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Biotech cash to be a boon for CROs, Parexel says

By Zachary Brennan+

11-Aug-2014
Last updated on 11-Aug-2014 at 12:17 GMT

As small and medium sized biopharma companies continue to raise cash through IPOs and elsewhere, CROs will see an uptick in outsourced work, Parexel founder, chairman and CEO Joseph von Rickenbach predicted in the company’s earnings call last week.

Many small biopharmaceutical companies have successfully raised capital and are now deploying those funds into outsourcing of clinical development activities,” von Rickenbach said. “We have certainly experienced this over the past year in our BioPharm Unit…We're pleased with the increasing levels of outsourcing penetration in the industry and believe there is more headroom for further penetration.”

Von Rickenbach also highlighted two other “important trends that impact our business environment” -- emerging markets and the ongoing digitization of clinical research. 

Heightened expectations for the industry come as Parexel announced growth in revenue and earnings per share for the latest quarter and full year. Investment analysts seem upbeat on the company’s growth and future prospects too.

Citi Research’s VP of health technology and distribution Garen Sarafian said Parexel management’s positive revision to sales and earnings guidance two months ago “was driven by additional bookings and increasing clarity into its pipeline, further supporting our view that demand in the clinical space remains strong.”

Clinical Research

Better than expected gross margins in the company’s Clinical Research Services (CRS) segment was also partially driven by an increasing demand from small-to-mid-sized clients, Sarafian said.

Von Rickenbach noted that over the next year the company will also “flatten the overall CRS organization and team structure, consolidating CRS back-office and support functions into shared services centers and are offshoring certain activities. We expect that these initiatives will continue to bear fruit in fiscal year 2015.”

He announced one new strategic partnership for Parexel in the conference call, though he failed to reveal details on the top pharma company, noting, “We have already worked with this client for actually many years. And it has -- the relationship has been, if you want, upgraded now to strategic partnerships.

Still, von Rickenbach cautioned that gross new business for the latest quarter “was, relatively speaking, a little lower than what we would've liked.”

Future

The company’s backlog hovered around $5bn at the end of the fourth quarter, which is an increase of 8.6% year-over-year, but that’s about half of competitor Quintiles’ backlog .

The quarter cancellation rate was 3.7%, which was within Parexel’s expected range and von Rickenbach said the main reason for cancellations “continued to be drug failure,” according to a transcript of the conference call from Seeking Alpha.

But von Rickenbach seemed confident that Parexel won’t see too many future cancellations. “Generally, now, the studies that are in the backlog are probably going to see -- we are going to see them through to the end, so they're very likely not going to cancel,” he said.

Client concentration is also slowly declining, with the top five clients falling to 47%, compared to 49% one year earlier, and the top 20 clients were down to 77% as compared to 80% one year ago. 

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