SAN FRANCISCO -- Computer Sciences' ( CSC) $365 million takeover of First Consulting ( FCGI) is the largest in a string of similar deals to take information technology services firms deeper into the health care and drug industries. Computer Sciences agreed to pay $13 a share for First Consulting, which had 20 outsourcing jobs with 43 hospitals and other health care facilities at the beginning of the year. First Consulting shareholders must still approve the deal. First Consulting has been in a transitional state since 2005, as its looks for ways to pare costs while supplementing revenue lost after project terminations with New York Presbyterian and UMass Memorial. After losing these contracts, its 2006 revenue fell 5% to $278 million. At the same time, CSC has been expanding its health care business and recently took over a $3.7 billion project with the U.K.'s National Health Service agency. As IT services firms develop expertise in specific industry sectors, many have eyed the health care and pharmaceutical sector because of its growing technology needs and insulation against recessionary climates. Hospitals are increasingly "wired" environments with stringent requirements for confidentiality of patient records. Also, drug safety procedures and reporting requirements for clinical trials have increased the need for IT systems to help spot drug interactions and side effects.
"The health care sector is underpenetrated right now in terms of how much value the service providers can deliver," says Paul Roehrig, an IT industry analyst with Forrester Research. "There are a lot of opportunities to use technology and information systems to take out costs and improve processes." Contracts with health care providers and drug companies are generally resistant to economic downturns, because they often provide critical functions such as monitoring drug safety and maintaining electronic access to patient information. The health-care-oriented deal-making started in July when Patni Computer Systems ( PTI) spent over $27 million, mostly in cash, to acquire privately held Taratec, a small IT shop that helps drug companies track data from clinical trials. In September, Accenture ( ACN) set up a 140-person shop in India to crunch data clinical from drug trials run by Bristol-Myers Squibb ( BMY). Accenture is hoping that the expertise it develops from working with Bristol-Myers will help it create a set of services that it can offer to other drugmakers. Shortly after that deal, Indian IT services firm Cognizant ( CTSH) agreed to pay $135 million in cash for marketRx, which provides market-research software and other services for pharmaceutical, biotech and medical-device companies.