Phase Forward Offering Pharmas One-Stop Shopping for Clinical Research Software

Phase Forward has been one of the success stories in the Route 128 tech cluster during the past decade, and has grown to be one of the largest health IT companies in Massachusetts. But a big question about the firm on Wall Street is how—or whether—its growth spurt will continue.

The Waltham, MA-based firm (NASDAQ:PFWD) has been a pioneer in getting drug companies to switch from paper records to software for collecting and managing data in clinical trials. After several years of rapid adoption of the technology, the majority of drug studies now use such software, prompting Phase Forward to seek new ways of making money in the field of clinical development.

Bob Weiler, the company’s chairman and CEO, says his company’s strategy to keep growing has been to build up a host of software products to automate all manner of data-related activities—from the very early stages of clinical development to the safety studies that drug companies conduct after the FDA approves their products. Pharmaceutical firms typically use many pieces of software from different companies to manage the various aspects of clinical research, and Phase Forward aims to provide these companies with one-stop shopping and what it calls an integrated clinical research suite. This will save pharmas money on system upkeep and integration, the CEO says.

“We’ve been riding the adoption curve from paper to electronic data capture for the last 10 years,” Weiler says. Back in 2004, about 30-40 percent of new clinical trials were using software from firms like Phase Forward, while the majority of trials were still managing data on paper records. Today the software is used in about 80 percent of new trials, he says. “Once all new trials start with [data-management software], then we have an adoption curve issue—our growth slows.”

Weiler says the company has been executing a strategy to overcome this growth-curve problem for years, making acquisitions—including at least three deals last year—to add software that offer clinical trials sponsors with new services beyond capturing data electronically (or what the industry calls electronic data capture (EDC)). For example, the company purchased Cambridge, MA-based Waban Software last year for $14 million to acquire Waban’s Web-based software that can analyze the clinical data recorded with Phase Forward’s EDC technology. The company also plans to invest 16 percent of its 2010 revenue in research and development, according to the CEO.

Still, the company is heavily reliant on income from its EDC software, which generated 73 percent of the firm’s total 2009 revenue of $213.3 million. (The company’s total revenue grew by 25 percent last year, but the firm is projecting a slightly lower rate of growth this year.) A big test for the firm will be to sell its customers on all of the additional products it has stacked on top of its EDC technology, such as the Waban software and the firm’s system for automating the design of clinical trials and the management of drug supplies to study sites. Last year Phase Forward firmed up multi-year deals to provide drug giants GlaxoSmithKline (NYSE:GSK) and Roche with its core clinical trials management software.

“There’s 10s if not 100s of vendors that exist in this space, so we do expect there to be strong demand for an integrated clinical research systems offering like Phase Forward’s,” says George Hill, a healthcare technology analyst for Leerink Swann, a Boston-based investment bank and equities research firm.

But drug companies aren’t expected to make an overnight switch from using multiple companies’ software for their clinical research systems to a single provider like Phase Forward. Hill says that Phase Forward faces the challenge of getting more customers to move to its integrated system approach, given that many of them have already adopted competing technologies for certain aspects of their clinical research systems. Yet one of the strengths of Phase Forward’s software, the analyst says, is that it is hosted on the company’s own servers and is delivered to customers over the Internet. That takes pressure off its customers to store the software and manage clinical trials data on their computers.

When I met Weiler at his company’s headquarters in Waltham last week, he noted that Phase Forward added about 50 new customers in 2009; a year of widespread consolidation and budget cuts in the pharmaceutical industry. But the company’s stock price has been trending downward since I first met Weiler two years go, declining from about $20 per share at the time of our January 2008 meeting to its $12.95 per share closing price yesterday. (Weiler has been CEO of the company since he took over the role in 2002 from one of the company’s founders, Paul Bleicher, who is now a company director.) The overall value of the company, which peaked at more than $1 billion in November 2007, stood at $551.6 million yesterday afternoon.

We’ll be tracking Phase Forward to see whether it can return to the billion-dollar club amid the challenges it faces.

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