• Sales increased by 440% to EUR 11.3 million
• Financials in line with expectations
• First joint biology and chemistry contracts signed
• Strong cash position of EUR 49.2 million

Hamburg, Germany / Abingdon, UK - EVOTEC BioSystems AG (Evotec OAI, Neuer Markt: EVT) continued its strong growth in the first quarter of 2001. The Evotec OAI Group's revenue increased by 440% from EUR 2.1 million to EUR 11.3 million. This was in line with our budget. Our "Drug Discovery Tools and Technologies" business unit generated revenue of EUR 0.8 million. A key part of this was due to Pfizer's technology transfer services.
In the "Drug Discovery Services and Products" business unit, we generated revenue of EUR 10.5 million (previous year: EUR 0.3 million). The increase is primarily attributable to the inclusion of the newly acquired chemistry business in the consolidated financial statements. However, even on a pro-forma basis (including the chemistry business for the respective period of 2000) the increase in revenue in the service business amounted to 24% year-on-year. Significant increases in revenue were achieved through new partnerships in the areas of chemical research and the pilot plant.
 
Joint orders validate strategy of the merger. Today, just a few months after completion of the merger, we already booked two orders which combine products from EVOTEC's biology and OAI's chemistry segments. In March, we announced the first order, in which our client will receive the benefits of OAI's chemical expertise and compound library combined with EVOTEC's EVOscreen® technology. We will look for therapeutic molecules for MediGene AG that bind to a certain target discovered by this company in the context of heart diseases. In addition to the basic contract, the agreement contains an option for processing up to four additional targets. Apart from a fixed payment for the services agreed under the contract, Evotec OAI will also receive milestone payments from MediGene when certain stages of development are successfully completed, as well as royalties on marketed drugs. In the second trend setting co-operation with Serono, Evotec OAI will develop a new type of biological test system (assay) to identify new pharmaceutical agents for a cellular target from Serono. Evotec OAI will use its innovative VLiP(TM) (virus like particle) technology for this. After it has been successfully developed, Evotec OAI will test the assay on EVOscreen® equipment and profile substances in order to identify those which interact with Serono's target. Evotec OAI has already synthesised a large number of the 200,000 chemical test substances to be used in this program in a separate contract with Serono. The company will receive milestone payments for the clinical success of compounds produced under the original contract with Serono, as well as royalties from revenues of marketed products.
 
First attractive orders for patented VLiP(TM)  technology. In addition to Serono, Evotec OAI will also apply its VLiP(TM) technology to two of Celltech's GPCR targets (G-protein coupled receptors, one of the main target classes) under a contract with this company. Evotec OAI will express the protein for both targets, develop test systems (assays) for screening, and produce highly concentrated VLiP(TM) protein for further characterisation. Celltech has the option of acquiring a non-exclusive license for Evotec OAI's VLiP(TM) technology after the successful conclusion of this agreement. This license agreement entitles Evotec OAI to receive milestone payments for each agent discovered using VLiP(TM) technology in addition to an up-front payment and an annual license fee.
 
New agreements with prominent chemicals customers. Two major one-year projects were initiated with Eli Lilly (with options to expand and extend). In the discovery programme Evotec OAI will design and synthesise compounds for lead generation and validation as well as undertaking lead optimisation. The development programme involves process research and development support for various projects with subsequent scale-up of several of Lilly's drug candidates for use in clinical trials. For Solvay Evotec OAI will synthesise focused libraries over a period of two years. Solvay will use these compounds in screens against targets in their drug discovery programmes. Milestones will be payable to Evotec OAI if any compound supplied enters advanced clinical trials and/or is commercialised.
 
Research and development activities expanded according to plan. Research and development expenses amounted to EUR 6.2 million in the first quarter. This is a 58% increase compared to Q1 2000. Cost increases are a result of:
 

1.     

A significant assay development and screening programme, to generate benchmarks for major target classes in uHTS format (GPCRs using our VLiP technology, PDZ domains, caspases).


2.

Parallel development of our next generation screening system Mark III, a new analytical instrument for analysing cells and a reader device with parallel optics. We are using contractors to get over this peak.


3.

OAI's research and development contributes 10% points of the overall increase.
 
Results develop in line with expectations. The operating loss of the Evotec OAI Group amounted to EUR 6.2 million in the first quarter (before goodwill amortisation and other intangible assets of EUR 34.3 million from the acquisition of OAI and GENION Forschungsgesellschaft mbH) - an increase of EUR 2.2 million year-on-year. After inclusion of this purely notional cash free accounting effect, the operating loss would have amounted to EUR 40.5 million. This increased loss corresponds to our forecasts and mainly reflects our increased commitment in the area of research and development. Income taxes reported relate almost exclusively to deferred tax liabilities of OAI. These are cash neutral. The net loss of the Evotec OAI Group amounted to EUR 5.7 million in the first quarter. Including non cash effects from the amortisation of goodwill and similar items, net loss amounts to EUR 40.1 million.
 
EBITDA. Earnings before interest and taxes, depreciation and amortisation (EBITDA) are EUR -3.9 million. EBITDA per share reached EUR -0.11 compared to EUR -0.14 in the previous year.
 
Strong cash position. As of the end of the first quarter 2001, Evotec OAI held cash and cash equivalents of EUR 49.2 million, unchanged compared to Dec. 30, 2000. From today's perspective there is no need for further fund raising to deliver on our corporate strategy.
 
Outlook. We concluded a number of trend setting contracts with prominent companies in the first quarter. We are making progress in further implementing our strategy, which combines short-term revenue and cash generation while still participating in the longer-term success of our partner's drug discovery programmes through milestones and royalties. Provided continuing  commercial successes, we believe our performance for the year to be broadly in line with our expectations.