Werner Lanthaler - Chief Executive Officer Craig Johnstone - New Chief Operating Officer Mario Polywka - Chief Operating Officer Cord Dohrmann - Chief Scientific Officer Enno Spillner - Chief Financial Officer

Falko Friedrichs - Deutsche Bank Samir Devani - Rx Securities Limited Igor Kim - ODDO BHF Victoria English - Evernow Publishing Limited

Good day, ladies and gentlemen, welcome to the Evotec AG Q3 Report 2018. At our customers’ 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 Dr. Werner Lanthaler, CEO, who will lead you through this conference. Please go ahead, sir.

Welcome. This is Evotec from Hamburg, and we are very happy that you have dialed in to this conference call to report our Q3 numbers of 2018. Delivering, that’s what we state at the beginning of the presentation that we have uploaded to the Internet and we would invite you to download this presentation and follow this conference call. When you go to Page 2 of this presentation, let me introduce you my team, which is collected here together with me. I have Enno Spillner, our CFO; I have Cord Dohrmann, our CSO, and I have Mario Polywka, our COO on the table here with me. And let me start by saying thank you Mario because Mario will by the end of the year retire and we are very happy that a transition in this company was possible as good as it gets by having the full expertise of Mario in the company and we will continue to be able to work together in many different forms with Mario by making Evotec an even better place in the future. When you go to Page number 3 of this presentation, you will see the change comes and change can be good. There is only one little thing that you will notice in the future that the accent will change, so the Queen's English from Mario will be exchanged to a Scottish accent that Craig will bring to this company, but both are good for us and there is no Brexit inside when it comes to the competence of the UK in Evotec. With this, let me briefly hand over to Craig and Craig please introduce yourself to the audience.

Thank you, Werner, and good afternoon to everyone on the call. I am really honored and humbled to be taking on in this exiting role, and I am really looking forward to working even more closely with the rest of the management board. Perhaps by a few words of introduction and convey something about my professional background. I am a chemist by background, spent almost 20 years at AstraZeneca in various scientific project, function and leadership roles in a number of diseases areas. I joined Evotec 6.5 years ago, first of all in Abingdon in the UK. And over nearly 25 years in the drug discovery game. I have contributed to discovery of numerous drug candidates for clinical development. I moved with my family to France in 2015 to take over the Toulouse Site leadership role and we took over the scientific [indiscernible] from Sanofi. And over the past few years, I am really thanks to the tremendous engagement and super commitment of the team there. We've transformed the [indiscernible] and created a highly successful business unit there even ahead of our original expectations. In addition to my scientific track record, I have been a longstanding champion of initiatives which can improve the execution and the delivery of drug discovery. And for me, this means, creating a high performing infrastructure which enables our fantastic scientists to do the best what they can by improving processes and investing in technologies which can make drug discovery and development more effective and higher quality. In this context, one area of particular interest for me is the application of artificial intelligence to drug discovery and development programs and obviously it's an area with huge potential for the UK. So in summary, I would start bringing my own personal [indiscernible] of drug discovery and development know-how methods for improvement of performance and focus on delivery to the role of COO. And finally, just for a [indiscernible], we’d like to sincerely thank Mario for his help and patience in recent months as we work very closely together to prepare this transition between us. Thank you, Mario for me. And with that, back to you Werner.

Thank you so much. Coming to Page number 4 of this presentation, introducing to you our nine months highlights, which you see on Page number 5. Scientific excellence meeting operational excellence that's what's driving Evotec. We are benefiting from a macro trend in external innovation which we bring to our business in all business lines across the company at this stage. You will see throughout this presentation that there is strong progress really in all parts of the business which makes us very confident for this year to deliver and also confident for 2019 which we will start strongly. Some corporate highlights in the recent months has happened and I think we can report back to you that our Action Plan 2022 is not only implemented, but fully up and running, and one part of that was the integration of external innovation through Aptuit which is ongoing and on track as you will see. When you go to Page number 6 of this presentation, let me highlight that the business performance of Evotec at this stage is strong maybe it's even fair to say that it's very strong. Enno will bring you into the numbers in more details, but one thing is clear that you see that the macro trend supporting our business, leads us not only to significant growth but we can outpace growth. At this stage in the industry when we compares to all our competitors and the reason for that is that we deliver higher quality in this industry to try a scientific projects forward. On that note, go to Page number 7, because that’s the source for the high quality that we bring to this industry. It’s fully integrated scientific platforms that allow for better and faster solutions to drug discovery and development problems. And if you’re able to deliver higher quality and higher speed solutions in drug discovery, you will ultimately make your partners more competitive. That's our credo and that's what you see reflected in the two business segment, Evotec Execute and Evotec Innovate. Where Mario will guide you now to Evotec Execute.

