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Simulations Plus Says Recent Acquisitions Will Drive 21-Percent Revenue Growth in FY 2006

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Simulations Plus, a provider of predictive ADMET software and other simulation tools for the biopharmaceutical industry, said last week that its recent M&A activity should help grow its revenues by around $1 million — or 21 percent — in its 2006 fiscal year, which began Sept. 1.

The company, which employs 27 full-time and three part-time staffers and trades on the Amex exchange under the ticker symbol SLP, keeps a fairly low profile. Though it has been publicly traded for eight years, it had not held a conference call for analysts and investors until last week, when it released its annual report for its 2005 fiscal year.

The company's revenues for the year fell to $4.75 million from $5.21 million in 2004 — a drop that the firm attributed to three factors. First, revenues of $860,000 from two multi-year software licenses that began in 2004 were recognized during that fiscal year, resulting in no revenue recognized in fiscal year 2005 for those licenses. Company officials said they intend to remedy this "lumpiness" by recognizing revenues from future multi-year licenses ratably over the course of the subscription, rather than up front.

Simulations Plus said that three customers did not renew their annual licenses in 2005, resulting in a net decrease of $80,000 that was offset by eight new customers that generated revenues of $259,000. The company said that revenues from research contracts decreased by $65,000 in 2005, but didn't provide a total amount for research contract revenue.

Net income for the 2005 fiscal year fell to $262,000 from $835,000 in 2004, while R&D spending rose slightly to $524,561 from $515,016.

Walt Woltosz, chairman and CEO of Simulations Plus, said during the call that the company's customer base is growing, despite the shrinking revenues. As evidence, he cited cash flow, which increased to $1.02 million in 2005 compared to $734,000 in 2004.

In addition, he said, the company's recent acquisitions of Sage Informatics in September [BioInform 09-12-05] and Bioreason in November [BioInform 11-14-05] are expected to generate at least $1 million in gross revenues in the coming year, bringing the firm's total projected revenues to $5.8 million for fiscal year 2006.

Woltosz said that the company should also see broader adoption of its tools within the pharmaceutical industry. "We think the industry now has reached a point where simulation and modeling tools are becoming a necessity rather than in some cases a curiosity or a toy," he said. "These are becoming quite essential tools in pharmaceutical discovery and development."

In addition, he said, "We will continue to look for acquisitions."

Simulations Plus did not provide the terms of its acquisition of Sage Informatics, but the firm paid $788,000 for the assets of Bioreason. "I believe that the cash we spent recently for the two acquisitions will be replaced substantially this fiscal year, if not completely, so we should be in a position to continue to look for small acquisitions that make sense, that are closely related to the expertise that we have, and add accretively to the business," Woltosz said.

As of Aug. 31, Simulations Plus had $1.75 million in cash and equivalents.

— Bernadette Toner ([email protected])

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