On May 12, 2004 Evotec OAI (Deutsche Börse: EVT, TecDAX 30) reported financial results for the first quarter 2004 (Press release, Evotec, MAY 12, 2012, View Source;announcements/press-releases/p/first-quarter-2004-delivering-on-forecast-and-strategy-4574 [SID1234538885]).
Financial highlights:
– Q1 revenues amounted to EUR 14.4 million (2003: EUR 17.8 million) due to the general difficult market conditions in 2003, adverse currency effects and a major single item sale in Q1 2003
– EBITDA amounted to EUR (2.7) million (2003: EUR (0.3) million)
– Growth expectation confirmed. Visibility on new contracts significantly improved in Q1
– R&D expenses increased to EUR 4.9 million (2003: EUR 4.4 million), incl. the Metabolic Disease discovery programme with DeveloGen
Operational highlights:
– Strong deal flow in Q1 with contracts signed with Rib-X, Panacos, Fujisawa and Toray
– Strategic worldwide chemistry agreement initiated with Roche (post period end, 12 May)
– Substantial progress achieved in Discovery Programs Division:
– Three Metabolic Disease projects advanced into hit-to-lead phase
– Evotec Neurosciences in-licensed five pre-clinical drug candidates from Roche and closed biggest European VC first round of financing for two years (EUR 25 million)
"2004 is marked by a recovery in our industry leading to an increasing order book and significant deal flow in our Discovery and Development Services going forward, while the market weakness experienced in 2003 has led to a decline in revenues in Q1 compared to last year. We are currently seeing clear indications that pharma companies are increasing their outsourcing activities, reversing an 18 month negative trend. In addition, recent financings of biotech companies in the private and public equity markets, in particular in the US, are indicative of improving overall health in the sector. We therefore expect revenue growth for the full year of 2004, helping us to deliver another year of sound performance. We are also making significant progress in our Discovery Programs Division in both our DeveloGen joint venture and our subsidiary Evotec Neurosciences. Activity in our Metabolic Disease programme is now increasing with a number of compounds progressing towards lead optimisation. In line with our communicated strategy we are committed to enter into and fund additional discovery programmes; which will allow our shareholders to benefit from their potential upside," said Joern Aldag, President and Chief Executive Officer of Evotec OAI.
Evotec OAI revenues for the first quarter of 2004 were EUR 14.4 million (2003: EUR 17.8 million). The quarterly decline year on year is a result of three specific effects which supports our belief that it is not indicative of the expected full year performance.
1. Q1 sales in the previous year included approximately EUR 3 million revenues from the delivery of an EVOscreen Mark III system to Pfizer. We expect to sell one or two such systems per year and the resulting revenue may fall into any quarter with a resulting distorting effect.
2. The strong Euro continued to affect our sales recognised in US-Dollars. At constant 2003 currencies, revenues in Q1 2004 would have been EUR 0.8 million higher.
3. In addition, the difficult market conditions in 2003 still affected our revenues in Q1 2004, since there is a time lag between customer funding, outsourcing decisions, contract signatures and revenue recognition.
Adjusting for the EVOscreen revenue effect in the previous year and adjusting for currency, our sales would have increased by 2%.
Our Discovery and Development Services Division (DDS) achieved revenues of EUR 11.1 million (2003: EUR 13.9 million) in the first quarter of 2004. These include deliveries of EUR 1.0 million to the DeveloGen JV. Development chemistry revenues for the first quarter were adversely affected due to a significant delivery being delayed until Q2.
Revenues in our Discovery Programs Division (DPD) amounted to EUR 0.9 million (2003: EUR 0.0 million), resulting from the agreement Evotec Neurosciences (ENS) signed with Takeda in August 2003. These revenues consist of FTE based R&D payments and the allocation of a target database access fee spread over the four-year contract period. Due to the reduction of our shareholding in ENS following the venture capital round closed in March, ENS revenues will no longer be consolidated after Q1 2004.
For the three months to 31 March 2004, our Tools and Technologies Division "Evotec Technologies" achieved revenues of EUR 3.6 million (2003: EUR 4.5 million). Adjusting for the effect of the delivery of an EVOscreen Mark III instrument to Pfizer in Q1 2003 shows that the instrumentation and consumable business (bench-top systems, excluding EVOscreen systems) has again grown significantly (137%) from EUR 1.5 million in 2003.
As a result of the revenue decline and a significant negative currency impact on gross profit in DDS (4% points, EUR 0.7million), the Evotec OAI group operating loss for Q1 2004 increased by 22% to EUR (7.1) million (2003: EUR (5.8) million). Excluding amortisation charges, losses from operations for the first three months amounted to EUR (4.5) million (2003: EUR (3.0) million).
Net loss increased to EUR (6.2) million (2003: EUR (5.0) million) due to the decline in operating result and the research activities in the DeveloGen JV. It was positively impacted by total tax income increasing to EUR 1.6 million mainly due to the new tax regime in the UK. Net income per share was EUR (0.17) (2003: EUR (0.14)).
Earnings before interest and taxes, depreciation and amortisation (EBITDA) amounted to EUR (2.7) million (2003: EUR (0.3) million).
Cash, cash equivalents and marketable securities at the end of the first quarter amounted to EUR 16.3 million.
Outlook. Our order book for 2004 continues to build positively both in quality as well as in quantity. As of April, it totalled EUR 47 million. The sales order book for the year is currently lower than in the comparable period of 2003 (EUR 61 million) but the volume of contracts in late stage negotiations significantly increased. This mainly reflects the market recovery we are experiencing for outsourced Discovery and Development Services. It also gives us confidence that we will achieve revenue growth for the remainder of the year. Consistent with our previous guidance, we believe we will at current exchange rates exceed 2003 revenues for the full year 2004 and grow by approx. 3%.
We have built a world class drug discovery platform and a reputation for delivering to our customers. We have successfully started internal programmes in Central Nervous Systems and Metabolic Diseases and validated this concept by partnering with Takeda and putting together a significant financing for Evotec Neurosciences. These achievements are a very strong basis to implement our strategy of expanding our internal programmes within our Discovery Programs Division with the objective to provide higher returns for Evotec OAI shareholders over the longer term through substantial milestone and royalty payments. We are rapidly developing our discovery projects within our DeveloGen joint venture and we are exploring opportunities for additional programmes, Evotec OAI-internal or in partnership with pharma companies.
In summary, we continue to be consistent in our view of the performance expected in 2004. Despite the tough market environment in 2003 which limited the growth of our Company in the first quarter of this year, we expect to deliver good operational performance for the full year. We are encouraged to believe that the upturn currently observed in the pharmaceutical market, as evidenced by enhanced deal flow, will translate into stronger growth in the medium-term.
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