Thank you, Werner, and good afternoon, everybody. It's again a pleasure to be on this call with you and provide further detail on the excellent Q3 results. So as you can see on Slide 9, for the nine-month period in 2018, Execute revenues grew to €254 million, a very impressive 53% growth over the same period in 2017. This tremendous growth was due to a continued strong performance in the core Evotec business and a full nine-month contribution from the Aptuit business of €84 million. The strong revenue growth is also accompanied by an equally impressive growth in EBITDA of more than €20 million over last year's €41 million result. Moving to Slide 10 and as discussed in the six-month results call, the expanded business now benefits from a lower reliance on a few customers with a top 10 client contributions for the first time now dropping below 50% of total revenues. This is in the main driven by the Aptuit acquisition, which tends to have shorter-term contracts as opposed to drug discovery, which often has long-term strategic deal terms. The customer split is quite even between pharma and biotech. With pharma probably skewed due to the large strategic deals with Sanofi and Bayer, but the biotech levels also reflect the one-stop-shop requirements by such companies. As an addendum, geographical spit remains similar over the last three quarters, again been dominated by a large European pharma deals. Slide 11 is to remind you of the value chain, which Werner talked about and within which we operate especially since the acquisition of Aptuit. Supporting our partners from target identification seamlessly through to submission of regulatory documentation for first unmanned studies and then follow-on support an integrated CMC. Moving – this is reflected in Slide 12, which highlights that ongoing deals continue to be successful, a new deals accessing the platform that we've just described. Significant deals with signed an integrated drug discovery with Novo Nordisk and Ferring, what we have signed to further long-term extension of that contract with CHDI. Our screening, ADME-tox integrated CMC, and many other standalone services are also experiencing strong demand. Slide 13, especially associated with that [indiscernible] we’ve spoken about is our INDiGO offering, in which development candidates through the preclinical Phase II regulatory submission happens. This is done in industry-leading efficiency in timelines. The way this is made possible is by having all activities tox, API, drug product production formulation et cetera, all under one roof, seamlessly coordinated by excellence in project management. In 2018, we have signed a six significant number of new full INDiGO programs with companies such as Astex, Ankar, Inflazome, Yumanity to name but a few. Of particular importance of the cross-selling opportunities that we have realized having this extension to our product offering. Discovery deals are now extended through to the IND submission phase, whereas before we only have the capability to go to a development candidate. This is of course a very attractive proposition for Biotech companies, who like the in-house expertise and experience. And importantly we are now able to pre-select compounds much earlier in the lead optimization phase and able to progress these seamlessly into the pre-clinic eliminating much of the white space that currently exists. So finally, on Page 14, as I bow out of Evotec I'm very pleased to report the 2018 will deliver a strong year as guided. But importantly now the level of new deal signed give us a great start deep into 2019. Thank you for your attention. And for one last time, I'll pass you on to my colleague Cord Dohrmann.

