Medidata: Streamlining Clinical Trials

09/02/2014 7:00 am EST


Peter Staas

Managing Editor, Capitalist Times and Energy & Income Advisor

This featured recommendation focuses on a niche market, providing applications that manage all aspects of heavily regulated clinical trials in the pharmaceutical, biotech, and medical devices industries, notes Peter Staas in Capitalist Times.

When Medidata Solutions (MDSO) completed its IPO five years ago, the SaaS outfit (software-as-a-system) specialized in electronic data capture for the extensive clinical testing needed for treatments and devices to gain regulatory approval in the life sciences industry.

Over the years, the company has augmented this market with cloud-based products that automate payments, randomizing patient selection, setting and tracking study milestones, handling drug supply chains, and collecting patient-reported outcomes via mobile devices.

Its customer base includes 20 of the top 25 global pharmaceutical companies by drug revenue and numerous middle-market life science companies.

The value proposition for customers is simple: The pharmaceutical industry spends more than $95 billion annually conducting clinical trials for drugs that may not pan out or may fail to gain approval. Management estimates that Medidata’s platform can reduce customers’ costs by 25%.

The shares sold off precipitously after first-quarter revenue fell short of consensus estimates by 3.78% and earnings per share missed by more than 30%. With the stock priced for perfection, the market deemed this miss unacceptable and took profits.

Management has emphasized that a number of large, complex agreements are in the works with major customers, but acknowledged that the timing of these rewards remains uncertain.

Although we believe in Medidata Solutions’ long-term growth story, there’s a lot riding on the firm’s third-quarter results. As such, aggressive investors should consider easing into this position.

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