Parexel strong book-to-bill 'reassuring' for CRO demand, says analyst
In an SEC filing published after the market closed Monday, contract research organisation (CRO) Parexel said it “expects to report a net book-to-bill ratio in excess of 1.4 for the December 2014 quarter [Q2]” ahead of tomorrow’s presentation at the JP Morgan Healthcare Conference in San Francisco.
Book-to-bill ratio is gross new business wins - fewer cancellations - divided by the quarter’s consolidated service revenue, and is widely used in the CRO industry as a measure of demand for such services, with a figure above ‘1’ indicative of a large backlog of contracts.
This announcement “will likely be met with a positive investor reaction given concerns on Parexel’s performance and industry fundamentals coming off of a weaker than expected FYQ1,” Evercore ISI analyst Ross Muken.
William Blair analyst John Kreger added described this news as “reassuring” after Parexel reported a ratio of 0.88 for a successive first fiscal quarter back in September, and said this is indicative of continued demand in the CRO sector.
“For the group overall, aggregate bookings as a percentage of revenues for the clinical CROs improved modestly in the third quarter and Parexel’s disclosure adds further support to the view that broader demand trends remain robust,” Kreger said in a note.
The table below shows the net book-to-bill ratio for the top public CROs for the quarters ending:
| Sep 14 | Jun 14 | Mar 14 | Dec 13 |
Quintiles | 1.42 | 1.19 | 1.27 | 1.29 |
Covance | 1.2 | 1.21 | 1.15 | 1.23 |
Parexel | 0.88 | 1.16 | 1.16 | 1.16 |
Icon | 1.21 | 1.22 | 1.22 | 1.29 |
Pfizer and strategic partners
More volatile quarterly results have been put down to “longer decision cycles regarding pending proposals with strategic partners,” Kreger added. Parexel’s top five clients accounted for 47% of its revenue in 2014, according to the CRO’s annual report.
The top client, Pfizer, individually accounted for 16% of FY2014 business, but Parexel competes with a second preferred partner – Icon – and, if the rumour mill is to be believed, the Pharma Giant is looking to sign a third alliance partner.
Muken said he was anticipating “incremental commentary from management on the status of Parexel’s strategic partnership with Pfizer,” in tomorrow’s talk, “given the view that Icon is now servicing more of the Pfizer book and industry chatter that Quintiles had potentially won business with Pfizer as a third strategic CRO provider.”
