Evotec's (EVOTF) CEO Werner Lanthaler on Q4 2015 Results - Earnings Call Transcript

| About: Evotec AG (EVOTF)

Evotec AG (OTC:EVOTF) Q4 2015 Earnings Conference Call March 22, 2016 9:00 AM ET

Executives

Werner Lanthaler - Chief Executive Officer

Mario Polywka - Chief Operating Officer

Cord Dohrmann - Chief Scientific Officer

Colin Bond - Chief Financial Officer

Analysts

Jonas Peciulis - Edison Investment Research

Volker Braun - Bankhaus Lampe

Gunnar Romer - Deutsche Bank

Michael Higgins - ROTH Capital Partners

Victoria English - Evernow Publishing Company

Operator

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 Werner Lanthaler, who will lead you through this conference. Please go ahead, sir.

Werner Lanthaler

Welcome to Evotec. Welcome to our full year results 2015 and our outlook for 2016. I am here joined by my managed board, Mario Polywka, Colin Bond and Cord Dohrmann. There is a presentation that we prepared for this conference call and I hope that you were able to download this presentation from our online link.

We will go through this presentation and let me start by saying if you go to Page number 4 of this presentation that I am very happy to report that you that the state of the company is strong. 2015 represented for us strong operations and strong partner success.

If you go to our segments, it is fair to say that we see excellent performance in Evotec Execute and it’s fair to say that the strategy of building a long term first-in-class Evotec Innovate pipeline is working. We would go through the highlights in the specific sections that Cord and Mario will present later.

When it comes to our corporate highlights, I think it’s fair to say that we at this stage are very happy with our multi-component strategic collaboration with Sanofi which has started excellently. And we are also happy that we expanded our footprint in the U.S. and in France because we see the capacity is needed to fulfill our demand coming into the company. On a corporate level, we are also very happy that we’re able to report our first spin-off called Topas Therapeutics today and we will come later to this again.

Having said that, it was not only a year of highlights in 2015, it was also when it comes especially to our Alzheimer’s trial Roche in year of a low light where unfortunately this trial did not read out well. Also we have to report that somewhat bounce that we are expecting 2016 should have come in 2015 already, so that some delays to be reported but most of the programs are fully on track.

When you go to number 5 of your presentation, you can see that our key performance indicators show that the business model works. Some of the indications that you see on this slide do not only show strong growth when it comes to our numbers that also show strong growth when it comes to the most important thing and the most important element that drives our company mainly our scientists and our employees. With more than 1,000 people now that are highly qualified, we are well equipped to tackle the challenges of drug discovery of the future.

When you look at some of the selected boxes here, you can see that we have achieved our guidance in 2015 EBIT.

On Page number 6 of your presentation, we want to state that our strategy is clear and focused. We want to become the globally leading service company and create a first-in-class partner product pipeline. That’s what we have initiated in the year 2009 and that’s our action plan 2016 has brought us as of today and where we are going with action plan 2020.

When you look at the picks along the plan that we have made, only the idea of having a royalty income in our current makeup of our top line is at this stage not become reality but on the other hand we have compensated very nicely the long term options that we have created.

When you look forward, you will see us going forward with the highest quality drug discovery in bringing new services within Evotec Execute, you will see us accelerating a Cure X and Target X strategies which is the best which that we know of from academia to pharma which we call Evotec Innovate. And somewhat new concept within the company is that we will accelerate some of the business plans of the targets that we see by company formation which we at this stage have done with Topas Therapeutics.

Page number 7 should indicate to you that at this stage we cannot report a strong a 2015 but a strong 2015 will be followed by an even stronger 2016.

Here you see the elements of our guidance following last year’s indicators where we are indicating more than 15% growth on our Group revenues. We are indicating positive and significantly improved EBITDA compared to prior year. We will even increase our very focused R&D spend to approximately EUR20 million. We have a very strong equity ratio at this stage and equity balance with about EUR135 million at end of 2015 which we will continue at similar levels into 2016. And very important for us also is that we will make all the investment necessary to keep the company fully on track and fully equipped when it comes to our technological make up.

This highlight that we want to go forward with a very strong outlook into 2016 and on that note, let me bring Mario to give you an update on Evotec Execute and Evotec - and an outlook for Evotec Execute of 2016 as well.

