot always make that transparent and that visible to the outside. But it is fair to say that you can expect some of the hidden values of the company to be seen in the future. So I think it’s a very good outlook that we can present today by saying a lot of things have already been achieved and despite the fact of some FX, we are in a strong position in both Evotec Execute and to Evotec Innovate. With this, I would like to conclude the first section of this conference call and we are looking forward to your questions. Again, thanks to the operator and you then can please dial to raise questions. Thank you so much. So far in Evotec, thank you so much for supporting the company.

We will now begin our question-and answer-session. [Operator Instructions] One moment please for the first question. The first question comes from the line of Heinz Müller of DZ Bank. Your line is now open. Please go ahead. Heinz Müller: Hey, good afternoon. Heinz Müller speaking, DZ Bank. I would like to ask two questions. The first question is you show liquidity of roughly €140 million end of September. And do you expect end of 2015, the liquidity position of roughly €100 million. So what is the intended use of the difference in the first quarter? And the second question is, you show an increase of administration expenses, a very strong increase. So, perhaps, you can give us sort of some explanations with regard to this strong increase? And perhaps, do you think you could produce the share of administration expenses of roughly 20% in relation to slides? Thanks.

I’ll comment on the liquidity question. I’ll then handover to Colin on the admin expenses. I think it’s fair to say that with €138.9 million in the bank, our liquidity position is strong – actually very strong. It can become increasingly stronger this year, due to mainly payments from Sanofi that were received during this year and positive cash flow within the company, which we continue to expect also going forward. Bringing our guidance at this page say that we will have about €100 million, then I would assume that this is a good cushion that we have into this guidance, because there is currency for the remainder of the year, no transactional use of significant cash plans that we’ll consume significant cash resources early in 2015. At the same time, it is the strategic intention of the company to keep the strong liquidity base, because this makes up independent of scientific failure more than two big gain other biotech companies are, and this gives us the strength to grow the business in the best possible way. And also the flexibility to – transactions for our shareholder if we deem then to be value creating. On admin expense, I hand over to Colin.

Okay. So the year-to-date admin expense is of €19 million compared to the prior year now of €12.8 million, an increase of significant. But as I said, there’s a very clear explanation to this €1.8 million, it is due to the one-time compensation and transaction costs related to the Sanofi collaboration. €1.8 million of the difference is due to the ongoing SG&A costs of Toulouse, France, which is a site of your 250, we call that comes with its own support structure. 100,000 is due – simply to FX impacts we have, of course, a large operation in the UK and the pound has been strong against the euro. So on a corporate overall basis, we’ve benefited significantly due to the strong dollar, which helps our top line and gross margin. We do have a negative impact on the SG&A. And the final component is the fact that it’s good news. This year, we’re tracking closely to our corporate objectives with the financial performance that we’ve laid down. And as a result, we had to increase the bonus accrual, which last year our corporate objectives were only 20% achieved. This year we’ll expect in a much higher percentage than that, and that has an impact on the accruals and the SG&A costs. So roughly €1.8 million on Toulouse, France, ongoing SG&A costs €1.8 million, due to the one-time transaction costs €800,000 due to FX, and then about €500,000 to €600,000 due to the higher bonus accrual. And we, of course, are constantly looking at the overall level of SG&A expenditure against the PLC. We don’t think it’s inappropriate especially as we’ve gained the capacity in Toulouse now to project and extend the revenues significantly into the years to come. But we’ll then reduce the level of SG&A as a percentage of sales. Heinz Müller: Okay. Thank you.

The next question comes from the line of [indiscernible]. Your line is now open. Please go ahead, sir.

Hi, Werner. This is [indiscernible] Today, we saw again a remarkable result that gives us comfort in your business model. So we were surprised to see ROI and its investment do you think just 8% to 10%. Could you please comment on this?

Welcome to Frankfurt. Thanks for listening into this conference call, looking forward to see you soon. And coming to your question on ROI holding, I think, that’s what you’re referring to. And first of all it’s not appropriate for me to comment on A shareholders actually moves or whatever. But I think especially in our eyes, it’s more than fair to say that we had a very long-term, very loyal, very supportive shareholder with ROI in the whole group around ROI. So if you have seen, it seem like this time from October 30, where this holdings – what’s changed and don’t be give or take it. This was a shift within the group that our understanding, and not any sign of the position of ROI in changing their long-term support for the company. And I’m pretty sure that I’m here only stating what Mr. [indiscernible] also said.

