PAREXEL International to Cut 850 Jobs As New Guidance, Pfizer Flow Force Restructuring
Boston, Mass.-based PAREXEL International (PRXL), a contract research organization (CRO), in conjunction with its earning guidance Tuesday, also indicated it would be laying off 850 people as part of restructuring.
The restructuring process is company-wide with the goal of improving productivity and efficiency, simplifying the company’s organization and streamlining decision-making. As part of the job cuts, it expects to incur $30 to $40 million in employee separation benefits.
“As we finish Fiscal Year 2015 and look ahead to Fiscal year 2016, we believe that we have good momentum, a strong and diversified backlog, and a healthy business development pipeline,” said Josef von Rickenbach, chairman and chief executive officer of Parexel in a statement. “Our priorities for the new year include solid revenue growth, as well as improved operating profitability and double-digit growth in earnings per share.”
As part of the company’s guidance, it had adjusted long-term operating margin targets from 12 percent to 15 percent of service revenue to 13 percent to 15 percent. Company guidance also took into account fourth quarter results, foreign currency exchange rates, anticipated tax rates and the overall company outlook.
On Jan. 7, 2015, Parexel announced plans to hire 450 GlaxoSmithKline (GSK) employees with the intention of creating its own dedicated business unit to service GSK in the U.S. Those employees were primary research and development scientists who performed in-house drug development work at a GSK facility in Research Triangle Park, N.C.
Back in October 2014, Parexel’s earnings call reported a soft quarter. Analysts studying the company’s book-to-bill ratio, which is a way of determining a CRO’s partnership progress, found it disappointing, causing a 15 percent drop in share price.
In response, however, von Rickenbach said, “I think it’s just normal ebbs and flows, nothing particular to be read into the relationship.”
The stock market didn’t receive the latest news warmly. Parexel stock traded for $72.57 on June 23, but is currently selling for $66.48. Overall the company’s stock has been on an upward trend for the last year, although it took some big jumps at the end of 2014. Shares traded for $51.14 on June 25, 2014, rose to $64.01 on Oct. 28, 2014 and dropped to $53.15 on Oct. 31. On April 10, 2015, shares traded for $70.49.
“Parexel’s FY15/16 guidance update offered material for both bulls and bears, with the EPS range possibly a tad (not materially) below expectations despite core growth that was generally in line,” said Ross Muken, analyst with Evercore ISI in a note to clients on Tuesday. “Ultimately, we see Parexel as an attractive growth asset within an industry enjoying strong secular trends, however, we believe volatility in performance will remain high and we are challenged to see values in shares at current levels, particularly given uncertainty regarding the profitability/sizing of the Pfizer (PFE) relationship.”
In January of this year, there were rumors that Pfizer was spreading out its CRO work to a third CRO partner, with Quintiles, Inc. (QLTI) as the front runner. One of the factors affecting Parexel is that it apparently had a disproportionate number of Pfizer studies in progress that ended in the first half of 2015.
In April 2015, Pfizer announced it had chosen PPD as its third preferred CRO, but claimed it would not affect its relationship with Parexel and Icon. It hasn’t been completely clear if this would have a negative effect on Parexel and Icon.
Muken wrote in an April note to clients, “The addition of a third partner could speak to a greater outsourcing push at Pfizer, suggesting that while PPD may enjoy significant bookings upside, Icon and Parexel will continue to grow with Pfizer.”
Or not. Mucken also wrote, “It could also speak to the fact of risk mitigation by Pfizer as they slow growth at Icon or Parexel (or both — but it does not signal loss at either) in favour of PPD.”
June 25, 2015
By Mark Terry, BioSpace.com Breaking News Staff
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