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LION to Revise Policy on Timing of Revenue Recognition for Software Licenses and Announces Preliminary Q3 Results

Cambridge, MA, USA, Heidelberg, February 4, 2004 – LION bioscience AG (NASDAQ: LEON) announced today that it plans to revise its revenue recognition practice with respect to certain software licenses and restate its results for prior fiscal years. As part of LION’s most recent review of its revenue recognition policy together with Ernst & Young AG, LION’s independent auditors, LION determined that accounting guidance issued by the American Institute of Certified Public Accountants (or AICPA) applies to certain of LION’s software license agreements.

In prior years, LION had recognized the license revenue from multi-year software licenses upon entering into the agreement and delivery of the software. LION has now determined that revenue from license fees under these agreements should be recognized ratably over the contractual term. In addition, LION previously announced its policy to record as revenue the license fees from software licenses having terms of one year or less ratably over the applicable contractual term beginning with the current fiscal year. In prior years, LION had recognized the license revenue upon entering into the agreement and delivery of the software. LION had previously determined that this accounting change with respect to recognition of revenue from short-term license agreements had no material impact when applied to revenue for prior fiscal years. Because of LION’s restatement of its results for prior fiscal years with respect to multi-year software licenses, however, LION now expects to also apply this accounting change to its prior fiscal years.

Based on its preliminary review LION expects that these revisions in accounting policy will cause changes in revenue and earnings approximately as follows:

FY 2000/2001: (2) million €; FY 2001/2002: (7) million €; FY 2002/2003: +/- 0 million €

This accounting revision will not affect LION’s liquidity, cash flows or the cumulative revenue over the past and future periods, other than the impact from currency exchange rates. Moreover, it does not involve the loss or change of any previously reported software license, and there is no indication of any accounting improprieties. While LION expects these revisions in LION’s accounting practice to result in an increase in revenue for the current fiscal year, and a reduction for prior fiscal years, the increases should not be viewed as an improvement in LION’s current outlook. The changes to LION’s revenue recognition policy and the restatement of results for prior fiscal periods resulted solely from a review of certain accounting guidance issued by AICPA that were only recently brought to LION’s attention, and reflect LION’s ongoing efforts to ensure that its revenue recognition policies are in accordance with U.S. GAAP. This accounting change will have the benefit of providing greater revenue predictability and minimize the impact of end-of-quarter transactions on LION’s quarterly revenue. LION encourages its shareholders to perform a careful reading of today’s information, which it believes will help assure them that LION’s financial condition and financial resources are unaffected by this change. LION expects to file restated financial statements for the relevant periods with the U.S. Securities and Exchange Commission as soon as possible.

Issuance of Final Q3 Results Delayed Presumably Until End of February

LION expects to delay issuance of its final nine-month interim report for the current fiscal year presumably until the end of February 2004, while completing the adjusted financial information. The following information, which is based on this new accounting practice, is preliminary only:

Based on its review, LION expects total revenue of 16.6 million € for the nine-months period ending December 31, 2003 compared with revenue of 20.6 million € for the same period in the prior fiscal year. LION expects to announce third quarter revenues of 6.0 million €, which would compare to 5.2 million € and 5.4 million €, respectively, for the two previous quarters of the current fiscal year. The recalculation is expected to cause an increase in revenues and reduce net loss for the first nine months by 4 million €.

Despite additional restructuring expenses in the third quarter in the amount of 2.6 million €, LION continues to reduce its losses. Net loss is expected to be 6.1 million € for the third quarter compared to 22.0 million € for the same quarter of the prior fiscal year. Cash flow from operating activities was (22.7) million € during the first nine months of the current fiscal year compared to (41.9) million € during the same period in the prior fiscal year. Cash burn decreased to 5.8 million € compared with 13.3 million € during the same period in the prior fiscal year. As of December 31, 2003, LION had liquidity in the form of cash, cash equivalents and marketable securities of 48.1 million €. As of December 31, 2003, LION had no bank debt.


