Evotec first-quarter operating loss decreases 93% to € 1.5 m

Evotec AGMay 12 2010

Evotec AG (Frankfurt:EVT) (TecDAX) today reported financial results and corporate updates for the first quarter of 2010.

RECENT HIGHLIGHTS:

• Sustainability of business clearly visible

• Discovery alliances growing significantly, revenues +19%

• Strong decrease of operating loss by 93% to € 1.5 m

• Cash burn markedly reduced: liquidity at € 67 m

• Increased revenues from long-term collaborations

• New multi-year strategic alliance with Genentech (after period-end)

• Collaboration with CHDI to fight Huntington's Disease extended for another three years

• Good progress with proprietary pipeline projects; increased third-party funding

• Positive FDA feedback to initiate Phase II with EVT 101; study to start in Q2 2010

• Successful completion of first-in-man study with EVT 103

• BMBF grant for H3 receptor antagonist programme (after period-end)

• Financial guidance for 2010 confirmed

• At least 15% revenue growth and >€ 64m liquidity at year-end

1. OPERATIONAL PERFORMANCE

Sustainability of business clearly visible: revenues +19%; operating loss -93% at € 1.5 m

The effects of Evotec's 'Action Plan 2012' are now clearly reflected in the financial results for the first quarter 2010. Revenues from the Company's discovery alliances grew significantly. Although Q1 revenues in 2009 and 2010 did not include any milestone payments from collaborations, total Group revenues increased by 19% to € 9.8 m (2009: € 8.2 m). Gross margin remained strong at 37.9% (2009: 36.2%). R&D expenses decreased by 83% to € 1.7 m (2009: € 10.3 m), and SG&A expenses by 30% to € 3.4 m (2009: € 4.8 m). The strong decrease in R&D was supported by the fact that the costs for the development of the EVT 100 compound family are now fully borne by Roche, while they were still included in Evotec's R&D expenses for the majority of the first quarter 2009.

Due to this strong top-line performance and the significant reduction in operating expenses as well as exceptional items in Q1 2009, Evotec's operating loss for the first quarter decreased by 93% to € 1.5 m (2009: € 20.2 m). Net loss decreased by 94% to € 1.2 m (2009: € 21.8 m). On this basis, liquidity including cash and cash equivalents, investments and auction rate securities at the end of March remained very strong at € 66.8 m (31 Dec 2009: € 70.6 m). Going forward, milestone achievements are expected to further enhance Evotec's financial performance; a strong basis to develop the Company to profitability latest in 2012.

2. DISCOVERY ALLIANCES UPDATE

Increased revenues from long-term collaborations

Due to its scale, integration of drug discovery technologies and disease know-how, as well as its strong reputation in the industry, Evotec is ideally positioned to take advantage of the increase in strategic drug discovery outsourcing. As a partner of choice for integrated alliances with pharmaceutical companies, Evotec further increased its share in revenues from long-term collaborations in the first quarter.

New multi-year strategic alliance with Genentech (after period-end)

On 10 May 2010, Evotec announced a new multi-year integrated drug discovery alliance with Genentech. Jointly, both companies aim to identify novel therapeutics against one or several targets.

Collaboration with CHDI to fight Huntington's Disease extended for another three years

In January 2010, Evotec announced the extension of its collaboration with CHDI Foundation, Inc. (CHDI) through the end of 2012. The collaboration represents one of the largest drug discovery alliances within Evotec and will provide the Company with up to a total of US$ 37.5 m in research funding over three years. Evotec has been providing research and innovation support to CHDI since 2006.

In the first quarter 2010, Evotec also signed a significant collaboration with Vifor Pharma to jointly identify a pre-clinical candidate for the treatment of anaemia and announced collaborations or extensions with Cubist Pharmaceuticals and Active Biotech.

3. STATUS OF CLINICAL PROGRAMMES AND PARTNERING OF ASSETS

Proprietary R&D increasingly funded by external partners

Evotec is focusing its proprietary programmes on fewer core assets, aggressively seeking strategic alliances to progress their development and to capture their commercial potential. The EVT 100 programme is partnered with Roche for development in treatment-resistant depression. The costs for the EVT 101 and EVT 103 studies are now fully borne by Roche, significantly reducing Evotec's R&D expenses and risk profile.

Good progress with EVT 101 and EVT 103 in Roche alliance

Early in 2010, Evotec completed the clinical part of the first-in-human Phase I study with EVT 103. The compound was safe and very well tolerated after single and multiple oral dose administration, with excellent bioavailability and only a minimal effect of food on the kinetic profile.

For EVT 101, the lead compound, Evotec received approval from the FDA to initiate the Phase II Proof-of-Concept study in treatment resistant depression. The study will start recruiting patients in the second quarter of 2010. If Roche exercises its buy-back option after completion of the Phase II trial, Evotec will receive a $65 m payment in exchange for the assignment of all rights.

New BMBF grant for H3 receptor antagonist programme (after period-end)

On 27 April 2010 Evotec announced it will receive up to € 1.5 m funding from the German Federal Ministry of Education and Research (BMBF) to advance its H3 receptor antagonist programme through Phase I clinical studies. H3 receptor antagonists have potential in a number of CNS indications, including excessive fatigue associated with conditions such as multiple sclerosis.

4. GUIDANCE

Financial guidance for 2010 confirmed

The Company confirms all financial targets for the fiscal year 2010 published on 25 March 2010: Total Group revenues before out-licensing income are expected to grow by at least 15%. These assumptions are based on the strong order book of approximately € 30 m at the end of March 2010 (2009: € 24 m), expected new contracts and contract extensions as well as the achievement of certain milestones.

With the restructuring measures taken in 2009, Evotec has significantly reduced its cost base. SG&A expenses will decrease due to cost reductions in all parts of the Group. In addition, Evotec expects R&D expenses to decrease considerably from 2009 levels. The Company will focus on key programmes and targets to invest approximately € 10 m in R&D in 2010. As a result, Evotec's Group operating result before impairment is expected to improve significantly over 2009.

Top-line growth and the adjusted cost base are expected to significantly reduce the cash requirements compared to the 2009 fiscal year. Consequently, at constant year-end 2009 currencies, the Company expects to end 2010 with a liquidity of more than € 64 m.