In the light of recent developments, Dassault Systèmes' purchase of Medidata just over a year ago may prove to be a pure stroke of genius. The company engages in clinical trials for medical technology, and is working with the medtech company Moderna to support clinical trials of the mRNA-1273-Modernes COVID-19 vaccine candidate. On the surface, this sounds not only like a possible hit for the battle against the coronavirus pandemic, but also as something that could have a positive commercial effect on both parties involved.

When Dassault recently reported its figures for the second quarter of 2020, Medidata is one of the points that promises to have great commercial significance for the French PLM developer. How?

PLATFORM-BASED CLINICAL TRIAL A HIT FOR DASSAULT. in his comments about the second quarter 2020 figures, the head of Dassault, Bernard Charlès, pointed out, among other things, the value of the Medidata acquisition. The company, acquired in 2019, delivered double-digit revenue increases (without IFRS) during Q2 2020, with a strong operating margin. This meant a lot for the French PLM developer, despite the tough times, to show a decent quarterly results. "In the Life Sciences segment we show ‘the highest value of being able to utilize the capabilities of the new virtual world, computer science and analysis in platform-based clinical trials in connection with the development of COVID-19 vaccines,’" said Charlès. (IMAGE: Le Point.)

That the coronavirus would affect the earnings reports of most of the world's companies is hardly a surprise. The shutdowns and “pauses” of the world's major industries during the second quarter have not gone unnoticed, and the fact that the PLM world is negatively affected by this is not rocket science. The negative economic development is noticeable at all levels, from nations' GDP figures—the United States, for example, recently reported a near 33 percent decline—to vehicle manufacturers, machine equipment companies and in a number of other industrial segments.

If the big industries have problems, this is also reflected among the PLM and ERP developers. In short, the revenue curves point downwards.

However, this does not prevent some players from coping well with the economic downturn, even given the problematic effects of COVID-19. Dassault is an example of this. When the company recently released its figures for the second quarter 2020, it turned out that revenues (non-IFRS) from the second quarter landed at just under €1.1 billion (1,071 million euros, just under $1.0 billion), an organic decrease of 8 percent, but an increase of 11 percent if you include and consolidate the figures from the acquisition of Medidata (currency-adjusted increase of 10 percent, cc).

Bernard’s Intriguing Considerations

When Dassault Systèmes’ Bernard Charles announced the Medidata purchase in 2019, many in the industry were a little puzzled as to why. Medical technology wasn’t really at the core of what the French PLM developer was expected to deal with.

But Bernard, always gazing at the horizon of possibilities, had other ideas. Of course, he couldn’t possibly predict the coronavirus and its horrendous effects, but he had other intriguing considerations that substantiated the reasons why he persuaded Dassault's board to invest $5.8 billion in this company.

Here’s what he may have reasoned:

Clinical trials are a bottleneck in the medical industry. In general, out of the three major developers of PLM platforms—Dassault, Siemens and PTC—Dassault Systèmes in particular has addressed PLM support for this type of business, while Siemens has traditionally been strong on the technology side when it comes to different types of medical equipment.

"But Dassault has the best set of solutions in the medical field," Gartner's PLM analyst Marc Halpern claimed when I discussed the acquisition with him at the time. Not least, the company's BIOVIA product plays an important role here. The problem has really only been to get the whole of what you can deliver on the solution side on a single cohesive platform, Halpern continued.

But there were also other reasons, including that this industry in general has not come very far in terms of digitization and automated management. Medidata is the market leader in clinical trial solutions in the cloud, with its software being used by 1,300 customers worldwide to develop medical innovations and manage clinical operating results. This means Dassault’s purchase was mainly based on that fact that Medidata had interesting commercial advantages which appealed to Charlès’ feeling for a good deal.

With the recent developments around the coronavirus and COVID-19, it now turns out that the Medidata acquisition has become a real hit, which in several ways saves the day for Dassault's revenue figures.

It is not clear from the press material how much Medidata's revenues account for during the second quarter, but it can be assumed that these are large amounts. In 2018, the company withdrew $635.7 million. The second quarter of 2019 was about just over $180 million, a figure that now in 2020 under Dassault’s ownership thus went up by double-digit numbers, according to Bernard Charlès.

Can Medidata change the medical industry's game plan? In short, the Medidata platform promises a change to the entire game plan for the industry, where the use of virtual control systems to improve the performance and relevance of clinical trials proves to create a number of benefits, says the Dassault Systèmes database. (IMAGE: BLOG CTMS.)

