Second Quarter 2004: Revenues Rebound From Q1 - Good Progress in Difficult Market Environment

Hamburg, Germany | Oxford, UK - Evotec OAI AG (Frankfurt Stock Exchange: EVT, TecDAX 30) today announced financial results for the second quarter and the six months to the end of June 2004.
Financial highlights:
. Revenues for the six months amounted to EUR 31.3 million (2003: EUR 34.8 million)
. Q2 revenues EUR 17.0 million (2003: EUR 17.0 million), up 18% from the first quarter reflecting an improvement in market sentiment. At constant 2003 exchange rates, Q2 sales rose by 2%
. Six months EBITDA EUR (4.1) million (2003: EUR 0.6 million)
. New order intake for 2004 from May to July of EUR 15 million, up 9 million from the comparable period in 2003, spread across all businesses
. Post period-end placement of 2.5 million shares to raise EUR 7.5 million

Operational highlights:
. Strategic worldwide chemistry agreement initiated with Roche
. Curis medicinal chemistry collaboration extended
. New assay development and screening contracts signed with Guilford, Neuronova and Nuvios
. Improvement in Development Chemistry services performance with pilot plant work conducted for GSK, Anormed, Celgene and promising new order intake; significant contract signed with Morphochem
. Evotec Technologies: EVOscreen® sold for delivery in Q4
"Our business has recovered strongly from a weak first quarter, particularly in the US, as improving sentiment among our core customers seen since the start of the year begins to feed through in the form of new orders. Revenues are now back to the levels seen in the same period of 2003, and we remain confident that we are on track to meet our full-year expectations. The encouraging pick up in order flow has been seen in all parts of the business, and the expanded discovery chemistry contract signed with Roche in the quarter demonstrates the innovative nature of our relationship with major pharmaceutical companies. Although market conditions remain challenging, we expect the enhanced deal flow to translate into stronger sales over the remainder of the year, with higher capacity utilisation helping to improve gross margins, particularly in Discovery and Development Services," said Joern Aldag, President and Chief Executive Officer of Evotec OAI. "In addition, we have continued to rapidly and successfully develop our internal projects in Metabolic Disease within our DeveloGen joint venture. Compounds for the first project have moved in to lead optimisation having shown positive effects in appropriate animal models."
Evotec OAI revenues for the first six months of 2004 were EUR 31.3 million (2003: EUR 34.8 million), reflecting the slow down in first quarter sales. The Company achieved Q2 revenues of EUR 17.0 million, in line with the same period of 2003 (at constant 2003 currencies 2% growth). As expected, the second quarter saw a significant improvement from Q1 lows, with sales up 18% quarter-on-quarter.
Our Discovery and Development Services Division (DDS) achieved revenues of EUR 27.1 million (2003: EUR 28.8 million) in the first six months of 2004. All product lines recorded significant improvements over Q1, particularly chemical and pharmaceutical development where a number of projects were delivered to customers in June, including some pilot plant batches delayed from Q1. Revenues excluding third parties amounted to EUR 2.5 million, including  EUR 2.4 million from delivering services to the DeveloGen joint venture.
Revenues in our Discovery Programs Division (DPD) amounted to EUR 0.9 million (2003: nil) for the first six months, unchanged from the end of the first quarter. First quarter revenues resulted from the collaboration between Evotec Neurosciences (ENS) and Takeda. From the second quarter, these are no longer recognised in the Group accounts following Evotec OAI's reduction in its shareholding in ENS as a result of the successful venture capital round in March.
For the first six months of 2004, our Tools and Technologies Division achieved revenues of EUR 6.8 million (2003: EUR 7.2 million). This slight decline was due to the timing of EVOscreen® revenues. 2003 sales figures included an EVOscreen® instrument delivered to Pfizer with a revenue impact of approximately EUR 3 million in the first quarter of the year. As discussed above, a similar positive EVOscreen® revenue effect is anticipated in the fourth quarter of this year. Excluding this impact, growth in bench-top instrumentation and in consumables remained strong.
Cost of revenue for the first six months amounted to EUR 20.2 million (2003: EUR 20.7 million). Gross margins declined to 35.6% (2003: 40.5%), mainly as a result of two specific effects in our Discovery and Development Services Division:
1.      Relatively low sales volumes in discovery and development chemistry in the first six months of the year, particularly in Q1, and the resulting capacity under utilisation. Capacity utilisation is expected to improve with increased sales during the rest of the year.
2.      The continued unfavourable exchange rate from a weak US-Dollar and a strong Pound Sterling. If last year's exchange rates were applied, the gross margin for the first six months would have amounted to 36.7% for DDS and 39.0% for the Group.

