How big do clinical trial technology firms need to be? Is there a magic size large enough to be financially strong but small enough to provide impeccable service?

Last week’s $24 million purchase of electronic data capture firm Phoenix Data Systems by Bio-Imaging is an indication of companies searching for the right size. The two firms decided they would fare better if they were joined. By their own account, the two firms a good cultural fit, both more than 10 years old, both based in the Philadelphia area, both hype-averse.

Imaging + EDC

With 440 employees between them, 80 outside the U.S., Bio-Imaging and Phoenix Data Systems are eyeballing a putative $1 billion market for EDC, and a $400 million market for clinical trial-specific imaging. The combined company has roughly half the head count of ClinPhone, but approximately the same human heft as industry leaders Phase Forward and Medidata Solutions.

Bio-Imaging is hoping that customers will want a more unified platform or suite in which to collect and manage clinical data. Bio-Imaging president and CEO Mark Weinstein says imaging and EDC are destined to be more unified, more integrated. “Ultimately, you’re going to see the coming together of the two pieces,” he says. Even imaging customers increasingly need their X-rays and CT scans managed as submission-ready clinical data, he reports. Clinical trial imaging has been in the news of late, with the timeliness of review of images a festering issue among critics of the industry.

Getting Big

The logic behind the acquisition? Access to the booming EDC market. Rather than buy a weak, struggling firm, Bio-Imaging chose a strong middle-tier EDC supplier. “We don’t feel like spending three years rebuilding something that is having problems,” Weinstein says. “The excitement is generated by two companies that are hitting on all cylinders.”

One consideration in the merger was the absence of any potentially conflicting standard operating procedures for ongoing projects, Weinstein says. It’s an issue that might affect other deals in the space. But Bio-Imaging and Phoenix Data Systems will be able to help out each others’ clients immediately, rather than waiting for ongoing trials to finish, and then phasing in a new batch of SOPs for the post-merger entity.

The way Weinstein tells it, no imaging-oriented rivals can serve customers across all of the therapeutic areas in which images must be centrally managed in the assessment of an important scientific end point. Bio-Imaging is managing 220 projects in those four areas: oncology, central nervous system, musculoskeletal and cardiovascular disease. “We are the only player that covers the four major areas,” Weinstein says.

Bio-Imaging’s appetite for additional acquisitions, Weinstein says, is strong, given $10 million in the bank even after the PDS purchase. Venture-funded rivals (RadPharm, Synarc) are present in the imaging space, and prosperous but small—or huge, like Perceptive Informatics, a division of contract research giant Parexel. But none of those imaging firms currently has an in-house EDC solution.

Tipping Point

Weinstein notes that when he first came to Bio-Imaging, he dedicated himself to quietly building a profitable business, prior to visiting Wall Street and promoting the company to the financial community. “We put our head down,” he says. “We built our backlog. We stayed very quiet.” Some EDC vendors, he suggested, went public first and worried about profitability or a consistent revenue stream later.

With any luck, some of Bio-Imaging’s customers (which range across all sizes of sponsors) will be thinking about EDC, and some PDS customers will need imaging. The goal is to help customers early in the research process with both imaging and EDC, and carry through as many phases of projects as they need. Weinstein says: “We will be able to create some efficiency drivers in terms of the convergence of data early in the process. I am not sure which of our competitors can match that.”

On a call with Wall Street analysts, he said: “The EDC market is therefore at a tipping point.”

Adaptive Agility

Weinstein says the number of live adaptive projects is small, but believes the pressure to find patients is so great that adaptive trial designs will be a factor in the years ahead. “If adaptive trials can get you to the same end point with two-thirds as many patients, that’s got to be a huge winner,” says Weinstein. “Very few people have enough data available to them to make decisions on a real-time basis. You cannot get there unless you have access to the data quickly.”

Part of the way you do it, of course, is with an interactive voice response system, or an EDC system—the industry has not yet decided which type of system should power adaptive projects. PDS has an integrated IVR/EDC system, not to mention an embedded clinical trial management system (CTMS).

In that space of integrated clinical trial solutions, there is a growing number of firms that includes Almac, Clarix, DataTrak, etrials and ClinPhone. Bio-Imaging will have to wrestle with one of Phoenix Data Systems’s core areas of expertise—intricate but profitable data management services that most large contract research organizations (CRO) would prefer to keep to themselves.

Growth Strategy

Fully a third of the current PDS projects are in Phase I, which is probably the most intriguing factoid about the company. Some EDC providers have begun tip-toeing into Phase I projects, but the small size of such studies means that using paper may be faster and cheaper.

Making a business out of EDC in Phase I is a rare accomplishment, but PDS’s chief William Claypool is (refreshingly) missing the carnival barker gene to shout that to the rooftops. It’s clear he thinks that selling his firm will help it win business from larger sponsors. “We’re going to be better positioned with big pharma,” Claypool says.  “Growth eats cash. We feel we can grow faster and take care of employees, and do better for ourselves by being acquired.”

’Microcap Hell’

Claypool muses that some publicly traded clinical technology firms may have wished they had remained private. “It’s pretty clear you need a certain mass to make going public have any sense in the post-Sarbanes Oxley environment,” says Claypool. “If you do not have a certain revenue level, it is very difficult to justify the ongoing public filing. Those companies are in a microcap hell. It is very difficult to raise more money. It is very difficult to raise their share price. It is better to stay private.” He’ll be staying on at Bio-Imaging to lead the PDS group inside Bio-Imaging.

Claypool says there will be fewer firms in the clinical trial landscape. “It doesn’t take a very astute observer to see there is a trend toward consolidation.” It happens in every sector of the technology industry. “This happens over and over again,” he says.

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