Parexel looks to accelerate margin growth with low-cost labor
“What we're trying to accomplish with the Margin Acceleration Program is addressing from a payroll perspective, a reduction in managerial overhead,” COO Ingo Bank told investors.
And although the company has already begun to investigate who will be laid off at one facility in North Carolina, Parexel actually added 3,100 employees over the course of the fiscal year, including the net addition of approximately 950 employees from the recent acquisition of India-based QSI.
“We have opportunities to organize ourselves more efficiently,” Bank explained, noting that the company is looking to accelerate “the shift of activities into low cost countries, and that sometimes indeed means that you run for a little while with a sort of mirror organization to phase activities from one part of the world into another part of the world. And once that is done, you have the ability to reduce the personnel and then you benefit from the wage arbitration that you basically have by doing so.”
Overall Market
Beyond the margin acceleration program, company executives remained upbeat about where Parexel is headed.
“Our strategic partnerships are well on track and we have a promising pipeline of partnership opportunities. Our BioPharm Unit is successfully addressing the market opportunity with small and emerging biopharmas and we are well positioned to capitalize on emerging eClinical technology trends,” CEO Josef von Rickenbach said.
Parexel is also seeing more diversity among its clients as its largest client represented approximately 12% of revenue, compared to 17% in the same quarter last year. The concentration of the top five clients also declined by 3% to 44%.
And although he didn’t get into the specifics, von Rickenbach noted that “several important” countries have strengthened their regulatory requirements for study start-ups, which is creating “a more challenging regulatory environment as well. In aggregate, this has caused an elongation of the start-up stage.”
Citi Research analyst Garen Sarafian still thinks Parexel will thrive in such a situation, noting: "Despite lengthier start-ups, we think PRXL is well positioned to benefit from an increasingly specialized trial market where we see regulatory expertise and a global footprint as key differentiators. Although such complex trials take longer to convert into revenue, we believe the increase in trials moving from the start-up phase to fully ramped over the course of the year will be enough to drive the burn-rate higher."
