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Despite Double-Digit Drop in H1 Revenues, Entelos Expects to Break Even for Full Year

Entelos this week reported a 39 percent fall-off in revenues for the first half of 2008, accompanied by a $2.6 million loss, but company officials remain confident that the firm will break even for the full year.
“We are shooting for profitability this year and we expect to be profitable in the second half,” Alan Blazei, chief financial officer at Entelos, told Bioinform. “The full year is probably going to be close to break-even.”
For the six months ended June 30, Entelos reported revenue of $9.6 million, a sharp drop from $15.7 million in the comparable period of 2007. Nevertheless, the company expects that its full-year revenues will be in line with analyst estimates of $24 million — a 10 percent boost over full-year 2007 revenues of $21.8 million. 
“We’re comfortable with that” $24 million estimate, president and CEO James Karis told BioInform. In a conference call with analysts, he said the results were “in line with our estimates and our budgets, so we are very pleased with this performance.”
Karis highlighted the company’s cash receipts, which more than doubled to $7.6 million from $3.7 million in the first half of 2007, as the “real measure of performance and growth and expectations” for Entelos because the 2007 period’s top line included revenues that had been deferred from prior years.
“If you back out that basically paper revenue you come up with cash revenue,” he said. “We actually had an almost 30 percent increase in cash revenues year over year.”
The company’s customer mix also changed year over year. For the first half of 2007, Entelos said that non-pharmaceutical clients made up only 12.8 percent of its business, but that number almost tripled for the first of 2008, to 32.3 percent.
This shift is due to new applications that the company has targeted for the consumer products space, Karis said, adding “we are very pleased by this development and we think it is an important growth factor for us going forward.”
Pharmaceutical companies and consumer products firms like cosmetics companies share an interest in what happens when “you introduce an intervention into human biology,” Karis said. “We see this as one of the growth opportunities of the company.”

“We are shooting for profitability this year and we expect to be profitable in the second half. The full year is probably going to be close to break-even.”

R&D spending for the six-month period fell to $1.5 million, about one-third of the $4.6 million that the company spent on R&D in the same period of 2007. In an e-mail to BioInform,  the director of investor relations Jill Fujisaki said this drop reflected not only the “maturity” of its PhysioLab disease models but also the cessation of its internal development of therapeutic candidates.
The company decided to divest its drug-development arm earlier this year in order to focus on the “revenue-generating” components of its business [BioInform 04-18-08].
Karis said that Entelos has developed its technology to the point where it can now model virtual populations in a more automated fashion. “That was a key breakthrough we spent a lot of money on getting to,” he said. The underlying platform is now finished, so there is “less required R&D now to keep the technology robust.”
Quoting the report ‘A 20/20 Vision for 2020’ by Burrill & Co., which states that “the majority of drug discovery” will be conducted in silico by the year 2020, Karis explained that Entelos’ technology will help pharma face some of its R&D challenges, such as coping with genomics, proteomics, and imaging data.
This data “must be put in context to create information,” he said, noting that there is “more and more pressure” on personalized medicine given the realization that one drug does not fit all.
Indeed, Entelos has identified personalized medicine as a key growth market for the future. One Entelos project illustrating this interest is MyDigitalHealth, a web site that allows consumers to tap into Entelos’s simulations to better understand their own physiology, disease risk, and health outcomes after entering various types of health data.  
The resource allows users to integrate genetic, diagnostic, and imaging data with medical histories and other tests to create a more complete view of their health.
Karis said that the company’s virtual patient technology could “even have impact on consumer medicine someday,” but did not elaborate.
Among the new models and envisioned predictive technologies on the company’s horizon is the drug-induced liver injury model that the company is developing with the US Food and Drug Administration [BioInform 08-10-07] and targeted applications such as clinical trial simulations.
Karis said his firm “feels good” about the relationship with the FDA and that it also expects to sign new contracts with other customers before the end of the year.
The company is also hiring in order to expand its business development and sales, but did not elaborate on its plans.

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