Mario Polywka

Thank you, Werner, and good afternoon, ladies and gentlemen. It’s a pleasure to be with you here to today to contribute this update on the excellent results of the Evotec Group and more specifically today on the very strong performance of the Execute business segment.

As a reminder to us all, this segment represents business performed on our unique all income same drug discovery platform and on our plants intellectual property and projects. And as such represents return on the investments on our top four.

The Evotec Execute segment enjoyed a year of strong revenue and the profitability growth against the backdrop of also integrating our new operations in Toulouse and Princeton. Growth was to new projects as well as driven to the expansion and the extension of many ongoing collaborations, a very strong streaming pipeline which drives integrated projects forward and also the continuing trend in the partner of choice for many innovative biotech companies especially various based as of area.

On the next slide, we show you the actual financial performance of the segment. In 2015 revenues of the Execute segment grew to the EUR134 million. This represents a 44% increase in the 93 million achieved in 2014. This increase was driven by growth in the core business and excellence performance of our infectious disease operations in Manchester, the X Euprotec operation. The significance of Sanofi collaboration signed in April 2015 and also favorable exchange rate. Off the EUR134 million of revenue, maybe 28 million was intersegment revenues in support of the innovate activities that Cord will describe later.

Milestone income from collaborations such as Bayer, UCB, Padlock et cetera was relatively low as Werner said compared to other years. But as Werner said, this was fundamentally due to timing issue rather than any specific challenges within the projects themselves. And we’re very pleased to receive a further three milestones in 2015 in the progression of the endometriosis collaboration with Bayer.

Even counting this relatively low milestone achievement, the segment recorded an impressive 8% growth in EB ITDA to EUR24 million which represents 23% of revenues.

Moving to Slide 11, the balance of our sales make up speaks well of our continuing progress to engage in large critically sized strategic deals utilizing all of our drug discovery technologies and platforms. More than 70% of our revenues come from our top ten clients. On the spread geographically is actually more 50-50 the modest represented here have that collaboration with Sanofi somewhat skews the European buyers.

And off this plans, we find as I’ve said earlier an increasing number of biotech and foundations leveraging many aspects if not all with drug discovery platform offerings. We continue to see trend of U.S. biotech adopting a virtual or near virtual model of operation with Evotec serving at the operational execution partner.

Slide 12 gives you a presentation of example of the foundation that we work with. Foundations are an increasing driving - are increasing driving a scientific innovation. We’re very pleased to have added further truck full failure of collaborations with partnerships such as Beyond Batten Disease, the Gladstone Institutes. Our long standing relationship with CHDI was extended for further three years. This collaboration is now into its tenth year and utilizes more than 50 Evotec scientists across the verity of activities in the fight to understand and find the cure of Huntington’s disease.

Moving on the update of our Toulouse operations on Slide 13, we recall that in April 2015, we applied the X Sanofi drug discovery operation in Toulouse to give us the capacity to meet the growth of our business. The integration of the site into our group has been successfully completed. The main validation of this have caused being the successful delivery across all of the Sanofi research collaborations and importantly the acquisition of new projects such as the complete compound management program partnered with UC B at the end of 2015.

Already the operations has grown 20% in headcount to meet our customer needs and 2016 will be a very exciting year for this site as we close a number of significant ongoing opportunities and discussions.

At this point I’d like to take the opportunity to thank all our colleagues in Toulouse for the hard work and enthusiasm in making this integration so successful.

Finally on Slide 14, as we look forward to the rest of 2016, we do anticipate further strong fundamental growth in the Execute business fueled by continuing stand along and integrated deals with our partners and a stronger year of achieving milestones in our success based partnerships.

Thank you for your attention and now I’d like to hand over to Cord for his Innovate update.

Cord Dohrmann

Good afternoon, everybody. And it’s my pleasure to give you an update on Evotec Innovate and especially our major achievements in Evotec Innovate in 2015 over our next fewer slides. I am happy to report that we have made significant progress on all levels of Evotec Innovate in 2015. In terms of platforms, although last two years we have filled a critical mass in regards to expertise and capabilities in a number of core disease areas such as neuroscience, diabetes, diabetic complications, pain and anti-infective and had a smaller effort in oncology.

