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Accelrys Revenues Down in First Quarter as Standalone Company, Two New Execs Hired

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In its first quarter since separating from Pharmacopeia, Accelrys reported an expected downturn in revenues, but indicated it is growing roots as an independent software firm, with the hires of two new executives, and the launch of a nanotechnology software consortium.

The San Diego based company, which officially spun off from PDD on May 4, reported revenues of $14.2 million for the fiscal first quarter 2005, ended June 30, down from $19.1 million reported in the comparable quarter ended June 30, 2003. Orders, however, were flat year-over-year at $15 million, excluding a contract renewal booked in June 2003 but renewed in March 2004 (and thus recorded in the last quarter). Orders booked in this quarter were also “substantially higher” than those in the quarter ended March 30, the company said.

This fiscal year, company has changed the way it records licensing deals, with subscription-based revenues being recognized over the length of the subscription rather than in one lump sum at the time the agreement has signed. This new model will “push revenue out to further quarters,” said Phil Nadeau, an analyst with SG Cowen, so the real “apples to apples” comparison of revenues is the number of orders signed.

In addition to this change in revenue recognition and the earlier booking of an order, the company also attributed the decline in revenues for the quarter to “lower consulting revenue as a result of our decision to cease unprofitable projects, and lower consortia and maintenance revenues,” John Hanlon, the company’s chief financial officer, stated in a conference call to discuss the results.

But the company remains optimistic about building its business. In the quarter, the company completed 12 new software releases, and Mark Emkjer, the company’s CEO said in the call the company plans to complete 16 new releases this quarter.

“A number of activities in the quarter were encouraging, and they included 12 new releases from our [product] development group; key wins in sales; significant momentum in corporate development; the launch of our nanotechnology consortium; continued cost containment; and the completion of our management team,” said Emkjer.

The nanotechnology consortium was launched July 1 with the goal to “extend existing and create new software tools that enable the ra-tional design of nanomaterials and nanodevices,” according to the company. The consortium is a three-year initative, and is split in risk and cost between the members, Accelrys, and other academic collaborators.

Meanwhile, the company said it has just hired two executives — a vice president and general counsel, and a vice president of marketing, according to Hanlon.

In the conference call, Emkjer said, “I am elated that we have attracted such high-caliber talent.”

But Hanlon told BioInform that Accelrys does not plan to issue a release with the names of these new executives for a couple of weeks.

These new hires will not, however, be followed by a slew of others. This year, Emkjer said, “we can grow this business at probably 20 percent without adding on addi-tional or incremental employees as we go forward.”

Emkjer also indicated that the company has been “active” in looking for potential acquisitions.

The company said its expenses decreased $2.1 million for the quarter year over year, but did not specify total costs. Overall, the company reported a net loss of $6.2 million for the quarter, compared to $3.8 million in the same period of last year. These losses include net loss of $1.1 million from discontinued operations of Pharmacopeia Drug Discovery, compared to a $345,000 net loss for PDD discontinued operations in the prior year quarter.

“We feel our expense base is at the right level,” said Emkjer.

In May, Emkjer projected that Accelrys could break even in fiscal 2005 with revenues of $82 million, “subject to the mix of orders we bring in.” (See BioInform, 5-10-04.)

But in response to an analyst’s question on guidance in this quarter’s conference call, Hanlon backed away from this optimism a bit. “So much depends on the mix of licenses that come in in the December quarter, which as you know is substantial,” he said. “But I have said that we can see a downside effect of 10 to 12 million” in comparison to the $79.4 million in revenues reported for the year ending March 2004, he said. However, he added that orders would be up slightly from a year ago.

In the pharma sector, Emkjer said that spending is “flat” and much more stable than last year, when there were budget cuts. In biotech, which has lagged behind pharma spending, the company is “not seeing the uptake yet,” but Emkjer asserted that “our funnel is building” and that the company would be seeing an uptick in biotech spending within the next six months.

Overall, however, Emjker stressed that clients were responding favorably to the firm’s subscription model.“ What the licensure does is it allows clients to swap products throughout the use of, or during the duration of the subscription period,” he said. “And in fact we’ve seen so much interest that we’re finding some of our clients who purchased perpetual licenses earlier and are on maintenance are inquiring as to switching to subscription models that give them the ability to move between applications.”

The company had $83.8 million in cash and marketable securities as of June 30, Hanlon said.

The company made a capital contribution to PDD of $46.5 million April 30, and also paid transaction costs due to accountants and lawyers, as well as severance costs and retirement costs for the former chief executive.

— MMJ

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