Hamburg, Germany | Oxfordshire, UK - Evotec OAI (Deutsche Börse: EVT, TecDAX 30), a leading partner for integrated high-value-added drug discovery and development solutions to the pharmaceutical and biotechnology industries, today announced financial results for the year ended 31 December 2003.
 
Financial Highlights:
*         Group revenues EUR 77.2 million, up 10% (up 21% at constant exchange rates)
*         Discovery and Development Services revenues EUR 61.2 million, up 4%, despite continued tough market conditions and unfavourable exchange rates
*         Tools and Technologies revenues _x0080_18.7 million, up 64%
*         EBITDA and operating cash flow positive for first full year in Company's history
*         Stable liquidity position of _x0080_19.5 million
 
Operational Highlights:
*         > 250 projects completed with strong and increasing base of repeat customers
*         Collaborations with Roche and Novartis expanded
*         Oxford Bioscience Partners concept proven to be successful with 7 portfolio companies under contract
*         Joint drug discovery programme formed with DeveloGen in Metabolic Diseases
*         Evotec Neurosciences signed _x0080_20 million collaboration with Takeda in Alzheimer's Disease and licensed 5 CNS compounds from Roche
*         Pfizer completes acquisition of 10% stake in Evotec Technologies
*         Signs of recovery in core markets (US, Japan)
 
Joern Aldag, President and Chief Executive Officer of Evotec OAI, commented: "Evotec OAI achieved major strategic, operational and financial goals in 2003. A powerful strategy implemented since our foundation resulted in our first full year of positive earnings at the EBITDA level and a positive operating cash flow despite tough market conditions and unfavourable exchange rates. This strong performance now allows us to expand our investment in internal discovery programmes in selected indications to generate higher value through more significant milestone and royalty opportunities. It is also evidence for our strong brand and our unrivalled network of partnerships with leading companies in the biotech and pharmaceutical industries. With signs that the markets in the US and Japan are picking up strongly, and Europe following at some distance, we are confident of another good performance in 2004."
 
Chief Executive's review
Operational review
This was another demanding year for our industry, with many clients impacted by margin pressures, increasing generic competition and the focus on getting products to market near-term, which led to some shifting of resources into clinical development and away from pre-clinical R&D. Despite this trend, revenues at our Discovery and Development Services business continued to grow and we added market share.
 
We are encouraged by the success of the industry in generating funding, with more than $19.0 billion raised in the venture and equity markets last year. We also believe the tendency of some companies to move away from discovery activities may prove temporary as the pharmaceutical industry needs to balance their pre-clinical and clinical pipelines.
                    
The strength of our brand, the quality of our offering proven by a strong track record of delivery and our critical mass were the key factors behind our continued excellent performance. We continued our successful partnerships with leading pharma customers such as Astra Zeneca, GlaxoSmithKline, Merck, Novartis, Pfizer and Roche, and with leading biotechnology firms including Amgen, Biogen and Vertex and we were able to secure deals with more than 30 new customers in 2003.
 
Highlights in 2003:
 
Our umbrella contract with Oxford Bioscience Partners (OBP) has proven to be very successful with Evotec OAI working for seven OBP portfolio companies already. We have now secured a similar deal with MPM Capital and are currently in negotiations with some of their portfolio companies concerning a potential collaboration.
 
In April, Novartis, a long-term partner in the development of our EVOscreen® uHTS technology, has asked us to support their lead discovery efforts by adding our assay development and screening capabilities.
 
In August, Evotec Neurosciences (ENS) successfully closed a large pharma deal with Takeda valued at approx. EUR 20 m validating our target discovery technologies in our collaboration with the University of Zurich.
 
In September, Evotec OAI entered into a joint drug discovery programme with DeveloGen in Metabolic Diseases, under which both parties own 50% of the rights and responsibilities.
 
In October, Roche expanded the relationship with us over and above our ongoing chemical library partnership by tapping into our medicinal chemistry expertise on a high profile oncology research compound.
 
In late 2003, ENS secured the licensing of 5 CNS compounds from Roche (see separate press release), and we therefore prepared ENS for a capital infusion through venture capital financing.
 
 
Financial review
Despite continued difficult market conditions, total revenues increased by 10% to EUR 77.2 million (2002: EUR 70.0 million), in line with our guidance. At constant exchange rates, revenues rose by 21%. Our growth was supported by the sound performance of our core Discovery and Development Services (DDS) business and sizeable instrument deliveries by Evotec Technologies.
 
