Cognigen, an Amherst company that analyzes clinical trial data, has agreed to be acquired by a California company, Simulations Plus, for $7 million in cash and stock.
Simulations Plus, a Lancaster, Calif.-based company that develops drug discovery and development simulation software, said it plans to keep operating Cognigen under its current name as a wholly owned subsidiary. By adding Cognigen’s 35 employees to its workforce, Simulations Plus’ total employment will more than double to 65 through the deal.
Cognigen plans to maintain its operations at its current office at 1780 Wehrle Drive.
“It will have no negative impact. Everyone will be keeping their jobs,” said Ted Grasela, Cognigen’s president.
By combining the two companies, Simulations Plus will be able to respond better to the recent push by drug regulators to include more computer modeling – a specialty of Simulations Plus – with the clinical data analysis work that Cognigen does, Grasela said.
“The two companies have very complementary offerings,” with Simulations Plus focused more on early stage drug development efforts, while Cognigen concentrates on analyzing data from later-stage clinical trials.
“We now stretch across the whole continuum,” Grasela said.
Grasela said that drug regulators across the globe are pushing for greater use of computer modeling in drug development. Those models can analyze how a new drug might be absorbed by the body and how it might work.
“The regulatory agencies in the United States and Europe and Asia are paying a lot more attention to the type of analysis that the Simulations Plus software allows us to do,” Grasela said. “We’re doing more and more (drug development research) on computers and less and less of it on the laboratory bench.”
Grasela said the deal came about after he was contacted about a potential sale by Alexander Faust, a managing partner at Excel Partners, the investment bank that Simulations Plus had hired to help it find potential acquisitions.
Initially, Grasela wasn’t interested. “At first, I hung up,” he said.
But Faust persisted, eventually explaining to Grasela how the two companies could fit together and ultimately convincing him to strike a deal.
The acquisition, which still must be approved by the boards of directors of both companies, is expected to close Sept. 2.
The acquisition of Cognigen is expected to add about $5 million a year in sales to Simulations Plus, which had $11 million in revenues during the last four quarters. Simulations Plus reported a profit of slightly more than $3 million over the four most recent quarters.
The deal calls for Simulations Plus to pay $2.8 million in cash and $4.2 million in newly issued shares of its stock. The agreement also calls for $1.8 million of the sale price to be held back for two years to cover any claims that may arise after the merger.
Grasela is expected to join Simulations Plus’ management team, which will continue to be headed by the firm’s current chairman and CEO, Walt Woltosz.