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Evotec's Tech Division Posts 39-Percent Increase In Q2 Third-Party Revenues; Firm Eyes Break-Even

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German drug-discovery firm Evotec this week said that its Tools and Technologies division achieved a 39-percent increase in third-party revenues and slashed its net loss by 63 percent – marking the first year-over-year revenue increase since the Tools and Tech unit introduced new versions of its flagship high-content screening technology last year.
 
The company also said that third-party revenues in the first half of 2006 increased 15 percent over the same period last year, while net loss fell by about 17 percent.
 
Despite the positive results, Evotec cautioned investors in a conference call that this performance may not necessarily be representative of expected results for the second half of 2006. However, the company said that the Tools and Technologies division strives to break even by the end of the year.
 
Evotec also provided additional details about the recent sale of its single-molecule detection intellectual property to Olympus, and how that sale fits into the overall strategy for the Tools and Tech segment.
 
Evotec Tools and Tech discloses both revenues from third-party sales and from sales to Evotec’s other divisions. Third-party revenues for the division increased 39 percent to €3.6 million ($4.6 million) from €2.6 million in Q2 2005. The company said this improvement was a result of an expected increase in sales of its Opera confocal high-content screening instrument, and that the results followed a “traditionally weak Q1.”
 
Evotec said that net loss for Tools and Tech dropped by about 63 percent to €390,000 from €1.0 million in the year-ago period.
 
Overall revenues for Evotec, which also has a Services division and Pharmaceuticals division, increased 2 percent to €18.8 million from €18.4 million in the year-ago period. Meanwhile, the company’s overall net loss improved 96 percent to €1.0 million from €23.4 million in the second quarter last year.
 
The company said that the significant change in net loss could be attributed to two things: a more than €20 million reduction in charges from amortization of intangible assets and impairment of goodwill compared to Q2 2005; and a total non-operating result of €6.6 million mainly due to profits from the aforementioned sale of its single-molecule detection IP.
 
Evotec did not provide full-year guidance for Tools and Tech, and CFO Dirk Ehlers cautioned investors not to extrapolate the 15-percent first half revenue growth to the full year, “even though we currently have a strong situation there, with good business for the Opera instrument.”
 
A large chunk of the Tools and Tech revenue increase was likely due to the first-quarter sale of $2.8 million worth of screening equipment to the Computational Medicine Center, a collaborative institute between the University of Cincinnati and the Cincinnati Children's Hospital (see CBA News, 4/7/2006).
 
Ehlers also said that investors should recall that “last year we had virtually no Opera installations as we released our current version only in the third quarter” of 2005.
 
Because of the new instrument release and related lag time in sales, the company saw total third-party revenues for its Tools and Tech division drop 12 percent in full-year 2005 to €17 million from €19.3 million in the previous year, and saw its revenues decrease year-over-year in three straight quarters.
 
In response to an analyst’s question about the Tools and Tech segment possibly breaking even by the end of 2006, Ehlers said “that’s certainly a target that we look for. At the same time, we do not want to compromise on our further product development and improvement. We will see what we can achieve this year.”
 
Evotec saw second-quarter R&D expenses for its Tools and Tech division decrease about 41 percent to €765,000 from €1.3 million in Q2 2005.
 

“We’re concentrating Evotec Technologies on cell biology, and [we decided to sell licenses to] the products that are linked to single-molecule detection, at the same time keeping the possibility to use all those technologies in the future if we need to.”

Evotec also provided additional details about the recent sale of certain single-molecule detection IP to Japan’s Olympus.
 
“We sold most of what we internally called our single-molecule detection business, which included in particular the products we call Clarina and Insight,” Ehlers said. “At the same time, we continue to have rights to use such technology in conjunction with our existing products; in particular, cellular imaging.”
 
Clarina is a fully automated workstation for single-molecule detection that uses a version of fluorescence correlation spectroscopy, while Insight is a confocal reader for biochemical assays. Evotec said that Olympus bought IP and product rights, as well as some “non-exclusive complimentary licenses” that would allow Olympus to use the products for specific applications.
 
Ehlers said that Olympus is using the Clarina as the core of a new benchtop instrument for SNP detection in the Japanese market, and that it likely “intends to broaden the marketing activities both in terms of applications as well as regions.”
 
Evotec also reiterated that the sale of the single-molecule detection business is an affirmation of the company’s decision to focus the Tools and Tech division exclusively on cell biology.
 
“We’re concentrating Evotec Technologies on cell biology,” Evotec President and CEO Joern Aldag said in a statement. “The products that are linked to single-molecule detection were already distributed through Olympus in the past, and in the process of [concentrating] on the core business of Evotec Tech, we decided to sell those licenses, albeit at the same time keeping the possibility to use all those technologies in the future if we need to.”
 

As an example, Evotec still sells the Insight Cell reader, a version of the Insight that features 3D scanning enhancement that enables the combination of its FCS technology and cellular imaging.

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