On Friday, April 16, 2010 Oracle (ORCL) announced that it would pay $685 million to acquire Phase Forward Incorporated (PFWD) and integrate it into the Oracle Health Sciences Global Business Unit. This seems to be a carefully considered strategy to dominate clinical development software and provide a one stop superstore of this software when integrated with the previous acquisitions by Oracle of Siebel and its eClinical Suite as well as Relsys a key provider of drug safety and risk management solutions with advanced analytics for the life sciences industry. This may very well be the oft described clinical ecosystem that many senior Pharmaceutical R&D executives have been seeking a way to improve efficiencies and lower costs.
This acquisition does not come cheap—a premium of 30% over the prior day market price and a price that represents over 3.1 times 2009 revenues of $213 million or an astonishing 61 times net profit of $11.2 million-suggests that Oracle sees significant synergies in its product lines.
In our opinion this is a win-win combination for Oracle and Phase Forward since the extraordinary marketing power that Oracle brings should boost Phase Forward Sales while the Phase Forward products fill in significant gaps that Oracle has. Additionally, the concept of Software as a Service (SAAS) has been furthered within Oracle based on Phase Forward's Integrated Clinical Research Suite (ICRS) which could be the glue between Siebel eClinical and the Relsys Product Suites. The possibility of a full service “cloud computing” offering is a distinct possibility in our thinking. The challenge of seamless integration of all this can be problematic and articulation of the value proposition to their clients will need to be clearly defined.
The other questions left to ponder is what will key competitors such as Microsoft (MSFT) and SAP do to be competitive in this space and what acquisitions will come next. One further issue to consider is the enormous potential for consulting and support services and what moves the market leaders (IBM, Accenture (ACN), TCS, Infosys (INFY), Capgemini, etc.) and more specialized players will do to garner parts of this business.
Disclosure: IBM (LONG)