Thank you, Mario. And good afternoon to everybody in this call. With the Evotec Innovate business segment, our focus is on building high value pharma partnerships which carry of a significant financial upside. In addition, to profitable on these supports, these partnerships led us participate in the successful development and eventually market entry of drug product opportunities. Evotec Innovate started 2018 with a very solid first half and continued on this path in the third quarter as well. Consequently we are expecting an excellent year for Evotec Innovate in 2018. The Q3 financial numbers shown on Page 15, indicate a very strong growth in revenues from about €33 million in Q3 of last year to about €51 million in revenues in Q3 of this year. This represents an even accelerated growth of Evotec Innovate in 2018 compared to prior years, however, from a much higher base then previously. The gross was driven in particular by solid based revenues from existing partnerships, the achievement of key milestones as well as new partnerships. In line with Evotec Innovate accelerated growth of revenues EBITDA also very significantly improved to about €6.6 million in profit despite of a significant increase in R&D expenses. In the first nine months of 2018 and we invested about €24 million, which represents an increase of about 60% in R&D spending compared to last year. R&D spending has still been focused on iPSC driven drug discovery as well as new platforms and academic BRIDGEs and it is only more recently that we have also expanded into infectious diseases. Page 16 gives you a very brief overview of some areas of progress. Beyond the growth in revenues and EBITDA Evotec Innovate continues to gain momentum on the basis of our of our iPSC drug discovery platform. The iPSC-based alliances continue to deliver milestones, which significantly contribute to revenues and EBITDA. In total, three milestones were delivered in our iPSC-based drug discovery alliances. In particular the Celgene alliance in neurodegeneration, but also been Sanofi alliance in diabetes. We also continue to expand our academic BRIDGE strategy and expanded our Evotec Innovate portfolio in infectious diseases. We build new partnerships in oncology and target protein degradation and we continue to invest into further financing to Forge Therapeutics, Facio Therapies' and Topas Therapeutics. In addition, to growing Evotec Innovate revenues we continue to advance and expand our partnered product portfolio. As you can see on Page 17, we have significantly grown our partnered product pipeline to currently over 100 co-owned product opportunities. Many projects are advancing in the development and quite a few have reached important development milestones in 2018. And finally a number of new alliances have been added as well. The very significant expansion of this co-owned product pipeline has been driven through our infectious disease partnership with Sanofi but also through three new innovate partnership; one this almirall, and two new partnerships for Celgene. The new Celgene partnerships alliances are discussed in a bit more detail on the next page. If you know our iPSC-based partnership the Celgene and the neurodegeneration is going very well and have made excellent progress since it start in 2016. Just before the summer, we signed a new deal with Celgene that is focused on developing novel therapies in the field of oncology and in particular solid tumors. In this oncology focused partnership the Celgene, we are leveraging Evotec’s leading phenotypic screening platforms as well as unique compound libraries and target deconvolution capabilities. This particular triggered an upfront payment of US$65 million with the potential for a very significant milestones and royalties for each license program. Just before the end of Q3, we signed our third partnership with Celgene in the field of targeted protein degradation which is probably one of the hottest new fields in the pharmaceutical industry as it has huge potential in many disease areas. It not only allows to target highly validated drug targets to a new mechanism, but it also allows the targeting of new previously essentially undruggable targets via similar molecules. Celgene is the undisputed leader in this field to the excellent work they have done on elucidating the mechanism of action of thalidomide analogues which ultimately have become a multi-billion dollar drugs. In this collaboration, Evotec is leveraging its Panomics and PanHunter platforms, which are industrial platforms that systematically use and analyze omics technologies and data. For this deal, financial details were not disclosed, but it is fair to say that this deal carries a similar financial upside for Evotec as the other Celgene collaborations. We are extremely proud that Celgene has chosen Evotec to work with us in oncology as well as targeted protein degradation. In both areas, Celgene is a worldwide recognized leader being number two in oncology by revenues right after Roche and clearly number one in the field of targeted protein degradation. As I mentioned earlier, we continue to invest into building our pipeline and into platforms for this game changing potential. On Page 19, I would like to briefly point out four areas which are of particular interest to Evotec and where we plan significant investments going forward. First and foremost, we will continue to expand our iPSC-based drug discovery platform. An example of this deal – this is a deal we signed in August with Centogene, a world leading company, diagnosing patients with rare genetic disorders. Centogene has a large database with patient documentation, including sequencing data, but also access to patient drive biomarkers and tissue samples which can be used for the generation of iPS cell lines. This is a very broad collaboration and rare genetic diseases which will significantly expand our growing collaboration, collection of patient derived iPS cell lines, which are clearly linked to human disease. Beyond the iPSC platform, we continue to invest into our Panomics platform. Here we systematically use high-throughput transcriptomics and proteomics as well as single cell sequencing to generate molecular phenotypes of disease. Thereby, the intent to redefine disease according to molecular mechanisms rather than symptoms or changes in cell appearance. Furthermore, we continue to invest in incorporating artificial intelligence tools into the drug discovery process to accelerate the chemical design and synthesis of compounds, but also to enable patients stratification based on patient derived omics data. Finally, targeting protein homeostasis is one of the most exciting new areas of drug discovery as disease manifests itself in changes in the proteome. And these changes can be addressed by a targeted protein degradation and approach that we are pursuing together with Celgene, but also via targeting turnover of cell surface proteins as we are doing currently together with almirall in dermatology. Before I end, I would like to use this opportunity to also give a brief update on our academic BRIDGE strategy on Page 20. 2018 has been a great year for our academic BRIDGE strategy as we have been able to add two new BRIDGEs already. In the first half of 2018, we added LAB591 with the Fred Hutchinson Cancer Center in Seattle and more recently we added LAB031 which is a Europe-focused BRIDGE between Sanofi and Evotec that covers multiple specific areas. So in summary, Evotec Innovate had a fantastic year so far with very significant growth in revenues and profitability. PS made significant progress in our clinical stage pipeline with a first molecules moving into Phase II of clinical development, we expanded our partner product pipeline to now over 100 partner projects, we added two new BRIDGEs and made great progress on until R&D projects and platforms building. In terms of new Evotec Innovate partnerships, we have already signed three very significant partnerships with companies that are world leaders in their respective fields; overall, a really fantastic year for Evotec Innovate already and hopefully more to come. With this, I'd like to thank you for your attention and over to Enno.