Overall revenues from Discovery and Development Services rose by 4% to EUR 61.2 million  (2002: EUR 58.6 million), maintaining growth against the general trend in the industry and even increasing our market share. At constant exchange rates, revenues rose by 17%. Tools and Technologies had an excellent year, with top-line growth of 64% to _x0080_18.7m (2002: 11.4m), driven by new product launches including the Opera confocal imaging reader and the extended collaboration with Pfizer Inc. We also recognised revenues of _x0080_1.5 million in our newly established Discovery Programs Division (DPD) following the agreement between Evotec Neurosciences and Takeda signed in August 2003.
 
With total revenues of EUR 35.4m, the U.S. market continues to contribute substantially to our regional sales mix, accounting for 46% of total sales (2002: 47%) despite the weakness of the dollar against the Euro.
 
The operating loss was reduced dramatically, falling to _x0080_15.8 million in 2003 (2002: _x0080_135.5 million), largely reflecting the absence of a charge for goodwill impairment linked to the acquisition of OAI in 2000. Excluding both impairment and amortisation charges, the operating loss narrowed to _x0080_5.1 million from _x0080_14.1 million, an improvement of 64%. Discovery and Development Services achieved an operating profit in 2003, before taking amortisation charges into account, and Tools and Technologies came close to break-even (- _x0080_0.2m).
 
R&D expenditure was reduced by 33% to _x0080_15.5 million from _x0080_23.0 million, including a planned drop in Tools and Technologies R&D by 35% to _x0080_5.0 million (2002: _x0080_7.8 m). R&D activities in drug discovery, Evotec OAI's core businesses (DDS, DPD), including the 50/50 joint venture with DeveloGen, continued to be strong (_x0080_13.9 million).
 
Selling, General and Administrative (SG&A) costs were reduced by 12% to _x0080_17.9 million (2002: _x0080_20.5 million), as a result of cost containment measures.
 
Earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) were positive for the first time in the Company' s history at _x0080_4.1 million (2002: -_x0080_2.2), reflecting the significant improvement in operating results and our rigorous cost management. The group also achieved positive operating cash flow for the first time, totalling _x0080_ 7.8 million (2002: -1.0 million). As of 31 December 2003, cash, cash equivalents and marketable securities totalled _x0080_19.5m (2002: _x0080_21.3m), providing a solid base for 2004.
 
The net loss for the year improved by 89% to _x0080_14.2 million (2002: _x0080_ 131.6m), with a net loss per share of _x0080_0.40 (2002: _x0080_ 3.71).
 
Outlook
The weakness caused by soft financing markets for biotechnology companies and budget cuts by pharmaceutical companies appears to have bottomed out at the end of 2003. There are now signs of a recovery, particularly in the US and Japan, with Europe following at some distance. Given the usual time lag between funding events and orders being placed, and the higher average exchange rate of the Euro against the Dollar in the first half of 2004 compared to the same period in 2003, we expect to see more significant revenue growth only in the second half of 2004.
 
For the full year, even at recent exchange rates, we expect to exceed 2003 revenues. Individual quarters could deviate from last year's performance as sizeable instrument deliveries to Pfizer boosted performance in the first and third quarters of 2003. By the end of February, the sales and order book for 2004 totalled approximately _x0080_42 million. Our fully-integrated and value-added portfolio of solutions has made us one of the strongest brands in the industry, positioning us to benefit from any upswing in the contract research and outsourcing market. Based on our current order situation, negotiations with customers and a continuous expansion of our Discovery Programs Division, we are optimistic about 2004 and expect to deliver good operational performance once again.

Contact:
Anne Hennecke, Investor Relations & Corporate Communications, phone: +49-40-56081-286, anne.hennecke@evotecoai.com

Contact:
Anne Hennecke, Investor Relations & Corporate Communications, phone: +49-40-56081-286, anne.hennecke@evotecoai.com

Contact:
Anne Hennecke, Investor Relations & Corporate Communications, phone: +49-40-56081-286, anne.hennecke@evotecoai.com

Contact:
Anne Hennecke, Investor Relations & Corporate Communications, phone: +49-40-56081-286, anne.hennecke@evotecoai.com