IVR Firm Sold For 15X Revenues
September 08, 2008
It’s a common problem. Stroll around with $193 million in cash for a while, as Phase Forward has, and soon you will find something to purchase. So it was with Clarix Informatics, a provider of an interactive voice response system (IVRS) that became the latest technology to be added to the Phase Forward cupboard.
Last week’s deal illustrates the centrality of IVRS. Randomization will only have more prominence in a still-arriving era of adaptive trials, when sponsors hope to rapidly open and close arms of studies and reassign patients and medicine packets automatically. Once phone-dependent, the IVRS space is moving quickly onto the web. Once sleepy, IVRS is hot. Two other IVR providers changed hands this year.
Phase Forward’s $40 million price is generous. Who can say if other bidders pushed up the number?
But by comparison, this summer’s $192 million purchase of IVR leader ClinPhone by Parexel International was undertaken at approximately three times ClinPhone’s projected 2007 revenue of $76 million. (Not all of the ClinPhone financial data was online at press time, but Parexel will brief Wall Street on its transaction this week.)
Earlier this year, BioImaging Technology’s purchase of Phoenix Data Systems (PDS) was done at approximately a twofold multiple of the Philadelphia firm’s $12 million in revenue. Like Clarix and ClinPhone, PDS provides both electronic data capture (EDC) and IVRS.
Phase Forward, in contrast, will pay fifteen times the $2.7 million in 2007 Clarix revenue. Three years ago, Phase Forward offered a fourfold multiple, or $18 million, for Lincoln Technologies, a drug safety analytics and clinical data standards firm. In 2007, Phase Forward’s $5.3 million purchase of Phase I laboratory software firm Green Mountain Logic was executed at an approximate fivefold multiple. So this time around, Phase Forward clearly thought the Clarix technology was valuable.
Phase Forward’s VP of corporate development, Martin Young, guided the transaction to completion. He says accelerating growth at Clarix (with revenues poised to double next year) warranted the price. Phase Forward based its valuation on future financial performance, he said. If 2008 revenues turn to be $6.3 million, and 2009 revenue reaches $13-15 million, as Phase Forward projects, the multiple drops to a far lower number—6 or even less than 3. “This is a smaller, rapidly growing company,” Young says of Clarix.
New Sales Channel
With a typical price of $150,000-$200,000, an IVR project is roughly half as costly as EDC projects at the high end of the current market. But IVR presents an easy and natural cross-selling opportunity for Phase Forward’s sales team, currently devoting most of its energy to Inform, its EDC product. “For a number of Inform customers, they will value this,” says Young. “They’re interested in integrated solutions. We’re expecting synergies to sell more trials through our sales force.”
Because of putting themselves through vendor-specific process change, some sponsors can be locked into their EDC providers. But Young says sponsor allegiance to IVR suppliers is not so great, with many keeping an eye open for alternate providers. “The switching costs are lower,” he says of IVRS. “We are confident we can switch our EDC customers to use Clarix.”
$250 Million IVR Market
Does the company want to dominate the IVR market? “We’d rather walk a little before we run,” Young said. He adds that the company has had requests from customers for IVR. In its due diligence, Phase Forward estimated the IVR market to be $250 million annually. (In a back-of-the-envelope manner, then, there might be 2,000 industry-sponsored trials annually at an average cost of $125,000 each.)
Phase Forward considered buying other IVR firms, it says, but heard strong references from Clarix customers. Young says that many sponsors in its due diligence saw nothing unique about any particular IVR supplier. But Clarix customers did perceive the company to have a technology advantage. Says Young: “They actually saw a differentiation.”
The deal puts additional distance between Phase Forward and other EDC competitors, few of which have the means to make a $40 million purchase. The dynamics with contract research organizations (CROs) will be more delicate. Those firms are as large as Phase Forward (or bigger), and in some cases (Covance, Kendle or Pharmanet) offer their own solutions for IVRS, EDC and drug safety. Parexel, to be sure, has a similar balancing act in the wake of its ClinPhone purchase: winning more business from sponsors without alienating CROs that it will be obliged to collaborate with from time to time.
At 85-employee Clarix, founder and CEO Jagath Wanninayake says the company shared a philosophical belief with Phase Forward: the value of combining or “integrating” technologies to make trial data easier to manage. To that end, Clarix offered EDC. (That software doesn’t appear to have been a factor in the acquisition.) While the Clarix IVRS and Phase Forward’s EDC software will still be sold separately, coming adaptations to them should eventually simplify trials for customers that use both.
Wanninayake says that in the age of broadband video and cloud computing, some members of the sponsor community may be impatient with the rotary-dial vibe of IVRS. “There is a wish that there is a modern solution,” Wanninayake says when asked about sponsor views on the sophistication of IVR vendors.
From the company’s inception in 2002, Wanninayake says Clarix understood how pivotal an IVR system is. If it’s not live, the study can’t start. For most customers, Wanninayake says, the typical time between an approved set of IVR specifications and user acceptance testing (UAT) is 4-6 weeks. “We focused our effort on the operational side of things—supply chain, drug logistics, subject logistics,” says Wanninayake. “We built our product strategy around that.”
He seems to have delivered. Clarix quickly forged alliances with Covance and Aptuit that helped it grow. By 2008, the Clarix IVRS had been deployed in 55 languages and 62 countries by over 45,000 users at, among other places, three of the top five pharmaceutical companies.
As randomization has moved to the web, one selling point of the Clarix solution is that it can be accessed by either a phone keypad or an internet browser. It’s doubtful that telephone-only IVRS would be prized by other acquirers. People coming into the industry are more comfortable with the internet than punching in a long series of numbers.
As in the National Football League, all of the players on the clinical technology field seem a bit beefier this year. The heft needed just to walk on the field is rising. Phase Forward has $150 million in annual revenues, and a cash reserve of similar size once the Clarix deal closes. The next technology firm or CRO that wants to acquire a well-regarded IVRS may need to pay handsomely. The universe of candidates is not vast. Some of the names might include Fermish (India), Tourtellotte Solutions (Massachusetts), and Westat (Maryland).
Editor’s note: Readers interested in integrated clinical technology solutions may want to take a look at this story, which also has a PDF listing of suites of services and technologies.d9A2t49mkex