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Accelrys Lays Off 50 in US and Europe; Officials Say Cutbacks Signal End of Product Modernization

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Accelrys plans to lay off 50 employees — approximately 10 percent of its staff — before the end of June, the company disclosed in a filing with the US Securities and Exchange Commission this week.

According to an 8-K filed March 7, Accelrys said it also plans to shutter "a portion of one of its facilities in Cambridge, England." The company said the cutbacks will help it save around $6 million per year.

Accelrys expects the cuts to be "substantially completed" in the first quarter of its 2007 fiscal year, which ends June 30.

Accelrys CEO Mark Emkjer told BioInform that the cuts will be split "roughly 50/50" between the company's facilities in the US and Europe, with no layoffs planned for Asia-Pacific. The company's corporate headquarters are in San Diego, while its European headquarters are in Cambridge, UK. The firm also has an R&D center in Bangalore, India, and sales and support offices in Boston, Tokyo, Paris, and Munich.

Most of the layoffs were in administrative functions, Emkjer said, but some product-development areas were also affected. "There are areas where we finished the modernization, and we actually downsized in some of those areas," he said.


"Our customers — large, blue-chip customers — are saying, 'We don't want to deal with 15, 20 vendors, and so many vendors have come and gone over the years. We want to deal with companies that are going to be here for the long run.'"

Bill Taylor, senior vice president of sales and marketing, added that the company is "well through our modernization process." As an example, he noted that Accelrys just launched Discovery Studio 1.5, which integrates four of its legacy modeling and simulation packages: Catalyst, Cerius2, Insight II, and Quanta.

"We're componentizing all of the science from our legacy applications and making it available in Discovery Studio," Taylor said. "Supporting these platforms going forward versus the five or six platforms we had before requires less investment."

Emkjer and Taylor also cited growing competition from open source and freely available software products as a factor in cutting development staff for certain product lines, although they declined to disclose which specific product areas would be affected.

"There are some areas of our portfolio, which, frankly, have experienced competition from open source and publicly available science," Taylor said, "and it just doesn't make sense for us to continue to invest in those areas where our customers are telling us that they want to use the open source or the publicly available software."

Emkjer stressed that the streamlining will affect only a small portion of Accelrys' product portfolio. "We remain committed to our life sciences portfolio — literally 95 percent of it," he said.

Ultimately, Emkjer said that the headcount reduction is part of the company's strategy for reaching profitability, which is becoming increasingly important to Accelrys customers.

"As I've been out talking to customers the last six months, I've never before heard such concern about balance sheet financials, companies being profitable. Our customers — large, blue-chip customers — are saying, 'We don't want to deal with 15, 20 vendors, and so many vendors have come and gone over the years. We want to deal with companies that are going to be here for the long run.'"

Emkjer said that while the company is "very close" to reaching profitability, "we had to make a few moves, and some of that had to do with our customers telling us to invest more in certain products and invest less in others that perhaps are mature and they have been commoditized or there might be open source alternatives."

Accelrys said in the 8-K filing that the layoffs will help it save around $6 million per year, although the move also carries one-time charges of between $3.5 million and $3.8 million, comprising a cash charge of between $1.5 million and $1.8 million in severance and related costs and a non-cash charge of around $2.0 million in facilities abandonment costs.

The announcement follows a string of statements related to the company's disclosure in late December that it would have to restate its financial results for each quarter from Jan. 1, 2000, to Sept. 30, 2005 [BioInform 12-26-05].

The decision to restate was based on a review of its most recent annual report by the SEC's Corporation Finance Division, and is related to "the accounting treatment for certain contracts entered into after January 2004" as well as "certain misclassifications" that resulted in an "overstated loss from continuing operations and a corresponding understated loss from discontinued operations for fiscal 2002, fiscal 2003, and the three month period ended March 31, 2004."

As a result of the restatement, Accelrys was unable to file its financial statements for the period ended Dec. 31, 2005 [BioInform 02-10-06], and subsequently received a delisting warning from Nasdaq in late February [BioInform 02-24-06].

Emkjer stressed that the layoffs were not related to these setbacks, however. "They had nothing to do with one another — they're two separate issues," he said.

As for the company's ongoing discussions with the SEC and Nasdaq, "We're very hopeful that we'll be announcing some things in the near future in terms of disposition on that," he said.

Emkjer said that the recent string of bad news has not had a negative impact on customer confidence. "I have talked to three or four of our largest customers, and I've explained the situation to them, and if you follow what's going on in the SEC right now, there are a lot of software companies that are experiencing the same [situation]," he said.

Indeed, earlier this week, Tripos, one of Accelrys' primary competitors, said that it will have to restate its own financial results for the first three quarters of 2005 due to a spreadsheet error (see story, this issue).

"I believe our customers largely are not concerned about it, because financially they understand that restatements — where there is no fraud or malfeasance — are typically just restating the financials with no impact to cash," Emkjer said.

As evidence, Emkjer cited the company's recent disclosure that it had signed several multi-year agreements with a total value of $29 million over the term of the licenses — a "record level" of multi-year deals, Emkjer said [BioInform 02-24-06].

"I read that as our customers think we're going to be around for a long time, and they're making fewer bets," he said.

— Bernadette Toner ([email protected])

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