Yes, thank you Cord very much and a warm welcome also from my side to everybody on the call today. I have the great pleasure of introducing really exciting numbers of Q3 2018 to you today. And let's start on Slide number 23. Overall, we have seen again a very strong quarter contributing positively to the group performance of Evotec in 2018 year-to-date, and especially with regards to revenues and EBITDA, we are even above are very positive Q2 numbers, also thanks to strong milestone achievement and the reporting quarter. Evotec’s Group revenues for the first nine-month of 2018 grew to €270 million, which indicates a significant increase of 57% or almost €100 million compared to the same period of the previous year. I come back to the analysis of the revenues and the gross margin on one of my following slides. R&D expenses for the first nine-month of 2018 increased by 67% to €21 million, mainly due to the added R&D cost for infectious diseases efforts to the acquisition of the Evotec ID Lyon activities. It's important to bear in mind that the additional ID related R&D expenses in this case in return are covered under other operating income in context of the new agreement with Sanofi. SG&A expenses year-to-date 2018 increased as expected by 39% to €41 million, mainly due to the additional expenses of Aptuit now for the full three quarters as Mario already indicated. Since Q3, we have to also added Evotec Lyon and we have an increased headcount in response to the overall company grows as well as some M&A related expenses. Let me comment on the income from bargain purchase in Q3 2018 of €15.4 million as a special event, which was recorded in context of the acquisition of Evotec ID Lyon as the purchase price was below, the net assets received. This one-time effect in 2018 was not allocated to the segments and does not impact the adjusted EBITDA, but the operating income and net income only. The purchase price allocation is still preliminary and under further review. The other operating income shows quite a step-up in consists of three major positions that I would like to mention. We keep recording and increase in R&D tax credits, resulting mainly from R&D tax credits in Toulouse, in UK, from Aptuit Italy and now since Q3 of this year also from Lyon. We have cost coverage by Sanofi for a respective R&D expenditures in context of our ID Lyon activities, which kicked in now in Q3 for the first time, and we have the relief of an earn out accrual of €2.3 million in context of our EVT770 impairment as already described and discussed in Q2. Consequently, our adjusted group EBITDA on the first nine-month of 2018, increased significantly by 77% to €69 million. The net result in the first nine-month of 2018 increased €52.3 million obviously also recording the one-off effect of €15.4 million from the bargain purchase. To other key financials that are not on the Slide that I would like to mention. Liquidity, a margin to €69 million at the end of Q3 2018 and remain very strong despite the repayment of 50% or €70 million of the Aptuit acquisition on the first nine-month of 2018. And we also tried to continue these repayments of our BRIDGE loan from operational cash inflow. Balance sheet total increased to €770 million, which is a step up of more than €100 million compared to a year-end 2017.

Just one slight comment, it was €168 million.

Okay. That's correct. With regard to the segment, I will keep it very brief also because most of the points are being touched in the consolidated view anyhow, just on execute two main effects driving revenues increased to €254 million, which is 53% above last year. Namely again, four or nine months contribution, but Aptuit and strong growth base business. In the Innovate field, revenue year-to-date amounted to €51.3 million, which is 55% above last year. And the [Celgene euro and onco] collaborations surely contributed very favorably here. Base revenues have improved significantly in atomized contributed strongly. The adjusted EBITDA amounted to plus €6.6 million and increased strongly whereas last years minus €2.5 million as the Innovate result. On Slide number 25, looking at the individual Q3 quarter, as mentioned before Q3 2018 delivered a very strong financial performance. Group revenues increased by 43% or to €96 million, foreign growth and base business, fourth quarter for Aptuit contribution, please keep in mind last year we started in August, so in the middle of that quarter with Aptuit and a strong milestones as the important point. The significant milestone achievements also reflect the strong gross margin for Q3, 2018 of 34.7%. The Q3, 2018 gross margin excluding total amortization even amounted to 37.7%. The more than doubling of R&D expenditures is mainly – it's mainly but not only driven by the addition of the Lyon ID activities and SG&A of this quarter as well in line with the last three quarters or being in a similar range as mentioned in the quarters before already. Other operating income shows a significant upswing in particular on this quarter due to two major positive effects mentioned before, increase of R&D tax credits now including Lyon and reimbursement of R&D expenditures in context of our Lyon ID R&D efforts. Slide 26, like for Q3, it would takes Group full-year revenues increase is due to a strong performance in the base business, um, as well as increased milestone achievements and existing alliances and the Aptuit contributions of total revenue from milestones upfront and licenses for the first nine of 2018 amounted to €27.2 million and increased by 29% over the same period of the previous year. The gross margin was at 31% as already indicated in the previous quarters. This is reflecting the new business mixed with a different margin expectations following the acquisition of Aptuit. Also, I keep reminding of the high amortization of intangible assets as a special effect within the cost of goods due to the amortization of Supertex and Aptuit. This amortization totaled year-to-date €9 million, the gross margin excluding total amortization of acquisitions for the full-year would be a 34.3%. FX was a challenge in particular on the first two quarters and improved quite a bit in the second half of the year. So far we can see these quarters and half of the fourth quarter. Before mentioned high milestone achievements, obviously also contributing positively to the modular. Guidance on Page 27, the guidance can be well confirmed and we are well on track to achieve on our set goals for 2018, milestones are not guaranteed every quarter and can be volatile as mentioned in the quarterly reports before as well. We are currently preparing our budget 2019 and it does yet too early giving a detailed guidance which we will then publish in context of our annual financial statement in March, 2019. Nonetheless, basics looks quite healthy and we continue to experience a solid order book. Therefore, we are looking optimistically forward into 2019. Having said that, I hand over back to Werner, thank you very much.

