Evotec OAI Announces Update on Annual Guidance

Hamburg, Germany | Abingdon, UK - Evotec OAI AG, Hamburg, Germany (Neuer Markt: EVT) announces third quarter revenues and an update on the company's forecast for its 2002 financial performance.
"Based on our excellent long-term relationships with the leading pharma and biotech companies such as Novartis, Pfizer, GlaxoSmithKline, Merck, Amgen and Vertex, we continued to grow significantly during the first nine months of 2002 even in adverse market conditions. However, we anticipate a period of lower overall market growth as a consequence of depressed capital markets and earnings pressures on our customers. Nevertheless, we are confident that with our proprietary technologies and excellent drug discovery process know-how we have all the elements in place to sustain our growth for the years to come," said Joern Aldag, President and Chief Executive Officer of Evotec OAI.
For the first nine months of 2002 revenues reached EUR 47.4 million, up 20% over the same period of last year. While this is a solid performance and in line with guidance of 20 to 30% growth, certain customers are now delaying orders to conserve their cash positions. In light of this situation we expect the overall growth rate for the year to be in the range of 8 to 14%. We hold on to our belief that 20 to 30% growth p.a. is still likely in the medium and long term. The developments in more detail:
Our Discovery Services (Biology and Chemistry, excluding Development Chemistry Services), representing approx. 60% of expected revenues in 2002, continue to perform strongly, in line with our plans and with strong prospects. They have reached revenues of  EUR 27.7 million in the first nine months of this year, 24% more than in 2001. Based on our Merck contract and the known new business pipeline we see solid growth for 2003.

At the same time Development Chemistry (approx. 25% of our expected 2002 revenues) has experienced a down turn in new orders during the last 3 months and a decline in visibility for new orders. This is a consequence of biotech customers sacrificing speed in reaching their next clinical milestone for cash conservation and big pharma customers restricting the level of outsourcing. Even though this unit typically experiences significant short term spot orders, we no longer expect it to grow this year.

A delay in signing of a large order for Evotec Technologies has led to deferral of revenues in the Tools & Technologies business into next year.

Significant additional orders in Discovery Services as well as Tools & Technologies are expected.

With secured revenues of over EUR 66 million for 2002 and based on the status of negotiations we are confident to reach revenues of EUR 68 - 72 million.

Based on these revenues, Evotec OAI expects to reach EBITDA break-even in 2003. EBITDA for 2002 is now expected to be between EUR -3 and -6 million (2001: EUR -1.0 million). This is a consequence of a) sustaining a high level of investments into R&D and b) under-utilisation the Development Chemistry plants in Abingdon, mainly an operation with a high portion of unadjustable fixed cost.

Based on our cash position, a strong pipeline of new contracts and our efforts to reduce cost and adapt capacity we remain confident that we can deliver on our business plan without requiring a capital increase through the stock exchange.
Difficult state of capital markets affecting 2002 revenue growth 
Evotec OAI's customer base is segmented into pharma and biotech companies. Small biotechs contributed approximately one third to sales in 2001. This is the customer group most affected by the current state of the capital markets. In the middle of last year we started to focus more on big pharma and big biotech companies. However, while small biotechs postpone projects, also pharma and big biotech are trimming their cost bases. While we have a strong pipeline of potential new contracts, revenues for projects not started until November can, to a large extent, not be realised within the current fiscal year. Delays in finalising a few expected orders until now led to the decision to adjust our targets for the current year.
Evotec OAI actively reducing cost and adapting capacity
The majority of our R&D expenses were directed to the development of our innovative and superior drug discovery platform. We have now finalised the development of the EVOscreen® platform and are shifting our R&D efforts increasingly to further drug discovery processes and programmes. We have decided on and are actively managing the transition of about 30 employees into other companies outside the Evotec OAI group. In addition, as long as the market environment remains difficult, we will focus our internal programmes only on our Alzheimer project. We have also taken action to reduce SG&A cost by 20% from 2002 to 2003. These measures and decisions will lead to a significant reduction of our cost base. We have also cancelled or postponed non-strategic investments. On the other hand we continue to invest in future value drivers such as the expansion and integration of our ADME/T and computational chemistry programme into our services. In Evotec Neurosciences (ENS) we continue to run our own drug discovery programmes to maximise long-term value creation using our powerful platform and our growing expertise in drug discovery.
Evotec OAI's liquidity position is healthy. At the end of the third quarter it amounted to EUR 14.9 million. On the basis of the forecast given today year-end cash will not further increase but be in the same range. 
Evotec OAI will issue its full Q3 earnings report on November 14, 2002.
About Evotec OAI AG
Evotec OAI offers a comprehensive range of high-value added services and products required to increase the efficiency and at the same time reduce the risk in the identification of new drugs. By integrating proprietary state-of-the-art technologies and processes in biology, chemistry and screening, the Company has established a unique position for all the critical elements in the drug discovery and development process - from target to clinical development. Due to its extensive know how and experience Evotec OAI is the ideal partner for pharma and biotech companies world-wide. To date, Evotec OAI has completed over 1,200 projects with 150 companies, including all of the top 20 global pharmaceutical companies and major biotechs.

The Company employs more than 600 people, primarily at its two main sites at Hamburg in Germany and Abingdon in the UK. Subsidiaries are located in Europe and North America. In 2001 Evotec OAI achieved revenues of EUR 63.2 million. Evotec OAI shares are listed on the Neuer Markt of the Frankfurt Stock Exchange since November 1999 (NM: EVT).