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Pharmacopeia Mulls Separation of Accelrys Software Unit from Discovery Activities

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Largely due to an anticipated shortfall of $1 million in second-quarter earnings for its drug discovery business, Pharmacopeia is considering splitting its software business, Accelrys, from its discovery group.

While the company is not scheduled to announce its exact earnings until August 1, it estimated that its drug discovery revenues totaled about $6.8 million during the second quarter, while Accelrys brought in $19.5 million to $20 million. Revenue from Accelrys grew at an annual rate of about 35 percent, in line with the company’s expectations.

Sue Rodney, Pharmacopeia’s manager of investor relations, stressed that the decision was far from final. “We are currently focusing on the strategic alternatives that would enhance our drug discovery business, not necessarily the potential and subsequent splitting up of the two businesses,” Rodney said.

While conceding that a separation “may make sense at some future point,” Rodney noted that “there will likely always be some relationship between the two businesses because of the obvious synergies between computation methods and experimental research.”

Currently, Rodney said, the combined company is perceived somewhere between a profit-oriented software company and a drug discovery company with long-term revenue prospects. If the split were to be pursued, it would give the two businesses a “more appropriate valuation,” she said.

“A split would likely have no significant impact on customers or employees,” Rodney noted.

Pharmacopeia’s final decision — and its consequences — should be closely watched by other bioinformatics companies grappling with the decision of whether to focus their efforts more toward short-term cash from tools or long-term revenue from drug development.

Rodney said Pharmacopeia sees no difficulty in maintaining the success of the Accelrys business model over the long term. “We believe we are better positioned than any other player to continue to improve our individual technologies (cheminformatics, bioinformatics, modeling and simulation, and consulting) and then ultimately integrate all of these technologies into an integrated, enterprise-wide solution for drug discovery,” she said.

— JSM and BT

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