In 2015, we prove especially oncology in particular be a significantly expanded our expertise and capabilities there and we have now over 50 scientists assuming a larger portfolio on oncology projects including projects in immune oncology, DNA break repair and targets that is controlling micro environment.

In terms of new partnerships, we have forged four new partnerships based on Cure X, Target X initiative. One initiatives in the quality space TargetImmuniT together with Sanofi. In the diabetes space in particular in regards to where a cell based therapy for a diabetes but also in terms of beta cell regeneration together with Sanofi. In Fibrosis, a larger collaboration with Pfizer and Inflammation collaboration focus on a particular Target with Second Genome in the microbiome space.

All these collaborations initiatives later to last at least within two to four years and are associated to significant upside in terms of milestones and royalty.

We have also expanded our academic network in 2015 here just I mentioned too in particular Gladstone with Gladstone initiatives which is really based on multiple programs here that’s pursuing together with Gladstone and ultimately all have State University and New York University.

And in terms of progress, on particular project, we have been able to report on significant advances in our TargetAD collaboration with Janssen and have also made progress on oncology that has now entered formal pre-clinical development.

On Page 17, you can see the implications of these advances. And in particular we have made great significant progress in growing revenues and by almost 50% in 2015 over 2014. EBITDA stayed essentially stable as we continue to invest more expenses in Cure X and Target X initiatives and there is significant increase also in the oncology portfolio but also in neuroscience.

On Page 18, I am - you can see our current portfolio of partner product opportunities and that portfolio has stayed robust and continues to growth despite certain setbacks in the legacy pipeline of projects as Werner already mentioned for example the Roche collaboration in Alzheimer's disease. But at the same time, we have built four additional new partnerships that I just mentioned and we have also introduced three preclinical stage programs in oncology to give our partner Sanofi that programs that we own jointly.

On Slide 19, you can see that our Cure X, Target X initiatives continues to grow and continues to be expanded not just in 2015 we’re already mentioned collaboration with Janssen but also in 2016 where we need heedfully forged a collaboration with a Michael J. Fox Foundation targeting for the treatment of Parkinson's disease.

Now on Page 20, I would like to briefly comment on our recent progress on Topas Therapeutics that you may have seen coming out this morning. Topas Therapeutics is a spin-off company which has pursued first-in-class approached in conduction in the field of autoimmune disease. Topas is leading based on a proprietary nanotechnology delivery platform which allows the targeted delivery of antigenic peptides in particular to the liver and thereby into inducing tolerance.

This technology was incubated at Evotec over a last two years and has now reached a stage where requires a more substantial funding to pursue multiple product opportunities in numerous indication such as in particular in MS and also [indiscernible] and type 1diabetes. This put together here a very robust first one funding a EUR40 million with a contortion of disease in particular epidemics but also all the preclinical stage collaboration with Eli Lilly and Company to pursue the technology in other areas as well.

The company is later to enter the first clinical development in 2017 in MS and has a strong pipeline of additional product opportunities shortly behind us. Even based on this larger financing, Evotec will remain the largest shareholder in Topas Therapeutics.

Our outlook for 2016 is also very strong. We expect to add new clinical initiations and good progress of clinical stage pipeline within our partnerships. The expected expansion of first-in-class, top class academic alliances and also expect a number of partnerships based on Cure X, Target X initiatives.

And finally we will continue to invest with a certain focus on IPSO [ph] technology and using this technology for drug discovery.

With this, I’d like to hand over to Colin Bond for the report on the financial performance of 2015.

Colin Bond

Good afternoon, everyone. Slide 23. Slide 23 shows clearly the Evotec’s 2015 results are fully in lined with all elements of the revised guidance that was issued on the 15th of September 2015.

Slide 24. Slide 24 presents the P&L for 2015 compared to prior year. Overall Group revenues for 2015 increased by 43% compared to prior year to EUR127.7 million. This increase was primarily due to the contribution of the Sanofi collaboration as well as strong base revenue growth within the Execute segment, a significant increase in the anti-infective business, four new strategic partnerships within the Innovate segment and favorable foreign exchange rate effects.

As a result, adjusted EBITDA increased to EUR8.7 million from 7.7 million in the previous year. Net income improved to EUR16.5 million from minus EUR7 million in 2014. This was due to the strong operational performance and to the bargain purchase of EUR21.4 million recorded as a result of the landmark collaboration with Sanofi.