The Tools and Technologies Division reported a strong gross margin of 56.6% thanks to a favourable sales mix, including milestone payments from Pfizer.
The shortfall in revenues and margins resulted in an operating loss of EUR 13.4 million (2003: EUR 10.3 million) for the first six months of 2004. The majority of this was incurred in Q1. Excluding amortisation charges, losses from operations amounted to EUR 8.3 million (2003: EUR 4.9 million).
The net loss increased to EUR 11.8 million (2003: EUR 8.2 million) due to the decline in operating results and to research activities for the DeveloGen joint venture, which began in the second half of 2003. It was positively impacted by total tax income increasing to EUR 2.7 million, mainly due to the new tax regime in the UK. Net income per share in H1 was EUR (0.33) (2003: EUR (0.23)).
Earnings before interest and taxes, depreciation and amortisation (EBITDA) amounted to EUR (4.1) million (2003: EUR 0.6 million).
Cash and cash equivalents at the end of June amounted to EUR 13.0 million.
Outlook. The sales and order book for 2004 has increased to EUR 62 million as of July, further improving revenue visibility for the year. With this accelerated deal flow and promising discussions with pharma and biotech companies, we are on a good path towards achieving our guidance for the full year 2004, despite a continued challenging market environment. We plan revenues to grow by around 3% if current exchange rates are maintained for the rest of the year.
The Company expects revenues in its core business, the Discovery and Development Services Division, to continue to improve in the second half of the year. As in previous years, revenue recognition in the Tools and Technologies Division is subject to significant variations from quarter to quarter depending on the timing of deliveries of instruments. As the majority of revenues from Evotec Technologies will be recognised in Q4 2004, the third quarter is expected to be relatively weak compared with a very strong Q3 2003, while Q4 is expected to deliver significant revenue growth.
Conference Call
Evotec OAI will hold a conference call today at 14.00 p.m. CET (13.00 p.m. GMT/08.00 a.m. US time East Coast) to discuss Q2 results. Jörn Aldag, President & CEO, and Dr Dirk Ehlers, CFO, will lead the call.
Conference call numbers (listen only):
Germany:        +49.(0)89.2030 3242
UK:                +44.(0)20.7098 0713
US:                 +1.718.354 1153
A replay of the conference call will be available for 24 hours and can be accessed in Germany by dialing +49.(0)69.22222 0418, in the UK by +44.(0)20.7984 7578 and in the US by +1.718.354 1112. The access code is 915147#. The on-demand version of the webcast will be available on our website: - Investor Relations - Financial Reports.
About Evotec OAI AG
Evotec OAI has established itself as the partner of choice for drug discovery and development services for pharmaceutical and biotechnology companies worldwide, maintaining its leadership role through innovation and unmatched customer service.
The Company's business strategy is clearly focussed on drug discovery. It has established the most comprehensive technology platform and skills that integrate its world-class biology and chemistry capabilities. Evotec OAI leverages this discovery engine in providing assay development and screening through to compound optimisation and drug manufacturing services to a broad and well-established network of customers. In addition, the Company 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 Oxford, 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.
Forward looking statements
This press release contains forward-looking statements that involve risks and uncertainties. The forward-looking statements contained herein represent the judgement of Evotec OAI as of the date of this release. These forward-looking statements are no guarantees for future performance, and the forward-looking events discussed in this press release may not occur. Evotec OAI disclaims any intent or obligation to update any of these forward-looking statements.
Second Quarter Report 2004
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Contact: Anne Hennecke, Investor Relations & Corporate Communications, Evotec OAI AG, Phone: +49-40-56081-286,
Contact: Anne Hennecke, Investor Relations & Corporate Communications, Evotec OAI AG, Phone: +49-40-56081-286,