SAN DIEGO, Aug. 2 /PRNewswire-FirstCall/ -- Discovery Partners
International, Inc. (NASDAQ:DPII) today announced unaudited
financial results for the three and six months ended June 30, 2005.
Revenue for the three months ended June 30, 2005 was $11.4 million,
a decrease of $1.6 million, or 13 percent, compared to $13.0
million for the same period in 2004. The decrease in revenue for
the second quarter of 2005 versus 2004 was due to lower product and
screening service revenue, which more than offset higher chemistry
service revenue. The reduction in product revenue was caused by the
lack of Crystal Farm shipments to our distributors during the
quarter due to their inventory levels. The reduction in screening
service revenue was due to a lower level of screening service
activity. The increase in chemistry service revenue was due to new
revenue from the National Institute of Mental Health (NIH), which
offset lower revenue from Pfizer. Revenue for the six months ended
June 30, 2005 was $18.4 million, a decrease of $6.4 million, or 26
percent, compared to $24.8 million for the same period in 2004. The
decrease in revenue for the 2005 period versus 2004 was due to
lower revenue in all service and product categories. The primary
driver of the decreased services revenue was lower chemistry
service revenue from Pfizer and lower screening service revenue
caused by a lower level of screening service activity. The decrease
in chemistry service revenue was partially offset by new revenue
from the NIH. The reduction in product revenue was caused by the
lack of Crystal Farm shipments to our distributors during the first
half of 2005 due to their inventory levels. Net loss for the three
months ended June 30, 2005 was $1.4 million, or $0.05 per share,
compared to net income of $0.7 million, or $0.03 per share, for the
same period in 2004. Net loss for the six months ended June 30,
2005 was $5.9 million, or $0.23 per share, including a $1.0
million, or $0.04 per share, non-cash impairment charge associated
with the write-down of our toxicology-based intangible assets,
compared to net income of $1.8 million, or $0.07 per share, for the
same period in 2004. Gross margin as a percentage of revenue for
the second quarter of 2005 was 33 percent, down from the 40 percent
result in the second quarter of 2004, due to lower service and
product margins caused by lower volumes. Gross margin as a
percentage of revenue for the first six months of 2005 was 29
percent, down from the 42 percent result in the same period of
2004, due to lower service and product margins caused by lower
volumes. Research and development costs for the second quarter of
2005 were $1.6 million, compared to $0.9 million in the second
quarter of 2004. Research and development costs for the first six
months of 2005 were $2.9 million, compared to $1.8 million in the
same period of 2004. The increase in research and development costs
resulted from the acquisition of the natural compound based
discovery business of Biofrontera Discovery GmbH and from the
redeployment of development scientists and engineers from direct
revenue generating activities of customer funded R&D programs
and collaborations to internal programs focused on targeted
libraries, compound storage solutions, in silico tools, screening
assays and drug discovery process development. Selling, general and
administrative costs for the second quarter of 2005 were $3.6
million, unchanged from the second quarter of 2004. Selling,
general and administrative costs for the first six months of 2005
were $7.7 million, compared to $7.2 million in the same period of
2004. The increase in selling, general and administrative costs for
the first six months resulted primarily from costs related to the
separation agreement with a former executive. Cash, cash
equivalents and short-term investments at June 30, 2005 were $80.0
million, a decrease of $4.9 million from the balance at March 31,
2005 due primarily to the significant increase in working capital
requirements, caused by the increase in second quarter revenue over
the first quarter level, and the net loss. Since our first quarter
2005 earnings report, Discovery Partners has achieved several
milestones: * In May the Unistore Compound storage system was
launched into the European market at the Compound Management
Symposium in London, UK. * The Company became part of the Russell
Microcap and NASDAQ Healthcare indices. * In June a scientific
article on uARCS co-authored by scientists from Abbott and DPI was
published in the Journal of The Society for Bimolecular Screening.