Slide 25. On Slide 25, the left hand book shows the three year trend in revenues. As previously mentioned, overall revenues increased by 43% to EUR127.7 million, despite a fact that revenues from milestones up fronts and licensees decreased to EUR12.3 million compared to EUR16.1 million in 2014.

The right hand book shows the three trend in gross margin. The overall gross margin in 2015 decreased to 29.8% compared to 32.8% in the prior year, primarily due to the lower level of milestones. The margin excluding milestones up fronts and licensees increased to 22.6% in 2015 compared to 21.8% in 2014. This was due to the strong growth in the base business and favorable FX in banks.

Slide 26. On Slide 26, the majority of the changes in the balance sheet categories are the result of the Sanofi collaboration, specifically the left hand book that summarizes the asset base show significant increases in fixed assets in liquidity of EUR14.2 million and EUR45.1 million respectively. Meanwhile the right hand book that summarizes liabilities and equity reflects the bargain purchase of Evotec France together with increases in provisions of pensions, bonuses, all the accruals and anniversary awards.

Slide 27. On Slide 27, the left hand book shows the three year trend in R&D expenditure consistent with a strategy of the company, R&D expenditure increased by 48% to EUR18.3 million in 2015. This increase was primarily in the field of oncology as well as higher investments in ongoing Cure X and Target X initiatives.

The right hand book shows the three year trend in SG&A expenses. In 2015, SG&A expenses increased by 40% compared to the prior year period to EUR25.2 million. This was largely due to the one time transaction compensation costs related to the Sanofi collaboration of EUR3.6 million and also the ongoing SG&A costs of Evotec front of EUR3.1million.

Slide 28. Slide 28 shows the results of 2015 presented according to the Execute and Innovate segments. Consistent with our strategy the results of the Execute segment for 2015 shows strong revenues, a stable margin, a low level of R&D investment and relatively high profitability. Meanwhile the result of the innovate segment for 2015 shows significantly increased revenues and a high gross margin percentage due to the four Innovate deals concluded in 2015 and an increase level of investment in Cure X and Target X initiatives.

Slide 29. Slide 29 highlights the performance of the Execute segment in terms of key metrics over a three year period. The Execute segment had and will continue to deliver strong revenue growth relatively high and improving EBITDA as a percentage of sales, a stable gross margin and a low level of R&D expenditure.

Slide 30. Slide 30 highlights the performance of the Innovate segment in terms of key metrics over a three year period. The Innovate segment has and will continue to deliver strong revenue growth, a relatively high gross margin percentage and an increase level of investment in Cure X and Target X initiatives.

Slide 31. Slide 31 presents the Group P&L for Q4 2015 compared to Q4 2014. Year-over-year revenues in 2015 increased by 29% to EUR39.5 million compared to EUR30.6 million in 2014. In terms of adjusted EBITDA, Q4 was the strongest quarter of 2015 despite the lower level of milestones compared to Q4 2014.

The quarter also contained impairment charges and respective intangible assets of EUR7.1 million and an increase in the bargain purchase of EUR2.9 million in respect of the acquisition of Evotec France due to the finalization of the purchase price accounting.

Slide 32. Slide 32 presents the P&L for Q4 2014 for the Execute and Innovate segments. The results are consistent with those the full year presented earlier, however they show a strong growth in revenues and a significant improvement in EBITDA in both segments, the trend that is expected to continue into 2016.

With that, I’d like to hand back Werner, who will summarize the outlook and the guidance for 2016.

Werner Lanthaler

Thank you very much. Let me also at this point thank my team for an excellent work that has been performed together.

Page 34 shows you our current shareholder structure and should reflect that the option which was held by the BBS from San Francisco in 2016 in both not taking up to acquire certain additional shares.

Page 35 is basically summarizing our year 2015 with an outlook into 2016 where we are very happy to report that you will see continued strong revenue growth and accelerated innovation. You will see double digit grow in our top line with more than 15% revenue growth. You will see our sustain profitable and continuing to have strong liquidity and you will see us continuing to go into very focused areas where innovation is desperately needed where we want to go for first-in-class investments for first-in-class types and building efforts.

With this we want to conclude this finance and strategic summary of the year 2015 and the outlook of 2016 and we are very happy to take your questions.

