Evotec SE (EVO) Q4 2017 Earnings Report, Transcript and Summary

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 guide you through the Execute highlights; Cord will guide you through the Innovate highlights; and let me just on a corporate level tell you that we have announced yesterday that we are preparing plans to convert our company to a more modern form as an international SE, which we announced yesterday night. And from an outlook perspective for 2018, let me just highlight that we think a very strong 2018 is coming with a 3x30 guidance that we are giving, which Enno will illustrate also then later to come. But before we look forward on Page 5, let us just highlight that all our financial performance goals were achieved, and some of them even overachieved in 2017. With more than €257 million in revenues and €58 million adjusted EBITDA, we feel that we have delivered what we promised. On Page 6, if we take one deep breath and for a moment think forward and think about the year 2022, you should see that we have prepared an action plan which is much more than just a wish. It is the result of high intention. Action Plan 2022 represents the highest-ranked choice of many alternatives that we could have made, and we bring together excellence from many different areas on our platform. Action Plan 2022 is what you see on Page 7, the continuation of a consequent and fast-forward path that we are on. Some of you might say that's boring, that we are doing more of the same. We love it because what we do is bring excellence in science and execution together. In 2009, we introduced Action Plan 2012, where we started to set the basis of today's leadership for excellent innovation through excellence in operation. With Action Plan 2016, which we introduced in 2012, we are increasing the focusing on scientific innovation excellence, and Action Plan 2022 is now accelerating both driving strength of our DNA fast-forward. So you see highlighted here that we will be a sustainable, profitable, highly cash-generating biotech company that will have a performance-based business model, which will make us dependent on milestones going forward, but that's the upside risk and the limited downside risk that we take in our business model. We are thriving to achieve the 1 position in excellent innovation. And when we say 1, we mean global 1 position to serve our partners in biotech, pharma and in foundation. We are going for a unique business model, where we are tailormaking our solutions to make science better. And also, we are building BRIDGEs to academia, where you so far only see two, but there are more to come. And ultimately, we are bringing a co-owned pipeline together. Page 8 outlines to you what the value drivers of 3 initiatives will bring together. Evotec Execute, Evotec Innovate and our corporate acceleration will ultimately show you in the years to come that our mega trends will not only continue the way it is, it will accelerate, and we will leading the platforms there. Then on Page 9, you take a little quantitative look at the model that is behind this trend. You should see that the model looks strong. But more importantly, what you should see that it's the idea to drive a profitable business model in biotech forward, which is generating a co-owned pipeline. You don't see the co-owned pipeline here. Of course, we'll come to that later. But that's really the upside value that is generated on this platform. What you should always consider, that it will be a milestone-driven, volatile business going forward. But the good news here is that there's not a single quarter that we ever expect again to come which would be not profitable. It will be a continued profitable business with, of course, volatility coming through milestones. So don't focus too much on every single quarter. Focus on the long-term view of this company. When you look to also one situation, which is coming from the subsidy that has fall away in Toulouse, you should see that we are perfectly able to digest a dip that will come there naturally through the profits from somewhere else in the group. On Page 10, we say excellence meet excellence, and that's what we are driving within our company because we were really inspired and are permanently inspired by science. Just like James Watson and Francis Crick were when they, in the year 1953, built their model. We are building our model. It's maybe not such an elegant formula as theirs put together, but the search for excellence at Evotec is not just a random act. It is our long-term passion, and it will become a habit. On that note, I don't know if this formula is correct or not. It just looks good, and we wanted to share it with you. And on that basis, I hand over to Mario, who will bring you into the highlights of Evotec Execute.

