Cameron Torti and Charles Goulding of R&D Tax Savers examine 3D printing implications of Dassault Systèmes’ Medidata acquisition.
In early June 2019, French technology company Dassault Systèmes dived into health-tech by agreeing to buy U.S. medical software maker Medidata Solutions Inc. in a deal worth $5.8 billion. Boards from both companies have agreed that the French company would pay $92.25 for each share of Medidata. Some analysts have expressed concern for Dassault, citing that a deal this size poses a great risk for the acquirer since it has not been in a net debt position since 1996.
However, something Dassault does have experience with is acquiring companies. In 1997, Dassault bought SolidWorks, a CAD and CAE company, for $310 million in stock. Albeit, this figure is nowhere near the nearly $6 billion the company agreed to pay in this more recent deal but it is important to note that Dassault is already active in the life sciences industry. Dassault said it views digitization of clinical trials as a major growth opportunity. Analyst concerns tend to be short-sighted while the deal has massive potential for long term growth. Medidata reported revenue of $636 million last year and executives mentioned that the transaction should be paid for within five years.
Dassault’s 3DEXPERIENCE (3DS) platform provides software solutions for virtually everything from marketing to sales to engineering.
One of the more robust components on the platform is 3D modeling. 3DS has two apps that are for 3D CAD design, namely CATIA for manufacturing organizations and SOLIDWORKS for engineering and design teams. Although Dassault doesn’t make 3D printers, these offered services provide very advanced software that can be used for additive manufacturing design and processes across various industries.
Back in February 2019, Dassault Systèmes and Boston-based 3D printing company Rize announced a partnership. Dassault was one of several partners who invested a total of $15 million into Rize. The partnership between the two aims to unite 3DS software with Rize’s 3D printing capabilities. Rize began to offer bundles containing a desktop 3D printer and a full SolidWorks software license. Perhaps in the coming years, we will see a similar deal in medical device manufacturing for Dassault now that it owns Medidata.
Medidata and 3D Printed Medical Devices
The acquisition is expected to be completed sometime between October and December this year which means that we can expect to see Medidata using the 3DEXPERIENCE collaborative platform as soon as January 2020.
The platform will increase workflow for the customers Medidata serves, including pharmaceuticals, biotechs, contract research organizations, and medical centers. Also, with 3D printing applications growing continuously, these types of firms will likely be turning to the emerging technology for prototyping and development. 3DEXPERIENCE users will easily be able to employ the platform’s CAD design services if they find themselves in the additive manufacturing space in the near future. Such a transition would likely make these firms eligible for the Federal Research & Development Tax Credit.
The Research & Deveolpment Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Must be technological in nature
Must be a component of the taxpayer’s business
Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.
Every new merger, acquisition, or partnership presents both parties with newfound opportunities. Pair this with an increasing number of companies engaging in 3D printing, collaboration in this field across industries is primed for exponential growth.