Net loss improves 11%, revenue up 20% and cash burn down compared to first quarter 2003

Paradigm Genetics, Inc. (Nasdaq: PDGM), a biotechnology company, today reported financial results for the quarter ended March 31, 2004. The Company reported improved net loss, increased revenue and improved cash burn for the first quarter 2004, as compared to the same period in 2003.

Paradigm Genetics reported a first quarter 2004 net loss of $3.7 million, or $0.11 per common share. This represents an improvement over the first quarter 2003 net loss of $4.1 million, or $0.13 per common share.

Total revenue for the first quarter 2004 increased to $4.9 million as compared to $4.1 million in the first quarter 2003. First quarter 2004 revenue from Paradigm’s ongoing contracts with Bayer CropScience and Monsanto remained in line with management expectations, as did revenue from the start-up phase of the Company’s new contract with Pioneer Hi-Bred. Increases in first quarter 2004 revenue related to the Company’s Paradigm Array Labs services, which began operations during the second half 2003, and also from its contract with the National Institute of Environmental Health Sciences, were less than expected due to temporary vendor difficulties.

Total operating expenses for the first quarter 2004 increased to $8.5 million compared to $8.1 million in first quarter 2003. This increase is primarily due to targeted investments the company is making to accelerate R&D programs in human health and agriculture. The approximately $0.8 million, or 13%, increase in R&D expenses was partially offset by productivity gains and also by cost reductions of approximately $0.3 million, or 16%, in SG&A expenses.

The net decrease in cash, cash equivalents and investments (“cash burn”) for the first quarter 2004 was reduced by 73% to $1.1 million from $4.0 million during the same period in 2003. This improvement is due primarily to reduced losses and the $2.5 million in cash proceeds related to the acquisition of TissueInformatics, offset in part by the repayment of $0.8 million on the line of credit with Silicon Valley Bank.

As of March 31, 2004, the Company reported unrestricted cash, cash equivalents and short-term investments in the amount of $15.2 million.

The Company also indicated that the terms of a financial covenant related to the quick ratio in its debt financing with Silicon Valley Bank have been modified to provide the Company with greater flexibility to continue targeted investments in R&D.

“During the first quarter, we managed our cash, while making careful decisions about where to invest in programs with the greatest potential to build value,” said Heinrich Gugger, Ph.D., President and CEO of Paradigm Genetics. “We were very pleased to see that the potential of biomarkers, including gene-based biomarkers, as a tool for improving the drug development process is increasingly being recognized by regulatory agencies. For example, the FDA, in a recent report, stated that ‘biomarkers of safety and effectiveness are urgently needed to improve predictability and efficiency along the critical path from laboratory concepts to commercial product.’1 We believe that it is the discovery of biomarkers as well as novel drug targets and agrichemicals that will ultimately drive the value of this Company.”

On March 11, 2004, Paradigm completed the acquisition of TissueInformatics.Inc and issued 3.4 million shares of common stock valued at $4.6 million based on the average closing price of Paradigm Genetics' stock around the date of the acquisition. An additional 2.7 million shares may be payable on an "earn-out" basis contingent upon the successful achievement of performance milestones on or before December 31, 2004. Based upon preliminary estimates of the fair values of the assets acquired and the liabilities assumed, the opening balance sheet at the date of the acquisition included approximately $7.7 million of assets (including $2.5 million in cash and $4.2 million in intangible assets) and $3.1 million of liabilities (including an estimate of $2.6 million in contingent purchase consideration related to the performance milestones). The acquisition had minimal impact on operating results, as Paradigm Genetics and TissueInformatics had combined operations for only 14 business days in the first quarter 2004.

Paradigm Genetics is a biotechnology company discovering safer, more effective drugs and agrichemicals by exploiting the power of systems biology. Paradigm Genetics has major collaborations with the National Institute of Environmental Health Sciences, Bayer CropScience, the Monsanto Company, Pioneer Hi-Bred International, the National Institute of Standards & Technology’s Advanced Technology Program, and L’Oréal Inc.