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 and Aptuit has broadened our client base. And this means that we are less reliant on a small number of clients as we may have been historically. We continue to sell strongly across the whole industry. And as you can see from the bar charts here, sales in Europe growing versus 2016. This is mainly due to the acquisitions, with Aptuit serving strongly as a European clinical Center of Excellence. Moving on to Page 17 and a little more intel on the update with Aptuit. So 2018 sees us entering the very first full year of Aptuit's contribution to Evotec. The Aptuit acquisition is effectively the largest transaction that we have done to date. However, we have been able to put into practice our integration skills and knowledge from the past, and the initial integration of Aptuit within the Evotec group is proceeding well. This has also been, and most importantly, well received by the market, and we are now seeing the impact of integrating preclinical capabilities into our drug discovery platform. This is highlighted in more depth in Slide 18, where Aptuit brings a whole bevy of preclinical and CMC capabilities and expertise to the Evotec drug discovery and development armory. Recently, you will have seen that we have launched formally our INDiGO solution to the market. INDiGO represents an integrated solution to progress from late lead optimization to submission of an IND or equivalent certification for Phase I trials. The advantages of planning preclinically in a late lead optimization and then running all the required activities under one roof and one project management leads to significant time efficiencies and hence, cost. We are now seeing the benefits of cross-selling from our existing drug discovery programs into INDiGO, but also the power that INDiGO brings us in being able to capture new drug discovery programs. Finally and in short, and not wanting to reiterate what Werner said, our objectives and targets for 2018 are very clear, more of the same, please, but only better and bigger. We will continually strive to be better at delivering on our current projects, to grow with existing partners, and to originate and capture new programs and partners. With the expanded development capabilities of Aptuit, we are now at the perfect time in the industry to deliver a truly integrated target to IND offering. Thank you very much for your attention, and I will now pass on to Cord Dohrmann to talk about our Innovate segment.

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 majority ownership, but they also provide the funding to develop these drugs all the way into the market; and thirdly, Evotec carries very significant upsides through preclinical, clinical, regulatory milestones and significant royalty payments associated with the development of these into the market. In addition, in the discovery and preclinical development space, Evotec receives significant research funding. We started to build this pipeline in 2010, putting the first 2 or 3 product opportunities in place, and this pipeline has now grown to over 80 co-owned fully financed product opportunities, all of which carry very significant commercial and financial upside for Evotec. And now on the next slide, Slide 22, it summarizes Evotec Innovate's financial performance in 2017. In short, Evotec Innovate's financial performance made spectacular improvement in 2017. We've not only improved the top line revenues by 65% to almost €44 million but at the same time, very significantly improved EBITDA to a rather moderate loss of €5 million while keeping R&D spend essentially constant at around €20 million. This means that we continue to build and expand a very substantial commercial upside for Evotec based on a very focused R&D effort. The continuously increasing Evotec Innovate leasing revenues are currently solely generated through the R&D fundings and relatively early development milestones. This means that most of the upside is still to come. Thus, the existing Evotec Innovate partnerships are highly profitable R&D partnerships, which are set -- which set a clear incentives to continue our Evotec Innovate investment strategy and potentially even expand our investment into Evotec Innovate R&D in the future. On the next slide, Slide 23, I would like to remind everybody that much of Evotec Innovate's success is not only built upon the portfolio of highly differentiated drug product opportunities, but also highly differentiated next-generation discovery platforms. In the past, we have built highly unique biological platforms around specific disease areas. More recently, we have focused our efforts on platforms that support the increasing personalization of novel medicine. Just to mention a few examples, we continue to build up our iPSC-based drug discovery platforms, NURTuRE. We are getting broad access to samples of clinical data from kidney disease patients, allowing us to generate unique and highly variable molecular phenotypes. Our pipeline of clinical-stage programs progresses nicely, while we continue to expand it through new clinical starts. And finally, we are able to expand our pipeline in infectious diseases through an R&D partnership with Sanofi, which will provide a very exciting pipeline of projects as well as leading -- as a leading team of anti-infectious disease scientists into our countries. On Slide 24, you can see that the moving mega trend in the pharmaceutical industry