BioWorld International Correspondent

PARIS - Cerep SA issued a profit warning revising down its revenue and earnings forecasts for 2003 in view of the "difficult economic environment" and the "change in the dollar-euro exchange rate."

When it reported its results for 2002 in March, Cerep, of Rueil-Malmaison, forecast that its sales revenue would increase by 15 percent to 25 percent this year, with its service activities in particular growing by at least 25 percent. It also said it would show a profit for the year.

It now anticipates no more than 10 percent to 15 percent growth in its service business and said its total revenues in 2003 will "remain comparable to 2002." On this revenue assumption, and taking account of its decision to "maintain its research and development effort at a level to sustain its long-term growth," Cerep now expects its operating result in 2003 to be negative.

CEO Thierry Jean told BioWorld International that it had issued this "revised guidance" because of the overly bullish expectations of some analysts. Those were based on the company's performance in the first quarter, when its revenues from fee-for-service activities rose by 13.4 percent - or 26 percent if the exchange rate effect is taken out. But the company now wanted to get the message across that this might not last, Jean said.

Moreover, Cerep already was back in the red in the first three months of this year, reporting a loss of €0.75 million against a profit of €0.64 million in the corresponding period of 2002. Total revenue was up only 2 percent, in fact, because of a sharp drop in income from partnerships.

Cerep's revenues also have been affected by the termination of research and development payments from Bristol-Myers Squibb Co., of New York, in October, under the target validation agreement they signed in 1999. On the other hand, Cerep expects to receive its first milestone payment from BMS during 2003 as a result of the initiation of clinical trials of a drug candidate for inflammation they are co-developing.

Jean pointed out that the revised revenue forecast implied that Cerep was not banking on concluding any new drug discovery collaborations or subscription agreements for its BioPrint database this year, but that any such deal could boost its revenues significantly. Another possible source of additional revenue could be an outlicense agreement for the first drug candidate to emerge from the company's internal drug discovery programs. Jean said Cerep was in discussions with a number of companies for the product, which is in the final optimization phase and has potential therapeutic applications in gastroenterology and migraine.

The issue of the profit warning triggered a 20 percent drop in Cerep's share price on the Euronext market in Paris, from just over €9.40 to about €7.60 now.