Question-and-Answer Session

Operator

The first question comes from the line of Jonas Peciulis of Edison Investment Research. Your line is now open.

Jonas Peciulis

Hi. Hello. Thank you for taking my question and congratulations for great results. My first question is about CapEx level. So in 2014 you have CapEx of 5.3 million, in last year in 2015 it was up to - went up to 11.2, so I suppose this could to be - explain at least thought by a new side in Toulouse and for this year the guidance is say comparable of EUR10 million. So my question that goes, the question would be to understand the level of capital going forward beyond 2016 whether you see any potential increase in it or maybe could decrease due to potential lower maintenance CapEx going forward?

And the other question would be about the new spin-off Topas Therapeutics. So I’d like to get a sense or understand maybe, is it more like a one-off - spin-off or we could expect to see similar investments going forward as well because it seems that bench capital investors, do you trust that you could provide and run certain degree of services early stage by the company? Thank you.

Werner Lanthaler

Thank you, Jonas for your question. The first question will be taken by Colin, the second question I will then take up.

A - Colin Bond

Okay, Johan. It’s Colin here. So in 2015, you are absolutely right as part of the deal with Sanofi, we had more than 3 million of CapEx upgrades and CapEx that are been ordered but not delivered. And as part of the deal, we actually received the cash to allow us to make those purchases to upgrade the size. And so on an underlying basis, the expenditure was about EUR8 million and within that we also had the new facility in building and coming online on the 1st of October. And also in Princeton, we have the facility opening in Q1 of 2015.

Now in 2016, we will have no new site openings that are anticipated and that exceptional expenditure in respective to lose has fallen away. So you ten is the absolute math, we probably expect it to be in reality significantly below that and as always we do everything to control it. And then 2017 onwards, we expect it to certainly go down from the 10 million we’ve indicated here.

Werner Lanthaler

Thank you so much. On Topas, if you one step back first, whatever we do we always out go, so post a question, besides all scientific inside that we want to gain into a drug discovery as for the programs, B is a customer or B is a Evotec Innovate project, what’s the right scientific direction to go and secondly we outgo ourselves what’s the right capital intensity underwrite capital elasticity behind certain projects to go. And with this, we tried to really tailor the right solution to every target and to every platform that we are working of.

For Topas specifically the right answer really was to create a company that has the ability to go to prove of concept in humans because that’s where you will ultimately see if this highly promising disruptive technology can deliver its value promise or cannot deliver its value promise. So that’s why we just doing the right thing for the tried and the platforms here.

Conceptually, you are absolutely right. We don’t want to exclude that we will do this also in other settings and other formations and we are very happy that over the work of the last 20 years, Evotec was able to gain direct to patients a network that many people trust us with their targets, trust us with their work and also trust us with driving project into the right business plans forward.

Jonas Peciulis

Great, thank you. Thank you.

Operator

The next question comes from Volker Braun of Bankhaus Lampe. Please go ahead.

Volker Braun

Yes, thank you. Two questions if I may. First question is related to the contribution from Sanofi, the structure which I’d like to understand a bit in more detail. Of that 38.6 million, now much was covered by the original contract and giving it was less than 100% and there was a contribution from the additional 40 hiring you mentioned, how much is really the underlying organic growth holding to your definition and then for the rest of the business or maybe the 40 hiring can already be considered as organic? I don’t know it’s up to you.

And secondly, also coming back to Topas, you mentioned multiple sclerosis, diabetes, these are indications that maybe essentially higher investment in the future than the 40 million that is just a few is financing. To what extend this Evotec willing to participate in future financing rounds with where does it begin to hurt or with your limit?

Werner Lanthaler

So, welcome Volker. Maybe I take the first question and continue on Topas first and then I hand back to Colin on your Sanofi question.

So on Topas specifically when you look at what we have done over the last three years, you should appreciate that this was so far covered within Evotec R&D expenses, how we have brought Topas forward and there was a lot of effort already done before we acquired a company called Bionamics which out of the U.K. [ph] where the platform originally was generated. So it looks a bit too accelerated I would even say, if you trust things that we created this company last year, now it’s being at often next year it goes to the clinic. So it’s really a long term effort which is behind that.

