EVTCV Evotec Aktiengesellschaft Amer (MM)

Exhibit
Number

Description

Dear shareholders,

The acquisition of Renovis in San Francisco is now successfully completed. We are delighted to have reached this important milestone and we are pleased that a significant majority of Renovis shareholders voted in favor of it. The start of 2008 was marked by a considerable amount of activity relating to this transaction: Our registration statement on Form F4 was declared effective by the US Securities and Exchange Commission at the end of March, we satisfied the requirements of the Hart-Scott-Rodino Act in early April and we received the favorable vote of Renovis stockholders and completed the acquisition in early May.

With the acquisition of Renovis, our pipeline now represents a set of promising clinical and preclinical programs in various CNS indications coupled with a productive research platform for partner research and proprietary projects. We believe we have one of the strongest CNS pipelines in our sector with three clinical candidates, a strong late stage preclinical pipeline focusing on areas of neurological and inflammatory diseases and a strong cash position to drive these assets through development. Three programs from the former Renovis are expected to enter Phase I clinical trials in 2008/2009. Finally, our new NASDAQ ADR listing is expected to provide the Company with improved access to the US financial markets and our investors with expanded liquidity.

During the first quarter our clinical development programs continued to progress. We successfully completed a Phase I safety and tolerability study for EVT 302 and reported encouraging initial data from our Phase Ib studies with EVT 101. They showed good CNS penetration of the compound and first effects on the brain in man. The partnering discussions for our lead compound EVT 201 are ongoing. One of our primary goals for 2008 is to sign a partner agreement for the future development of this molecule.

Our first quarter results reflect that in our recent transformation into an emerging CNS focused pharmaceutical company our financial profile has changed. Our total revenue base is lower today due to our divestment of non-core businesses for cash. We are engaging in more long-term relationships: In the first quarter we signed significant new or extended collaborations with CHDI, the US based Huntington Disease Foundation, and Ono Pharmaceuticals of Japan. To participate in the longer term success of projects we selectively forego short-term direct research payments in exchange for later milestones and royalties.

We believe that we are stronger today than we have been before. We are more focused; we have built strategically on the heritage that has brought us success in the past. We have the critical mass that we believe provides a foundation for successfully developing new drugs to the market.

Only with the support of our shareholders could all of this have been achieved. We look forward to realizing our vision for Evotec, and we expect our activities to enhance the value of Evotec.

On September 11, 2007 Evotec sold a major line of business, its Chemical Development Business, to Aptuit effective November 30, 2007. From December 1, 2007 onwards, this business was no longer consolidated in the Evotec Group accounts and income and expenses for that business are retrospectively disclosed as discontinued operations in the statements of operations. All 2008 results shown and discussed in the following discussion are compared to the 2007 continuing operations.

From 2008 onwards the Company doesn’t report segments (see Note 10 to the Consolidated Interim Financial Statements). Following the disposition of the Chemical Development Business and based on IFRS 8 the allocation of resources and the internal evaluation of Evotec’s performance by the management are from 2008 onwards no longer done on different segments but for the whole Evotec group.

•        Q1 revenues of EUR 7.3 m were 16% lower than last year’s level (EUR 8.7 m), primarily due to the absence of library synthesis revenues following the transfer of this business into an Indian joint venture and to foreign currency exchange effects. Adjusting for currency exchange and transferred businesses, revenues would have been approximately at last year’s level at EUR 8.0 m (2007: EUR 8.1 m).

•        High investment in R&D programs led to an increase in the Group operating loss to EUR 14.4 m (2007: EUR 9.8 m).

•   Due to our sizeable clinical development program and a milestone payment to Roche R&D expenses increased over-proportionally over Q1 2007 by 73% to EUR 12.8 m (2007: EUR 7.4 m).

•        Similarly, Q1 net loss increased to EUR 13.8 m (2007: EUR 9.0 m).

•         Cash and investments at the end of the first quarter of 2008 amounted to EUR 73.1 m (December 31, 2007: EUR 93.7 m). Pro forma cash and investments including Renovis, Inc. as of March 31, 2008 was EUR 119.0 m.

•        Full-year 2008 financial targets confirmed

Evotec revenues for the first quarter of 2008 were EUR 7.3 million, 16% below last year’s level (2007: EUR 8.7 million), mainly the result of two effects:

(i) The absence of library synthesis revenues following the strategic decision to transfer Evotec’s entire library business into a joint venture with Indian RSIL effective October 2007. In the first quarter of 2007, library synthesis revenues amounted to EUR 0.6 million.

(ii) The further weakening of the US dollar against Evotec’s reporting currency, the Euro. At constant 2007 currencies (UK Sterling and US

*  Currency pro-forma adjustment using UK Sterling and US dollar exchange rates of the first quarter of 2007.

Operating cost

structure

Euro in thousands except share data and per share data

Revenue:

– Drug discovery products

– Drug discovery services

Total revenue

Cost of revenue:

– Drug discovery products

– Drug discovery services

Total costs of revenue

Gross profit

Operating costs and expenses:

– Research and development expenses

– Selling, general and administrative expenses

– Amortization of intangible assets

– Restructuring expenses

– Other operating income

– Other operating expenses

Total operating costs and expenses

Operating income (loss)

Other non-operating income (expense):

– Interest income

– Interest expense

– Loss from equity investments

– Other income from financial assets

– Foreign currency exchange gain (loss), net

– Other non-operating expense

– Other non-operating income

Total non-operating income

Income (loss) before taxes

– Current tax income (expense)

– Deferred tax income (expense)

Net (income) loss

Weighted average shares outstanding

Net income (loss) per share (basic and diluted)

Euro in thousands except share data

Stand zum 01. January 2007

Stock option plan

Purchase of treasury stock

Minority interests

Income and expense recognized directly in equity:

– Foreign currency translation

– Revaluation

Total income and expense recognized directly in equity

Net income as restated

Total recognized income and expense

Balance at March 31, 2007, as restated

Balance at January 1, 2008

Share based compensation to Roche

Stock option plan

Income and expense recognized directly in equity:

– Foreign currency translation

Total income and expense recognized directly in equity

Net loss

Total recognized income and expense

Balance at March 31, 2008

The accompanying unaudited consolidated interim financial statements of Evotec have been prepared in accordance with International Financial Reporting Standards (IFRS) in conjunction with IAS 34. The accounting policies used to prepare interim information are the same as those used to prepare the audited consolidated financial statements for the year ended December 31, 2007.

The interim consolidated financial statements do not include all of the information and footnotes required under IFRS for complete financial statements according to IAS 1. As a result, these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2007.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.

This condensed restatement footnote refers to those effects only which impacted the financial information presented in this report. The following financial information from the consolidated statement of operations and cash flows of the three months ended March 31, 2007 have been restated to reflect certain adjustments to previously reported financial information.

The Company has retrospectively adjusted the presentation of the acquisition of ENS Holdings, Inc. under IFRS. Following a review of the accounting of the business combination, the capitalization of intangible assets from this business combination resulted in net deferred tax liabilities of T€13,923. Subsequently, Evotec recognized a tax benefit for net operating losses generated after consummation, which can be used by the reversal of the taxable difference at ENS recorded in purchase accounting.

The Company previously reported investments in mutual funds which invest in debt instruments including debt instruments with maturities beyond 3 months as cash equivalents. Such investments are now reported separately and outside cash and cash equivalents in the consolidated interim statement of cash flows.

The following tables summarize the effects of the adjustments on previously reported financial information.

Consolidated interim statement of operations: