ST. LOUIS—Big changes are in the air at Tripos Inc., from streamlining of operations to potential major restructuring down the road—it's just that no one, not even the leaders of the company, have any firm idea where that change may ultimately lead.
The first ripples of change occurred back in mid-December when the company announced it would streamline its Discovery Research business, a process it completed in late January. This came as a result of the conclusion of a $90 million, four-year project designing and synthesizing chemical compounds for Pfizer Inc. Tripos still provides software development and products to Pfizer, but the end of the chemical services contract left Tripos with a financial gap, and so it decided to conduct layoffs at a state-of-the-art facility built in England to carry out the Pfizer deal.
Specifically, the company has decided to reduce the number of employees by 76 positions at Tripos Discovery Research Ltd. (TDR) based in Bude, England. Before this action was taken, TDR had 161 employees. Reportedly, more than half of the employees affected are leaving under a voluntary separation plan, and the company is offering all affected employees severance packages and outplacement assistance.
But bigger changes are likely yet to come. Earlier in January, before the business of cutting back in the United Kingdom was completed, Tripos also announced that it had retained the financial advisory firm Seven Hills Partners to explore various strategic alternatives to maximize shareholder value and enhance growth prospects for the company overall and its two core businesses: Tripos Discovery Informatics and Tripos Discovery Research.
"Following a recommendation by Tripos management, our board of directors approved a proposal to hire Seven Hills, with whom we have worked successfully in the past, to evaluate various strategic alternatives designed to grow the company," Dr. John P. McAlister, president and CEO of Tripos said in a prepared statement for the media. "Our objective is to identify an option that will allow us to provide continuing innovation and high-value offerings to our customers, a stimulating environment for our employees, and a solid investment for our shareholders."
Tripos is considering a wide range of options, including mergers and acquisitions, becoming a private company, and separating its informatics and research businesses.
"The company in its present form should not be a public stand-alone entity," says Jim Rubin, senior vice president and CFO at Tripos. "While we have success in the market, we're too small and the costs of being public are too high, and that combined with our mixed mode of business—a substantial and long-running role in discovery informatics as well as a discovery research and chemistry business—makes it difficult to continue in our present form. The two halves of our business tend to attract very different investors. We've tried to make it work over the years, but it makes things confusing and not a standard model from which an investor or investment analyst can really make a strong buy decision around."
Wall Street took the news of Tripos' streamlining and strategic planning well, with shares going up by 23 cents by the end of the trading day when the company let the media know about the Seven Hills consulting deal.
As the St. Louis Post-Dispatch noted shortly after the Seven Hills announcement, Tripos' shares see limited trading, and it is not covered regularly by financial analysts.
In addition to other stresses of being a public company, Tripos faces administrative costs added by the Sarbanes-Oxley Act passed last year by Congress to improve the financial transparency of public companies, the Post-Dispatch noted. As Rubin says, this is all just more evidence that going private or becoming part of another publicly traded company are among the major choices for Tripos.
No decision is likely to be made soon, however. Rubin says it will be "months and months" before any advice from Seven Hills is weighed and a final decision made. "Whatever decision is made, it will be based on what is in our shareholders' best interests, as well as those of the employees and customers," Rubin says.
