|[July 24, 2014]
Simulations Plus Provides Additional Details Regarding Cognigen Acquisition
LANCASTER, Calif. --(Business Wire)--
Simulations Plus, Inc. (NASDAQ: SLP), a leading provider of simulation
and modeling software for pharmaceutical discovery and development,
today provided additional details regarding its Agreement and Plan of
Merger (the "Agreement") with Cognigen Corporation ("Cognigen") of
Buffalo, New York, announced yesterday.
Walt Woltosz, chairman and chief executive officer of Simulations Plus,
Inc., said: "The excitement around this announcement has generated a
number of questions on the part of our shareholders. In order to provide
a level playing field for everyone, we are providing answers to the
questions we have received to the market all at once through this
release, and we will conduct an investor conference call tomorrow right
after the close of the market. Answers to those questions we can answer
at this time are provided below."
Q. What is the current cash position of Simulations Plus, Inc.
post-transaction, and should we expect the dividend to continue at the
A. The Board of Directors of Simulations Plus, Inc.
(the "Board") has indicated that they anticipate the dividend will
continue at the current rate for the foreseeable future; however, the
Board votes on this issue each quarter and reserves the right to
increase, decrease, or discontinue dividend distributions as the cash
needs of the business dictate. As of today, cash is approximately $9.5
million. Following the closing of the transactions contemplated by the
Agreement, which we expect to occur on September 2, 2014, after the
current Simulations Plus fiscal year closes on August 31, 2014, cash is
expected to be approximately $6 million.
Q. Does Cognigen have any debt?
A. There will be no Cognigen debt
at the close of the transaction.
Q. What will be the name of the new company?
A. Simulations Plus
will continue to be Simulations Plus, Inc. Cognigen will be "Cognigen, a
wholly owned subsidiary of Simulations Plus."
Q. What share price will be used to determine the number of shares to be
issued to the Cognigen shareholders?
A. The volume-weighted average
trading price for the 30 trading days two days prior to closing.
Q. Is a Simulations Plus shareholder vote required?
A. The number
of shares anticipated to be issued is currently expected to be well
below the threshold that would require a shareholder vote under
Q. Does Cognigen have similar revenue seasonality to Simulations Plus,
A. Cognigen has not previously experienced a significant
Q. What will the expected $5 million in new revenues add to EBITDA and
A. Simulations Plus does not provide earnings guidance. As
noted in the initial press release, Cognigen is a profitable company and
the Company anticipates it will continue to operate profitably. Because
Cognigen's revenues come primarily from consulting activities, the
margins are not as high as for Simulations Plus' software offerings, but
management anticipates net margins of approximately 10 percent going
Q. At what rate over the trailing 12 months has Cognigen been growing
revenue and net income?
A. Revenue growth through May 31, 2014 has
been jut over 7%. Net income has not yet been determined for the period.
Q. What cost synergies are expected?
A1. One anticipated synergy
will be in marketing and sales, where Cognigen will be able to
"piggy-back" on the marketing and sales programs from Simulations Plus
at minimal additional cost. Simulations Plus attends 50 to 60
conferences/shows per year, exhibiting at a majority of them. Cognigen
has not exhibited at more than one or two shows per year, relying on the
Company's strong reputation to generate sales. Simulations Plus will be
taking over all financial transactions, freeing up senior Cognigen
management to participate in expanded marketing and sales activities.
Management anticipates these activities to begin in the fall of 2014.
Note that no staff reductions are planned for either company -
management hopes all of Cognigen's employees will stay on and
participate in the combined company as new members of the Simulations
A2. A second potential synergy involves Cognigen's in-house cloud
facility - a modern, secure capability used in their work. The capacity
of the Cognigen cloud should be approximately doubled at minimal cost to
accommodate hosting Simulations Plus software. Several Simulations Plus
customers are currently asking for cloud-based capabilities and
management has been testing using the Amazon cloud. Whether the Company
would remain on the Amazon cloud or move some or all of the cloud-based
offerings to the Cognigen cloud will require a study to determine the
most cost-effective way to operate. Cognigen has built a resource and
has IT staff who are familiar with not only operation of the cloud, but
such activities as programming for parallel processing, and management
anticipates there should be benefit to Simulations Plus as well as
A3. A third potential synergy is expected from the Simulations Plus
customer base, which is larger than Cognigen's and includes most of
Cognigen's customers, but from different departments. Cross-selling will
be a focus, as each company will have the opportunity to be introduced
to the other's customers and relationships.
Q. Aside from the revenue metrics, what financial metrics and multiples
were used in determining the purchase price?
A. A combination of
multiples involving sales, revenues, and EBITDA were used in comparison
with recent deals in the industry, along with consideration of the
strategic value and financial potential of combining the capabilities of
the two companies going forward.
Q. What are the cross-selling opportunities for customers of both
A. This is one of the primary strategic reasons for this
acquisition. Regulatory agencies have begun to take strong interest in
using physiologically based pharmacokinetics ("PBPK" - a major strength
of Simulations Plus) in clinical trial data analysis (a major strength
of Cognigen). Management believes the combined capabilities of
Simulations Plus and Cognigen will provide the industry with what the
Company believes is a best-in-class offering to meet this new
Q. Where do Cognigen's product offerings fit within Simulations Plus'
product suite? Are there any competitive products or expected
cannibalization of revenue from overlap?
A. Cognigen's business is
primarily analysis and reporting of clinical trial data. There is also a
relatively new software product called KIWI, which manages much of the
workflow for this type of work, and is currently in use at a small
number of pharmaceutical companies. These services and software do not
overlap with Simulations Plus' business. There is a very small part of
Simulations Plus' consulting services that does similar calculations to
some of Cognigen's activities; however, the nature of Simulations Plus'
consulting contracts is quite different than Cognigen's, so management
does not expect any loss in revenues on either side. On the contrary,
management expects the synergies of the combined capabilities of the two
companies should provide growth opportunities that exceed those for
either company alone.
Q. Is all of the software used by Cognigen homegrown/fully owned by the
A. Cognigen uses a mix of proprietary software and
standard commercial and open-source software licensed by industry
scientists for clinical trial data analysis.
Investor Conference Call
The Company will hold an investor conference call on Friday, July 25, at
1:15 PM PT/4:15 PM ET. The call will be webcast live and may be joined
by registering at the following website: https://www2.gotomeeting.com/register/346573050.
Upon registering, you will receive a confirmation e-mail with a unique
link and instructions for joining the call. Please dial in five to ten
minutes prior to the scheduled start time. For listen-only mode, you may
dial 646-307-1705, and enter access code: 630-706-152.
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995 - With the exception of historical information, the
matters discussed in this press release are forward-looking statements
that involve a number of risks and uncertainties. Words like "believe,"
"expect" and "anticipate" mean that these are our best estimates as of
this writing, but that there can be no assurances that expected or
anticipated results or events will actually take place, so our actual
future results could differ significantly from those statements. Factors
that could cause or contribute to such differences include, but are not
limited to: our ability to maintain our competitive advantages,
acceptance of new software and improved versions of our existing
software by our customers, the general economics of the pharmaceutical
industry, our ability to finance growth, our ability to continue to
attract and retain highly qualified technical staff, our ability to
properly manage the new combined company, and a sustainable market.
Further information on our risk factors is contained in our quarterly
and annual reports as filed with the U.S. Securities and Exchange
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