And very importantly, Topas was also able to secure public funded which was very helpful out of Germany and continues to be important and continues to be helpful for especially multiple sclerosis trial. So on this one, we see a high cost coverage and support from public funds which makes it very attractive and therefore this technically does not hurt at all because the lot of the cost is covered from public funding at this stage and has been covered in the past year also, which is just speaking to the environment here of trying to also non-dilutive helping these projects to get forward.

We think that with the current 14 million round, the company is financed to go to a prove of concept. And the reason why we took a very strong and very highly qualified consulting with us is that this consulting of EBITDA and things together with us in any case would have the strength to continue on the basis on good data to go forward. As you also probably should appreciate Evotec at this stage is holding a very strong balance sheet with more than 130 million in cash and we are absolutely willing to put our balance sheet for high promise - highly promising projects to work because that’s the reason why we think our shareholders give us the strategy at this stage.

If this answers your Topas question, I would say I hand back to Colin on the Sanofi question.

Colin Bond

Yeah, Volker, the thing on the 38.6 million the revenues, your question was, is that all covered by Sanofi. And the answer is yes, it is, that’s all effectively Sanofi revenue.

Volker Braun

Yeah, I understood that. The question was, is it covered by the original contract or is?

Colin Bond

Yeah, it’s fully covered by the original contract and within the various contracts, there is an agreement that Evotec will undertake work on the half of Sanofi and that work is varies according to Sanofi’s demand. And we do get an additional margin on the work - on that work we undertake for Sanofi each quarter and that can fluctuate. But we do get compensated for that margin as well.

In respect to the headcount increase, which was your second part of your question, we’ve increase 283 in total and all but 75 of those are in Toulouse. So when we took Toulouse over, we got 208 people and we’ve increased by another 40 in Toulouse. And so about 248 people have joined us in Toulouse and difference is being an increase in the rest of the organization.

Volker Braun

Yeah, I was wondering whether these 40 addition hiring in Toulouse have already contributed to the top line.

Werner Lanthaler

Yes, without question because - and of course we position now for the top third party top line to grow within 2016 that we have to bring those people in, in order to able to deliver the mix of work in 2016.

But one should also caution here bit because it takes time to bring processes into a delivery amount and therefore we are in many process in getting ready. But I think as Mario alluded to, it is going very well at this stage.

Volker Braun

Right, so these 40 people will add incremental revenues above the original contact?

Colin Bond

Now 20 of them are in support functions and 20 of them are in operations.

Volker Braun

Alright, thank you.

Operator

The next question is from Gunnar Romer of Deutsche Bank. Please go ahead.

Gunnar Romer

Yeah, good afternoon, everyone. Gunnar Romer, Deutsche Bank. Thanks for taking my questions. First one would be basically a follow-up to Volker’s. And specifically on the organic growth, if you can help us understand that a little bit better especially in your Execute business, what’s been the organic growth in 2015? And when you think about the base revenue guidance for 2016, how much of that is organic, I think there should still be some contribution which is probably - should be considered first time consolidation?

Then the second question would be with regard to the delayed milestones, just wondering whether you could give us some more detail as to what those milestones are, when we should expect them to commence. I think you indicated was mainly timing related issues, any additional color on that would be much appreciated?

And then finally, I know it’s probably a bit difficult, but I have to give it a try. On the level of success base payments in 2016, any additional comment that you could make, I think it should be obviously a significantly higher now in the current year given that you are recording some of the delayed milestones from last year. But if you’d think about the trends in that line over the last few years, would you see further acceleration, continuation of that trend or potentially a slowdown, anything in terms of color on that front would also be much appreciated? Thank you.

Werner Lanthaler

So, maybe I’ll start with your last question on milestone. And it would I think wrong to now go back to if you look guidance system which includes milestones because that’s where we have deliberately gone away to as a go because we want to have a very clear view on the organic growth on this business and consider milestone is part of the business which is biology driven and therefore very volatile and difficult to predict.

Let me just make one example. If our Phase II would have been successful with Roche and trust me these results would be a triple, triple, triple from what you see right now. But even despite the fact that we’re failing some of these clinical trials and early project. We are happy that we see performance based payments coming in.

So we are very happy that guidance has changed towards a growth that we put on our base business without now something we continue to do so. On some of the delayed milestones, I would comment don’t expect here too much, because delays sometimes just result in mix experiments that have to be done which is continuing to have an insecure outcome behind that and that’s again going to the same argument where we guide without milestone, but let me also illustrate here again, I would really say guiding 15% growth without milestones is quite substantial achievement for the company where we are right now.

