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Accelrys to Wall Street: Reorg Complete, Connecting to Microsoft, New Industries

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Accelrys CEO Mark Emkjer told an investor conference this week that the company has completed its restructuring and turnaround, is expecting more deals with equipment manufacturers, is expanding into other industries with R&D-generated datasets, and is expecting positive developments from the integration of Pipeline Pilot into Microsoft SharePoint, which will be formally rolled out in November. 
 
In a breakout session with analysts at the UBS Global Life Sciences Conference in New York, Emkjer admitted that cutting a total of $47 million in expenses since he began his tenure in late 2002 has “not been a whole lot of fun.”
 
Calling his approach to managing Accelrys “a turn-around project,” he said the company at its zenith had around 725 employees and was now down to 385, but that it is slated to reach 400 this year. “That has been major surgery.”
 
With $74.9 million in cash and equivalents on hand as of June 30, Emkjer told analysts he was happy to have moved debt off the balance sheet and to have created a “strong cash position.” He also said that key hires are broadening Accelrys’ customer base throughout the life sciences and in other industries, and that he sees a “very large” target market full of unmet needs in science business intelligence. ,
 
Of the $79.7 million in revenue Accelrys generated in its fiscal year ended March 2008, 72 percent is recurring, which Emkjer said reflects a “solid financial condition.” He also admitted that Accelrys recently failed to acquire a company. He did not mention its name or industry.
 
Today, as Emkjer noted, Accelrys’s revenue is derived 60 percent from academia, 5 percent from governmental institutions, and 5 percent from corporate customers. In about three years, he said, the academic segment will shrink to around 5 percent and the main customer base will be in the commercial arena. 
 
From a technical standpoint, Emkjer said his company’s system integrators had put wrappers around the science and analytic tools it sells, and have built a scientific business intelligence platform on top of those tools to create a service-oriented architecture geared toward datasets, including but not limited to those generated in the life sciences.
 
He said the platform’s value stems from its ability to “inhale complex data,” work with simple numerics and standard text, and to take biological sequences and complex images, filter them, and apply analytics and predictive scientific software to “give the users the ability to interact with that data and make decisions.”
 
“Today most of this is done manually,” he said, but added that part of Accelrys’ growth strategy is to help R& D scientists with automated processing that could help do away with redundancies. His hope is that the platform will become increasingly embedded across the enterprises of his customers.
 
Cut, Cut, Cut
 
During Emkjer’s presentation, when analysts asked how Accelrys plans to maneuver in the current budget- and personnel-cutting practices in, for example, the pharma industry, he said his firm “flies counter” to the current trend since Pipeline Pilot enables customers to raise productivity, reduce costs, automate workflow, and accelerate time to market. He explained that many firms are struggling with how to handle increasingly complex datasets, which could be an advantage for Accelrys.
 
He explained that it is Accelrys’s ongoing plan to morph from a modeling and simulation-software vendor with a “small addressable” market of pharmas, biotechs, and materials companies, to a firm with a platform that can provide an analytic tool for many types of users and decision-makers.
 
Emkjer also said that Accelrys isn’t necessarily seeking new customers, but rather plans to “expand the relationship” with existing customers. It is about “building bigger, deeper relationships across the enterprise versus just a slice of research,” he said.
 
Emkjer said Accelrys has recently contracted with PR and consultancy shop Ogilvy to clarify its role to the marketplace and present “ourselves to the market” in a more simplistic way. He said the platform can be used in different sections of companies. In pharma, for example, it is finding its way into pre-clinical and clinical drug discovery and development, manufacturing, and risk management.
 
For instance, as part of an OEM agreement signed last fall, Agilent Technologies, this month has begun to distribute Accelrys’s Pipeline Pilot as an embedded part of the Agilent OpenLAB software.
 
Hooking up with Microsoft
 
“More importantly” said Emkjer, “we have scientifically enabled the Microsoft SharePoint platform.” The integration with Microsoft Office Sharepoint Server allows users to execute and display results through the Accelrys platform in the SharePoint environment.
 
“It’s a platform within a platform [that] scientifically enable[s] SharePoint,” he said in a breakout session following his presentation. Chief information officers in pharmaceutical companies that he did not name had told Microsoft that their number one wish was to obtain a secure, scientifically-enabled environment.
 
Microsoft has programmers working at Accelrys now, said Emkjer. “We will QC [the platform] with a number of customers and then it will be in [Pipeline Pilot] 7.5 that comes out Nov. 15,” he said. 
 

“We’re building bigger deeper relationships across the enterprise versus just a slice of research.”

“They’re creating SharePoint Web Parts” — customized code for SharePoint —Rudy Potenzone, pharmaceutical industry technology strategist for Microsoft, told BioInform in an interview after the investor conference. As part of MS Office, SharePoint is an information portal through which SharePoint Server allows users and groups at various locations to share material and use collaborative tools.
 