Okay. So on Bloomberg we only saw a reduction in terms of shares. But – okay, so I’m fine with the answer. Thank you.

I think what I would like to hint you to is, please read the last sentence of the publication and you would see that this is not an absolute shift – an reduction by the shift in holdings within the group, that’s our understanding. So please read the small letter from publications.

Okay. Thank you.

The next question comes from the line of Volker Braun of Bankhaus Lampe Your line is now open. Please go ahead.

Yes. Thanks for taking my question too from me. One is related to the gross margin of EVT Innovate, in particular, in Q3 we saw the number for the nine months 53.5% if my math is right at 64% in Q3. I was wondering what was driving that outstanding high margin, if I’m not mistaken, I guess, one part of the dictation is FX, maybe there is something else, because you haven’t seen any milestones and talking about milestones that’s part of the question, when looking into the rest of the year Q4, I know that you guidance for revenues, excluding milestones. Are there any to expect and which projects would be related to for those milestones, if there are any?

First part of your question will be taken by Colin. If I may, I answer the second part of your question immediately. We still expect milestones this year having said that these milestones are always balance sheet dependent. So that’s really the part of our business model, which is the risk part to the upside and not to the downside with reflection to our guidance. But I think we want to highlight the great progress of Evotec at this stage in pipeline together with our partner in Boehringer Ingelheim, in Bayer, in Johnson & Johnson Innovations, and this is a portfolio where this mix should deliver milestones this year. But don’t underestimate there are also many other corporations ongoing that could leads to milestones industry you trust.

Okay. And then if you look at the second part of your question on the step-up in the Innovate margin. There is a number of components here. We obviously Target – we partnered with TargetBCD and we call it an upfronts. We started to recognize that over the research period. And then there is a number of agreements with in the Sanofi collaboration that we recognize as revenue, for example, the academic bridge is one of the components that we’re now recognizing the Innovate revenues. And then finally, part of the cost coverage that we get for the research individuals in Toulouse, we record then the cost down in R&D and we recognize there the revenues up in revenues in the top line. So there is a number of these factors coming together. But those factors will continue now into subsequent quarters.

Okay, that’s helpful. Maybe there’s a follow on the last part of your answer. What would you consider a sustainable margin to be going forward?

For the foreseeable future with those components and it’s – with the three innovatives now signed in excess of 50%.

All right. Thank you.

At the moment, there are no further questions. [Operator Instructions] The next question comes from the line of Mark Pospisilik. Your line is now open. Please go ahead.

Hi. Thanks for taking my questions. Two, if I could. I appreciate the distinction – breaking out a little more detail on Execute and Innovate and that’s helpful. It maybe wonder and I’d appreciate your comments on – it appears at a different metrics for the two businesses, the Execute, I imagine, is sort of more capacity utilization, top line growth, profitability as measured performance, whereas the Innovate is more pipeline driven, more milestone driven, and more digital or by mirroring our sense. So I was just wondering sort of effort where you would take overall, I’d love to hear your comments on what you read and focus on in terms of measuring performance? And then you have one more on the Innovate. There is a very successful track record, obviously in signing new partnerships and that’s in and of itself a validation of your business model. But I’m wondering if you had obviously each one of these partnerships is unpredictable in itself, and as you just mentioned everything is biology dependent in the end. But I’m wondering, if you are the critical math so to speaking out that you have some sort of view on potential exits partnerships that are rate or timing of these coming in the near to medium terms are you able to comment there? Thanks.