Having said that, we expect in 2016 clinical starts within our partnerships, we are very optimistic on our collaboration into material - and we are very optimistic of some of the other partnerships as they are continuing. We want to for example also highlight milestone that we have achieved completely virtual biotech company called Padlock which I think is an increasing visible success model that companies are building our platform, achieve milestone and then potentially find the destiny as biotech companies to be either building pipelines or be acquired or go into other scenarios in the biotech.

And on our underlying organic growth, I give back to Colin.

Colin Bond

Okay. For 2015, the Execute base revenue growth excluding the Sanofi transaction was 9%. In 2016 on the base revenue excluding the Sanofi transaction, we expect to record a double digit growth.

Gunnar Romer

And that’s very helpful. And maybe just as a follow-up, the 9% X Sanofi is that also clean of currency effects or does that still include some currency tailwinds?

Colin Bond

Yeah, there is some tailwinds in the currency in that number.

Werner Lanthaler

But what you should always see when it comes to currency that we have some positive effects currency from the U.S. but last year, we had some negative effects from the strong UK pound which is our cost base. So therefore it is a natural hedge which is ongoing in the company here also when you look at our top line with it is recorded in Euros, some of it is recorded in pounds, some of it is recorded in U.S. dollar. But overall it’s a positive effect in 2015.

Gunnar Romer

I appreciate that comment. And can you quantify what the FX effect was?

Colin Bond

On the Execute side, about 5%.

Gunnar Romer

Okay. And then just curious on the underlying acceleration, you are basically pointing to in 2016, is that all based on contracts that are already in place or are you factoring in some potential expenses on new business here, just trying to get a better sense of where the underlying acceleration is coming from?

Werner Lanthaler

Let me, on this I’ll hand back to Mario, can bring you a bit into how our operations really go into long term planning and long term capacity business.

Mario Polywka

Yeah, thank you, Werner. Yes, well, I suppose the answer is yes to all of these questions. We will continue to enjoy extensions on ongoing contract we’ve for a number of years. Expansion of those contracts and it’s also where at this state we’re marking that only the number of projects and collaborations within the overall Sanofi umbrella, we delivered more on the straightforward what we called mark to service agreement that we anticipated in 2015. So it’s not just the single collaboration with Sanofi but growing collaborations within that umbrella which we anticipate and continue.

And then of course, we’ve already signed new collaborations at the beginning of this year, the end of last year which will set on into 2016 and we anticipate a significant number of new collaborations. So we replaced collaborations at fall away or pieces of work that come to the natural conclusion. We extend existing ones and we expand existing ones and we bring in new ones.

Werner Lanthaler

So I think in summary, the portfolio mix is stronger than it has been where I would say every say significant as stronger than it has been in 2015 which was already a very strong year when it comes to the visibility of our waterproof for 2016.

Gunnar Romer

Prefect, thank you very much, gentlemen.

Operator

The next question is from Michael Higgins of ROTH Capital. Please go ahead.

Michael Higgins

Thanks operator. Congrats guys on the quarter and the year. It looks the Toulouse facility is up and running and where Execute business is on track. I know it’s the separate pressure with this morning and the Topas transaction, congratulations on that by the way. In that regard, what are your corporate goals in regards to spin-out and what are the - seeing additional spin-outs in 2016?

Werner Lanthaler

Sorry, I did not hear the last part of the question, but are comparable, our goal. Oh, again I think here, we really don’t operate on the specific number here which say we want to create three spin-offs every year that I think would reflect lot scientifically. We want to create the best business model behind every target and every platform where partners or we are working on. And I think our balance sheet and at this stage cash flow positive business gives us the flexibility to go into the strategic right direction, what biology basically is demanding. And that’s a fantastic situation to be in to really be helpful for partners but also most importantly to be helpful for our pipeline building assets.

But is the underlying strategy there is of course to increase the upside which is held our shareholders and that’s of course, what is the underlying economic behind the Topas that ultimately the shareholders Evotec own more than he would even hold on potentially successful proof of concept if we’re doing it this way.