is the increasing personalization of medicine. Personalized medicine has been primarily driven by human genomics and the development of biomarkers. This trend will continue in the more growth patient-derived business models. This will further be complemented by molecular phenotyping through transcriptomic, proteomic and metabolomic analysis. Molecular phenotyping, in particular, will generate very comprehensive and complex data sets that will require new analysis tools, including artificial intelligence, supported data analysis and interpretation. At Evotec, we intend to be at the forefront of these developments and are continuously investing into these platforms and novel tools. The mega trend of increasing personalized medicine is the major reason why we continue to expand our leading iPSC drug discovery platform. Key progress is briefly summarized on Slide 25. In 2017, we invested in patient-derived models for muscle wasting diseases such as [indiscernible] through investment in Facio Therapies. We also invested into collaboration with the Center for Regenerative Therapies at Technische Universität Dresden, accessing iPSC-based models for retinal diseases. Through NEPLEX, we are accessing the work of leading U.K. academic institutions to develop leading patient-derived models for kidney disease. And furthermore, we have partnerships with Fraunhofer, Censo and Ncardia to access novel patient-derived cell lines and expand our access to relevant intellectual property in this area. On the next slide, Slide 26, I want to briefly summarize why molecular phenotyping will be a key driver for personalized medicine and how it will have a major impact on the drug discovery process. Molecular phenotyping will involve transcriptomic, proteomic and metabolomic analysis of patient samples and thus, provide new definitions not only for the disease state, but also for what is healthy in the context of variable genomes. New molecular phenotypes will generate a more specific definition of disease when it has to be corrected. This will influence the design of disease-relevant assays and readouts as well as the development of biomarkers for in vitro and vivo pharmacology in the preclinic but also in the clinic. Evotec has and will continue to invest into these platforms and thus, continue to improve the drug discovery process by defining diseases more accurately and thus, designing more disease-relevant readouts, product drug screening but also development. Beyond novel platforms, we also continue to invest into the acceleration of our pipeline of drug candidates. A significant step forward here is shown on Slide 27. Our most recent effort here is to build a very strategic partnership with Sanofi in the field of infectious diseases. Through this transaction, Evotec will not only expand its infectious disease discovery and development platform by more than 100 highly experienced scientists, but also access a pipeline of more than 10 research and early-development projects. These projects will be primarily in the field of anti-microbial resistance but also antivirals as well as a global health. All of these efforts and investments serve primarily one purpose, which is to continue to expand our portfolio of co-owned drug product opportunities with a very significant commercial upside for Evotec. Once again, the current pipeline consists of about 80 co-owned projects. About 10 of these are currently at clinical stages of development, 25 in preclinical stages of development and about 50 at discovery stages. On average, these projects carry a financial upside for Evotec of about €1 million to €10 million in upfront payments, about €150 million in milestones per project and about 8% in royalties on average. We are extremely proud of these partnerships as they generally involve true leaders in their respective fields, such as, for example, Sanofi in the field of diabetes, Bayer in the field of endometriosis and kidney disease, Pfizer in fibrosis and so on. Already, existing partnerships continue to make great progress, as you can see on Slide 29. You can see that we have made very significant progress in our iPSC-based drug discovery alliances with Sanofi in diabetes and Celgene in neurodegeneration. These alliances carry a potential upside of €250 million to €300 million per project, respectively, and we are optimistic that they will deliver additional milestones in 2018. We are able to report similar progress from other Innovate alliances on Page 30. We achieved key milestones in our kidney disease and endometriosis alliance with Bayer and expect further milestone achievements in 2018. Finally, we are making very good progress in our fibrosis alliance with Pfizer and achieved our first milestone in our immuno-oncology alliance with Sanofi. Many of our alliances are set to deliver further milestones in 2018. And in addition, we are very optimistic that we will sign further Innovate alliances in 2018 as well. And now moving to Slide 31 to give you a brief update on our academic BRIDGE strategy. Our academic BRIDGE efforts are really the lifeblood of our Innovate strategy. They provide each as a never-ending source of future, first-in-class projects into our Evotec Innovate pipeline. In the first 3 years, we have structured many broad and long-lasting relationships with world-leading academic institutions, such as Harvard, Yale, Max Planck and many more, in total by now over 40 institutions. More recently, we have