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Tripos Acquires Optive for $8M in Cash, Stock in Low-Risk Bid to Boost Short-Term Revenues

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Tripos kicked off 2005 by acquiring discovery-informatics startup Optive Research and adding 15 of its software products to Tripos’ portfolio.

The acquisition, which formally closed on Jan. 5, cost Tripos approximately $7.9 million — $4.75 million in cash and 599,521 shares of common stock, worth about $3.18 million at the end of trading Jan. 4. The cash portion of the purchase was helped by a $4-million infusion from two new investors — Horizon Technology Finance and Sand Hill Capital — through the issuance of $3.5 million of subordinated debt, 111,606 shares, and warrants to purchase 156,250 shares.

Optive Research was spun out of the University of Texas at Austin in 2002. In a conference call to discuss the transaction on Jan. 5, Tripos CEO John McAlister said that Tripos’ lengthy partnership with Optive founder and UT professor Robert Pearlman should ensure a smooth transition and measurable short-term financial benefits.

This partnership dates back to 1987, when Tripos signed an exclusive distribution agreement for Pearlman’s Concord software package. Tripos has continued to partner with Pearlman’s lab — and later, Optive — and currently distributes five of Optive’s products.

“Unlike many acquisitions, we believe that this transaction entails a relatively low risk,” McAlister said. “Based on our experience with the existing products, and our knowledge of the Optive and Tripos product lines, we believe that this transaction will have positive near-term impact on both revenue and operating income for Tripos.”

Jim Rubin, Tripos CFO, said that the company expects to grow its revenues in three ways: through Optive products that it currently distributes; through Optive products that it doesn’t yet distribute; and from new products developed by Optive that have only recently launched or are soon to be launched.

In 2005, Rubin said, “we expect this acquisition to contribute in the low single-digit millions [of dollars] in incremental revenue to our top line, in addition to preserving over $3 million in existing revenues from Optive products currently distributed by Tripos.” The acquisition is expected to be accretive in 2006.

Tripos also gains Optive’s working capital — more than $500,000 at closing.

Rubin declined to provide broader financial guidance for Tripos for 2005.

Russell Piazza, senior vice president of investments at PiperJaffray, a Tripos shareholder, agreed with the company’s prediction of a smooth post-acquisition transition. Noting that there are generally “considerable risks” in integrating two separate entities, he said that in this case, “my comfort level is high … because they have worked together closely for a long time.”

Bryan Koontz, Optive’s CEO, has joined Tripos as vice president of corporate development for Discovery Informatics, reporting to Trevor Heritage, senior vice president and general manager of Discovery Informatics. Pearlman will remain at the University of Texas and will serve as a scientific consultant to Tripos for at least two years.

In addition, Tripos has brought five Optive scientists on board. Heritage said that Optive’s staff prior to the acquisition was “in the mid-teens,” although some of those employees simultaneously held positions at the University of Texas.

“We have focused on retaining key scientific and development staff to support products and new product launches,” he told BioInform via e-mail. He added that “certain cost synergies have been realized, primarily impacting Optive’s sales and administrative functions.”

Heritage said that the former Optive employees will be merged into Tripos R&D teams over the next few weeks.

Optive’s products are complementary to Tripos’ product line, Heritage said, with “very little overlap.” Of Optive’s 15 products, 12 are designed for molecular modelers, he said, and will be integrated into Tripos’ Sybyl product line. Optive’s line of Benchware products, on the other hand, targets laboratory scientists, and will be integrated into the company’s newly released Lithium product line.

This latter category “is a much larger market than that for highly specialized computational and molecular modeling products, and one that has not been effectively served by the scientific software industry,” Heritage said in the conference call.

Optive has partnered with Microsoft on the development of Benchware’s user interface — an alliance that Heritage said Tripos plans to continue going forward “to enhance the end-user acceptance of our new Lithium suite of desktop solutions.”

— BT

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