DS + Medidata = PLMish for Life Science

Jun 17, 2019 | Hot Topics

Last week, Dassault Systèmes (DS) announced that it was buying the US firm Medidata for $5.7 billion. It’s a deal that has a lot of people in the automotive and aerospace industries, long DS’ sweet spot, wondering, why?

First, though, DS’ why. DS says Medidata will enable it to offer end-to-end solutions to research and development in the healthcare industry. Medidata offers cloud solutions for drug research and discovery, development, clinical testing, manufacturing and commercialization. Add this to DS’ existing BIOVIA platform, and DS could be well-placed to help pharmaceutical companies in the battle for personalized medicine, which requires medical solutions that are tailored to specific patient profiles. Those profiles will be massive amounts of data, which need to be analyzed to determine a specific course of action for that patient, this illness and those mitigating factors.

And it’s “those mitigating factors” where DS may shine: In addition to software, Medidata makes wearable sensors that can track patients’ quantifiable data in real-time, and then analyze it to identify potential drugs to deal with illness. Bloomberg said that “13 of the top 15 medicines sold last year relied on this [Medidata] technology.” [I’m not sure how that’s arrived at — I know no one wearing a Medidata device and am pretty sure my friends/family take some of these top 15 medicines … but let’s yield to the likelihood that more and more doctors will use devices like this to tailor medication to maximize effectiveness while minimizing side effects.]

DS also says that combining forces with Medidata will help to reverse some of the inefficiencies in the biotech world. DS says that fewer than 10% of drugs under development ever make it from early stage clinical trial testing to regulatory approval and that it takes, on average, 10 years from drug discovery to approval. In total, it costs about $2.6 billion to develop a new drug — and then, 50% of drug launches underperform expectations. [You can see these stats and their citations on slide 7 here.]

OK, but what does Medidata DO? Medidata offers cloud-based subscription services that enable medical device, diagnostic and pharmaceutical companies manage and analyze clinical trial data. Its tagline, “Transforming clinical development and converting complex data into cutting-edge insights” actually sounds PLMish already, while its main products sound like test-program management (the Rave clinical trial data capture and process management suite), AI (the Acorn Life Sciences suite) and PLM (the Shyft clinical and commercial intelligence platform).

The joint DS+Medidata offering will look something like this, from DS’ investor presentation about the proposed deal:

You can see that DS’ approach to drug discovery is a combo of business, engineering/design and data analytics. That seems to be a trend, with the acquisition of IQMS for SolidWorks bringing ERP to the greater mechanical design community.

Let’s talk details: The merger agreement that was signed on June 12, 2019 is for an all-cash deal that still has to be approved by Medidata’s shareholders. It places the value of Metadata at $5.8 billion, which DS will cover with financing from a €4 billion debt package, a €1 billion term loan and a €3 billion bridge-to-bond facility that it will refinance with “laddered bond tranches” (I think that means bonds that come due at increments rather than all at once). DS said that it estimates the cost of this financing at €18 million for the one quarter of 2019 after the close, €55 million in 2020 and decreasing from there. The transaction is subject to US and European regulatory approvals and, of course, shareholders’ approval and is expected to close in Q4 2019. Medidata’s revenue for fiscal 2018 was $636 million, so this is a 9x revenue multiple. It’s important to note that Medidata’s revenue doubled between 2013 and 2018, so some of that 9x is related to that hockey stick-like growth. In 2018, subscription revenue was about 85% of total, and was up 17%. In Q1 2019, total revenue was $174 million, up 16%. A mostly subs business, growing at 17%, But is it worth 9x? TBD.

This is the biggest acquisition in DS’ history and places a big bet that life sciences can benefit from the types of innovation processes that DS has helped create in auto and aero. DS CEO Bernard Charlès told investors,

“We believe scientific innovation and industrial performance call for a unified new approach — exactly what we have been working towards with our investments in Life Sciences over the last years. The acquisition of Medidata, … reinforces our position as a science-based company by providing the Life Sciences industry with an integrated business experience platform for an end-to-end approach to research and discovery, development, clinical testing, manufacturing and commercialization of new therapies and health technologies[W]ith its recent expansion into real world evidence analytics- coupled with the power of modeling and simulation, we will be able to demonstrate together how the virtual world will catalyze the next generation of patient-inclusive therapeutics.”

He also pointed out that DS has been active in the Life Sciences industries since 2010, and that DS now works with “the world’s top 20 biopharma companies, hundreds of biotechnology companies, medical device manufacturers, research institutes, and governmental regulatory agencies” — in other words, this type of acquisition shouldn’t be a surprise to anyone and is part of a longer term strategic push.

And, it seems, M. Charlès understands (or at least, hears) that its core-industry customers may be worried about their importance to DS. He said

“We have invested heavily, many billions of euros, to support our core industries and our leadership in Transportation & Mobility, Aerospace and Defense and Industrial Equipment to name a few. We will continue to advance our innovation on behalf of these clients. Our investments in biology, chemistry and material sciences clearly demonstrate the cross-industry benefits of our investments and expansion of our reach.”

To be honest, it doesn’t sound like there’s much technology to be drawn from Medidata to auto and/or aero so I’m not sure there’s much for those industries to celebrate in this deal. That said, these customers could see more innovations in simulation at a molecular level, more test-scenario management and perhaps life sciences-specific manufacturing enhancements that make their way into other industries – it’s too early to know what cross-pollination there might be down the road.

The deal is months away from closing and we’ll be taking a deeper dive into Medidata and its competitors over the next couple of months. Stay tuned!