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Evotec SE (EVT-DE): Evotec expands into high-growth biologics segment
22-May-2019 / 15:53 GMT/BST
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*Published to the market and investors on 22nd May 2019 @ 1.36pm (BST). *
*Evotec SE (EVT-DE): Evotec expands into high-growth biologics segment*
*Recommendation: OUTPERFORM*
*Target Price: EUR 28.00 *
*Current Price: EUR 23.44 (CoB on 21st May 2019) *
*KEY TAKEAWAY*
Evotec announced that it has signed a definite agreement to acquire
Seattle-based Just Biotherapeutics ("Just.Bio") for up to $90m (c.EUR81m) in
cash. The acquisition is expected to close in Q2/2019E and accelerate Evotec's
revenue growth. Just.Bio is a technology company focused on the design,
development and manufacturing of biologics with speed, flexibility and
cost-effectiveness at its heart. Despite its short existence (founded in
2014/2015), Just.Bio has already grown to approx. 90 employees and generated
revenues of c.$20m in 2018, reflecting its attractive offering and ability to
win business, based on three in-house technology platforms. Key benefits from
this deal include: (1) Entry into the large and rapidly growing biologics
segment with a revenue-generating business, (2) strong cultural and
technological fit, and (3) ability to expand co-owned pipeline with biologics
in the longer term. We maintain and reiterate both our OUTPERFORM
recommendation and EUR28 target price.
*Biologics are a large, high-growth therapeutic segment*
Evotec is currently fully focused on small molecules, the most abundant type
of therapeutic drug and that accounted for over half of pharmaceutical sales
in 2018. That said, the pharmaceutical industry has been increasingly focusing
on biologics (large molecules that cannot be made through chemical synthesis
and are therefore produced in living cells), mainly owing to their higher
target specificity and hence (often) more benign side effect profile.
Biologics are also harder to copy and both regulatory and reimbursement
hurdles remain for biosimilars; hence, sales erode more slowly following
patent expiry than those of small molecules. FDA approvals of biologics have
risen to 17 in 2018 from 7 in 2017, there are currently >5,000 biologics in
the pipeline, and sales are expected to grow to c.$500m in 2025E from $221m in
2018.
*Proprietary platform focused on flexibility, speed, and cost-effectiveness*
Just.Bio provides end-to-end solutions for the development and manufacturing
of biologics through its J.DESIGN technology platform, which aims to
accelerate development and provide flexible, high-quality manufacturing
process control at the lowest possible cost. This is achieved through three
technologies: (1) J.MD for optimal molecular design, leveraging the Abacus
machine learning ("ML") tool that focuses on high-yield manufacturing and
stability; (2) JP3 to optimise the manufacturing process; and (3) J.POD, which
uses disposable technologies and intensified processes for the flexible,
modular and cost-effective manufacturing of clinical and commercial-stage
biologics.
*Flexibility is key in an era of increasingly personalised medicine*
Leaps in the understanding of human biology have been allowing therapies to
become increasingly tailored to patient sub-groups. There are also a growing
number of drugs for rare diseases. The overall consequence is that the market
opportunities for individual medicines have been declining (from $800m in 2010
to $465m in 2017). Companies need to make up the revenue shortfall by
developing a higher number of smaller products, and improve profitability by
shifting fixed to variable costs through outsourcing to flexibilise their cost
base. Just.Bio addresses this need through its flexible, modular approach to
bioreactors and downstream processing, which allows the company to produce
even small quantities in a cost-effective manner.
*Maintain OUTPERFORM. Upside to forecasts and valuation likely*
Under the terms of the agreement, Evotec will pay $60m (c.EUR54m) upfront and
up to $30m in performance-based earn-outs over the coming three years to
Just.Bio's blue-chip investor syndicate consisting of ARCH Venture Partners,
Merck & Co., Lilly Asia Ventures and the Bill & Melinda Gates Foundation.
Management intends to provide further details and a potential update to
guidance at the H1/2019 results on 14 August. We intend to update our
forecasts in due course and remain confident that this deal will further
enhance Evotec's positioning and accelerate its growth.
Kind regards,
Brigitte de Lima, PhD, CFA | Research Analyst
goetzpartners Healthcare Research Team | Research Team
goetzpartners securities Limited
The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.
T +44 (0) 203 859 7725 | brigitte.delima@goetzpartners.com /
healthcareresearch@goetzpartners.com
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