Starting from the programming model behind Windows, SharePoint users can create functionalities of their choice. SharePoint “has a tremendous uptake across the biotech and pharma industries,” Potenzone said. For example, Pfizer has deployed it broadly across its locations, as have “many other pharmaceutical companies.”
 
The company did not provide further detail of its customers in this market.
 
Potenzone said he has been exploring ways to help the industry deploy these tools, including Accelrys’ Pipeline Pilot. “Partnering with Accelrys, we can have a lot of these scientific capabilities now available through the larger SharePoint community that is growing,” he said.
 
Pharmaceutical scientists are building workflows on Accelrys tools and “now this gives them a way to provision out to the broader scientific community these workflows,” he said. “This is a really significant partnership for the scientific community.” Accelrys is one of the founding members of Microsoft’s BioIT Alliance and this is “the first tangible project we have been able to do together,” he said.
 
“SharePoint is increasingly being used as a platform by numerous software vendors, including Accelrys, as it provides them with rich web portal-type functionality, along with all the collaboration, dashboarding, and other native capabilities built into SharePoint,” Les Jordan, industry technology strategist for life sciences at Microsoft, told BioInform in an email.
 
According to Potenzone, since April Microsoft has been working with Accelrys in “a good collaboration” driven by customers requesting that Microsoft develop collaborative tools in a secured environment. It is a merging of strengths, he said, giving SharePoint a scientific side.
 
As SharePoint is sold and deployed in corporations, Emkjer said he believes Accelrys stands to get “a push out of that” since “the Microsoft sales force will be pushing this as well. We will continue to grow in life sciences.”
 
Emkjer added that he expects a “virulent” spread of the platform as the company moves Accelerys into other industries. The SharePoint alliance will also help Accelrys move from selling to individual scientists to selling across an entire enterprise, he said.
 
According to Emkjer, the number of Pipeline Pilot users at Pfizer has increased from 50 to 1,800 in the last three years. Pipeline Pilot 7.5 will also include workflow automation, Emkjer said, such as automatically re-ordering a new assay or test if a result calls for it.
 
According to Emkjer, what Accelrys’ platform offers budget-cutting pharma is the ability to “accelerate experiments through in silico experiments.” Automating workflows reduces cost, reducing, for example, the burden on research IT, and it enables casual users who can build workflows and protocols, he said.
 
Emkjer said chief information officers at pharmaceutical companies tell him budget cuts are among their biggest and sorest points in the R&D slump in which many find themselves. He said they also tell him they are having difficulty with the exponential amounts of data to be analyzed: Juggling comprehensive test results can risk confusing activity with results, said Emkjer.
 
“What we can do is hunt and search, put agents above that, we can help them not to repeat tests,” he said. 
 
Analysts at the UBS presentation asking follow-up questions about the Microsoft partnership seemed intrigued but took a wait and see approach.
 
On the High End
 
Among the factors that will lead to growth for Accelerys is the need for high-end analytics and visualization in many industries, Emkjer said. The life sciences are where the company’s platform “has taken hold” and will continue to be used. But he is looking to expand the firm into other industrial silos where the modeling software has begun to make inroads, including chemicals, consumer products, energy, and aerospace, which he said have the “exact same needs” as the life sciences.
 
Those other industries, too, face the same challenges as the life sciences with data growing exponentially and a rising need for pattern-analysis tools to enable decision-making. “We are going to stay in areas where there are complex datasets” which means companies doing significant scientific R&D, said Emkjer.
 
While the percentage of R&D spending is higher in life sciences than in those other industries, the “total available spend [in those areas] dwarfs the life-sciences spend,” he said. Emkjer said to expect large deals in the near future, which he called “corporate beachheads.”
 
An analyst who declined to be named commented that this strategy appeared “very interesting” since it could “substantially” increase revenues. At the same time, he said, it will be important to see the company doesn’t spread itself too thin, or distance itself too far from its core area.
 
Academics can continue to obtain the Accelrys platform for free to build codes on top of it, which his firm then plans to in-license. For example, scientists at Yangtze University in South Korea recently wrote code for a toxicology model which Accelrys has in-licensed, he said. The advantage to this type of business is that the amount of effort for subsequent commercialization takes is “very light,” he said.
 
In the future, academic users and programmers will still be able to get “deep and granular” with Accelrys’s products, he said, but not all users are seeking that depth. “About 5 to 10 percent of our customers are expert users and the others are casual users,” he said.
 

Part of the growth strategy will be to maintain the connections to academia, explore in-licensing as well as acquisitions, and expand opportunities with equipment manufacturers, as well as across industries, Emkjer told the analysts.

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