"The Coronavirus Crisis is Increasing the Value of Virtual Capabilities," Says Charlès

Bernard Charlès also pointed out the Medidata acquisition in his comments to last week’s report, which during the quarter delivered double-digit revenue increases (without IFRS) and a strong operating margin.

“In the Life Sciences segment, we show the highest value of being able to utilize the capabilities of the new virtual world, computer science and analysis in platform-based clinical trials in connection with the development of COVID-19 vaccines. In short, the Medidata platform promises a change in the entire game plan for the industry, where the use of virtual systems to improve the performance and relevance of clinical trials proves to create a number of benefits,” said Charlès.

He also pointed out in general that one can gain a number of positive effects when examined through a future-looking perspective, not least because Medidata is a part of the software portfolio.

“The health crisis will have a lasting impact on business operations and on companies and their end customers. This is evident from extensive discussions we have had with customers in the manufacturing industries, life sciences and healthcare, and infrastructure and cities. We work with them to turn this health crisis into an opportunity to improve their operations in the short term and at the same time strengthen the sustainability of their business models,” Charlès said.

Dassault's 3DEXPERIENCE platform is the central solution in the French PLM developer's software offering. The platform contains and connects most of the company's solutions in the form of apps, of which the CAD programs CATIA and SOLIDWORKS are the most well-known and the most lucrative for Dassault. Other software apps are the simulation solutions within the SIMULIA suite, as well as DELMIA for digital manufacturing and the cPDm backbone ENOIVIA.

A Revenue Pattern You Can Expect

In the software category, Dassault's Q2 report exposes a pattern that can actually be expected from all suppliers that sell based on a mix of models with both subscription and traditional licenses. Non-IFRS recurring program revenues increased by 30 percent (the Medidata purchase included), while licenses and other software revenue decreased 32 percent, mainly due to lower demand when COVID-19 closed companies worldwide and complicated sales processes.

In total, software revenues now grew by 12 percent (IFRS and non-IFRS) to a total of just under €960 million. Non-IFRS recurring software revenues thus increased by 30 percent, which mainly reflects the increase in Dassault’s Life Sciences segments, plus growth in Mainstream Innovation and in Industrial Innovation.

But as earlier noted, by consolidating Medidata, Dassault, given the circumstances, reached a total of decent numbers on the software revenue side.

The profit margin (IFRS) decreased from 18.8 percent to 10.4 percent.

A Well-Positioned Dassault

With regard to Dassault's finances, Charlès also states that the period of closure we talked about initially accelerated the need for platform-based design, anywhere and at any time.

“Virtual production organizations, which put people and human care at the center, will be of enormous importance. Thus, experiences like virtual twins have never been more relevant,” Charlès said. “We are well-positioned to help our customers address key industry trends with new approaches and to ensure that these improvements seamlessly connect to future transformations.”

He further added that the company's BIOVIA and MEDIDATA teams' deep understanding of the food and medical technology industry is demonstrated through its business growth during the second quarter.

“The customer base here grows by a total of 17 percent, they expand their relationships with the 25 leading pharmaceutical companies and work, as I said, with the vast majority of companies focused on COVID-19 vaccine development,” Charlès said.

The Acquisition of the AI Company Proxem

Finally, Dassault says that during the second quarter of 2020 it made a new acquisition, this time in artificial intelligence (AI), of a company named Proxem.

“Knowledge is often a ‘prisoner’ in text. With the acquisition of Proxem, with their natural language processing technologies, we can extract this knowledge from documents and use it through computer science and data analysis, turning it into experience and enabling our customers to automate their interpretation,” said Charlès.

EXTRACTING SEMANTIC KNOWLEDGE. With the acquisition of Proxem, Dassault gets a solution that can extract the knowledge that is "hidden" in documents and through computer science and data analysis, turn it into experience and enable its customers to automate their interpretation.

The Rest of the Year—What Does it Look Like?

Not unexpectedly, the ravages of the coronavirus continue to weigh down development. It will be "a significant slowdown in global GDP for the full year 2020 compared to 2019, and restrictions in a number of industries based on current government plans in America, Europe and Asia."

This means that licenses and other program revenues are expected to decrease by approximately 17 percent compared with the corresponding period last year.
In total, Dassault expects revenues to land at between EUR 1.05 billion to EUR 1.08 billion for Q3 and for the full year (non-IFRS) at between EUR 4.51 billion to EUR 4.56 billion.

Not bad at all given the tough conditions.