• Sales increase of 26% to EUR 33.2 million, in line with company guidance
• Net loss reduced by 82% to EUR (13.7) million
• EBITDA improved by 28%
• Cash burn significantly reduced year-on-year

Strong order book covering 73% of 2002 analysts' revenue consensus
Hamburg, Germany | Abingdon, UK - Evotec OAI today reported financial results for the second quarter and six-months period ending June 30, 2002.
The Discovery Services Division revenues grew by 26% to EUR 28.8 million (2001: EUR 22.9 million), in line with growth expectations of 20-30 % p.a. Discovery chemistry services continued to perform particularly well. There were new collaborations with Merck, Rigel, Ionix, Point Therapeutics and Geltex together with a number of significant existing long-term partnerships such as Serono, Vertex, and others. The Discovery Tools and Technologies Division experienced growth of 29% to EUR 4.4 million (2001: EUR 3.4 million). Evotec Technologies' bench-top and applications business recorded revenues of EUR 2.3 million (2001: EUR 2.6 million). This is a slight decline but last year's sales included the exceptional stock-building delivery of 15 analysers to Olympus, Japan.
Evotec OAI recorded 50% of its revenues in the United States, 48% in Europe and 2% in Japan.
 
"We are pleased that we have met our growth targets again in the first six months of 2002," said Joern Aldag, Chief Executive Officer of Evotec OAI. "Despite the difficult capital market environment and its growing impact on the pharmaceutical and biotechnology industries we have secured several new partnerships and continued to achieve excellent performance in existing discovery and development contracts. We are well on track in building a unique drug discovery company that is supporting strategic drug discovery programmes through good growth in discovery services."
 
 
Other noteworthy items and company announcements include:
 
We have grown revenues by 26 % over the first half of last year and have signed several biology and/or integrated discovery collaborations with new customers in the second quarter: Taisho, Infinity and U3 Pharma. In total, Evotec OAI added 12 new customers, renewed or expanded an additional 8 collaborations during the year.
 
We continue to deliver successfully on many of our big pharma and big biotech collaborations such as Merck & Co., Amgen and Serono.
 
Evotec OAI has continued to build on its competence in the analysis of cellular events:
Its own EVOscreen® Mark III system has passed internal acceptance testing and is now demonstrating its excellence in cellular uHTS.
For detection of cellular events in uHTS, Evotec OAI has licensed Reef Coral Fluorescent Proteins (RCFPs) as fluorescent markers from BD Biosciences Clontech.
Additionally, we expanded our functional cell-based assay portfolio by implementation of medium throughput screening systems using complementary detection technologies.
 
Evotec OAI announced a number of key management appointments designed to prepare the company for the next phase of its growth:
Dr John Kemp, 49, joined Evotec OAI as Chief Executive Officer of Evotec Neurosciences GmbH (ENS), effective July 1, 2002. Most recently he was Vice President and Head of Pre-clinical CNS Research at Roche.
Sean Marett, 37, was promoted to Chief Business Officer and Member of the Management Board, effective July 1, 2002. Before joining Evotec OAI, Sean Marett was Director of New Product Development, US Operating Division at GlaxoSmithKline.
Dr Mario Polywka, Chief Operating Officer, is leaving at the end of August 2002 after 11 years at Evotec OAI and Oxford Asymmetry International (OAI).
 
R&D focused on drug discovery applications. R&D expenses for the first six months amounted to EUR 12.1 million. As planned, they remained at last year's level (2001: EUR 11.9 million). Our research activities are mainly focussed on drug discovery applications (in particular cellular assays, ADME/T and computational chemistry) and our discovery programme in the field of Alzheimer disease (Evotec Neurosciences).
 
Operating result improved by 80%. Operating loss for the first six months improved significantly to EUR (15.3) million, 80% lower than in the comparable period for the previous year (2001: EUR (77.7) million). To a large extent this is a consequence of lower amortisation of goodwill and other intangible assets. According to changes in US GAAP regulations, goodwill from acquisitions is not regularly amortised anymore, but reviewed for impairment at least once a year. Following these new regulations, we have reviewed goodwill against the fair value of our chemistry business as of January 1st, 2002. The analysis revealed that there was no necessity for an impairment write-down. Therefore, amortisation is limited to non-goodwill intangible items as required by the new regulation. As a result of the recent developments in the financial and customer markets, we have decided to repeat the impairment review later this year.
Excluding amortisation of intangible assets, losses from operations for the first six months amounted to EUR (9.2) million (2001: EUR (9.1) million). The increase in gross profits of EUR 2.4 million was compensated by the above mentioned increase in SG&A and other operating expenses related to the start up of the new pilot plant.
 
Net loss reduced by 82%. During the first six months of 2002 net loss improved by 82% to EUR (13.7) million (2001: EUR (77.6) million). This again is primarily a consequence of reduced amortisation charges. Additionally, tax treatment reduced net loss. Deferred tax expenses in the UK (EUR (0.9) million) and current taxes worldwide (EUR (0.1) million) were offset against deferred tax benefits from the amortisation of merger-related non-goodwill intangible assets (EUR 1.6 million).
Net income per share amounted to EUR (0.39) (2001: EUR (2.19)).
 
EBITDA improved by 28%. Earnings before interest and taxes, depreciation and amortisation (EBITDA) improved by 28% to EUR (3.1) million (H1 2001: EUR (4.3) million). EBITDA per share improved by 28% to EUR (0.09) from EUR (0.12) in 2001.
 
Reduced year-on-year cash burn. Cash flow from operating activities for the first six months of 2002 amounted to EUR (4.8) million (2001: EUR (4.7) million). This includes a net increase of working capital of EUR 2.0 million (e.g. Merck & Co., Novartis, etc.).
Cash and marketable securities, as of June 30, 2002, amounted to EUR 18.3 million, a decline of EUR 9.5 million compared to the beginning of the year. This is a consequence of the net loss incurred (and the resulting negative cash flow from operations),  and capital expenditures of EUR 4.4 million. Overall cash burn was significantly reduced compared to the first half year 2001, largely due to lower capital expenditures. Based on our business development pipeline and our business plan we are confident that our cash position will improve by the end of 2002.
 
Outlook for 2002. We achieved strong revenue growth in the first half of the year. While our targets were initially projected at a time of stronger general market environment, we continue to expect annual revenue growth this year to be 20-30% and positive EBITDA despite challenging market conditions. Looking forward, we realise that our customers in the biotechnology industry are experiencing significant pressure to carefully manage their R&D spending. However, although predictability is seen to be lower for the next few months, pharmaceutical companies continue to show a strong commitment to strategic outsourcing of drug discovery. We believe that with our integrated biological and chemistry discovery services we are particularly well positioned to offer real economic and efficiency improvements to our clients.
Our order book continued to increase steadily: as of July, 2002, it already accounted for 73% of analysts' revenue expectations for the current fiscal year (consensus: EUR 85 million) with many new contracts currently under negotiation. As in the previous years, we expect Q4 to be the strongest quarter in terms of revenue recognition.
The general condition of capital markets and the resulting uncertainties regarding timing of new contracts do make us more cautious and have lead to an even stronger emphasis on cost and capacity management.
Strategically we are well on track. We will continue to build our core business, integrated drug discovery and development services, drive forward their short-term financial performance and maximise their mid- to long-term upsides from milestones and royalties. In addition, we are using our powerful platform and are building our expertise in selected drug discovery programmes to maximise long-term value creation and prepare for future high value outsourcing models. Here, the core of our activities today is our ENS Alzheimer programme. Evotec OAI will focus its resources on discovery and development services and programmes which are important for future value creation for the company.