Second Quarter 2003: Evotec OAI Reports Positive EBITDA in First Half

Financial highlights:
Revenues increased to EUR 34.8 m (+5%). At constant exchange rates, sales rose by 16%
EBITDA positive in first half; on track for full-year sales growth of 10-15% and positive EBITDA in 2003
Operating loss improved by 33% to EUR (10.3) m, excluding amortisation charges by EUR (4.9) m
Cash position EUR 16.3 m due to short-term inventory build up
2003 sales and order book of EUR 67 m as of July 2003, representing 86% of analysts' revenue forecasts
Operational highlights:

New Discovery and Development Services contracts signed with Artesian Therapeutics, Axxima and Oxagen
Successful completion of first target screening for Novartis resulting in above average growth in Discovery Biology
Drug Discovery alliance announced with Takeda with a contract value of up to EUR 20 m plus clinical milestones (post period end, 1 August)
Site acceptance testing of EVOscreen® Mark III at Pfizer's research site in Sandwich, UK, completed in Q1; cellular screening capability installed in Q2. Pfizer now owns 10% of Evotec Technologies (ET).
Bernard Questier appointed Chief Business Officer (post period end, 6 August)
"All parts of Evotec OAI enjoyed a strong performance in the first half of 2003, despite continued challenging market conditions and exchange rate pressures from the strong Euro against the Dollar and Sterling", said Joern Aldag, President and Chief Executive Officer of Evotec OAI. "Based on pro-active cost management and strong sales performance across our different products, we achieved our goal of positive EBITDA and we are confident of maintaining this for the full year. Discovery and Development Services continued to deliver excellent results for customers, outperforming most of our peers. Continuing revenue growth, solid delivery on customer projects and instrument deliveries to Pfizer and other partners are expected to boost second half revenue performance. We are encouraged by the recent drug discovery collaboration announced with Takeda in the area of Alzheimer's Disease. It strongly validates our investment into this high- value discovery programme over the past four years and our strategy to become actively involved in selected fields of drug discovery alongside a partner."  
Revenues grew by 5% in the first six months of 2003 to EUR 34.8 million (2002: EUR 33.2 million). At constant exchange rates revenue growth was 16%. Despite the adverse impact of currency, we maintain our Euro growth target of 10 to 15% for the full year 2003.
Third-party revenues in our Discovery and Development Services Division (DDS) amounted to EUR 28.0 million (2002 actual: EUR 28.8 million; 2003 adjusted for currency effects: 31.7 million) in the first six months of 2003. Sales fell in the first quarter due to the one-off impact of revenues being deferred from Q4 2001 into Q1 2002, but in the second quarter revenues in the division grew by 5%, at constant exchange rates by 20%. This was supported by strong sales in Discovery Biology, partly because of a significant new hit-finding and profiling contract with Novartis. Sales performance of Development Chemistry services was slightly below expectation only due to deferred revenues from a delay in despatch of pilot plant material to a customer until 1 July.
As anticipated, third-party revenues in our Tools and Technologies Segment "Evotec Technologies" rose strongly, up by 58% to EUR 6.9 million (2002: EUR 4.4 million). This growth over the first half of 2002 is mainly attributable to the successful installation of the first EVOscreen® Mark III system at Pfizer in the first quarter and the extension of the system for cellular screening in the second quarter 2003.
In Euro currency terms, Evotec OAI recorded 56% of total revenues in Europe, 40% in the United States, and 4% in Japan and Rest of World.
Cost reductions in SG&A and the refocusing of R&D activities initiated last year led to a decline in our R&D spending of 34% and SG&A expenses of 13%. Solid revenue growth in concert with these cost savings led to a significant improvement in the Company's operating loss. For the first six months of 2003 it fell by 33% to EUR (10.3) million (2002: EUR (15.3) million). Excluding amortisation charges, operating losses almost halved
(-47%) to EUR (4.9) million (2002: EUR (9.2) million).

Net loss improved by 40% to EUR (8.2) million (2002: EUR (13.7) million). In addition to the improvement in the operating result, an R&D tax credit under the new tax regime in the UK contributed positively to net result. Net income tax benefits totalled EUR 1.7 million.
Net income per share amounted to EUR (0.23) (2002: EUR (0.39)).

Earnings before interest and taxes, depreciation and amortisation (EBITDA) was positive. It improved from EUR (3.1) million to EUR 0.6 million.

Cash, cash equivalents and marketable securities as of 30 June 2003 amounted to EUR 16.3 million. Cash consumption in Q2 2003 was driven by investments and the build-up of instrument inventory for Pfizer. The strong inventory build up (EUR 3.9 million) is only a short-term effect, which will be reversed by sizeable planned instrument sales to Pfizer and additional customers in the second half of the year.
Outlook. Although today's market environment and, in particular, considerable exchange rate movements have adversely impacted Evotec OAI's financial performance in the first half of 2003, it has been outstanding compared to most of our peers. Thanks to our broad and well balanced business portfolio and our strong market presence we have achieved a continued actual growth of 5% YTD, and 16% adjusted for currency effects. Our sales and order book as of July amounted to EUR 67 million for 2003, covering 86% of analysts' revenue expectations for the full year (consensus: EUR 78 million). We expect this to result in a strong third quarter. In addition to continued good growth in our Discovery and Development Services Division, significant instrument deliveries to Pfizer are scheduled for September. On this basis we maintain our guidance for 2003, despite the continued strong Euro and overall business environment in the industry. Based on current prospects, we are confident of achieving our revenue growth target of 10 to 15% for the year. By delivering on our cost containment programme, Evotec OAI has achieved positive EBITDA in the first half of the year 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.