significantly expanded the model into even more strategic relationships, which give Evotec even broader access to products but also additional funding for these projects. Here, I would like to point out that our LAB282 with Oxford University has already delivered more than 12 exciting, highly innovative projects. And similarly, our LAB150 in Toronto based on various leading research institutions, only -- which was only established in 2017, already delivered its first project as well. Overall, Evotec's academic BRIDGE model is gaining momentum, and we are confident that the structure through the BRIDGEs in Europe and in the U.S. should expand our reach into cutting-edge innovation even further. Let's now move on to give you an update on our existing investments on Slide 32. In 2017, we invested approximately €21 million into Exscientia and Exscientia-like investments primarily to access an even broader scope of first-in-class innovation. In contrast to traditional investors, we only invested to areas where Evotec gains a critical mass of expertise and capabilities as the project will actually run on Evotec platforms. In 2017, we have expanded our portfolio of Execute participation significantly through investments into Fibrocor, a fibrosis-focused company; Forge, an anti-bacterial company; Facio, a company focused on muscle wasting diseases through the use of patient-derived disease assays; and then [indiscernible], an artificial intelligence-driven company in the met-chem space, where we are collaborating on an immuno-oncology project as well. All our Innovate R&D efforts are supported by the European Investment Fund loan facility of €75 million, and this includes all our existing investments as well. Slide 33 now briefly summarizes what you can expect from Evotec Innovate in 2018. Indeed, it will be another very exciting and very strong year, where we expect major progress essentially on all fronts for Evotec Innovate. We expect new clinical starts and progress in our clinical stage pipeline. We are optimistic that we will significantly expand our academic BRIDGE efforts. We have a very strong pipeline of Evotec Innovate R&D projects prime for strategic partnerships. And we will continue to invest into transformative platforms, which will speed the already moving mega trends such as personalized medicine. With this, I'd like to thank you for your attention and hand over to my colleague, Enno.

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 from €10.9 million in 2016 to €14 million in 2017. This does not only mirror an increase of tax credits in France and in Abingdon, U.K., but also new sources of R&D tax credits first time stemming from Cyprotex and also from Aptuit Italy. Moving to Slide 36. Also, if we take a look at the breakdown of the 2 segments, Execute and Innovate, we do see strong growth in both segments. Execute revenues increasing 46%, and this was primarily attributable to a strong performance of the base business and initial contributions from our new acquisitions. Innovate revenues significantly stepped up 65%. This increase resulted, on the one hand side, from extended collaborations and the full year impact of new partnerships with Celgene and Bayer signed in the end of 2016; and on the other hand, from higher milestone achievements that we could account for. Execute is using a gross margin of 27% compared to 29.9% in 2016, and Evotec Innovate is using a gross margin of 43 point -- excuse me, 44.3%, staying close to the 45.3% shown in 2016. Adjusted EBITDA for the Execute segment is up 26% to €63.2 million compared to 2016, €50.2 million. And adjusted EBITDA from Innovate went up significantly by 63% to minus €5.2 million and thus, improving significantly coming from minus €14 million in 2016. Slide 37. Our Q4 2017 quarterly financials showed very strong numbers, in particular, due to a strong recognition of milestones also translating into a very solid 234% upswing in the adjusted EBITDA. On the cost side, to avoid any misinterpretation, the major part of the M&A-related onetime costs were recognized already in Q3 2017, just as a reminder. Regarding the other operating income, we clearly can identify here the before already mentioned onetime positive effect of the €12.4 million in Q4 2016 with respect to the release of earn-out results, which is a nonoperational effect. And maybe as a general mark, and Werner commented on this already, we will always see some volatility between the different quarters, for example, due to onetime effects as I just described or milestones coming or not coming. So it's always very good taking a look at the full year numbers. Slide 38 is just confirming the clear and stable trends that we have now seen for a couple of years with the regards to continuously growing group revenues as well as increasing our adjusted EBITDA, maintaining Evotec as an EBITDA profitable entity with an attractive gross margin. At the same time, we maintained our strong commitment to invest into R&D and consequently, into new innovation -- innovative products, platforms and technology. Needless to say, that it is our intention and to further continue these trends obviously in 2018 and beyond. Diving a little bit more into the details of some specific numbers right on Page 39, starting with the revenues. A clear step-up in the group revenues in 2017 is a result of the strong performance in base business, increased milestone achievements and significant contribution