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Accelrys Bolsters Partnership Strategy via OEM Software Deal with Becton Dickinson

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Accelrys officials disclosed this week that the company has signed an original equipment manufacturer agreement with Becton Dickinson as part of a broader strategy to expand its network of resellers and other software marketing partners.  
 
Under the terms of the agreement, Accelrys’ SciTegic Pipeline Pilot workflow platform and its suite of image analysis tools will be bundled with BD’s instruments for high-content screening.
 
The company also reported that revenues its fiscal second quarter, which ended Sept. 30, inched up 2 percent to $20.1 million from $19.7 million in the year-ago period, while profits fell 25 percent to $1.2 million from $1.6 million year over year.
 
The deal with Becton Dickinson follows an OEM pact that Accelrys signed in March, under which Agilent agreed to embed Pipeline Pilot in its OpenLab enterprise content management software [BioInform 03-14-08], and a partnership with Microsoft under which Accelrys is integrating Pipeline Pilot into Microsoft’s SharePoint [BioInform 09-26-08].  
 
The BD agreement “signals the expansion of our operating platform into the high-content screening marketplace, and is consistent with our overall strategy to build a network of OEM relationships and to broaden our distribution channels,” CEO Mark Emkjer said this week during a conference call to discuss the company’s financial results for its second fiscal quarter.
 
“We’re looking for more resellers; we’re looking to augment our business development activities through OEM resellers, channel partners, out-license, [and] in-license opportunities. It’s a real strong emphasis within the company right now,” Emkjer said.
 
One challenge with OEM partnerships, he said, is that it “takes time to build these relationships.” However, he noted, “Once the royalty streams start coming in, they tend to be very steady, and they don’t go away. They tend to be longer-term relationships.” 
 
Emkjer acknowledged that the royalty-based nature of OEM agreements may not generate the same level of revenue as direct sales, but described these deals as an opportunity to gain a foothold in a broader marketplace than the company’s current sales staff can reach.
 
Citing the Agilent OEM agreement, Emkjer noted that the instrument manufacturer is primarily selling OpenLab into the early-development stage of the pharma pipeline, rather than the research area where Accelrys has tended to focus.
“For us that’s really new territory to traverse, and an upsell opportunity,” he said.
 
Accelrys has also identified systems integrators as another key partner category. Emkjer said that Accelrys is currently in discussions with five such firms in the chemicals, energy, and life-science markets, who are looking to add Accelrys’ software to their toolkits.
 
“This is where they are taking us into their customers, and they are building solutions … using our platform technology,” Emkjer said. “My experience with this is that they may take six months to a year to develop from start to finish, but once they begin to have success building a practice around your technology, there are a lot more feet on the street selling for you.” 
 
Keeping an Eye on Pharma
 
For the three months ended Sept. 30, Accelrys reported a 2-percent uptick in revenues to $20.1 million from $19.7 million for the same quarter of the previous year, while net income fell 25 percent to $1.2 million from $1.6 million for the same quarter of the previous year.
 

“We expect sector economics to continue to place downward pressure on the modeling and simulation software, as the large pharmaceutical companies continue to adjust their business models.”

CFO Rick Russo said during the call that the 2 percent revenue increase during the quarter ended Sept 30 was “driven by continued growth in our scientific operating platform,” but this growth was “partially offset by the expected reductions in products we have been sunsetting or phasing out over the past three years.”
 
Emkjer said that while the firm saw growth in the material science market for its modeling and simulation software, its traditional market for modeling and simulation software in the life sciences “underperformed our expectations for the quarter.” He did not disclose revenue details for the business.
 
“On a year-to-date basis, we are still experiencing life sciences modeling and simulation erosion, albeit at a rate less than last year,” Emkjer said.
 
Emkjer said that Accelrys is keeping a close eye on broader trends in the life-science market — namely a wave of layoffs amid large pharmaceutical firms who are cutting back drastically on research spending.
 
“Our life sciences-modeling and -simulation products, namely Discovery Studio, are sold primarily into research,” Emkjer said, adding that while he believes the company’s products outperform those of its competitors, “we expect sector economics to continue to place downward pressure on the modeling and simulation software, as the large pharmaceutical companies continue to adjust their business models.”
 
‘Cautiously Optimistic’
 
Emkjer also addressed uncertainty in the broader macroeconomic climate, noting that “given the world financial crisis, stock market capitulation, and ubiquitous recession themes as of late, it would be irrational not to expect some impact to our business.”
 
However, he said, “at this time we are still cautiously optimistic that we will grow within the range of mid- to high-single digit organic growth during the fiscal year on order intake.” Accelrys’ fiscal year began April 1.
 
Emkjer said that because the company’s products are designed to help customers improve productivity and reduce costs, “I remain convinced that solutions of this nature will weather the financial storm.”
 
Russo reiterated the company’s previous forecast that Pipeline Pilot sales will continue to grow at a 40-percent rate, and that total orders will grow at a mid to high-single digit percentage rate for the full year, with revenue growing at half that percentage increase.
 
Emkjer said that the company did see some “hesitation” and “a few delays” at the end of the quarter. “We had some CFOs that pulled purchase orders, but what I’m hearing thus far is that they are going to go through this quarter,” he said.
 
Despite the uncertainty, the company has not yet determined that it needs to change its forecast for the full year. “We are cautiously optimistic. There’s really no change, but we’re vigilantly monitoring it,” Emkjer said
 
Still Hiring
 
The company’s second-quarter product development costs declined 11 percent to $3.8 million from $4.3 million in the prior-year period, while sales and marketing costs rose 15 percent to $8.2 million from $7.1 million.
 
Russo said that product development costs were lower due to a reduction in R&D headcount that the company announced in May [BioInform 05-16-08].
 
As part of the reorganization, Accelrys laid off around 30 employees in marketing, services, and R&D with the goal of replacing those staffers with new employees that would be more focused on the company’s platform business.
 
The company’s worldwide headcount was 359 as of Sept. 30, up slightly from 353 as of June 30, but still not up to the 379 staffers that it employed before the layoffs.
 
Russo said this week that Accelrys is still looking to fill those open positions. “Our plan was really not to have a net head reduction although it’s taken us a little longer to hire back as many as had left,” he said. 
 
“We’re adding back people in both the R&D and marketing areas in order to support the platform growth, and those hires are continuing and we expect to add additional headcount in Q3,” he said. “They won’t all be in R&D, but we’ll be putting back a lot of the heads in numbers that we reduced in the first quarter.”
 
As of Sept. 30, Accelrys had $70.3 million in cash, cash equivalents, and marketable securities.

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