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Seeing Top-Line Benefit from SciTegic, Accelrys Plans Tighter Integration

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BOSTON — Fresh off a quarter in which its recently acquired SciTegic subsidiary helped drive a 70-percent revenue increase, Accelrys is looking to integrate SciTegic's pipelining technology more closely with its own product line.

Speaking to BioInform at the Bio-IT World Conference and Expo here last week, Accelrys officials said that the company plans to use SciTegic's Pipeline Pilot software as part of an expanding services offering, as well as in the next version of its Discovery Studio Modeling platform, which will use Pipeline Pilot as the "engine" through which users will be able to access multiple modeling software tools.

David Edwards, director of computational biology at Accelrys, said that Discovery Studio Modeling 1.5, scheduled for release later this year, will allow users to wrap Accelrys applications for use in DS Modeling through Pipeline Pilot. The release will also be available in Windows and Linux. Later versions of the platform will enable researchers to integrate non-Accelrys applications into the framework, he said.

"When you wrap a piece of science inside Pipeline Pilot, as well as exposing that inside the Pipeline Pilot environment, you'll now have the opportunity to expose it in the Discovery Studio Modeling architecture for essentially no overhead," Edwards said.

SciTegic gives Accelrys "a much shorter path to the open framework we envisioned" for the Discovery Studio framework, said Steve Levine, senior director of strategic partnerships. "Although we have only worked on wrapping Accelrys applications in it, because of the parallel work that SciTegic is doing, immediately there are 10 to 15 other vendors that are connected to the same infrastructure."

As evidence of this new "open" philosophy, Edwards cited SciTegic's ISV partner program [BioInform 05-09-05], and noted that the company will soon release a free patch for Pipeline Pilot for the GOLD docking algorithm from CCDC — a competitor to Accelrys' own docking tools.

This migration to a model in which it embraces its competitors as partners will actually have a positive impact on Accelrys' future development strategy, according to Edwards. The firm will focus "less on me-too products, and more on innovative science," he said. Two new research consortia — which serve as breeding grounds for the company's future product lines — are in the early stages, he said: one in the area of high-throughput crystallography, and another in nanobiotechnology.

Levine said that although the firm's consortia activities have proven fruitful in the past, the effort had slowed down in recent years as Accelrys focused on integrating its disparate product lines and on its spin-out from Pharmacopeia last year. Now, he said, the company is in a good position to start looking forward again.

The Pipeline Pilot Payoff

It appears that Accelrys is indeed on the upswing. The company's 2005 fiscal year, which ended March 31, marked the first time in four years in which orders grew year-over-year, to $85.2 million from $76.0 million in FY 2004. While SciTegic was responsible for the bulk of this 12-percent order growth, the company's core software applications also witnessed "modest growth" year over year.

Accelrys did not break out specific order numbers for SciTegic or its core business.

Due to its switch to a subscription accounting model last year, reported revenues for fiscal 2005 were lower than orders, at $69.6 million compared to $79.5 million in fiscal 2004. However, deferred revenue increased to $42.6 million for the year from $27.8 million in the year-ago period.

The company's net loss remained flat, at $25.2 million for the year, or $1.00 per share, compared to $24.8 million, or $1.04 per share, reported in fiscal 2004.

For the three-month period — its first full quarter following the acquisition of SciTegic in September, Accelrys reported that the subsidiary, along with "strong growth" in sales of its core products, led to orders of $19.1 million, an 88-percent increase over $10.1 million in orders reported in the same period of 2004.

Reported revenue increased 70 percent, to $18.9 million from $11.1 million in the year-ago period — the first quarter in which it used the subscription accounting model.

Net losses for the quarter narrowed to $9.3 million, or $.36 per share, compared to $26.8 million, or $1.11 per share, in the year-ago quarter. The company said that its expenses for the quarter included $1.5 million for severance and related costs arising from a "workforce reduction" in March.

Ian Clemens, director of communications for Accelrys, said that the layoffs were primarily in the company's sales force, and occurred globally. The firm's overall headcount, of around 550 people, will remain stable, however, as Accelrys is hiring for "critical areas" in which it is seeking "new skill sets," Clements said.

Bangalore Bioinformatics Blip?

In a conference call to discuss the quarterly and full-year earnings on May 12, Accelrys CEO Mark Emkjer said that the company's bioinformatics business "has declined slightly due to delays resulting from R&D to Bangalore."

Edwards told BioInform last week that the "ramp-up in Bangalore was slower than we had hoped" — largely because the hiring environment for trained bioinformatics developers in India is "very competitive." There were additional challenges that the company had to address in terms of time zone differences and getting the Bangalore staff trained, "but they're really starting to turn a corner," he said.

Also contributing to the delay was the fact that the company was "looking for, on average, a slightly higher skill set than a lot of the IT infrastructure [companies], so we were pretty selective in ramping up to the number of people we were targeting," Levine said. "It took a little bit longer than we expected."

The company now employs around 75 people in Bangalore, and the group is responsible for Accelrys' entire bioinformatics product line, as well as quality control for nearly all of the company's products.

The recently announced upgrades of GCG and SeqWeb [BioInform 05-09-05] mark "the first major software release" from the Bangalore R&D group, Edwards said.

Looking Forward

As part of a policy not to comment on upcoming earnings, Accelrys declined to provide any guidance for its 2006 fiscal year, which will end March 31, 2006.

Several analysts questioned this policy during the conference call, and Emkjer said that the firm is wary about promising revenue numbers "in the midst of a turnaround."

Despite the company's recent positive performance, Emkjer said, in a turnaround situation, "the last thing you want to do is give guidance, because in essence it may constrain you from making decisions that are in the best interest of shareholders in both the intermediate and the long term."

J. Andrew Braswell, an equity analyst with Newbridge Institutional Research, estimated in a research note that Accelrys will generate FY '06 revenues of $84.2 million — a 3.5-percent increase from his previous estimate of $81.3 million.

Braswell estimated that the company will break the $100 million revenue mark in FY '07. At its current expense rate, which was $96 million for FY '05, the company would solidly break even in that year if it hits that revenue target.

— Bernadette Toner ([email protected])

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