LION expects revenues of 19 to 20 million € for the current fiscal year 2003/2004. LION would not have achieved this revenue target without this change in its accounting practice. The on-going slump in the life science informatics market, the weak U.S. dollar as well as a slower than anticipated market introduction of new products, continue to have an adverse effect on LION’s business.

Expenses (including depreciation and amortization) are expected to decrease to 7 to 8 million € during the fourth quarter of the current fiscal year. LION no longer expects to achieve its goal of reaching break-even on an EBITDA basis (as defined below) in the fourth quarter of the current fiscal year. LION expects to have liquidity of at least 40 million € by the end of the current fiscal year 2003/2004. The net loss for the current fiscal year is expected to be between 22 and 25 million €.

LION expects to adjust its guidance for fiscal year 2004/2005 due in part to the planned restatement and this change in LION´s revenue recognition policy. LION will announce these new targets without undue delay. An important factor in establishing these targets will be the outcome of the company’s current negotiations with Bayer, LION’s most important customer, concerning an extension of LION’s collaboration with Bayer, which is currently scheduled to end this summer 2004.

EBITDA is not a U.S. GAAP measure. EBITDA stands for Earnings before Interest, Taxes, Depreciation and Amortization Expenses. Please see the EBIT (Operating Loss – Earnings before Income and Tax Expenses), Net Loss from Continuing Operations and Net Loss items in the above table for U.S. GAAP measures of the Company’s losses.

Cash Burn is not a U.S. GAAP measure. It represents the Company’s cash out flow over the period indicated.

For further information please contact:

Günter Dielmann
Investor Relations
+49 (0) 6221-4038 249

Julia Fritz
Corporate Communications
+ 49 (0) 6221-4038 158

The description of the planned restatement in this release is based on estimates that have not been audited and the amounts for any interim periods are based on LION’s preliminary review only and are subject to change. Until LION issues its restated financial statements and final iterim report for the first nine months of the current fiscal year 2003-2004, investors should not rely upon the financial information contained in LION’s annual report on Form 20-F and auditors’ reports thereon as previously filed with the U.S. Securities and Exchange Commission or in LION’s interim reports submitted on Form 6-K.

Except for the historical information contained herein, the matters set forth in this press release are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995, and other applicable U.S. and German laws. These forward-looking statements may include projections, estimates, targets, goals and descriptions of future events. Such statements are based on the current targets that LION has set itself and on LION’s current expectations, each of which is subject to risks and uncertainties. LION’s actual results may vary materially from those targeted, expected or projected because of factors such as uncertainties relating to technologies, product and solution development, acceptance by the market of LION’s offerings, market or industry trends, success of LION’s business model and strategy, competition, exchange rate fluctuations, cost or pricing of LION’s products and solutions, dependence on collaborations and partners, regulatory approvals, competition, intellectual property of others, or patent or copyright protection and litigation. We refer you to LION’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission (SEC) on September 30, 2003, as well as LION’s subsequent SEC filings, in which these and other risk factors are discussed. LION expressly disclaims any obligation or undertaking to release publicly any updates, revisions or corrections to any forward-looking statements or historical information contained in this announcement, whether as a result of new information, change of assumptions or business model, future developments or otherwise.

LION bioscience®, Life Science Informatics™, LION DiscoveryCenter™, LION SolutionCenter™, LION Hosted Services™, LION Target Engine™, LION Lead Engine™, LSI™, bioSCOUT®, arraySCOUT™, arrayTAG™, arrayBASE™, genomeSCOUT™, pathSCOUT™, πSCOUT™ and iDEA™ are either registered trademarks of LION bioscience AG or its subsidiaries in the United States and/or other countries, or there are pending applications by LION bioscience AG or its subsidiaries for these trademarks in the United States and/or other countries. The names of actual companies and products mentioned herein may be the trademark of the respective owners.

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