Icon and Parexel earnings down on Pfizer deal hiring spree

02-Nov-2011 - Last updated on 02-Nov-2011 at 10:55 GMT

Pfizer booked $340m with Icon and Parexel in the last quarter but profits dropped as the CROs hired 800 people to handle the work.

Icon and Parexel added 500 and 300 staff respectively in the last quarter as they accelerated hiring ahead of the anticipated surge in business from Pfizer. In the last quarter Pfizer began placing work with its CRO (contract research organisation) partners and the deal is now entering a key stage.

“We view the next three to six months as pivotal”, John Kreger, equity analyst at William Blair, said in a note covering Icon’s results. Pfizer booked $170m (€123m) of work with Icon and slightly more with Parexel in the quarter and as this converts to revenues the CROs expect to make better use of staff.

Hiring has taken place ahead of work being performed and consequently the “slower ramp of Pfizer‐related revenues” at Parexel resulted in “largely idle staff”, Kreger said. Similarly, Sandy Draper, equity analyst at Raymond James, said hiring meant “profitability [at Icon]…took a step lower”.

Despite having already added staff further spending is expected. “We expect additional investment spending to continue in the near term [at Icon] to support the Pfizer relationship”, Kreger said.

Future growth

Willingness to make these investments is driven by belief that business from Pfizer will drive growth. Parexel expects Pfizer to add $200m to sales in fiscal 2012 and Icon predicts revenue growth of up to 20 per cent in its next financial year.

“While there is still much uncertainty about how and when this relationship will ultimately achieve its full potential, today’s guidance and commentary adds to our comfort that we are near the bottom of the earnings declines experienced over the past two year”, Kreger said in a note discussing Icon.