Thank you very much. With this, I would like to close this short overview of the state of the Company and invite you all to questions. And at the same time that me tell you and guide you to Page number 28, which says, stay tuned. So state in any case, June for a strong underlying business which we are preparing for 2019, 2020, 2021 and 2022 with action plan 2022. Thank you so much.

We will now begin our question-and-answer session. [Operator Instructions] We received a question from Falko Friedrichs from Deutsche Bank.

Can you hear me?

Perfect.

Great. Thanks for taking my questions and congrats on a great quarter. And once again, my first question, can you provide a bit more color on this significant upswing in the Execute segment in Q3? Whilst there is a bit of a catch up effect from slower Q2 and therefore other temporary upswing or are there some structural elements in here that could potentially accelerate growth going forward as well? My second question, could you potentially share the amount of upfront payments from your recent deals that you were now able to record in Q3? The third question, are the Panomics enter protein homeostasis areas that can also potentially be partnered with pharma and biotech companies going forward in a similar fashion to what you do with your iPSC platform?

Thank you so much. Falko, on your second question, I have to disappoint you, we will not disclose any additional numbers to what has been disclosed on upfronts in the past. On your first question, on the underlying dynamics of the base business, I hand over to Mario briefly to illustrate you a bit the ongoing operations. And on your third question, I'll hand over to Cord.

Thank you for the question. As we went into 2018, we had a budget that saw a steady increase throughout the year as we closed out on more deals. So that's reflected in Q3 were more deals are being closed of a larger more strategic nature. And also the performance of Aptuit improved as we went through both from a topline perspective and delivery perspective as the integration took effect, but also from a profitability basis as well. So that would explain to our Q3 and of course we anticipate that that continues into the end of the year and beyond.

Thank you. Regarding the Panomics and protein homeostasis platform for partnering, the Panomics platform is really a very broad platform that is trying to integrate not just the omics data, but also transcriptomics and proteomics data together with available patient data and preclinical data. And this is a platform that is really aiming to redefine health and disease by molecular phenotypes, which can be applied essentially in any disease area, so very broadly across all areas where we are currently active. And in that regard, we would expect that this platform will enable us to do further deals here based on this platform going forward in a bunch of additional areas. The same as essentially true for protein homeostasis, which is also an area of increasing interest in the pharmaceutical industry and which goes essentially hand-in-hand also with Panomics because here we are looking essentially how the proteome changes in certain cell types that are affected by disease and how to correct this. And here in particular, as I mentioned earlier, targeted protein degradation is one of the key ways how to address this potentially. And as we are here working together with one of the undisputed leaders in the field, we feel that we are currently expanding our expertise in this area and building knowledge quickly, and we'll also try to apply this in other areas beyond what we are doing with Celgene.

It's really like building an outer bond with these platforms. There are four lines on this outer bond that we are building to basic and make drug discovery and drug development easily accessible and more efficient than any other place can do this. And as you know, the Germans are very good in making outer bonds. Next question please.

Next question we received is from Samir Devani, Rx. Please, your line is now open, sir.

Thank you. Good afternoon, everyone. Let me add my congrats on a very strong quarter. And I've got a few questions, the first perhaps just on the technology platform for perhaps to Craig. I think in your Slide, Craig you mentioned that you're using AI, we're trying to incorporate Evotec. And I'm just wondering if you perhaps could elaborate on how you're doing that and perhaps at the same time maybe you could just spend a few minutes just explaining the Panomics platform just to give us a better understanding of how that works? And my final question is just on to Enno really, if you can just help us reconcile the sort of net income to cash flow from operating activities. Appreciate you probably booked the €60 million up front from Sanofi during Q3, but if you could just perhaps explain things like maybe there's a significant change in deferred revenues in the quarter? Thanks.

So question one on AI, we probably will have to be brief here in order not to over do this call, but it really goes to two person on this call. There is Craig implementing that and Cord implementing that in many different processes throughout the Company; so maybe Craig, if you comment from you first and then on Panomics and AI back to Cord.

