First Quarter 2003: Evotec OAI Reports Good Start to 2003

Financial highlights:

  • Revenues increased to EUR 17.8 m (+5%) although adverse currency effects had an impact on business in Q1. At constant exchange rates growth would have been +15%.
  • Reduced SG&A and R&D expenses led to an improvement in operating result by 17% (EUR (5.8) m)
  • EBITDA close to break-even (EUR (0.3) m, +48%)
  • Cash position maintained at EUR 21 m
  • er book of EUR 61 m as of April 2003, representing 78% of analysts' revenue forecasts
  • On track for growth target of 10-15% and positive EBITDA in 2003

Operational highlights:

  • Assay development and screening collaboration started with Novartis Pharma
  • Research group and discovery contracts taken over from British Biotech
  • Additional new contracts signed with Chroma Therapeutics and the OBP portfolio companies Dynogen Pharmaceuticals and Psychiatric Genomics
  • Collaborations with UCB and Amgen extended

Site acceptance testing of EVOscreen® Mark III at Pfizer's research site in Sandwich, UK, achieved ahead of schedule (part of the new contract signed in October 2002)
"We are pleased to report a good performance again in Q1 2003. Although our biotech clients continue to face considerable financing pressures, our strong competitive position in drug discovery services and innovative deal structures, such as the umbrella contract we signed last year with the venture capital firm Oxford Bioscience Partners to serve their portfolio companies, helped our discovery business to perform strongly, particularly when measured against our peers.", said Joern Aldag, President and Chief Executive Officer of Evotec OAI.

Evotec OAI revenues for the first quarter of 2003 amounted to EUR 17.8 million (2002: EUR 16.9 million). With this 5% increase over Q1 2002 we exceeded our internal expectations for the quarter and are on track to reach our growth target of 10 to 15% for the full year 2003.
Commenting on Q1 growth, two effects need to be taken into account:
1. Our business was affected by adverse currency effects from sales recognised in US-Dollar and UK Sterling, which depreciated against the Euro. If the exchange rates seen in Q1 2002 were applied to Q1 2003, revenues in Q1 2003 would have been EUR 1.7 million higher and growth would have been 15%.
2. Q1 sales in the previous year were particularly strong. They included EUR 2.3 million extraordinary revenues deferred from Q4 2001. After adjusting for this deferral last year, Q1 2003 revenue growth reached an impressive 22%.
Our Discovery and Development Services Division (DDS) achieved third party revenues of EUR 13.3 million (2002: EUR 14.9 million) in the first quarter of 2003. In 2002, the accounting for milestones in our collaborations with MediGene and Altana Pharma, as well as revenues from pilot plant orders which were deferred from 2001, contributed to an extremely strong Q1 in this division. In addition, the currency effect described above affected our DDS.
Our core product lines, discovery chemistry and biology services, continued to perform strongly in line with our expectations. We were particularly pleased that development chemistry services exceeded our cautious internal expectations although the market environment remains highly competitive.
For the three months to March 31, 2003, our Tools and Technologies Division "Evotec Technologies" demonstrated an excellent performance. Revenues grew by 122% to EUR 4.5 million (2002: EUR 2.0 million). This strong growth over the comparable period of 2002 is attributed to the successful installation of the first EVOscreen® Mark III system under the extended Pfizer contract.
In Euro currency terms, 60% of total group revenues were recorded in Europe, 37% in the United States, and 3% in Japan and Rest of World.

The Evotec OAI group operating loss for Q1 2003 decreased by 17% to EUR (5.8) million (2002: EUR (7.0) million). This improvement is mainly a consequence of reduced R&D in non-core areas as well as reduced SG&A expenses following our stringent cost management programme. Excluding amortisation charges, loss from operations for the first three months improved to EUR (3.0) million (2002: EUR (3.9) million).
Net loss improved by 12% to EUR (5.0) million (2002: EUR (5.7) million), again, primarily as a consequence of reduced R&D and SG&A cost. Net income per share amounted to EUR (0.14) (2002: EUR (0.16)).
Earnings before interest and taxes, depreciation and amortisation (EBITDA) improved by 48% to EUR (0.3) million (2002: EUR (0.7) million), almost achieving EBITDA break-even already in the first quarter of the year.
Cash and cash equivalents at the end of the first quarter were almost unchanged and amounted to EUR 21.0 million.

Outlook. Growing from a very strong base in Q1 2002 and despite considerable currency effects, our performance in the first three months exceeded our internal expectations. Our order book continues to be healthy and as of April amounted to EUR 61 million for 2003, covering 78% of current revenue expectations for the year (analysts' consensus: EUR 78 million). On the basis of a promising pipeline of new orders, we are confident of achieving our growth target of 10 to 15 % for the year, even assuming that the outsourcing market environment remains challenging for the rest of the year.
The cost saving measures we took in the second half of 2002 have begun to take effect without impairing our core capabilities. The company was close to break-even at the EBITDA level in the first quarter and is on track for positive EBITDA for the full year 2003. 
About Evotec OAI AG

Evotec OAI has established itself as the partner of choice for drug discovery and development services for the world's premier pharmaceutical and biotechnology companies, maintaining its leadership role through innovation and unmatched customer service.

The Company's business strategy is clearly focussed on drug discovery. Evotec OAI has established the most comprehensive technology platform and skills that integrate its world-class biology and chemistry capabilities. The Company leverages this discovery engine in providing assay development and screening through to compound optimisation and drug manufacturing services to a broad and stable network of customers. In addition, it 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.