Startup takes shape, one molecule at a time

Austin, UT stand to gain from scientist's biotech software business

By Robert Elder Jr.
Wednesday, July 9, 2003

At 55, Robert Pearlman is a bit long in the tooth to fit the stereotype of a startup president.

Then again, Optive Research Inc. isn't exactly a startup. Pearlman created the underlying technology a quarter-century ago in a University of Texas laboratory. The software helps chemists and others decide which compounds they should synthesize and test in finding new drugs.

But Optive Research, which officially launches today, is new in one important sense. By moving out of the university lab, Optive bets it can attract the talent and money to make it the next great software company to emerge from the region -- and provide a growing stream of royalty revenue to UT, as well.

"The university isn't a business," says Pearlman, a pioneer in the field of computer-assisted drug discovery. "We can do a better job supporting our software as a company."

The field of chemo-informatics has radically accelerated drug discovery in recent years, allowing scientists to test tens of thousands of compounds in a single day -- a process that used to take three to five years.

The company says big future markets lie in molecular research for the agricultural and cosmetics industries.

Pearlman says Optive is profitable but won't disclose sales or profit figures. Nevertheless, as a stand-alone company, Optive stands to generate much higher sales than it did before.

The university already has reaped millions from Pearlman's work. St. Louis-based Tripos Inc., a publicly traded life-sciences company, distributes five of Pearlman's software products under an agreement with Pearlman and the university's Office of Technology Licensing.

Tripos paid UT and Pearlman $905,000 in royalties in fiscal 2002, and the company is on pace to pay about the same amount this fiscal year, which ends Aug. 31. The Tripos deal, was started in 1989, has in recent years been UT's second-biggest money maker in commercializing technology developed on campus.

After administrative expenses are paid -- money that funds the university's tech-licensing office -- Pearlman's team and UT evenly split the royalties.

Optive emerged from the university labs in a three-way deal that continues to benefit UT.

The university cut ties with Tripos at the same time it signed a licensing deal with Optive, which will manage the relationship with Tripos. The agreement calls for an undisclosed percentage of Optive's revenue to flow to the university. Optive also will funnel part of its sales from the Tripos agreement to the university.

Tripos will continue to sell five Optive products out of 15 the company has now developed. That deal gives Optive a healthy stream of revenue, which it will use to further expand its products and pay top-level talent to help run the company.

A successful spinoff benefits the university, but Neil Iscoe, director of the Office of Technology Licensing, says Optive's decision to stay and grow from Austin will produce other benefits as well.

"Optive is a great example of a company that started its technology at UT, is now selling to the world -- and decided to stay in Austin," said Iscoe, a veteran technology executive who was hired last year to beef up the university's licensing efforts. "It's not just a way to make money."

With Optive's growing line of products comes recognition that dozens of international pharmaceuticals and life-sciences companies are using software developed at UT.

If Optive grows as expected, it also will help draw attention to Austin's fledgling efforts to attract biotech and life-sciences companies, he added.

Pearlman says he decided to launch a stand-alone company well before he retires so he can attract top talent -- something he wouldn't be able to afford working within the university.

Optive's playing field has plenty of larger competitors, including San Diego-based Accelrys Inc., a subsidiary of drug-discovery firm Pharmacopeia Inc.

But Bryan Koontz, vice president for marketing at Optive, contends the market is sufficiently fragmented for Optive to grow, particularly because it has a long history and Pearlman, an acclaimed pioneer in the field, as its president.

Industry leader Accelrys, for instance, had just $95 million in sales last year.

Optive also has an impressive base from which to grow. Its products are used by virtually every major pharmaceutical company and about 100 universities, hospitals and research facilities.

Earlier this year, Optive made its first sale in the Pacific Rim. It sold software to WuXi PharmaTech, a China-U.S. joint venture based in Shanghai that is using Optive's products to research the SARS virus.; 445-3671

Optive Research Inc.
Headquarters: Austin
Founded: Fall 2002
What it does: Researches, develops and sells software for computer-assisted drug discovery
President and chief scientific officer: Robert Pearlman, pharmacy professor and director of UT's Laboratory for the Development of Computer-Assisted Drug Discovery Software
Employees: 15