Globe 100 | No. 10 - Parexel International Corp.

Research for hire

Waltham biopharmaceutical services provider benefits as others outsource their services to cut costs

By Jeffrey Krasner
Globe Correspondent / May 19, 2009
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With small biotech companies struggling for financing, you'd think that Parexel International of Waltham would be having a hard time, too. It was only in January that Parexel said an unnamed, small biopharmaceutical client declared bankruptcy. Parexel had to write off $15 million in expenses, decrease earnings by 14 cents in per share profits from its second quarter, and wipe an additional $44 million from its backlog. The only silver lining for investors is that Parexel is now a major creditor of the bankrupt firm, and it said it would "pursue recovery" of money from the company "to the extent possible."

But beyond that one contract termination, the financial crisis hasn't had much of an impact on the company, which runs clinical trials and provides other services for biotech and pharmaceutical firms developing drugs. For one thing, said chairman and chief executive Josef H. von Rickenbach, many big clients are responding to the tough economy by farming out more development work to clinical research organizations – and that means more business for Parexel.

"We've been seeing an increase in demand from that segment just when we needed it the most," said von Rickenbach, who founded Parexel in 1982. Big drug makers account for about half of the company's revenues, and the company has an order backlog of about $2 billion.

Moreover, von Rickenbach said, an analysis of the company's other small clients found none were in a position to have a material impact on Parexel even if they should renege on a contract. "Most of them are very solid," he said.

In the meantime, Parexel has even helped some of those smaller clients obtain financing, he said.

Despite the recession, 2008 was an impressive year for Parexel.

Excluding currency fluctuations – it operates in 52 countries – and the impact from two acquisitions, the firm's revenues increased by 23 percent over the previous year. That's what the analysts like to call "organic growth."

One large deal, the $192 million acquisition of ClinPhone PLC, a UK company that makes software to track clinical research, gave the company an even better one-stop shopping proposition for potential clients. That is reflected in the firm's ambitious hiring plan, in which it hopes to increase full-time equivalents to 10,000 from 8,050 in 2008.

In a recent note to clients, Nicholas Juhle, an analyst with Robert W. Baird & Co., gave Parexel high marks for strong bookings, efforts to limit exposure to other small clients, and progress in integrating ClinPhone into its larger suite of electronic tools for clinical trials.

"We expect Parexel to outperform the market in 2009," wrote Juhle.

Of course, that outperform rating came after the firm's shares were pounded, along with the rest of the market. Parexel's shares dropped from a 52-week high of about $36 to nearly $6. They have since recovered to above $9 as of early May – still more than 70 percent off the high.

The low stock price worries von Rickenbach, but not because the low valuation makes it more expensive for a company to compete a stock-swap acquisition.

"Obviously, when your stock is down, you have all kinds of challenges," he said. "Employees get concerned. It sends a bad signal. I wouldn't want to see the stock price go lower. I think we are very cheap."

CHIEF EXECUTIVE: Josef H. von Rickenbach
REVENUE IN 2008: $1.27 billion
NET INCOME IN 2008: $58 million
MARKET VALUE ON MARCH 31: $561 million