On the first part of the question, I’ll then turn over to Mario, who will illustrate a bit better our key performance indicator than how we operationally run our business and monitor our business, if that’s okay. On the second part of your question, I think it’s fair to say that you only can build a portfolio of Innovate options, if you understand portfolio building from the very beginning. But it was necessary to come to critical mass of technologies, partners, and partnerships that we can introduce through this model to make it a long-term successful, because what doesn’t work to create a portfolio of one Innovate idea hoping for one partner to come and one technology to succeed. I think that’s very obvious for everyone on this conference call as of one advanced portfolio carried to begin [indiscernible]. Having said that, we have come now with more than, as Cord was illustrating about 30 Innovate projects, different sizes, different features to a portfolio aspect, which allows us to really leverage certain technologies in I would say, really globally leading position. Scientifically, we have through our business development network into our business context, basically a constant exchange with the desires, need, and also with the timeline for needs with the top pharma partner out there, which is essential to come to a position of making, I would say, very well educated portfolio decisions of what’s the right point to partner, what’s the best in optimal partnership logic to establish. And with this, we see many positive portfolio effect now starting to work. And that’s also truly something, which we expect to continue into 2016, 2017, and 2018 with this idea of Evotec Innovate. On that basis if that is a big sort of topic about explaining, what we’re doing here, I would like to handover to Mario for the KPIs on Execute and also Innovate.

Okay. Thanks for the question. I think it’s probably wrong to give them entirely a separate segment as we do report in an accounting fashion. I mean, the drive – the way you should look at the company is a drive towards assigning and delivering on high-value partnerships. And what is quite keen in the way we look at the two businesses is that one of them the Execute and the Innovate business are both very customer and collaboration focused. The Execute business will deliver strong need of the project in revenues and cash generation, of course, have significant amount of that cash gives us the opportunity to embed an Innovative Biology and Science. And of course the Innovate is the latest [Technical Difficulty], because of the nature of business, because of quality of science I think bring towards partnerships can provide much further long-term upside for the company. But both are very intrinsically linked and both operate off of the same drug discovery platform, the same core technologists, the same strength and expertise and experienced within our scientist and within our the various capacities we have. We don’t make capacity available to Innovate for the sake of using capacity. Just as the same, we don’t take on some Execute work, if we don’t feel, we got the work itself brings value to the company. We have an overall capacity that can deliver very high quality science. And as I say significant short-term and long-term value to Evotec. Both Evotec Execute and Innovate do programs and we set our milestones and royalties the one different set being the better probably commercial terms that Innovate obviously have, because within the Innovate segment, we’re delivering assets at the start of the collaboration, whereas in Execute, as I said earlier, we’re working more on the customer’s intellectual property and the value we bring there is our expertise in drug hunting and the technologies and platform we put them.

Thanks. That’s helpful I’ll jump back in the queue.

The next question comes from the line of Michael Higgins. Your line is now open. Please go ahead.

Thank you, operator. Hello, guys, a couple of questions, two really that are quite similar. In relation to the top line, you’ve done sales in the first nine months of 50% year-over-year and you’re guiding to 40% growth on the top line year-over-year. Is there something you’re seeing in the current quarter – this fourth quarter that would suggest reduction in that pace of revenue growth. I don’t’ believe so and I compute the implied Q4, it shows a pretty strong jump, say, 25% sequentially. And then that similar question being anything you can point to and maybe I missed it on the call I apologize, anything you can point to that drove Q3 lower than Q2 despite the strong dollar? Thanks.

And from the second part of your question are not pretty clear now. The first part of your question is very simple to answer that by the middle of November, the company like ours looks very clearly what is in our books and what’s not in our books. Our books very clearly indicates that we will confidently achieve our guidance. Meaning that we currently see nothing that would stop this trend and as Mario already pointed out and Cord, already pointed out, we see already a very strong trend into 2016, because you should know that typically our projects are lined up in the timeline that is minimum six months ahead for a lot of our capacity. And so that’s why we’re very confident on the top line growth. On your quarter-to-quarter comparison between Q3 and Q4, I’m sorry Q3 and Q2, could you explain that again, for us?

First you reported €33.24 million and €33.4 in Q2, so I was just wondering we didn’t see a high revenue in Q3, it looks like you may have had just a quarter shift based on the covenant?

Well, what number were you quoting for Q2, can you say it again, Michael?

€33.4 million.

Yes.

I think that €33.2 in this quarter, so most of them flat, most of them down, I suppose. From the comment it sounds like there’s some revenue and some projects that are shifting into Q4?

