• Sales increased significantly to EUR 26.3 million
• Financials in line with expectations
• Several contracts new or expanded
• Healthy cash position of EUR 35.6 million

Hamburg, Germany / Abingdon, UK - EVOTEC BioSystems AG (Evotec OAI, Neuer Markt: EVT) continues its expansion as planned during the first half of 2001. The Company achieved revenues of EUR 26.3 million, an increase of 311% over the respective period in 2000. This strong increase over 2000 can be attributed to the acquisition of the chemistry business late in 2000 and good growth in biology services. Revenues for the first half were in line with our expectations.
The Drug Discovery Service division of Evotec OAI achieved revenues of EUR 22.9 million (previous year: EUR 0.5 million). On a pro-forma basis (including the chemistry business for the respective period of 2000), growth of EUR 2.1 million over last year is primarily attributable to growth in biology services (EUR 2.6m, + 189%). Chemistry services revenues amounted to EUR 20.3 million, slightly above previous year (EUR 19.9 million). Very strong revenue recognition in discovery chemistry more than compensated for the expected decline in custom library work following the successful completion of our large Bayer collaboration in 2000.
In our Drug Discovery Tools and Technology division we achieved sales of EUR 3.4 million. As expected, revenues were EUR 2.4 million below the previous year as last year saw above average revenues from the delivery of two Mark II screening systems.
56 % of our Company's revenues were generated in the United States, demonstrating our very strong presence in this largest pharmaceutical market in the world.
 
Integration well advanced. In only six months since the merger with Oxford Asymmetry International we have made significant progress in integrating both parts of the Company. Business Development, IT and Finance were the first functions which were successfully combined. In parallel our integration team is implementing our product strategy "From Target to IND" (IND = Investigational New Drug Application). Specialists from our chemistry division in Oxford and our biology group in Hamburg are crafting a truly unique product offering spanning the entire drug discovery phase. Emphasis is being put on medicinal chemistry, early proof of pharmaceutical concept and early ADMET. Our Business Development pipeline reflects the progress we are making and this has been demonstrated by the first integrated deals with MediGene and Serono.
 
Chemistry services continue their success. We made further good progress in drug discovery and development chemistry. In April 2001 Evotec OAI won a one-year contract to supply chemical compound libraries to Roche. An indication of our customer satisfaction is the number of current contracts that we were again able to extend or substantially expand in the first half of 2001. These customers include Pharmacia, Pfizer and Curis.
 
Innovative technology used to good effect. Our research partnerships in the field of biology and screening got off to a good start and have shown excellent results to date. In co-operation with Sugen / Pharmacia Upjohn, we have developed high-throughput assays for three cancer targets and have finished the relevant screening runs - results that are judged a clear success by both sides. When performing the fourth screening run, Sugen will now also use compounds from the Evotec OAI compound library. We are particular pleased with this as it means that yet another partner is now using our chemistry in addition to our biology and screening expertise - a further validation of our objectives in the merger: integrate the product offering and cross-sell to our partners.
We have already taken the first steps in our research co-operations with Serono and Celltech, which commenced in the second quarter. Both companies employ our innovative VLiP(TM) (vesicle like particle) technology for assay development. With Celltech, we reached the first milestone completing the expression of their targets on schedule.
 
Strong instrument sales from our co-operations with Olympus and Pfizer. In the second quarter, Evotec OAI delivered fifteen diagnostic analysers for SNP analysis as well as four novel SNP assays to Olympus, Japan. In June 2001, we delivered on time the second profiling reader with automated plate handling to Pfizer. In the same month we received an order for an additional profiling reader from our affiliated company Direvo. Delivery for this system is planned for the fourth quarter 2001.
 
Research and development activities expanded according to plan. Research and development expenses increased from EUR 8.3 million to EUR 11.9 million (+44%). On a pro-forma basis, including R&D expenses for the chemistry business in the first half year of 2000, the increase amounted to +32%. R&D expenses during 2001 are in line with our budget. The increase is due to:


a substantial peak workload in software development during the first half of 2001 due to the parallel developments of our Mark III system, a cell reader and a parallelized four channel optical unit. To avoid adding additional capacity and to cover shortages we outsourced significant parts of our software development.
an extensive in-house assay development and uHTS screening program in certain important target classes. Results develop in line with expectations. Excluding non-cash effects (primarily goodwill amortisation from acquisitions) the Evotec OAI group loss from operations amounted to EUR (9.1) million compared to EUR (8.4) million in the respective period of 2000. This is in line with our expectations. It is primarily a consequence of higher R&D investments in the current year, an activity which we consciously supported to expand our product offering.
Including non-cash effects, the operating loss was EUR (77.7) million. As of June 29 2001, the US accounting authority "Financial Accounting Standards Board (FASB)" decided that under US GAAP goodwill will no longer be amortised. As of January 1,2002 the operating result of the company will no longer be impacted by goodwill amortisation charges. Instead, a regular impairment review of the goodwill will be required. The amortisation of other intangible assets will not be affected.
Excluding the non-cash effects, net loss in the first six months amounted to EUR (9.0) million. At the group level, this includes a tax charge totalling EUR 0.9 million which mainly represents unpaid deferred tax assets in the UK. Earnings per share amounted to EUR (2.19) or EUR (0.25) adjusted for acquisition related non-cash expenses, compared to EUR (0.31) in the previous year.
 
EBITDA and EBITDA per share improved. Earnings before interest and taxes, depreciation and amortisation (EBITDA) were EUR (4.3) million compared to EUR (7.1) million in the previous year. EBITDA per share improved to EUR (0.12) from EUR (0.29) in 2000.
 
Healthy cash position. We continue to have a very healthy cash position of EUR 35.6 million (cash and investment securities). Our cash burn related to operations was on average EUR 1.4 million per month in the first six months.
 
Outlook. We are pleased with our performance in the first half of 2001. We extended our customer portfolio of blue chip pharmaceutical and biotechnology partners. We for the first time successfully sold exciting, integrated services to new and existing customers. Our new research collaborations for integrated biology and chemistry drug discovery got off to a strong start. Today we have an order book which already accounts for 84% of budgeted 2001 revenues and extends well into 2002. Production of chemicals in our new pilot plant commenced in July 2001 and will contribute positively to sales growth in development chemistry in the second half of 2001.
On the basis of a very healthy cash position we have the resources to continue our R&D programs to achieve our ambitious corporate objectives: to expand and integrate our service offering to become the true leader in "research collaborations from a pharmaceutical target to IND filing". We have focussed our attention on these objectives and are putting all the necessary resources behind them.