Parexel looks to new bookings as strategic partners reevaluate pipelines

By Melissa Fassbender contact

- Last updated on GMT

(Image: iStock/shuvro ghose)
(Image: iStock/shuvro ghose)

Related tags: Currency

Parexel has fallen short of its first quarter FY2017 expectations, but is encouraged by new business as it looks to "normalize" cancellation issues.

This morning the company announced a backlog of $5.8bn as of September 30, 2016, with gross new business wins in the first quarter of $930m and cancelations at $364m. Additionally, it said the foreign currency exchange rate has had a negative impact of $2.6m.

Josef H. von Rickenbach, Parexel Chairman and CEO commented that the company’s first quarter performance fell short of expectations. “Revenue in the quarter was impacted by higher than expected cancellations, project delays, and continued slow backlog conversion​,” he explained.

High first quarter cancellations are also expected to impact revenue performance for the balance of FY2017. However, von Rickenbach said that the company is encouraged by new business and expects cancellation issues to normalize.

Strategic accounts ‘rationalizing’ pipelines

According to the company, product pipelines of strategic accounts are “in flux​.”

For context, Jefferies' analyst David Windley, told us “Parexel was one of the most impressive market share gainers in large pharma during the 2009 to 2012-13 timeframe when many large pharma companies were entering into strategic partnerships​.”

Subsequently, today – and for the several last years – these large pharma partnerships populate the top of Parexel’s customer list.

What management is suggesting is that strategic partners are doing some rationalization​,” said Windley – in so much that they are reconsidering which pipeline compounds they want to move forward with and which ones they want to “put on the backburner​” or maybe even abandon.

According to Windley, this evaluation is “causing some heightened volatility in business for Parexel​.”

However, he doesn’t believe that this volatility is a result of quality issues – a sentiment echoed by the company who said the majority of the cancellations have not been in response to the CRO’s performance.

Despite increasing customer satisfaction, Windley explained, “Improving margin and sustaining that improvement has been historically a surprisingly difficult challenge for Parexel​.”

As part of the report today, Parexel also announced a new $200 million share repurchase program.

Ongoing corporate development activities, such as the recent acquisition of ExecuPharm, are expected to contribute to revenue growth​," said von Rickenbach. "PAREXEL is also committed to maximizing shareholder value through sustained margin improvement and effective capital deployment, including a new $200 million share repurchase program​."

Related topics: Clinical Development

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