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'An Unfortunate Storm': Tripos CEO Discusses Company Future

By Allison Proffitt

Dec. 2006 / Jan. 2007 | Tripos announced in November that it has successfully sold its Discovery Informatics business to Vector Capital for $25.6 million, and is currently negotiating the sale of its Discovery Research business. The dissolution follows a January 2006 announcement that Tripos was researching strategic alternatives including separating its chemistry and software businesses.

Despite the company's difficulties, including a collapsed share price from over $4 per share in January to $0.75 now, president and CEO John McAllister is upbeat about the company's future. "As the pharma focus turns to efficiency, the software business becomes much more attractive," he told Bio-IT World. "The pharma industry is facing far more competition and price regulation. It's harder and harder to find blockbusters, so [the industry is] scrambling to find ways to become more efficient.

"They're turning to broader enterprise software systems and engaging with large consulting operations to structure their data management," McAllister says. Tripos's software offers solutions that "allow our customers to become more cost-conscious."

Pfizer Fallout
The informatics business sale to Vector Capital marks the first half of the liquidation of the company. The split into two separate businesses - Discovery Informatics, a software business and Discovery Research, a chemistry business - was announced in January 2006 as one of several strategic restructuring options that became necessary following Pfizer's decision not to renew a four-year, $90 million contract to improve Pfizer's compound libraries originally signed in 2001.

In order to service the Pfizer contract, Tripos built up its business by expanding the company's chemistry facilities in Bude, England, and hiring 30 chemists and dozens of programmers and administrative support. (See Bio-IT World, Green Pastures for Discovery Informatics, May 2005.)

"We delivered a half a million compounds to Pfizer in those four years," McAllister recalls, "and synthesized four million. We were operating the chemistry lab like an assembly line."

But when Pfizer turned instead to lower-cost Asian resources, Tripos suddenly found itself with a surplus of manpower and facilities.

"We were caught in an unfortunate storm," says McAllister. Without a new large contract or a stash of capital to support the company, Tripos was forced to restructure. "In hindsight," says McAllister, "I don't know that the Pfizer contract was the best choice" for the company.

While investigating strategic restructuring options, Tripos began exploring what McAllister views as a new landscape of partnerships for smaller companies. "We've added a number of new customers and increased the non-Pfizer business," McAllister says during 2006. The challenge in this situation is for companies like Tripos to successfully and rapidly restructure to meet the needs of smaller customers, he says.

Compared to the Pfizer contract, Tripos's new business comes in "smaller chunks." "We're seeing contracts in the $0.5-2 million range that last from six months to eighteen months," McAllister says. "We have many customers of about the same size."

McAllister says that the shift to more, smaller biopharma and biotech customers is, actually building a healthier work environment. "They're becoming more science-intensive," he says of the available projects. In addition, McAllister believes that these clients are likely to keep their business closer to home, as they are less likely to set up joint ventures in Asia, Russia and Eastern Europe compared to larger organizations investing heavily for long-term returns.

McAllister is hopeful looking forward. "There's still a real [market] for our chemistry business," he says. "Chemistry is still of high value." And that, he believes, bodes well for the Discovery Research business and its scientists.

"That's an exciting opportunity for the scientists in our laboratories that want to do drug discovery," he says. "With smaller customers [becoming] much more science focused, [we're now doing] what most scientists would rather do."

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