Now that basically shows you that we have very strong constant capacity utilization in both quarters. But there is no milestones that create at the alpha there.

The growth that we’re quoting is against the prior year, but the quarter-to-quarter is flat, but we’re expecting the base revenues to increase significantly in Q4, Q4 is always the strongest quarter of the year. And obviously Q3 has the holiday period in the July and August, where the base business it’s a little bit weaker naturally.

Yes Q4 2014 versus Q1 you’re up almost double this year, which you are implying is a doubling, so yes Q4 it will be very strong.

Q4 is always the strongest and as I said Q3 has the holiday period.

Yes, but doubling is –I t would be too aggressive just to one end and that, but let’s see where it goes.

Understood, Great. Thanks, guys.

Okay. And by the way good morning to New York City for getting us.

No worries. Thank you, again.

The next question comes from the line of [indiscernible] Frankfurt.

[indiscernible] Thank you for taking my questions. Three, if I may. One on the CapEx and the cash flow Werner, you mentioned that this year and next year, you would like to have a positive cash flow, that’s good news from investor’s point of view. And if it comes to CapEx you slack that we’ll be €10 million to invest in this current year. This is a little bit more than we have seen in the past. Will this increase in the future step by step, so to build more buildings to increase the capacity and so on and so forth? And the other question is on the region of your revenues. There’s a huge or the majority of revenues are in Europe. But to my knowledge most of the clinical trials are performed in the U.S. so shall we – and still we got in future the sales split will move to the U.S. customers and does not affect that Princeton you increased your activities in the biology really. And the third question is on the price of collaboration on fibrosis, it might that lead to enforcement of your diabetes activities, because fibrosis in this or might something to do with liver fibrosis?

Question number 3 Cord will answer the question number 1 I’ll hand over to Mario and Colin. And question number 2 I’ll just give you a brief answer. Revenues generated on the clinical trials are not seen at all at this stage on our top line and then up it’s able to come from Europe or the U.S. because we are on our own not spending any money on clinical trial at this stage. And also the expense was about – partners in clinical trials, or preparation of clinical trials you wouldn’t see on our top line. And but of course just commenting on regional split we see a strong trends and we’re one of the profit sharer from that I would say revival of biotech in about three years on the East Coast and the West Coat of the United States. And we’re a strong profit sharer of the restructuring situations of pharma, which increasing tends to outsource to companies like us where there’s a strong trend in Europe and in the U.S. and third we see a slow, but a come back from customer out of Japan especially valuing the quality of science and the quality of delivery we will take highly. With this, to the CapEx question to Mario and Colin.

Yes, we’re indicating a number of €10 million this year, but we’ve had a number of one-time impacts in there. Firstly, as start of the Sanofi collaboration, we had the commitment from Sanofi to upgrade certain equipment at the Toulouse site and that was fair by out standard, the significant number won’t be repeated. Secondly, we had the hotels installed at the Princeton facility in Q1 of this year. And then in Q4 this year, we had the good thing and facility – the expansion of the good thing in facility come online, which we’ve committed in order to support Innovate deals that have been signed in signed in Q3, which would be predominantly out of good thing. And looking forward to next year Mario and I are working through the budget at the moment, but we expect to be back down to a number for the whole group even including Evotec, France of between €7 million and €8 million.

Thank you. Yes.

And in regards to a questions regarding our collaboration with Pfizer and the, or in fibrosis figure. As you’re absolutely correct our original efforts in the fibrosis field clearly stem from activities in the diabetic complications [indiscernible]. However, the particular mechanisms that we have between now together this Pfizer, more fundamentally, mechanisms that have a much wider applications clearly beyond with the fibrosis.

Okay. Thank you, gentlemen.

There are no further questions. I hand back to the speakers.

Thank you so much for your excellent questions. Thank you so much for following Evotec. And we look forward to latest hearing and talking to you on our year end call, next year. And let me assure you that it’s a pleasure to work together with our management team, and our company to deliver best-in-class financial to our customers. Thank you so much.

Ladies and gentlemen, thank you for your attendance. This call is being concluded. You may now disconnect.