Tripos has announced the sale of its Discovery Informatics Business, as an initial step towards liquidation, in light of the current trend to low-cost Asian outsourcing.
The deal with Vector Capital is reported to be worth $25.6m (€19.5m), subject to shareholder approval. Tripos is also in advanced discussions to sell its UK-based Discovery Research division. Tripos has been hard hit by the loss of crucial contracts from large pharmaceutical companies to lower-cost competitors in India, Asia and China.
The 27-year-old company had expanded to cope with the demands of a Pfizer deal worth $90m between 2000 and 2005.
They had been confident of retaining the contract as they had satisfied all of the contractual requirements and shown they were a highly efficient research option. Tripos had grown its non-Pfizer business three fold, and had been in lengthy contractual discussions with other large Pharmaceutical companies which ended up following the trend of outsourcing to low-cost facilities in India and Asia.
"Tripos had taken the financial heat to restructure the company but didn't have the financial resources to streamline the business appropriately without becoming a private company," Dr John McAlister, Tripos CEO, told DrugResearcher.com.
While they had tried to keep their Informatics and Chemistry Research lines together to they had been forced to find separate buyers.
Tripos recorded an operating loss of $9.1m in the first nine months of 2006 with revenue down 40 per cent from $41.6m to $25m. They were also hit hard by the rising costs of the new financial reporting requirements for public businesses, put in place after the Enron scandal, costing somewhere between $2m and $2.5m.
The costly streamlining process has seen the number of employees in their UK based Discovery Research business fall from 165 to 40 over the last year, while the Vector deal should ensure the majority of its 145 employees in the Informatics business remain in place.
The corporate staff will be hit hardest as Tripos goes into liquidation.
McAlister believes that Vector Capital would continue to grow the Informatics division which, while being a very competitive R&D venture, was too small to remain a separate public company. He also told DrugResearcher.com that he was very happy with the discussions regarding the sale of the Discovery Research division which were at a very advanced stage. McAlister was "confident that the kind of innovation we can bring to customers is not what they can find in India and China."
"Pfizer may find cost savings not as big as they believe them to be due to the myriad costs of managing distant projects," he added.
Ironically, McAlister believes that the need for drugmakers to cut ever increasing research and development costs while also being under pressure to lower consumer prices will ensure the success of the two companies under private ownership.
"Western companies will have to innovate to differentiate themselves from their low cost competitors."