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Medidata Solutions (NASDAQ:MDSO) is not a company you may have heard of, and with good reason. The computer technology company had its initial public offering in 2009 and maintains a market capitalization of just over a billion dollars. This New York-based firm specializes in providing drug companies software for the clinical development process. Using a cloud-computing approach, the business provides a "software as a service" (colloquially known as SaaS) to help increase the efficiency of various clients' clinical trials. As there are a plethora of restrictions and protocols a company must adhere to when going through the trial process, it's vital to ensure all of these regulations are met and done in a proper and well-organized manner to ensure overall legitimacy and increase the probability of approval.

This market can be bifurcated into electronic data capture and clinical data management. The former involves a simplified method of data entry to help expedite the trials themselves, along with various tools to assist with analysis and reporting. CDMS is oftentimes used in conjunction with EDC software to manage much of the data from these various trials.

As Medidata is currently attempting to maximize their market share of this business, they have represented themselves as a powerhouse taking a commanding lead with much room for growth.

The company's total revenue is up 15% over the past four quarters with their net income increasing over 22% from 2010 to 2011.

However, the true benefit with the company is through their debt management. While still maintaining an augmented total asset value of $189 million in 2011--20% increase from 2010, the company has decreased their debt by almost 93%, thus establishing a debt-to-equity ratio of 0.2%. Given that Medidata is a computer management company, a minimal debt obligation ensures a multitude of benefits. First, there can be a stronger shift of focus into various research and development strategies to discourage competition. As EDC/CDMS is relatively small, a powerful player like Medidata serves as a strong deterrent against start-up companies trying to enter the market. Furthermore, this is fairly indicative of an excellent management and in conjunction with the continuous decrease of debt levels year-over-year, the likelihood that this strategy continues is high.

Granted, the opposition would be quick to respond that since the debt levels are already so low, A. it's extremely difficult to drive them further and B. the market has already adjusted to these levels and as such any increase in debt would drive the stock price down.

In response, many of the cases where this is an issue involves companies unwilling to invest and grow their business as a whole. In Medidata's case however, this isn't as much of an issue as their total assets have increased by 25% over five quarters, thus demonstrating that they are still increasing purchases and in conjunction with acquisition of said assets, their debt has remained low. Moreover, the second objection answers itself. This knowledge of a possibility of debt increase has in itself already been priced into the market, as there's no coherent reason why this would be an exception. Thus, I feel comfortable in making such a recommendation for Medidata based on their debt management.

Looking to the future, it's clear that the company is not done growing yet. Comparing gross profit margins from the most recent quarter's filings, the figure is up over 7.5% compared to the same quarter in 2011. Although this is a recent shift, it provides ample evidence that there is now an upward trend for the company in terms of profits.

Shifting away from the financials, it's evident from their recent earnings report that the operations end of the business has been comfortably flourishing. The report noted that Medidata has secured a contract with a yet to be mentioned "top ten pharmaceutical company" that boasts a value of well over 100 million dollars. Additionally, the company reported a total of 33 new clients within that single quarter--a massive 36% increase year over year.

This news sets a fairly definite precedent for Medidata that large companies haven't necessarily set a default provider for their EDC solutions. As cloud computing is a relatively new technology, pharmaceutical companies are only recently taking notice of the vast environment available with this new form of computing. Thus, there's a strong possibility that medium-sized companies with priorities in other areas will be more than willing to shift to Medidata's services after dealing with more pressing issues to ensure a more efficient environment. This is precisely why now may be the ideal time to claim a stake in the company.

Looking to competitors, this is another area where Medidata excels. Due to the hyperspecificity and relatively novel nature of cloud-based clinical development management, there is not a large peer group of note. The companies that are available include BioClinica (NASDAQ:BIOC); however, they primarily concern themselves with medical imagery and have only recently (2010) entered the EDC market with their purchase of TranSenda. Overall, the recent acquisition still requires much restructuring for BioClinica in order to gain customers, so there doesn't seem to be a direct risk for Medidata's clientele.

Various other players in the market include Clinical DataFax and OpenClinica, neither of which are publically traded. It seems that currently the only major player in the EDC/CDMS market is Medidata and as clinical trials for drugs are continuing to increase due to constant research and development projects bearing fruit and pharmaceutical companies increasing in size, the need for a cloud-based data management software service becomes apparent.

Therefore, it's clear that with the influx of cloud-computing making its way into the mainstream, Medidata has itself in a prime position for an increase in clients. On a more financial level, the increases in revenues have been solid and a superior debt management system removes much of an internal risk within the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Medidata's Cloud-Based Pharmaceutical Approach May Spur High Gains