Third Quarter 2003: Evotec OAI Reports 9-month Revenues up 20%, Positive EBITDA Sustained

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"This has been another excellent quarter for Evotec OAI. Despite continuing challenging market conditions and adverse currency effects, revenues continued to rise strongly and we remain firmly on track to post our first year of positive EBITDA earnings since the company was founded, "said Joern Aldag, President and Chief Executive Officer of Evotec OAI. "Performance in the third quarter was led by growth in Discovery Biology and by Evotec Technologies, where sales were up by 250% as we rolled out a portfolio of new instruments for Pfizer's research and development programme. We also made important progress in another key area of our long-term growth strategy, signing drug discovery agreements with leading partners in three of the most challenging disease areas of the coming decades - Alzheimer's, obesity and diabetes."

For the first nine months to September 2003 Evotec OAI achieved revenue growth of 20% to EUR 56.7 million (2002: EUR 47.5 million). As expected, the third quarter has been particularly strong, up 53% over the same period in 2002. Considering the current market environment this is an excellent achievement even considering the fact that the strong sales growth was strongly supported by the sizeable instrument deliveries in Evotec Technologies. At constant (last year's) exchange rates revenue growth would have amounted to 64% for the quarter and 31% for the nine months respectively.

	Jan. - Sept. 2003	Jan. - Sept. 2003 constant currencies *
Revenues	EUR 56.7 m	EUR 62.0 m
Growth over 2002	20%	31%
- Thereof Discovery and Development Services	EUR 42.8 m	EUR 48.1 m
- DDS growth over 2002	4%	17%
Gross margin	39.6%	41.3%
EBITDA	EUR 3.5 m	EUR 5.5 m

Table: Currency effect on key numbers

*Currency adjustment using exchange rates used in the comparable period of 2002

Third-party revenues in our Discovery and Development Services Division (DDS) increased 4% to EUR 42.8 million (2002: EUR 41.2 million) in the first nine months of 2003. Here third quarter revenues alone grew by 20%. This performance was mainly driven by strong growth in Discovery Biology, following an earlier than expected completion of primary screening campaigns on two targets with Novartis.

Following the agreement with Takeda signed in August 2003, revenues were shown for the first time in our Discovery Programs Division (DPD). They amounted to EUR 0.5 million, which consist of FTE based R&D payments and the allocation of a target database access fee, which is spread over a four-year contract period.

Third-party revenues in our Tools and Technologies Segment "Evotec Technologies" were propelled by the delivery of several instruments to Pfizer. Sales rose by 116% to EUR 13.4 million (2002: EUR 6.2 million) following the successful integration of two EVOscreen® and several Opera confocal imaging readers at Pfizer's research sites.

Evotec OAI recorded 50% of total revenues in Europe, 45% in the United States, and 5% in Japan and Rest of World.

On the basis of revenue growth and a reduced cost base (SG&A: - 20%, R&D: - 34%) the Evotec OAI operating result improved by 48% for the first nine months of 2003 to EUR (12.3) million (2002: EUR (23.5) million). Excluding amortisation charges, operating losses declined by 71% to EUR (4.2) million (2002: EUR (14.4) million), with our Drug Discovery Services as well as Evotec Technologies' business achieving a positive operating result. In the third quarter alone, overall operating result before amortisation was positive for the first time in the company's history.

Net loss amounted to EUR (9.9) million, improving 52% (2002: EUR (20.6) million). Net income per share amounted to EUR (0.28) (2002: EUR (0.58)).

In line with company guidance earnings before interest and taxes, depreciation and amortisation (EBITDA) was positive for Q3. Following this particularly strong Q3, EBITDA for the first nine months improved significantly from EUR (5.0) million in 2002 to EUR 3.5 million.

Cash, cash equivalents and marketable securities as of 30 September 2003 increased to EUR 19.0 million, mainly as a result of cash flow from operating activities amounting to EUR 2.4 million in Q3. For the first nine months the Evotec OAI group reached an operating cash break-even of EUR 0.2 million, a significant improvement over the same period of last year (2002: EUR (11.2) million). Net working capital increased by EUR 3.3 million. This includes an increase of trade accounts receivable following the instrument sales to Pfizer in September which will translate into a strong operating cash flow in Q4 2003.