Sure, yes and thanks for the question. As I'm sure, we embarked on our collaboration with Exscientia in 2016. We wanted to explore the application of AI, particularly in molecular design that went very well. We were very pleased with results. It's an ongoing collaboration today. And but of course as you will appreciate that are mainly other problems in drug discovery and development, where AI could be targeted to give rise an even more enhanced solution to some of our problems associated with predictive power and a larger amounts of data. These two things combined in the AI to give rise to very good solutions. So we are within the process of inventing in AI and molecular design and [scientific group] planning, and then of course in areas we are the movement data is exploding and we need AI and machine learning tools to manage and process the high volumetric data and maybe that's the base point. Back to Cord.

Thank you, Craig. Yes, so essentially the AI and machine learning tools can be applied really in almost all segments of the drug discovery process. And we’re doing it now very effectively in the early molecular design of compounds. We're doing it in – we’re applying it in terms of the developing synthesis pass for novel compounds that we have designed to be applying it to now early omics data that is coming out of the more systematic approaches after using omics platforms in describing health and disease, describing new molecular phenotypes, describing the activity of compounds in a very complex fashion. But let me back up maybe on Panomics because that's an important point. So Panomics essentially is just a catch word for going across omics technologies, Panomics, and that captures genomics data, that captures transcriptomics data, that captures proteomics data. And what is new about this is trying to apply these technologies in a very systematic fashion, very early on in the drug discovery process. And these technologies can then be used or the data sign in a very comprehensive manner, phenotypes, but also biological activity of a compound. And in order to interpret these very complex datasets, it is important to also integrate artificial intelligence tools and machine learning tools and computer systems, algorithms in order to manage these datasets, interpret them and derive conclusions.

So back to financials, after this short AI experience and Enno, with the third question, please.

Okay, Samir, I will try to give you the major tax building, the BRIDGE between net income and cash flow. That's the way I understand your question. So we have obviously from the last quarters, we have major impacts from the Celgene upfront of US$65 million that we received and from Sanofi receiving €60 million upfront from the Lyon ID. Efforts – so these were the two major cash ends that we had which not immediately well on our P&L obviously, but most of it growing into deferred income. If it comes to a Celgene, there's something you can also observe in our balance sheet having relatively high deferred income is on the short end of 69 million currently on the long period of 52 million in total. The Sanofi upfront obviously is splitted down quite a few positions also being found in our balance sheet as we took over quite a few obligations, which naturally employees taking over any context of the Sanofi entity and Lyon like pension obligation and so also this position in our balance sheet. And then we have amortization of €9 as I mentioned before and our cost of goods which are in context of Supertex and Aputit amortization. And the last position which is in going in the other direction is €15.4 million purchase price bargain which is as recognized in the P&L, but obviously it's not having the cash impact. And these other major positions that are influencing net income and cash.

Let me just trace on this point that it was possible to payback a significant part of our acquisition loan through operations. And that just shows you the confidence that we have at this stage on the business that is bidding up here. Next question please.

Next question is from Igor Kim, ODDO BHF. Your line is now open sir.

Yes. Hello. Congratulations. It was a good results Werner. I've got a couple of questions. So first on the 2018 outlook, with, I would say, very strong result in the first nine months. Don't you think that the outlook for the full-year, the confirmation of results will kind of conservative or you prefer to stay on the safe side with respect to the fourth quarter? So that will be the first question. And the second question, I think Mario said that in Aptuit, profitability was improved was a driven by INDiGO projects or by other business lines within Aptuit? And the third one is could you give a breakdown in terms of milestone payments or in terms of segments between Execute and Innovate segments? Thank you.

On the third question, I have to immediately point you we don't practice up at the stage to more detail then we have given you. On question one, let me be specific here. We want to continue to share with you and synchronized with you that this is a milestone driven business and will continue to be a volatile milestone driven business. So when we say larger than 30%, you see that this is significantly larger than 30% at this stage. When we say larger than 30% on EBITDA this is significantly larger than 30% in EBITDA. In debt to just reflect to you that it's not about 1% up or down in guiding you here. It's about the long-term trend that we shared with you and the long-term outlook of this business and therefore we thought it's just not appropriate to change our guidance if this goes up or down by a few percentages it's about understanding the long term trend. And with this we did not want to create a short-term excitement by now whatever raising something above something. It's really following us in the long run and understanding our business in the long run. That's how we have built this business over the last 10 years that how we will continue to build this business over the next 10 years, and this has nothing to do with being conservative. This has something to do with synchronizing. You’re thinking and our investors thinking with our thinking. When it comes back to Q2, I hand over to Mario.

Thank you, Igor. The contribution from the various business lines within accurate, which of course a preclinical development, pharmaceutical development and drug discovery. They all improved over Q3 which is driven by a new INDiGO's as we stated in the communication. A strong performance from standalone business such as manufacture and formulation, and then also within that two, although it's an Evotec business line in total, the drug discovery business is also now seen in upturn. A lot of this is due to the cost selling synergies that we've been able to realize as well as a better commercial reach now within Evotec.

Thank you. Next question please.

Next question we received is from Victoria English, Evernow. Your line is now open, madam.

Yes, good afternoon. I have a question about the induced pluripotent stem cells. In the last few quarters, you've reported new initiatives on this front with patient-derived cell lines. And I'm wondering at this stage whether you could tell us what the next stage is in the use and application of this asset?

Thank you so much. The question goes to Cord.

Thank you, Victoria. So once again in iPSC-based drug discovery is an area that is of really great excitement to us and we continue to believe that this will make a big difference in the future. We have made tremendous progress on this platform over the last few years. And ultimately one of the longer term goals continues to be able to set up something like a clinical trial in a dish. So really being able to stratify patient populations and based on iPSC lines derived from various different patients in the same disease area and then being able to interrogate compounds directly on these lines to see on what patients they are effective or they are not effective. And in order to be able to do something like that, you really have to build on the library of iPSC derived – patient-derived cell lines. And as you've seen sort of the Centogene deal that I mentioned, this is essentially another way of accessing patient-derived cell lines in many other disease areas, but also just continue to build in certain disease areas where we are already active. So that’s one component that we feel that we are closer and closer moving towards a key goal, like being able to conduct a clinical trial in the dish. The other areas are that we are constantly adding a cell types that we are able to derive from induced pluripotent stem cells and thereby expanding our reach into new disease areas. And the third component is that from essentially single cell type experiments moving into more complex assay systems as co-culturing systems, that we're preparing now in various settings, but also – but inorganic like structures that they're pursuing in the context of kidney disease where we're building [indiscernible], but also a kidney tubules on a dish essentially. So we are very excited about all of these areas. We believe this will continue to be an area of growth for Evotec going forward and that we will be able to expand this franchise significantly going forward.

We want to be very conservative here because we have established something where using the term world leadership is something that we don't want to do too often. But on this front of drug discovery and drug development on the basis of induced pluripotent stem cells, we are using the term world leadership. Next question please.

Next question we received is from [Mike Dickoff]. Your line is now open.

Thank you for taking the questions. First, a couple on the Celgene alliance. You've twice added cell lines for the iPSC neuroscience agreement, can we assume that each time correspondence to new indication added to the collaborations and also how many indications are actively being researched as part of this alliance? Thanks.

On question one, it's clear yes, and on question two, we're not allowed to disclose, but it's getting more.

Okay. Thank you. Yes, thank you and good afternoon to you. In your press release, you also mentioned, further expansion of the IPC iPSC platform. Are you referring to internal expansion of your platform technologies? If so, what does that organically, you've noted in the past that you have strategic collaborations with [indiscernible] Censo, Lyon ID Pharma, just trying to understand that meant by a further expansion of iPSC platform? Thanks.

So what we are doing on this platform, we are building together every piece of the puzzle that it takes to make the most robust essays in the disease areas where iPSCs can be used in a very effective way. This requires access to patient derive material. This requires exit to technologies and this ultimately requires biology know-how in being able to translate what you're gathering on the platform ultimately into clinical hypotheses. And we have started with that beat us and we started with neurodegeneration as too obvious fields and nothing at this stage should hold us back from expanding this way beyond these two fields into more than 10 fields that we see where this can be applied and that's how you should at this stage look at this that we have basically started clear path and it's not measured by how many partnerships do we make in what quarter or not quarter. It's really building this for a long-term drug discovery effort, which can be executed on our own at this stage. And that's why we love to invest in Innovate because we are not dependent on external partnerships at this stage to drive this at full speed. We can drive this at full speed at this stage on our own investments. Does this hopefully answer your question because then it would go to the next question, please?

If I could add one more would be helpful, a couple of questions on your clinical assets. I guess with Bayer. I'm just trying to understand that the timing is continues to be on track. You're looking for a third Phase I in endometriosis, completing by year-end, starting a Phase II endometriosis pain in 2019. Any further clarity on when that might be as well as the chronic cough data in 2019? Thanks.

I think here it’s important that the principal of our co-owned pipeline is that we don't control the exact timing of clinical trials where they move into what stage going forward. All we can confirm on Bayer is that this has highest priority with Bayer that we are in very close contact and very optimistic that our P2X3 projects and the follow-up projects on P2X3 in chronic cough in endometriosis go as planned into multiple indications.

Thank you. Next question, please.

Next question received from Volker Braun, Bankhaus Lampe. Your line is now open, sir.

