A molecular biologist and a urologist were sitting at a lab bench at Columbia Presbyterian hospital in New York in the mid-1990s musing about a problem they saw in drug development. It sounds like the beginning of a joke, but in fact it was the genesis of what turned out to be a good business idea. The problem was that the business of running the clinical trials necessary to test new drugs was archaic, says Glen de Vries, the biologist in the story. “It was very much based on the idea of paper being moved around,” de Vries says. “We looked at the software that was being used and thought there was tremendous room for improvement.”
That revelation resulted in Medidata Solutions Worldwide (NASDAQ: [[ticker:MDSO]]), a New York-based company that started up in 1999 with the mission of building cloud-based software tools to automate the process of getting experimental drugs through clinical trials. Although Medidata is not quite as famous as its top competitor, software giant Oracle (NASDAQ: [[ticker:ORCL]]), it has clearly been gaining favor with investors of late. Medidata’s stock has climbed 15 percent to $25.31 since March 6, when the company raised its 2012 revenue projections during its quarterly earnings report. All told, Medidata’s stock has risen 48 percent in the last six months.
In 2011, Medidata’s revenues increased 11 percent to $184.5 million, and its operating earnings (minus one-time charges) grew 29 percent to $29.1 million. But what surprised analysts was that the company projected that revenues this year would be at least $210 million—significantly more than what Medidata had been expecting.
Medidata is starting to benefit from a diversification strategy that the company embarked upon a few years ago, says de Vries, Medidata’s president, and Tarek Sherif, its CEO. The company’s bread-and-butter is Rave, a Web-based, software-as-service system that drug developers use to capture, manage, and report clinical-trial data. Now, through a series of acquisitions and product launches, Medidata is positioning itself to provide several other services meant to enhance the clinical-development process.
With the help of a company it acquired called Fast Track, Medidata introduced a technology in 2011 that simplifies the early stages of planning a clinical trial—such as determining the key benchmarks that need to be met to prove a drug works, de Vries says. A later acquisition of a company called Clinical Force allowed Medidata to layer in additional tools to help drug developers coordinate with the physicians who recruit and treat the patients in clinical trials. Finally, Medidata added capabilities designed to simplify “randomization,” which is the process whereby patients are randomly assigned to receive different doses of the experimental drug or a placebo. “All the low-level transactions of the data moving back and forth were things we already had in the platform,” de Vries says. “The higher-level management of the milestones related to initiating and managing the studies were what we were able to add.”
In a March 6 research note, Credit Suisse analyst Glen Santangelo noted that Medidata’s sales of non-Rave products grew 50 percent in 2011 and now represent 7 percent of total sales. The “focus on growing the non-Rave portfolio of solutions is beginning to pay dividends,” he wrote. Medidata added 25 customers in the fourth quarter of 2011 alone, “a solid leading indicator” for the company, Santangelo wrote.
Medidata’s quiet Wall Street run started somewhat inauspiciously in 2009, when the company’s management team reluctantly embarked upon an IPO. Medidata had a solid revenue stream, and it had raised $10 million privately in 2004, Sherif says. But its top competitor at the time, a company called Phase Forward, had gone public in 2002 and was able to use the Wall Street podium to gain favor