* The NIH Compound Repository has become operational after the
installation of the first of two Unistore systems. The first
100,000 compounds have been received, shipments have started to
some of the newly selected screening centers and our recommendation
for the second set of 100,000 compounds to be acquired has been
submitted to the NIH for review and approval. "Our financial
performance in the second quarter, although significantly better
than the first quarter due to renewed shipments to Pfizer, is still
below our expectations as we continue our efforts to refocus the
Company toward larger value added collaborations and away from
providing individual elements of our drug discovery capabilities as
separate service offerings," commented Riccardo Pigliucci, CEO and
Chairman of Discovery Partners. "During the quarter we have
substantially increased the number and the level of discussions
with several pharmaceutical companies aimed at entering into
multi-target, multi-year collaborations to provide them with a
stream of pre- clinical candidates. Our collaborative concept and
capabilities have been extremely well received and are predicated
on a rapid deployment of scientists as soon as collaborations are
signed. Given the uncertain lead-time associated with the
establishment of significant scientific collaborations and the time
associated with re-establishing research teams, we have decided,
for the time being, to keep our scientific resources intact and
ready to be deployed on short notice. As a result, we are
redeploying our scientists from revenue generating activities
toward internal R&D and business development efforts. We are
fully aware that this can only be a short term situation that is
sustainable for a limited period of time but we are confident that
we will soon be able to successfully conclude ongoing collaboration
discussions. In any event we are also fully prepared to implement
appropriate actions to reduce expenses by year end should our
expectations for new business not be fulfilled," continued
Pigliucci. "Our current 12-month backlog is just over $20 million,
substantially lower than what we reported last quarter due to the
pending expiration of our Pfizer contract in early January, 2006.
Based on our current new business visibility, we now estimate
revenues for the second half of 2005 at approximately the same
levels as the first half with a slightly higher loss due to the
additional R&D expenses at the newly acquired natural product
operation in Heidelberg, Germany. This revenue amount does not
include the revenue for the two Universal Store Systems to be
deployed to the NIH project in 2005, as they will be recognized
over the life of the NIH contract and the loss does not include any
potential restructuring charge that could be required depending on
the future business outlook that evolves during the last half of
2005. We continue to estimate that cash at the end of 2005 will be
in excess of $75.0 million, absent any further M&A activities,
restructuring activities or stock repurchases under our current
authorization," concluded Pigliucci. A conference call discussing
second quarter 2005 financial results and outlook for the remainder
of 2005 will be publicly available via the Company's website, at
http://www.discoverypartners.com/. The live webcast will begin at
11:00 am Eastern Time, on Tuesday, August 2, 2005. In addition to
the live webcast, replays will be available to the public on
Discovery Partners' website, http://www.discoverypartners.com/ and
by calling 888-203-1112, access code: 6414617 through Tuesday,
August 9, 2005. About Discovery Partners Discovery Partners
International, Inc. offers integrated services, products, and
systems that span the drug discovery continuum, including target
characterization, targeted and screening-library design and
synthesis, high throughput and high content screening, lead
generation and optimization, gene expression analysis, compound
management, and protein crystallization. Discovery Partners has
actively contributed to dozens of drug discovery collaborations.
Discovery Partners is headquartered in San Diego, California.
Statements in this press release that are not strictly historical
are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve a high degree
of risk and uncertainty. Discovery Partners' actual results may
differ materially from those projected in the forward looking
statements due to risks and uncertainties that exist in Discovery
Partners' operations, research and development efforts and business
environment, including whether the Company's relationships with
Pfizer and the NIH continue through and beyond their contractual
terms, the mix and timing of revenue from sales of products and
services, the ability to establish and maintain collaborations,
execute more profitable business and realize operating
efficiencies, the level of expenditures necessary to enable the
Company to achieve its objectives of focusing its business on
providing lead drug candidates to pharmaceutical companies, the
ability to successfully commercialize the uARCS technology, the
ability to acquire complementary businesses or capabilities and the
integration of acquired businesses or capabilities, the trend
