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Oracle ponies up $685m for Phase Forward

Larry Ellison on drugs discovery trip

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Oracle's software strategy as it takes on application software industry leader SAP is to not only work on its own systems, thanks to its $7.4bn acquisition of Sun Microsystems, but to beat SAP at having software packages aimed at very precise customer sets.

This morning, Oracle took over the software space relating to drug discovery at big pharma with its $685m acquisition of Phase Forward.

The move will help bolster Oracle's healthcare software business, but like Sun, may not immediately have a positive impact on Oracle's bottom line. But, having done so many acquisitions in the past decade, Oracle knows how to borg companies and slash costs, turning marginally profitable business, as Sun and Phase Forward are at this point in this histories, into money makers.

Hence, the $17 per share that Oracle is willing to pay to take hold of Phase Forward, which represents 30 per cent premium over yesterday's closing share price.

In the quarter ended December 31, Phase Forward posted sales of $58.8m, with $15.9m of that coming from sales of its software license sales for myriad products and just under $43m for services and support. Those are the kinds of ratios that Oracle likes to see, with that services business being largely an annuity revenue stream so long as customers can be kept reasonably happy. However, Phase Forward lost $68,000 in the quarter - not a lot admittedly, but not the $2m to $4m it has been able to bring to the bottom line throughout a difficult late 2008 and early 2009.

For the whole 2009 year, Phase Forward posted sales of $213.3m, up 19.4 per cent, and since 2005, the company has had steady double-digit revenue growth. (Again, the kind of numbers Oracle and other big software players like to see.) Between 2005 and 2009, services revenues at Phase Forward have tripled, and software license sales have nearly doubled. However, profits peaked at $29.2m in 2007, and slid to $13.8m in 2008 and fell to $8m in 2009.

Phase Forward is something of a pioneer in its field, like Oracle was in relational databases, and has been similarly acquisitive. The company was founded in 1997 by Paul Bleicher, a physician and researcher who was frustrated by the paper-based clinical drug trial management process who decided to write some applications to computerize it. The company created an electronic data capture application called InForm, which was widely deployed and allows Phase Forward to go public in 2004, raising $34.6m.

With that war chest, Phase Forward stated acquiring companies in related fields, shelling out $11m in 2005 for Lincoln Technologies, which created software to track drug safety after they have been approved for sale by government health regulators. In September 2008, Phase Forward ponied up $40m in cash to buy Clarix, a software company that had created a Web-based interactive response technology (IRT) application suite for clinical trials, which have been traditionally managed through phone calls, not Web-based forms.

Last April, Phase Forward paid $14m to acquire Waban Software, which sold a competing set of automation and compliance tools for clinical trials with statistical analysis add-ons. And in July, it paid $11m to buy Maaguzi, which sells a set of Web-based tools to do electronic patient reported outcomes (ePRO) paperwork.

All told, the combined set of Phase Forward tools have been used in over 10,000 clinical trials with more than 1 million participants by more than 300 life sciences, medical device makers, pharma firms, and regulatory agencies and public health organizations.

Oracle expects the Phase Forward acquisition to close around the middle of 2010, and will tuck the company into its Health Sciences global business unit. ®

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