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Aiming for Profitability in ‘08, Entelos to Shed Drug-Development Arm, Grow Sales

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In a bid to become profitable this year, Entelos plans to “significantly increase” its investment in sales and marketing and divest its in-house drug-development effort, company officials said this week.
 
In an analyst briefing this week to discuss the company’s preliminary 2007 financial results, Entelos CEO James Karis said that the firm plans to shift its focus toward the “revenue-generating” part of its business, which comprises sales and services related to its PhysioLab biosimulation platform.
 
Several years ago, the company expanded its business model to apply the PhysioLab platform to in-house therapeutic development, and exactly one year ago it in-licensed from Ortho-McNeil its first compounds for development: a series of selective progesterone-receptor modulators [BioInform 04-20-07].
 
Now, however, “our focus … is on the revenue-generating part of the business, which is turning those models, those capabilities, those services, those subscription fees to grow the top line of this business as we start seeing more and more adoption start happening,” Karis said during the briefing.
 
Entelos plans to divest its therapeutic business “either through a partnering route or some other basis,” Karis said. “We’re going to exit 2008 with only the revenue-generating profitable-based business. We will not be investing in therapeutics post-’08.”
 
Meanwhile, CFO Alan Blazei said the company plans to “significantly increase” its investment in sales and marketing and business development in the year ahead. “We think we’re at a crossroads in terms of getting technology acceptance, and what we really need now is just more people calling on customers and promoting our products and services,” he said.
 
The 90-employee company has only three salespeople now, and plans to at least double that in 2008.
 
“I’d hire 20 if I could,” Karis said in response to an analyst’s question about the company’s hiring plans for sales and marketing. “I think this is a real opportunity for us because … the technology and what we do is more productized than it was in the past. It’s much more of a custom discussion.”
 
Karis said that the company hired its first European sales representative two weeks ago, “and we want to significantly add to this.”
 

“We’re going to exit 2008 with only the revenue-generating profitable-based business. We will not be investing in therapeutics post-’08.”

The firm sees two key opportunities for growth in the year ahead. One is expanding its presence within existing pharmaceutical firms, a strategy that has proven successful with longstanding customers like Johnson & Johnson and Pfizer that started as small pilot projects that gradually grew into multiple therapeutic areas, Karis said.
 
The firm is developing new PhysioLab models in areas like hypertension and oncology that should appeal to a broader base of pharmaceutical development teams, he said.
 
Another growth area is the consumer products market. “They have similar questions that pharma has: understanding what kind of products they’re developing and understanding the regulatory environment,” Karis said.
 
As evidence of this potential, the company announced this week that it had expanded a partnership with Unilever begun in 2005 to develop a simulation-based alternative to animal testing.
 
“We did build that model and the next level of effort is to use that model to identify assays that are not animal based, and that work is going on,” Karis said. Under the expanded agreement, Entelos is building a “next generation” PhysioLab platform that will assist Unilever in its “general product development,” Karis said. He did not elaborate.
 
Unilever officials could not be reached for comment.
 
‘Building a Foundation’
 
The shift in strategy comes as Entelos ends a year of “building a real foundation for some future growth,” Karis said.
 
For the 12-month period ending Dec. 31, 2007, Entelos recognized revenues of $21.8 million, nearly flat with 2006 revenues of $21.6 million.
 
Blazei said the company experienced “a relatively disappointing first half of the year with a nice recovery in the second half of the year,” which it expects to continue through 2008.
 
He projected that revenue will grow around 13 to 15 percent in 2008, or to between $24.6 million and $25 million.
 
The company narrowed its net loss in 2007 to $132,000 from $754,000 in 2006.
 
R&D spending dipped to $6.1 million from $6.7 million, while sales and marketing costs fell to $1.8 million from $2.3 million. General and administrative costs rose to $4.5 million from $4.3 million.
 
As of Dec. 31, 2007, Entelos had cash and cash equivalents of $5.3 million. Including accounts receivable, the company’s cash position was $10 million.

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