toward consolidation of the pharmaceutical industry, quarterly
sales variability, technological advances by competitors, and other
risks and uncertainties more fully described in Discovery Partners'
annual report on Form 10-K for the year ended December 31, 2004 as
filed with the Securities and Exchange Commission and Discovery
Partner's other SEC reports. Backlog measures are not defined by
GAAP and our measurement of backlog may vary from that used by
others. While we believe that long-term backlog trends serve as a
useful metric for assessing the growth prospects for our business,
backlog is not a guarantee of future revenues and provides no
information about the timing on which future revenue may be
recorded. DISCOVERY PARTNERS INTERNATIONAL, INC. Selected
Consolidated Financial Data (In Thousands, Except Per Share
Amounts) Consolidated Statements of Operations Three Months Ended
Six Months Ended June 30 June 30 2005 2004 2005 2004 (Unaudited)
(Unaudited) Revenues: Services $11,092 $11,699 $17,938 $21,974
Products 270 1,300 491 2,833 Total revenues 11,362 12,999 18,429
24,807 Cost of revenues: Services 7,411 7,076 12,636 12,740
Products 250 744 439 1,631 Total cost of revenues 7,661 7,820
13,075 14,371 Gross margin 3,701 5,179 5,354 10,436 Operating
expenses: Research and development 1,605 900 2,856 1,793 Selling,
general and administrative 3,599 3,597 7,670 7,155 Amortization of
stock-based compensation 314 135 598 304 Restructuring -- -- 130 --
Impairment of intangible assets -- -- 1,000 -- Total operating
expenses 5,518 4,632 12,254 9,252 Income (loss) from operations
(1,817) 547 (6,900) 1,184 Interest income, net 413 296 878 633
Foreign currency transaction gain, net 2 (97) 50 (49) Other income,
net 25 31 58 60 Income (loss) from operations before income taxes
(1,377) 777 (5,914) 1,828 Income tax (9) 37 3 42 Net income (loss)
$(1,368) $740 $(5,917) $1,786 Net income (loss) per share, basic
$(0.05) $0.03 $(0.23) $0.07 Weighted average shares outstanding,
basic 25,853 25,169 25,848 24,851 Net income (loss) per share,
diluted $(0.05) $0.03 $(0.23) $0.07 Weighted average shares
outstanding, diluted 25,853 26,031 25,848 25,878 Summary
Consolidated Balance Sheets June 30, December 31, 2005 2004
(Unaudited) Assets Current assets: Cash and cash equivalents
$28,915 $13,148 Short-term investments 51,059 66,870 Accounts
receivable, net 9,825 14,334 Inventories, net 2,665 2,842 Prepaid
and other current assets 2,074 2,748 Total current assets 94,538
99,942 Restricted cash 1,165 1,120 Property and equipment, net
9,106 7,206 Prepaid royalty, net 4,224 4,828 Patents and license
rights, net 1,131 2,287 Other assets, net 177 260 Total assets
$110,341 $115,643 Liabilities and Stockholders' Equity Current
liabilities: Accounts payable and accrued expenses $2,565 $3,198
Accrued compensation 1,828 2,517 Deferred revenue 2,616 1,072
Restructuring accrual 148 294 Obligations under capital leases,
less non-current portion 104 -- Total current liabilities 7,261
7,081 Deferred rent 294 155 Obligations under capital leases, less
current portion 116 -- Stockholders' Equity: Common stock 26 26
Common stock issuable 2,849 2,657 Treasury stock (917) (794)
Additional paid-in-capital 208,145 207,804 Deferred compensation
(1,874) (2,187) Accumulated other comprehensive income 86 630
Accumulated deficit (105,645) (99,729) Total stockholders' equity
102,670 108,407 Total liabilities and stockholders' equity $110,341
$115,643 Summary Consolidated Statement of Cash Flows Three Months
Ended Six Months Ended June 30, 2005 June 30, 2005 (Unaudited)
(Unaudited) Net Loss $(1,368) $(5,917) Adjustments to reconcile net
loss to cash provided by operating activities: Depreciation and
amortization 1,390 2,728 Amortization of stock-based compensation
314 598 Restructuring expense -- 130 Realized loss on investments
49 126 Loss on disposal of fixed assets 21 22 Impairment of
intangible assets -- 1,000 Change in operating assets and
liabilities: Accounts receivable (4,342) 4,049 Inventories 1,160
150 Other current assets 62 588 Accounts payable and accrued
expenses 964 (1,262) Restructuring accrual (182) (276) Deferred
revenue (516) 1,635 Deferred rent 138 139 Restricted cash (47) (47)
Net cash (used in) provided by operating activities (2,357) 3,663
Investing activities: Net cash paid for business (1,509) (1,509)
Purchases of property and equipment (1,744) (2,267) Other assets
578 1 Purchases of patents, license rights and other intangible
assets -- (2) Purchases of short-term investments, net (1,741)
15,703 Net cash (used in) provided by investing activities (4,416)
11,926 Financing activities: Net proceeds from issuance of common
stock 68 221 Payments on debt (70) (70) Net cash (used in) provided
by financing activities (2) 151 Effect of exchange rate changes 30
27 Net (decrease) increase in cash and cash equivalents (6,745)
15,767 Cash and cash equivalents at beginning of period 35,660
13,148 Cash and cash equivalents at end of period $28,915 $28,915
DATASOURCE: Discovery Partners International, Inc. CONTACT:
Riccardo Pigliucci, Chief Executive Officer, , or Craig Kussman,
Chief Financial Officer, both of Discovery Partners International,
+1-858-228-4113 Web site: http://www.discoverypartners.com/
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