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Accelerating R&D

Symyx is applying tools developed for the drug industry to research into new materials

by Michael McCoy
September 19, 2005 | A version of this story appeared in Volume 83, Issue 38

Symyx's high-throughput experimentation system combines proprietary hardware and software.
Symyx's high-throughput experimentation system combines proprietary hardware and software.

Symyx Technologies is building a business on the premise that researchers in the chemical, pharmaceutical, and other high-tech industries could be much more efficient than they are today.

For 10 years now, the Santa Clara, Calif.-based company has conducted high-throughput experimentation (HTE) for firms like Dow Chemical and ExxonMobil or sold them tools to speed up their own research. It recently entered the business of developing electronic laboratory notebooks that are replacing the hardcover ledgers used by scientists for centuries.

Together, Chief Executive Officer Steven D. Goldby and President Isy Goldwasser have a goal for Symyx that is straightforward yet audacious: to accelerate and transform every step in the scientific experimentation process--from discovery to design to testing to analysis.

Goldwasser became Symyx' first employee almost by accident in 1994 when, after earning a master's degree in chemical engineering from Stanford University, he took a summer job with chemistry professor Peter G. Schultz at the University of California, Berkeley. Schultz at the time was a scientific adviser to Affymax, a company formed in 1988 by Alejandro Zaffaroni to apply HTE techniques to pharmaceutical research.

Schultz had the idea that the HTE philosophy of miniaturization, automation, and parallel processing should also work in materials research. "Pete went into his lab and launched a research project in the superconducting field, demonstrating the ability to create a library of mixed metal oxide superconductors," Goldby says. "That was the proof of concept that led to the formation of Symyx."

Goldwasser was given the job of turning that concept into a business. He was soon joined by W. Henry Weinberg, a chemical engineer at UC Santa Barbara, who left a tenured position to recruit a team of scientists that could develop the HTE technology. Goldby was hired in 1998 from the helm of scientific software firm MDL Information Systems as it was becoming clear that software is as important to accelerating R&D as is HTE equipment.

Knowledgeable management aside, Symyx faced an uphill battle in the materials industries because, as Goldwasser says, "we had to go into a world that normally didn't outsource R&D or collaborate in a large way with small companies." Still, it managed to strike agreements with Dow in 1999 and ExxonMobil in 2000. Deals with drugmakers like Pfizer, Eli Lilly & Co., and Amgen followed. Symyx made an initial public offering of stock in 1999 and has been profitable since 2001.

"We had to go into a world that normally didn't outsource R&D or collaborate with small companies."

A TYPICAL Symyx offering is its "polyolefin workflow," which was put into commercial use in 2000 and is now used by Dow, ExxonMobil, Japan's Sumitomo Chemical, and Mexico's Girsa. The system's hardware includes stations for preparing catalysts, conducting multiple parallel polymerizations, analyzing the resulting molecules, and scanning thermal properties. Related software helps design catalysts, monitor reactions, and collect and analyze data.

Compared with traditional bench-scale reactors, Symyx says its miniature high-throughput system increases the number of reactions that chemists can run by as much as 100-fold, while widening the breadth of experimental space that is explored. The result, the company claims, is an increased return on investment in polyolefin research of 30-100%.

Between conducting this kind of research for customers, selling them the tools to do it themselves, and licensing related technology, Symyx' revenues have advanced by 20% annually since its IPO to reach $83.2 million last year. Today, the company employs about 300 people, including 140 chemists, other scientists, and engineers.

But recent acquisitions in electronic laboratory notebooks (ELNs) and reaction planning software make clear that Goldwasser and Goldby think they can broaden their firm's presence in corporate R&D laboratories beyond the reaction bench.

Goldby explains that the purchases have their roots in Symyx' 2003 decision to unbundle Renaissance, its research-enabling software, from its HTE offerings and to license the software alone. "The decision was driven in large part by ExxonMobil," he says. "They were using the software for making and testing homogeneous catalysts and decided it was what they wanted to standardize all their R&D on."

Subsequently, Goldby says, Dow decided to standardize its R&D informatics around the Symyx software, and several drug companies adopted it as well. When pharmaceutical customers started asking Symyx if it could integrate Renaissance with their new ELNs, a new market opportunity became clear.

In November, Symyx announced an agreement to acquire the ELN provider IntelliChem for close to $30 million. Then in February it announced plans to buy Synthematix, a provider of organic synthesis reaction planning software, for about $13 million. Symyx now employs about 100 people on the software side of its business.

ELNs, Symyx claims, are finally starting to catch on in the laboratory, particularly as users become comfortable with the evidentiary value of electronic records in patent cases. "People have been talking about ELNs for 20 years, but they have reached the stage now where they are prepared to employ them," Goldby says. Symyx says its customers are reporting a 20% increase in R&D productivity when they replace paper notebooks with ELNs.

According to Goldby, ELNs and other software will comprise almost 20% of Symyx' revenues of up to $118 million this year. "MDL's software business today is more than $100 million per year," he says of his former company. "There's no reason we can't at least match that at Symyx."

Despite the software push, the Symyx executives insist that they haven't forgotten their roots in HTE. "Our original business in research collaboration and licensing resulting materials to clients continues to thrive," Goldby claims. In fact, the Symyx executives say the company's collaborations with Dow and ExxonMobil, while taking some time to build up, are now opening doors with prospective new customers for HTE services and tools.

The deal with Dow started in 1999 in the polyolefin catalyst field. It was extended in 2000 and 2002, and broadened to encompass elastomers in 2004. Then, in December 2004, the two formed a five-year alliance under which Dow will pay Symyx about $120 million to enhance R&D productivity throughout the company.

The ExxonMobil collaboration went through a similar evolution, starting small in 2000 and culminating in 2003 in a five-year R&D alliance for chemicals, lubricants, and fuels that is worth more than $200 million.

Symyx can also receive royalties on discoveries resulting from the research. The company recently logged royalties from Versify elastomers, which Dow started manufacturing last year based on catalysts discovered with Symyx technology. It's also earning royalties from JSR Corp. on a polymer for an electronics application commercialized in 2004, and from Agfa on an X-ray storage phosphor launched in 2003.

NOT SURPRISINGLY, stock analysts are bullish on Symyx. In July, after the company reported a solid second quarter, Marcus Mainord of Stephens Inc. told clients that demand across all of Symyx' businesses "appears to be very strong" heading into the second half of the year. Mainord attributed the strength largely to sales initiatives that include ramping up a 20-person sales force and inking a joint-marketing agreement with the consulting firm Accenture.

"For the first time in its history, Symyx has a dedicated team of people focused exclusively on selling," he wrote in a report. "While Symyx has been around for over a decade now, in some respects we believe it is just getting started."

Mainord acknowledges a few potential weaknesses for Symyx. The firm is heavily dependent on corporate R&D activities, which are vulnerable to economic swings. And because Dow and ExxonMobil account for a large percentage of sales, the loss of either one would likely hit the company hard. He also notes that Symyx is counting on revenues from product sale royalties, which so far are fairly modest.

Goldby and Goldwasser point out that a dozen potentially royalty-bearing materials are in development at customers--including several at Dow and one at Celanese--and that a dozen more have met technical objectives. And they claim that companies beyond the oil and chemical giants are starting to get interested in what Symyx can do for their R&D efforts.

"Smaller companies wonder, 'Is this something I should do? Because I'm not ExxonMobil, and I'm not Dow,' " Goldwasser says. "The answer is: Not only should they do it, but they must, because they compete against ExxonMobil and Dow. They are going to have to do the same things if they want to succeed."


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