Michael Higgins

Okay, that’s helpful, thanks. Yeah, we do have a bad connection but one other question if I could. Series A round of Topas Phase I date and there so they are expected in ‘17 or ‘18?

Werner Lanthaler

So I think Phase I data is potentially coming in by the end of 2017, beginning of 2018 and that clearly financed by the round A that went in there and as I already mentioned there is a substantial public funding behind the multiple sclerosis trials so that’s cost on Topas that leverage with the outside. So we also think that potentially we can go through full proof of concept with the current financing round. But also here I want to caution because as we all know sometimes it takes a bit longer and it is a bit more compulsive and then originally envision that’s why we have taken a very strong compulsive onboard to get over that.

Michael Higgins

Okay, very helpful. Thanks Werner.

Operator

The next question is from Victoria English of Evernow Publishing Company. Please go ahead.

Victoria English

Yeah, thank you for taking my questions. I have two questions about this, would you describe Topas essentially as an asset centric vehicle? And secondly, in other words, are you tend to just look at one particular project? And secondly, what would Evotec’s exit strategy be from Topas assuming that like goal?

Werner Lanthaler

Hello, Victoria, thank you very much. Topas is not only an asset centric company because if it would be an asset centric company, we would gone only for example go forward with multiple sclerosis, that’s what I would see an asset centric model to take one disease area bring this to a data point and then basically exit. We have deliberately chosen to take the platform here and that’s really a very broad platform that can potential be applied to market long term in disease and other disease area to bring that forward hence to go into potentially multi disease areas. So that’s why a company formation is I would also argue again the right strategy for this because it’s really a broader approach and just having one project which we could always go within Evotec, yes. And here aspect is that it requires very specific knowledge which is not the core knowledge of Evotec to go into regulatory and clinical situation which Topas head as a next step in front of them.

And when it comes to an exit strategy, I think ultimately you can envision that this company could in a success case go forward and create its own pharma pipeline development steps and potentially raise more money as a centric vehicle or be acquired and we will do everything to maximize the value for our shareholders.

Victoria English

Thank you.

Operator

AT the moment there are no further questions. [Operator Instructions] The next question comes from the line [indiscernible] [0:51:23]. Please go ahead.

Unidentified Analyst

Good afternoon, everyone, and congratulations on the - I have quite couple of questions. Firstly on capacity, where are you with kind with capacity in the current demand for your services? And the second thing is how do you view these - of your strong cash position kind of and you’ve mentioned already a bit with EVT equity but I am also thinking about investing more in the pipeline, taking things more toward clinic and also M&A?

Werner Lanthaler

So the first question, I will go back to Mario. Second one, I will take.

Mario Polywka

Hi there. Our capital as we said last year, we approach full capacity in our German, U.K. and U.S. side and that was the driving force behind the acquisition of the Toulouse operations which give us a fully integrated drug discovery capability and capacity. As Colin said little while ago, we are now adding new business to that capacity. We have the opportunity to expand which we’ve done so far to meet the new business requirements on top of the Sanofi requirements. We anticipate that capacity true growth headcount though should server us for the next two to three years as we meet our strategy, our long term strategy.

Unidentified Analyst

Thank you.

Werner Lanthaler

When it comes to our cash position, I would say the two key considerations at this stage are first, we think that it is important to keep a strong cash position for this company to basically have a very, very solid backbone for this company independently of data comes into this company that we maintain a strong position and don’t have to hold what to slowdown any of our progression in our project. Having said that we nevertheless I would say have at this stage free capacity and free cash reserves that we will put direction and that we are putting direction as we for example demonstrate this Topas but as also see here many organic ways for example the extension of our Cure X and Target X strategy which could be the most intelligent way of putting our cash to work.

Here we want to take conservative, we have been conservative but we always want to do the right thing for every target into science behind it. When it comes to M&A, we have shown in the last six years that we do everything for our shareholder that creates value including M&A and that’s also why we look at every opportunity that could add value to our shareholders.

Unidentified Analyst

Okay, thank you.

Operator

There are no further question, I hand back to the speakers.

Werner Lanthaler

I want to thank you very much for following Evotec. I want to thank you very much for looking at this company with the idea to support drug discovery into areas where new medicines are needed and this takes not only science, this takes also the world of capital markets, investors and people who ultimately what to do something good for patients. Thank you so much. I see you later in the year.

Operator

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

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