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'Sunsetting' Products, Pharma Budget Cuts Contribute to 'Eroding' Revenues at Accelrys

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Accelrys officials this week blamed a 1-percent decline in full-year revenues on the phase-out of certain product lines and cutbacks in R&D spending at pharmaceutical customers, noting that the firm is not likely to see a turnaround until the second half of its 2008 fiscal year.
 
During a conference call this week to discuss the company’s fiscal fourth-quarter and full-year financial results, CFO Rick Russo said that despite this revenue decline, the company remains “optimistic” that a number of new products it launched over the past six months “will stem erosion of the traditional life science product line in 2008.”
 
During the call, Russo and CEO Mark Emkjer traveled familiar terrain, touting “improved profitability,” for the company, which narrowed its full-year net loss by more than $6 million to $1.5 million from $7.7 million.
 
Even so, the principals conceded that while revenues for the quarter ended March 31, 2007, increased 2 percent to $19.9 million, revenues for the full year dipped 1 percent to $81 million.
 
“We believe this erosion has resulted from a combination of major cutbacks in early discovery R&D at most of the big pharma companies and expected pressures on our renewal revenue while we continue to modernize the product portfolio,” Russo stated.
 
Russo said that a major driver for the decline in revenues was a series of products that have been “sunsetted” over the past two years. Revenues from these products contributed around $11 million of the company’s revenues in fiscal 2006, and $8 million in fiscal 2007.
 
Emkjer said that the company anticipates an additional $8 million in “portfolio erosion” over the next two and a half years, “associated with products we have intentionally harvested or sunsetted.”
 
In recent weeks, the company did acknowledge the “sunsetting” of its MacVector software, which it sold to a startup under the same name in late 2006 [Bioinform, 05-11-07].
 
A company spokesperson did not return a call requesting further details.
 
In the meantime, the firm hopes to counter the fall-off with revenues from new products that it launched last year, though Emkjer noted that the company won’t begin “yielding order intake upside” until the latter half of the company’s 2008 fiscal year, which ends March 31, 2008.
 
Last year, Accelrys launched new versions of its primary informatics platforms — SciTegic Pipeline Pilot, Discovery Studio, and Materials Studio. In a conference call to discuss the company’s fiscal third-quarter earnings in February, Emkjer said that these launches completed a two-year product “modernization” phase for the company’s product line [BioInform 02-02-07].
 
This week, however, Emkjer stressed that the company’s product portfolio is “still in transition” and that the company is currently identifying the “residual portion” of its product portfolio to “wind out” of its business in the next two to three years.
 
He said the market response to the company’s new releases has been “nothing less than outstanding,” and “nearly offset” the erosion in revenues that the company saw due to “significant budget cuts in the pharma sector.”
 
He did not provide further details on sales of the new product lines.
 
“Accounting for budget and buying cycles, we expect order intake growth in Discovery Studio, Materials Studio, Chem Informatics and our Scientific Operating Platform, imaging, and solutions consulting in the year we have just entered. This order intake growth will manifest itself as revenue ratably in subsequent years,” he said.
 
Emkjer also stressed the company’s “scientific business intelligence initiative,” which he described as “moving downstream to serve our customers across the entire continuum of the discovery and development process.”
 

“We believe this erosion has resulted from a combination of major cutbacks in early discovery R&D at most of the big pharma companies and expected pressures on our renewal revenue while we continue to modernize the product portfolio.”

Accelrys has never identified itself as a “business intelligence” firm in the past, but it appears that the company may be taking a page from Spotfire, which successfully parlayed its own relatively recent entry into the business intelligence market into an acquisition by Tibco for $195 million [BioInform 05-04-07].
 
Emkjer cited the Spotfire acquisition in this week’s call, noting that “The multiplier of revenue they are anticipated to sell for is quite impressive and speaks volumes for the anticipated size and growth of the markets we intend to participate in.”
 
Spotfire’s annual revenues are between $40 million to $50 million, according to Tibco officials, making the purchase price between four and five times sales.
 
Emkjer apparently sees a ripe opportunity for Accelrys in the business intelligence market, where he said that current players are “primarily concentrated in performance management and financial dashboard solutions,” and “enjoy relatively rich valuations.”
 
He said that Accelrys sees an opportunity for growth in the business intelligence market in the future, which “will be directed at the ‘knowledge worker’ who is tasked with making real-time decisions.”
 
While Emkjer said that Accelrys is “well positioned to exploit this trend,” it remains unclear to what extent the company’s current product portfolio meets the demands of the business intelligence market, or what products it will need to build or acquire to complete its portfolio.
 
Emkjer said the firm plans to look at various options as it “build[s] out the tactics and support of scientific business intelligence solutions.”
 
Those options include partnering, building, and acquiring, Emkjer said, reiterating previous claims that the firm is on the lookout for M&A.
 
“We are identifying M&A targets and are performing further analysis of same with the intent of making significant progress on this front in the fiscal year we have just entered,” he said.
 
Laurie Wiegler contributed to this article.

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