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BVF Gains Stake in Evotec in $40M Unsolicited Round

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By Nuala Moran
Staff Writer

LONDON – Evotec AG has received the significant endorsement – and huge financial boost – of an unsolicited €30 million (US$39.5 million) investment from Biotechnology Value Fund LP (BVF).

“We weren’t actively looking, but had an approach when we met BVF, who have followed Evotec for quite some time, looking at the business and how we have evolved the business model,” said Werner Lanthaler, CEO.

BVF’s interest chimed with Evotec’s wish to draw more international/U.S. investors to the company. “This is critical for success; if you have only European money it’s not enough to build a global company,” Lanthaler told BioWorld Today.

Hamburg, Germany-based Evotec had €56 million in cash at the end of June. Lanthaler said the new cash infusion provides “downside protection” in the case of failure of clinical programs it is advancing with partners. Evotec has survived many ups and downs, and Lanthaler said it is good to know that even if the unavoidable vagaries of drug development mean existing alliances fail, “the company has another chance.”

Evotec issued 11.82 million new shares to San Francisco-based BVF at €2.55 per share, a 3 percent discount. That increases the share capital by 9.9 percent and brings the market capitalization of the company to €130.4 million.

In a simultaneous transaction, BVF took an option from TVM Capital of Munich, Germany, a venture capital investor in Evotec, to buy out a further 11 .82 million shares at a price of €4 per share, over the next 30 months. In the past year, Evotec’s share price (FRANKFURT:EVT) has been stuck between €2 and €3, and has never risen above €3.50 in the past five years.

If the option is exercised in full, BVF’s holding in Evotec will rise to more than 18 percent.

“It was elegant to combine the fundraising with the idea of sending a signal that VC investors are no longer a strategic overhead for the company,” Lanthaler said.

Hubert Birner, managing partner of TVM, welcomed BVF as a specialized investor and co-shareholder. BVF, as a very reputable U.S. investor, has taken “an enthusiastic” view of the future of Evotec and was determined to secure an even stronger position in the company than could have been acquired directly via the public market. TVM is “happy to provide such an opportunity for BVF through an option agreement,” Birner said.

Evotec’s finances are underpinned by its drug discovery services operation. While Lanthaler said this “is not sky-rocketing” it is “a solid underlying business that gives us the strength to build early stage novel drug target approaches.”

In particular, Evotec is focusing on partnering with leading universities and academic institutions to identify and shape academic research into programs that are of interest to pharma.

Evotec’s approach is compatible with the needs of academics and pharma, with the company having the expertise and platforms needed to generate data and supply compounds to pharma, Lanthaler said. “On that basis, we are building a strategic pipeline where we try to roll over the clinical risk to pharma at a certain point in time.”

In effect, Evotec is acting like a VC firm by building a pipeline to be in-licensed by pharma. However, Evotec’s very productive drug discovery platforms mean it can do that with superior capital efficiency to VCs, Lanthaler claimed, and BVF’s investment is “a great endorsement” of that approach.

“For a long time it was not thinkable that anyone would put money behind this type of model and go for a strategic search engine play, where you don’t know where the timelines and the data points lie,” Lanthaler said.

Evotec has “a highly capital-efficient drug discovery engine,” noted Matthew Perry, portfolio manager at BVF. “The company has built an outstanding business model that can sustainably generate novel, high-value drug candidates,” he said.