Cadence Design Systems offers computational technologies used in sectors such as communications, automotive, and aerospace and defense. The company is now adding drug discovery to its scope through a $500 million deal to acquire OpenEye Scientific, a privately held provider of simulation software used in computational drug design.

OpenEye does not develop drugs but its software is used by pharmaceutical and biotechnology companies that do. The company’s software-as-a-service offering, called Orion, provides molecular modeling and simulation capabilities. In its Monday announcement of the acquisition, San Jose, California-based Cadence said that the rising demand for new drugs is driving demand for computational capabilities that enable 3D analysis of the structure of molecules. The company noted that biosimulations have become a critical tools that provide atomic-level insights into molecular interactions.

“Cadence’s deep computational software expertise drives further innovation in algorithms that enhance the reliability, efficiency and speed of molecular simulations,” Cadence President and CEO Anirudh Devgan said in the announcement. “We look forward to welcoming such an accomplished team and are delighted to accelerate innovation and improve research and development productivity in the pharmaceutical and biotechnology industry.”

OpenEye, based in Santa Fe, New Mexico, was founded in 1997. The company says its products are used by pharmaceutical giants that include Pfizer and AstraZeneca, along with smaller biotech companies such as Black Diamond Therapeutics. Other customers include academic institutions.

Cadence describes its business strategy as “intelligent systems design.” The company provides its computational software to electronic systems and semiconductor customers, which use it to develop their own products. Most of the company’s revenue comes from licensing its software and intellectual property. Cadence reported nearly $3 billion in revenue for 2021, an 11% increase over the prior year. In second quarter 2022 financial results released after the market close on Monday, Cadence reported $858 million in revenue, a 17.8% increase compared to the same period last year.

Speaking on a conference call to discuss the second quarter financial results, Devgan said that the qualities of OpenEye that interested Cadence include the use of its software by 19 of the top 20 pharmaceutical companies and a strong go-to-market strategy with its software-as-a-service offering. OpenEye will enable Cadence to reach new customers in the life sciences. But the move also pits the tech company against well-established competitors in computational drug design, such as Dassault Systèmes and Schrodinger.

The OpenEye acquisition is a cash deal. Cadence expects to close the transaction in the third quarter of this year.

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