eResearch Technology: Outsourcing clinical trials

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Behind the scenes of the cumbersome drug discovery and approvals process, there is a mini-industry that does not manufacture drugs but provides technologies and services to make drug testing more efficient.

One of the most promising companies in the sector is Philadelphia-based eResearch Technology Inc. (Nasdaq:ERES), whose software products automate the collection and interpretation of clinical data, particularly cardiac safety data, for pharmaceutical and biotechnology companies as well as drug device makers. After an extended period of little or no growth, eResearch is now on a roll.

The 31-year-old company in May said its revenues from a series of software products and consulting services rose to $33.7 million, or 59.7% from the year-ago period while EPS nearly tripled to $0.11 from $0.04.

This sudden growth spurt reflects multiple new product launches and upgrades internally as well as the acquisition late last year of Covance Cardiac Safety Services Inc. (CCSS) from Covance Inc. (NYSE:CVD).

Conditions in the industry eResearch Technology serves can vary widely, depending on competition from a very fragmented group of players as well as government regulations covering the drug approvals process. But most existing signs point to the company’s good fortune continuing for some time. CEO Michael McKelvey recently said the pipeline of new opportunities was strong, reflecting a continued emphasis on cardiac safety in drug development.

Shares of eResearch have more than doubled over the past year and, at a closing price of $17.06 on Monday, they are just shy of their 52-week high of $18.85. Although the company is still not widely covered by financial analysts, two who do track its revenues project total sales will grow to $140.7 million this year and $163.2 million next year, compared with $98.7 in 2007. Three analysts who . . .

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