Medidata Gains Raves on Wall Street for Drug Development Tools
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with potential customers, Sherif says. “They used their balance sheet to convince analysts and investors that they were really the only game in town,” he says. “They had over $100 million in cash. If you’re a large pharma and you’re going to put your entire drug-development pipeline on somebody’s software platform, you’re going to choose the $100 million public company over the private company whose finances you don’t know.”
Sherif and de Vries felt they had a compelling story for Wall Street, but it might have been the worst time in recent history for them to be telling it. “The IPO market had been dead for nine months at that point,” Sherif says. So during their road show, Medidata’s management team focused on one big positive: “We had forward visibility,” Sherif says. “We know where 80 percent of our revenues are coming from at the beginning of the year because it’s already in backlog based on contracts. This was a relatively safe story to invest in.”
The story resonated. On June 24, 2009, Medidata raised $88.2 million in its IPO. The stock performed so well the company did a secondary offering a few months later “to clear out the venture capital investors we had, so there wouldn’t be an overhang in the stock,” de Vries says.
A few months after that, Oracle bought Phase Forward. Oracle is a formidable competitor, Tarek says, but he’s confident Medidata has built a set of solutions that can hold their own against the better-known software player. “They still have a business model that’s much more focused on the traditional perpetual-license software, with a heavy implementation cycle and significant upgrade cycle,” he says. “Our products are really much more cloud-based,” and built so that drug developers can easily log onto the Web and customize Medidata’s tools themselves to fit their own needs.
Medidata’s efficient software-as-service model, which helps keep marketing expenses down, has allowed the company to maintain pre-tax profit margins of around 24 percent, Sherif says. And the company has committed to putting 16 percent of revenues back into research and development. The company will continue to look for ways to enhance its cloud-based offerings, with technology developed in house or with “more tuck-in acquisitions where we see interesting technology that will integrate philosophically with our platform,” de Vries says.
Even when investors are applauding Medidata’s progress, the company’s executives don’t let themselves get caught up in the craziness of Wall Street. “It wasn’t like our goal was to start a company and do an IPO,” de Vries says. “Going public was a fun day, but it was just another day in the history of the company. We want to focus on our mission, which is to help life sciences companies do a better job. Clinical trials are getting smarter. It’s not just about using technology for technology’s sake, but really about being transformative.”