from the acquired businesses of Cyprotex and Aptuit as mentioned before. Revenues from milestones, upfront and licenses amounted to €27.8 million, an increase of roughly 47% in comparison to the previous year, which resulted mainly from higher milestone achievements from, for example, from Bayer, Celgene and Sanofi. Looking at the gross margin. With the acquisition of Aptuit and Cyprotex, the gross margin now represents a slightly different business mix. However, also important to recognize in the 2017 is the fact that the gross margins is affected by the increased linear amortization resulting from our purchase price acquisitions of the strategic acquisitions. This amortization, which is mainly booked into our cost of goods was about €5.6 million in 2017 and is subsequently affecting the gross margin in 2017. The gross margin without the strategic-related effect would be 2 point -- 2 percentage points higher at roughly 34.2% in 2017. This amortization will not be a onetime effect, but a linear revolving amortization is to be expected and considered in the coming years as well in 2018, first time contributing its full year of Aptuit in that regard. Next slide, Slide 40. R&D expenses reduced just a little in 2017 by 3%. However, reduction of R&D expenses are mainly triggered by the reallocation of certain projects to the Celgene collaboration portfolio, which is generating revenues, and therefore, now has to be recognized under cost of revenues and not on the R&D any longer. SG&A expenses in 2017 amounted to €42.2 million, showing a significant 57% increase compared to €27 million in 2016. The increase in SG&A expenses resulted primarily from the full year expenses of Cyprotex, approximately adding 4.5 months of expenses of Aptuit as well as M&A-related one-time expenses. Furthermore, the overall SG&A headcount increased in business development, administrative functions and finance in response to the continued organic growth of the company [indiscernible]. The onetime cost for M&A-related activities in 2017 amounted to €3.9 million in total. Interesting to mention that the SG&A/revenue ratio remained stable at approximately 16.5% compared to 16% in 2016. Next slide, 41. All through Evotec's operating result is reflected in great progress in numbers and amounts to €37.5 million in 2017 compared to €31 million in 2016. The 20% growth rate may appear a little under proportionate compared to the 57% increase in revenues and the 60% EBITDA rise, but as mentioned already at the beginning of our representation, we do have these special effects this year, which all finally collect in the operating result and subsequently, also in the net income. I keep mentioning this simply because there are some specific numbers, which are somewhat distorting the very positive operational picture of Evotec a little bit. Slide 42, the balance sheet clearly underlines the strategic and operational steps taken in 2017, showing an 88.5% increase compared to 2016 with a balance sheet total of €667.3 million at the end of 2017. Major impacts came, for example, from the 92 point -- €90.2 million capital increase from the Novo Holdings, Aptuit adding significantly to intangible assets and the goodwill and our equity investments activities also added to our assets. On the liabilities, first-hand significant debt is recognized in our balance sheet, increasing debt by €161 million to €190 million in total, consisting of, for example, €130 million BRIDGE loan for the Aptuit acquisition and the first tranche of the EIB R&D loan, which we drew down at the end of 2017. Consequently, the equity ratio changed but remained strong at 49.7%. The cash BRIDGE, as shown on Slide 43, is nicely summarizing the major positions and events of 2017. We also added a reminder of the major positions at the end of 2016 when Celgene and Cyprotex came in at the first time. Just a few numbers to mention here, CapEx clearly increased to €17.6 million in 2017 versus €10 million in 2016, clearly mirroring a commitment -- or our commitment for state-of-the-art equipment and expansion to support our innovation and our business growth. Aptuit is amounting to roughly €250 million equity purchase price, consisting of goodwill and fair value of acquired assets. Liquidity position at the end of 2017 totaled at a solid €91 million, leaving us good room to control and to maneuver the whole Evotec group. Last but not least, our employees. As of December 31, 2017, the Evotec group employed a total of 2,178 people worldwide. This means an absolute increase of 940 employees or nearly 76% compared to prior year's end, which, besides continued organic growth, mainly reflects the significant expansion through the acquisitions of Aptuit. Across all sites and functions, both Europe and in the U.S., 266 new employees were hired in 2017 to further increase the company's capacity for innovation and to provide better service to Evotec's partners and clients. At 11 sites and 6 countries, we have our highly skilled and mainly scientific-driven employees working are originating from 60 different nations, which makes Evotec a truly international company. We are very proud having these engaged and growing group of colleagues onboard, as they remain our major success factor to further grow and develop of Evotec in the future. Many of them are with us since many years. Having said that, I have the pleasure to hand back to Werner.

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.