In an economy littered with the remains of U.S. industries destined for restructuring or oblivion, two Boston-area companies supporting clinical trials seem relatively unscathed. Their managers are preparing for growth, not the government-backed pity party for Detroit and Wall Street.
Late last month, contract research organization Parexel reported quarterly earnings. Profits for the period dropped. But revenue jumped 14 percent, to $324 million, with a target of more than $1 billion for the current year. The company took a $15 million charge for a single trial in which the sponsor is in bankruptcy.
Chairman and CEO Josef von Rickenbach noted that the company’s business remains well-diversified around the globe and buoyed by large customers with plenty of cash. “A meaningfully larger proportion of our new business wins came from big pharma clients this quarter, and we had a nice geographical mix,” he said. “I do expect that a higher proportion of the demand of our services will come from the large pharma client segment as compared to the smaller clients.”
80 Percent EDC
Von Rickenbach said that the Perceptive Informatics technology group contributed a sharply higher portion of revenue, rising from 10 percent to 15 percent during the quarter. Just on its own, the Perceptive group had an 83 percent jump in revenues.
Those sorts of numbers validate Parexel’s $183 million decision to buy England’s ClinPhone last year. The purchase included an electronic data capture (EDC) system and other electronic tools for managing clinical trials. Asked about whether interest in the ClinPhone product line had “cannibalized” demand for similar offerings from Perceptive, von Rickenbach said that Perceptive’s interactive voice response system (IVRS) is being phased out, and that customers were starting to see the appeal of the purchase. “A lot of clients who had a little bit of a wait-and-see attitude in the beginning have now stepped up ... and are really interested in getting involved,” said von Rickenbach.
He also clearly signaled a higher rate of usage of EDC among his customers than the industry at large. “In the United States now, I’d say 80 percent plus of all clinical trials that we start certainly are using EDC, for instance. And many trials are also using other technologies, and I think we’re migrating basically sort of into a world of ... what one would call eCRO,” he added. Some Parexel customers are clearly starting to nibble on both technologies and services, and few CROs of any size have the breadth or depth of its expertise in linking them. Here is the transcript of the earnings call with the company.
Over The Horizon
Down the road from Parexel in Waltham, Mass., Phase Forward also reported numbers that would inspire disbelief among the MBAs who have been running mortgage banks and newspapers. Quarterly revenue rose 28 percent, to $48 million. Revenues for the 2008 calendar year were up a similar percentage, to $170 million. The company said it had supported a total of 2,850 trials to date, with more than 900 running at the moment. A fifth of the company’s revenue is from contract research organizations.
In 2008 the company spent $40 million to acquire Clarix, an IVRS company, and that seems to have energized president, chairman and CEO Robert Weiler. “Customers are looking for us to provide more comprehensive solutions,” he said, dropping the buzzword “integrated” into his remarks at several times.
EDC, IVR Combination
For new trials, the company told ClinPage it can randomize patients inside its flagship EDC system using the Clarix technology. It’s impossible to know how easy or seamless that is for customers. And customers wanting EDC and IVRS together can look at Parexel’s offering or even that of Nextrials, which merged the two types of systems long ago.
But there’s no getting around the fact that a tighter linkage of EDC and IVRS is potentially a market-altering development, putting Phase Forward in a position to attack the much larger IVR fortress of Parexel. Given Phase Forward’s dominance of EDC, smaller IVRS firms should be even more concerned.
In speaking with Wall Street, Weiler modestly said the company is still at the very earliest stages of selling IVRS to its EDC customers. But in the future, he said, he’d be pleased if 25 or 30 percent of his EDC projects included IVRS. Added Weiler: “Our competitive position, particularly with Clarix, has put us in a position where we see a lot of optimism from our sales force.”
Lead by Steve Powell, the sales force at Phase Forward has never exactly been anemic. By itself, with more than 50 people in late 2007, it has more people than many of its competitors. But in 2009 Phase Forward will beef it up still more, by 20 percent, and that could put additional distance between it and its competitors.
The firm also sells other systems—for Phase I labs, drug safety and data management—but the majority of the financial momentum at the firm is around EDC license fees and services to get the trials up and running. Although Phase Forward’s heritage and culture remain rooted in the software world, it too is becoming an “eCRO:” a growing portion of its revenues are from services to set up and customize trials.
Wall Street analysts asked Weiler about Medidata, his closest EDC competitor, which recently filed plans for a public stock offering. He noted significant revenue growth at his rival. But he also expressed skepticism that the difficult market conditions would allow shares to be sold. “The market is going to value long term profitability and cash flow,” Weiler said. Whether Medidata is able to go public or not, Weiler said, “it will not change the competitive situation that much.”
The internal linkages between the Parexel and Phase Forward IVR and EDC systems are likely to be more significant, more scrutinized. Since sponsors will routinely ask that both firms’ systems also get connected to IVRS and EDC tools from other companies, the clinical data landscape may get more complicated before it gets simpler. And as Parexel and Phase Forward get bigger, their growth has implications for both service-oriented and technology firms—and will draw additional attention toward the operational and financial strength of smaller competitors.d9A2t49mkex