Third Quarter 2004: On Track to Reach Updated Financial Targets

Hamburg, Germany | Oxford, UK - Evotec OAI AG (Frankfurt Stock Exchange: EVT, TecDAX 30) today announced financial results for the third quarter and the nine months to the end of September 2004.
Financial highlights:
* Revenues for the first nine months amounted to EUR 47.4 million (2003: EUR 56.7 million)
* Q3 revenues of EUR 16.1 million (2003: EUR 21.9 million); declined mainly due to above average sales in Evotec Technologies last year following the delivery of several instruments to Pfizer
* Nine months EBITDA EUR (6.1) million (2003: EUR 3.5 million)
* 2004 guidance revised on 20 October 2004, revenue target of approximately EUR 70 to 75 million (corresponding to Q4 growth of 10 to 35%)
* Sales and order book for 2004 increased to EUR 72 million as of October
* Placement of 2.5 million shares to raise EUR 7.5 million
Operational highlights:
* Strategic drug discovery collaboration signed with Boehringer Ingelheim including Evotec Neurosciences
* Altana selected Evotec OAI for kinase lead identification project
* New assay development and screening agreement signed with Seikagaku, Japan
* Chemical and Pharmaceutical Development business continues solid performance with promising contract negotiations for 2005
- New contract signed with Morphochem
- Master service agreement expanded with Biogen Idec
* Evotec Technologies: Strong Q4 expected
For the first nine months of 2004, Evotec OAI revenues amounted to EUR 47.4 million (-16%, 2003: EUR 56.7 million). The Company achieved Q3 revenues of EUR 16.1 million (-26%, 2003: EUR 21.9 million). As expected and communicated in our Q2 financial report, the third quarter was weak compared to the same period in the previous year mainly due to above average sales in Evotec Technologies last year following the delivery of a suite of discovery instruments to Pfizer.
In light of the 2004 Q3 results and the status of contracted revenues and contract negotiations as of October we revised our revenue guidance on 20 October 2004 for the year 2004 to approximately EUR 70 to 75 million.
"Although we have been unable to compensate for the Q1 shortfall and therefore had to revise our targets for the current year in October, we were successful in gaining business with many new customers in 2004 and mastering the challenges we had in front of us at the beginning of the year. In Drug Discovery Services we are making progress in our goal to shift focus to higher value strategic partnerships as witnessed by our new alliance with Boehringer Ingelheim. Our Chemical and Pharmaceutical Development business has recovered from a very weak first quarter and continues to produce solid performance with contract negotiations for 2005 being promising. And, Evotec Technologies is on track to successfully build a strong and broad customer base and to reduce its dependence on one single large contract with Pfizer. With an expected revenue growth between 10% and 35% year on year in Q4, we are looking forward to a very good quarter," said Joern Aldag, President and Chief Executive Officer of Evotec OAI. "
Our Discovery and Development Services Division (DDS) achieved revenues of EUR 42.0 million (-5%, 2003: EUR 44.0 million) in the first nine months of 2004 including intra-group revenues. Segmental revenues within the group amounted to EUR 3.9 million, largely originating from the delivery of services to the joint venture with DeveloGen. Third party revenues declined by 11% to EUR 38.1 million, reflecting lower sales from discovery services with some long-term contracts being scaled-down or terminated in this challenging market environment. Although our business has recovered since the beginning of the year, we were not able to compensate for this initial shortfall. In addition, discovery biology sales were particularly strong in Q3 2003, following the completion of screening campaigns for Novartis. Chemical and Pharmaceutical Development showed a stable performance compared to last year.
Revenues in our Discovery Programs Division (DPD) amounted to EUR 0.9 million (2003: EUR 0.5 million). They were booked in the first quarter and resulted from the collaboration between Evotec Neurosciences (ENS) and Takeda. There have not been any further revenues after Q1 due to the deconsolidation of Evotec Neuroscience after a successful venture capital funding.
For the first nine months of 2004, revenues in our Tools and Technologies Division (Evotec Technologies) were EUR 9.6 million (-33%, 2003: EUR 14.3 million). As previously stated, much of this relative shortfall was due to the timing of EVOscreen®-related revenues and other instrumentation revenues. 2003 revenues for the first nine months included strong sales of instruments delivered to Pfizer. This year, the fourth quarter is expected to be much stronger.
For the first nine months, cost of revenue amounted to EUR 31.0 million (2003: EUR 34.3 million). Gross margin was at 34.6% (2003: 39.6%).
In our Discovery and Development Services Division margins remained on the same low level as in the first half of this year (32.5%) due to a continued adverse market environment and adverse currency effects from a weak US-Dollar and a strong Pound Sterling. If last year's exchange rates were applied, the gross margin for the first nine months would have amounted to 36.5% for DDS and 38.2% for the Group.
Gross margins in our Tools and Technologies Division (Evotec Technologies) continue to be strong (54.3%). The slightly better margin in the first half of the year (56.6%) was a result of the sales mix and some success payments from one of our customers.
The operating loss increased to EUR 19.6 million for the first nine months (2003: EUR 12.3 million). Excluding amortisation charges, losses from operations amounted to EUR 12.1 million (2003: EUR 4.2 million).
The decline in operating results relative to 2003, and our investments in our Metabolic Disease research programme with DeveloGen, which began only in the second half of 2003, resulted in an increased net loss of EUR 17.7 million for the nine months (2003: EUR 9.9 million). Net income tax benefits increased to EUR 3.8 million. Net income per share for the first nine months of 2004 was EUR (0.49) (2003: EUR (0.28)).
Earnings before interest and taxes, depreciation and amortisation (EBITDA) for the first nine months amounted to EUR (6.1) million (2003: EUR 3.5 million).
Cash and cash equivalents at the end of September amounted to EUR 17.2 million.
Outlook. The sales and order book for 2004 has increased to EUR 72 million as of October. Based on this order situation Evotec OAI is on track to reach its updated revenue target of approximately EUR 70 to 75 million as communicated on 20 October 2004. This means that in Q4 we will grow about 10 to 35% year on year. EBITDA for 2004 is expected to be between EUR -4 and -7 million. This updated situation may lead to a non-cash impairment of parts of our assets, in particular goodwill and pilot plant, of EUR 50 to 75 million. Such estimated result of the regular annual impairment review under US-GAAP is preliminary to date and subject to auditor's review.
Looking forward, our contract pipeline for 2005 for the services business is better today than it was for 2004 at the same time last year. For a full year 2005 projection, more visibility on firm orders will be required. However, we are in a strong position to take the company forward and benefit from an improvement in our industry's environment. Traditionally we provide full year guidance not before March.
Conference Call
Evotec OAI will hold a conference call today at 02.00 p.m. CET (01.00 p.m. GMT/08.00 a.m. US time East Coast) to discuss Q3 results. Jörn Aldag, President & CEO, and Dr Dirk Ehlers, CFO, will lead the call.
Conference call numbers (listen only):
Germany:        +49.(0)69.22222 0494
UK:                  +44.(0)20.7784 1018
US:                  +1.718.354 1171
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 870860#. The on-demand version of the webcast will be available on our website: - Investors - 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.
Third Quarter Report 2004
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Contact: Anne Hennecke, Director Investor Relations & Corporate Communications, Evotec OAI AG, Phone: +49-40-56081-286,
Contact: Anne Hennecke, Director Investor Relations & Corporate Communications, Evotec OAI AG, Phone: +49-40-56081-286,