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Simulations Plus Says Acquisitions Drove Record Q2 Revenue Growth, Plans More M&A

Simulations Plus, a provider of pharmaceutical simulation and modeling software, this week said that several acquisitions that it made in late 2005 helped drive a 71-percent spike in revenues for its fiscal second quarter — a trend that it intends to perpetuate through additional acquisitions.
For the three-month period ended Feb. 28, Simulations Plus recorded $2.5 million in revenues — a 71-percent jump over $1.5 million in the comparable quarter of 2006 and a record high for the firm, according to CEO Walt Woltosz.
In a conference call to discuss the quarterly results, Woltosz said that the company saw a 105-percent increase in revenues from pharmaceutical customers during the quarter, which swelled to $1.8 million from $884,000 in the prior-year period.
“New business added to our annual license renewals was the cause of that [growth],” he said.
In addition to several renewals with undisclosed pharmaceutical customers, Woltosz said the company signed a site license with a top-five pharma firm for the ClassPharmer cheminformatics software that it picked up in its acquisition of BioReason in 2005 [BioInform 11-14-05].  
“This was a company that was not using ClassPharmer before,” he said.
“Typically when a company takes on a new software package like this, they’ll do an evaluation and they’ll take one license for the first year,” he said. In this case, the customer opted immediately for the site license, “and that’s for us a major encouragement.”
Woltosz described the acquisitions of BioReason and Sage Informatics, another firm that the company bought in 2005 [BioInform 09-12-05], as a “tremendous success,” and said that Simulations Plus is “on the hunt” for similar “accretive acquisitions.”
In 2005, Simulations Plus projected that the two firms would contribute an additional $1 million in revenues during its 2006 fiscal year, which would bring total revenues to $5.8 million. The firm posted $5.9 million in receipts for the year.
For fiscal 2007, Simulations Plus previously estimated that revenues would increase by an additional $2 million, and Woltosz noted this week that “as of the end of the second quarter, we’re almost at $1.7 million of that $2 million.”
The company expects to issue revised guidance after the end of its third quarter, which closes May 31.
“All indications are that the third quarter will be significantly higher than the third quarter of last fiscal year,” Woltosz said, though he declined to provide further details. The company posted revenues of $1.8 million in its third fiscal quarter last year.

“There are companies that are smaller that have good technology, that have complementary technology. They’re generally private, generally held by a single person or perhaps one or two people, and those are the kinds of people we’re talking to.”

Woltosz said that Simulations Plus is in discussions with several acquisition targets, but stressed that the firm is going to be “very careful about any acquisitions,” citing the risk that the company has been a “little spoiled” from its positive experiences with BioReason and Sage.
While acknowledging that the 35-person firm is “a small company,” Woltosz noted that “there are companies that are smaller that have good technology, that have complementary technology. They’re generally private, generally held by a single person or perhaps one or two people, and those are the kinds of people we’re talking to.”
Simulations Plus also plans to grow organically through an expanded product line. Fiscal second-quarter R&D spending grew 81 percent year over year to $216,000 from $120,000 and the company introduced several new products and upgrades in recent weeks, including a new activity modeling capability for its ADMET Predictor software and a new molecular design capability for ClassPharmer.
Net income for the quarter more than doubled to $668,000 from $248,000 in the second quarter of 2006.
As of Feb. 28, the company held $3.2 million in cash and cash equivalents.  

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