Parexel has used its strong presence in Asia-Pacific to win strategic deals. However, while demand from Asia-based companies remains strong, strategic clients are increasingly looking to place work in traditional clinical trial markets.
“Where we have seen a little bit of a shift is from Western clients, and specifically [from partners], there has been more demand for the ‘old world’, which is to say the US and Western Europe”, Joseph von Rickenbach, CEO of Parexel, told investors in a call to discuss second quarter results.
Compared to two to three years ago big strategic clients, which drive a lot of business to Parexel, are placing more work in Europe and the US. This reverses the trend seen in recent years and as this new backlog converts to revenues Rickenbach expects growth in Europe and the US to accelerate.
Stability in India could help demand return to Asia-Pacific. Last year regulatory changes led to clinical trial approval times lengthening but an analyst on the Parexel call relayed reports that the situation is settling down, echoing what Quintiles told Outsourcing-Pharma in December.
“It’s a challenging regulatory geography…from a trial initiation perspective. Broadly speaking the government is supportive but it remains to be seen exactly how this trickles down to the actual day-to-day work”, Rickenbach said.
Hire, hire, hire
To handle work from strategic clients, and Pfizer in particular, Parexel has hired rapidly in recent quarters. In the second quarter Parexel added a net total of 440 people and plans to add a similar number in the coming months.
Headcount is expected to grow to 11,300 by the end of the next quarter and Parexel will make more hires before the end of its fiscal year. In May Parexel employed 10,350 people and planned to layoff around 300 staff as part of its cuts to Phase I capacity.
Parexel has hired many of the more than 1,000 people to work on late phase clinical trials and handle the uptick in study starts. Training takes several months on average, Rickenbach said, after which the employees begin work on their revenue generating roles.
The lag between hiring and revenue generation squeezed margins but there are signs of recovery. “We are particularly impressed that margins are expected to improve given that hiring trends are also expected to continue at a rapid pace”, John Kreger, equity analyst at William Blair, wrote.
Hiring has benefited from fairly favourable labour markets, but the situation is “tighter” than the past three years, particularly in some functions and geographies. “In certain pockets…there is a fair amount of competition and we are competing strongly to get people on board”, Rickenbach said.
Shares in Parexel closed up 18 per cent after it released its second quarter results.