Outlook. Evotec OAI has reported a strong performance in the first nine months of 2003. In light of the overall market weakness management believes this to be a very successful development compared to most of its peers. In the current market environment, trends are not very clearly identifiable. Evotec OAI is observing pharma and biotech companies continuing to shift budgets from discovery into development and to focus on fewer projects to be pushed into the market faster. In the short term, this puts pressure on outsourcing revenue growth potential. With a longer term perspective, however, this trend underscores Evotec OAI's strategy as pharma companies need to fill their pipelines and will increasingly have to do so by in-licensing and sourcing of discovery programmes. In addition, the strong Euro continues to have a negative impact on our short term growth potential.

In summary, both effects decrease short-term revenue visibility and may result in short-term adverse quarterly fluctuations. However, given the quality reputation we have built in the individual areas of our offering, and given in particular our high degree of integration along the value chain, Evotec OAI is well positioned for the future. We remain confident that when the market returns to more strength, we will able to take full advantage.

For 2003, we expect to meet or to come very close to our guidance of 10-15% annual growth despite strong currency effects. Assuming last year's exchange rates, Evotec OAI would have clearly outperformed the upper end of that range. Following an extraordinarily strong Q3, revenues in Q4 are expected to be slightly lower than in Q3 (which was high due to sales related to EVOscreen®). Our sales and order book as of October amounted to EUR 76 million for 2003, covering 97% of analysts' revenue expectations for the full year (consensus: EUR 78 million). On this basis Evotec OAI is on track towards our goal to reach a positive EBITDA for the full year 2003. We will give guidance for 2004 in early February.

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Third Quarter Report 2003

Key figures of statements of operations according to US GAAP

Evotec OAI AG and Subsidaries

Euro in thousands except share data

	01-09/ 2003	01-09/ 2002	Change in %	07-09/ 2003	07-09/ 2002	Change in %

Total revenues	56,699	47,451	19.5	21,862	14,250	53.4
- Cost of revenue	34,256	26,499	29.3	13,545	8,009	69.1
Gross profit	22,443	20,952	7.1	8,317	6,241	33.3
Gross margin	39.6%	44.2%		38.0%	43.8%

- Selling, general and administrative expenses	13,013	16,253	(19.9)	3,662	5,458	(32.9)
- Research and development expense	11,617	17,543	(33.8)	3,640	5,413	(32.7)
- Other operating expenses (income)	2,029	1,544	31.4	357	547	(34,7)
- Amortisation of goodwill amongst other things	8,038	9,105	(11.7)	2,650	2,999	(11.6)
Operating income (loss)	(12,254)	(23,493)	47.8	(1,992)	(8,176)	75.6

Net income (loss)	(9,888)	(20,624)	52.1	(1,701)	(6,891)	75.3

Net income (loss) per share (basic)	(0.28)	(0.58)		(0.05)	(0.19)

Key figures of balance sheets according to US GAAP

Evotec OAI AG and Subsidiaries

Euro in thousands

	30/09/03	31/12/02	Change in %

Cash, cash equivalents and marketable securities at fair value	18,988	21,308	(10.9)
Net working capital	7,989	4,672	71.0
Current maturities of long-term loans and long-term loans	12,486	7,887	58.3
Stockholders' equity	179,029	195,407	(8.4)

Total assets	227.872	241.042	(5.5)

About Evotec OAI AG
Evotec OAI has established itself as the partner of choice for drug discovery and development services for pharmaceutical and biotechnology companies worldwide, maintaining its leadership role through innovation and unmatched customer service.
The Company's business strategy is clearly focussed on drug discovery. It has established the most comprehensive technology platform and skills that integrate its world-class biology and chemistry capabilities. Evotec OAI leverages this discovery engine in providing assay development and screening through to compound optimisation and drug manufacturing services to a broad and well-established network of customers. In addition, the Company engages in selected discovery programmes itself to develop drug candidates for early out-licensing. Evotec OAI's instrument and technology business is now successfully handled by its affiliate, Evotec Technologies.
With over 600 people in Hamburg, Germany and Abingdon, UK, Evotec OAI is dedicated to returning value to its shareholders and employees through a sustainable business strategy that balances short-term and long-term revenue opportunities.

Contact:
Anne Hennecke, Investor Relations & Corporate Communications, Evotec OAI AG,
phone: +49-40-56081-286, anne.hennecke@evotecoai.com

February 11, 2012
04:08 AM CET