Simulations Plus completes acquisition for USD 100 million

For now, 2024 could be a banner year Simulations Plus Inc.

In June, the pharmaceutical software company announced the acquisition Pro-ficiency Holdings Inc. in a $100 million deal, two months after announcing strong earnings that exceeded analysts’ expectations.

The acquisition is the seventh in Simulations’ 28-year history. The company started with modeling and pharmaceuticals simulation services in the 1990s, when data was less centralized and predictive analytics was less, well, predictive. Today, it’s a sprawling business that applies simulation technology to the entire lifecycle of a new drug—from development to production to commercialization.

“We have always had a growth strategy that combines both organic growth and new product development, as well as the development of our existing products and services, complemented by acquisitions,” he said Shawn O’ConnorCEO of Simulations Plus.

This is where Pro-ficiency comes in. The North Carolina-based company provides software to pharmaceutical companies that undergo clinical trials to prove their drug’s effectiveness and safety. Pro-ficiency creates a clinical trial simulation, taking into account the methodology and behavior of participants to determine how best to conduct the study to obtain accurate results.

“The new simulation capabilities that we get with Pro-ficiency are being used in clinical training,” O’Connor said. “But they can be used in other training areas, in terms of medical training, physician training, commercialization.”

The Beginnings of Simulation Technology

Drug simulation began as an idea from aerospace engineering. Instead of spending time and money building a new concept aircraft and testing it for flight—an expensive, time-consuming, and mortally risky endeavor—engineers built a digital prototype and used predictive analytics to assess the design’s success.

“In a similar way, the approach here is, how do you assess, analyze, and predict the likely success of a drug in a computer before you even start the trial stages?” O’Connor explained. “Ultimately, our goal is to shorten the time it takes to get a drug to market.”

Predicting success and shortening the drug development process is essential in the pharmaceutical industry. It costs about $1 billion to develop each drug on the market, and 90% of them never make it to market after passing rigorous testing and gaining FDA approval. Most venture capital firms—except those focused specifically on biotech—avoid the pharmaceutical industry because, according to the Department of Health and Human Services, the payback period is 10 to 15 years.

Development of platform companies

The risky nature of drug development has created a cluster of startups and technology platforms that attempt to mitigate the risks associated with drug development without having to share in those risks financially. Companies like Simulations Plus provide a suite of software tools that help scientists in the lab find new optimal drug targets and produce them efficiently. According to McKinsey, these are safer investments in the field of biotechnology.

However, new software players seeking to combine the best of both worlds are now entering the drug development industry.

To take Terray Therapya Monrovia-based AI drug discovery company founded in 2018. The platform selects a target in the body and checks whether potential drug molecules are able to “swim” to it after being ingested into the body. The software looks for unconscious toxicity, or problems the drug molecule might have in reaching its intended target.

Terray Therapeutics is working on its own drug. In the meantime, it has signed a deal with a pharmaceutical giant Bristol Myers Squibb to help it grow its own drug pipeline. In this way, Terray Therapeutics is monetizing its platform while also creating its own set of treatments.

“This agreement combines the scale, precision and speed of our platform with the breadth and expertise of our collaborators at Bristol Myers Squibb to find new small molecule therapies,” said Terray Therapeutics CEO Jacob Berlin – it was written in the statement.

Other companies in this industry include: 1200 Pharmaceuticalsa Culver City-based platform that aims to help develop cancer treatments faster.

Startups like 1200 Pharma and Terray Therapeutics have an advantage over most single-molecule biotech startups. They operate in the early stages of drug discovery and are becoming increasingly popular with biotech companies because they generate real revenue from providing their own software to larger companies. This reduces the risk for these startups and gives them the opportunity to transform into small and medium-sized pharmaceutical companies instead of selling their assets to large pharmaceutical players.

The Future of Simulation Plus

Simulations Plus announced favorable second-quarter results in April. The company’s total revenues increased 16% from the previous year to net $18.3 million, primarily from software sales. The next day, the FDA announced that it had renewed the license for DILIsym, a platform owned by Simulations Plus that predicts drug-induced liver injury.

Simulations shares rose 27% that day, closing at $41.71 and remaining relatively stable. AT analysts Craig-Hallum Capital Group raised its target price from $51 to $56, while Oppenheimer Holdings Inc. the target price was raised from $55 to $65.

The company has established itself in the life sciences space through partnerships with large players such as Labcorp AND Thermo Fisher Scientific (who is the owner One Lambda in West Hills), as well as cooperation with the FDA and National Institute of Health.

However, O’Connor says Simulations Plus will need to continue to expand its product line and look for acquisition opportunities as drug development becomes more advanced and requires specialized simulation software for new applications.

“The world of drug development is constantly evolving. And as decisions are made along the way – every treatment regimen, dosing regimen, patient population – we continue to find new ways to use modeling and simulation to predict and influence decisions,” O’Connor said. “This is a very rapidly growing application area.”