Yes, thank you for taking my question and hopefully it has not already been discussed before as I came late to the call. First would be on organic growth. You mentioned contribution from Aptuit of €83.6 million. How much of that was generated by the mid of August, so that which was inorganic and from there onwards, by definition that would be organic? That would be helpful. And was there already a contribution generated by Evotec ID from France, from Lyon, and staying there. Second question would be about Lyon. What have you found now that is your own therapeutics expectations as a triggered a reprioritization of projects or is it still the same that you anticipated in advance? If it's similar to lose or what are the differences, so bit more color on that would be helpful. And lastly, given the strong growth in alliances and project question about capacity, how would you describe the utilization at this stage? Are you running on full steam? Does it require further expansion, and how would that be managed?

On organic versus inorganic growth on Aptuit, I would invite you just have separate call probably to figure that out with Enno or OGA because that's probably too long for this call here. But if I may on – let's say the whole infectious disease effort, we should really think about this as a long-term effort and also here we have started 3.5 months ago to enter into the process of prioritizing the best pipeline assets that we found out of the pipeline that was handed over. We are at this stage balancing this with what we can do out of academic collaborations, out of other collaborations to ultimately build and long-term high value portfolio. So it's not that we just look at what we got. It's really how to be long-term best optimized from a medical need perspective, from a capability perspective and also from a strategic perspective how to build this best. This is not done yet and it's an ongoing process, but we signed and that's very important a very open culture to discuss, prioritize and reprioritize. And with this I think it is just important that we were cautious enough and gave ourselves and also our partnership with Sanofi here, five year time horizon. And that's why it's too early to call it success or not success. It just needs time. And the good news is that we have a lot of support for this time and also in financial terms from Sanofi to do this. You find at this stage no contributions on the topline from our infectious disease efforts in Lyon that are of relevance of course it added costs that's why we have also increased our investment in R&D. On that basis but cost is covered by Sanofi that's how you have to look at this.

Sorry to interrupt. From an accounting perspective there won’t be any revenues attached to that for the foreseeable future, it's a wash among operating income and cost?

There will be some accretive position but is not really significant. This is what we're not really pointing it out at this point in time.

That's really you see increased operating income in depth thing covered. And coming to capacity utilization you have to look at Evotec at this stage with more than 10 sites globally. Where you have different capacity utilization on different sites, but the good news is that of course the more business we add that better is the fixed costs versus variable cost utilization. That is reflected in our gross margins. If you look at this stage, we're especially happy that Toulouse situation is coming to a very good gross margin contribution, which also here was the underlying assumption for a five-year plan that we started about 3.5 years ago. You see when you look to our websites that we are hiring at all sites, highly qualified talent into the company and capacity at this stage would say – I would say is a quality situation for us. That we want to build it's not a quantity situation for us and never forget for us, the quality of growth is determining our long-term business plan. It's not that we just chase growth for growth sake.

All right. Maybe add-on to that is there a level of gross margin which would indicate that that’s your entering territory where you have to add brick and knowledge and really capacities here or…

I mean also here that you are - just to give you to – here to some details. We are currently in the process of building together with the city of [indiscernible] a completely newbuilding to add capacity on that site. We are expanding, for example, also in Oxford. We are expanding in Verona, we are expanding in Toulouse. So it's on all sites that we are not only adding intellectual capacity, but also as a bricks and buildings. But that's really what comes with growth. And I just wanted to stress that for us it's about quality growth. How do we operationally control quality growth that for example not any business that has a long-term lower contribution in 25% gross margin is at this stage to be considered as a long-term valuable business here. We sometimes do this, but that's the absolute exception and that's how we want to control that we really take on strategic business and not business just to feel the shop.

Last one if I may, there's enough talent around you can hire, and so which considerably take effective?

We feel, first of all, very happy that people who are with us, we try to retain because retention is what our partners, where you extremely high in a competitive environment when many of our more Asian competitors in certain disease areas, where in certain performance areas that we're active in just to have retention levers that don't make this available outsourcing relationship anymore. So I think that's really something that speaks a lot for us, that we have very good retention. That's the first thing and the second thing, refined high quality talent, attract high quality talent, especially from top academic places, but also out of very drug discovery, experienced other companies or pharma companies that join us. So that's why the blend of long-term pharma experience together with young academic talent makes Evotec such a vibrant and highly productive place.

Thank you very much.

Next question please.

[Operator Instructions] End of Q&A

If there are no further questions, let me state that it is our big honor to report back to our shareholders our progress. We want to synchronize with you as investors. We want to synchronize you with people who follow us to support us and bring our business forward. It's important to discuss what we're doing to learn and to make this Company better everyday. That's our mission and that's how you should see us. And let me finalize by saying one more time. Thank you, Mario, because it was a pleasure and it's a pleasure to work with you also in the future. Thank you so much all of you.

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