When it comes to scoring new business wins,Parexel
) has been hitting home runs.
In its fiscal fourth period, the leading global
biopharmaceutical services provider reported the biggest
quarterly sales and earnings growth it's seen in at least four
years as major drugmakers stepped up the spending pace.
A hefty $601.9 million in net new business wins resulted in a
net book-to-bill ratio -- or the amount of net new business won
divided by revenue -- of 1.53. A book-to-bill ratio of 1.53 means
Parexel added 153% of the quarter's revenue to its backlog, an
indication of very strong demand, which bodes well for future
Its 2012 backlog of $4.4 billion, at fiscal year-end June 30,
was up 27.6% from the prior year.
The company's good fortune comes at a time when the stars are
aligned in favor of large global clinical-trials research service
providers like Parexel.
As large drugmakers have become more budget-conscious in their
R&D spending in the wake of the recession, they've stepped up
outsourcing of clinical research to become more efficient, says
William Blair analyst John Kreger. But they haven't been
Instead, he adds, they've formed strategic partnerships where
they outsource most of their clinical research to a small number
of the larger global companies.
And Parexel, which gets roughly 75% of its revenue from
clinical-trials research services, has been a key beneficiary.
Parexel is one of two or three strategic partners for drugmakers
such asEli Lilly (
) andGlaxoSmithKline (
), says Chief Executive Josef von Rickenbach.
These partnerships have helped drive a surge in the company's
order backlog, which von Rickenbach says has doubled since 2009.
But Parexel already had a growth strategy in place to tap into
"We anticipated many of these trends and positioned ourselves
strategically to be ready when the opportunity arose," said von
Rickenbach. "When the opportunity came, we were as well prepared
as anybody to take advantage of a very favorable market
environment for our services."
The other trend he refers to is the fact that drug-development
companies are executing more on late-stage clinical trials, says
First Analysis analyst Todd Van Fleet.
The reason: "Drug developers need to have new medicines
approved to replace the revenue that's been lost from compounds
that have gone off patent," Van Fleet said.
And many companies, especially large pharmaceutical companies,
are facing "unprecedented levels of patent expiration," adds von
That includes some very big moneymaking drugs, such as
Pfizer's Lipitor, which went off patent in November. As a result,
many of these large drugmakers are trying to get new products
into the market to "backfill the revenue and profit gap," von
Most of Parexel's new business wins in the fourth quarter were
for late-stage clinical trial studies from these
And late-stage trials are Parexel's sweet spot. While its
services span all phases of clinical trials, most of its studies
are in the last phases of clinical development testing--phase
three and phase four. The company also offers consulting services
and clinical-trial technology.
Parexel, says von Rickenbach, has a lot of things going for it
that have helped it tap into these trends.
"These trends tend to favor larger global companies," he said.
"Not only did we grow, but we grew faster than many of our
competitors. In that sense we took share in the industry."
One of Parexel's key strengths is its global prowess. It has
70 locations in 51 countries worldwide. Von Rickenbach says it's
very difficult and complicated to build a clinical-trials
research network around the world like Parexel's. It gets roughly
55% of revenue outside of North America and Latin America.
Another strength, von Rickenbach says, is Parexel's Perceptive
Informatics subsidiary, which provides advanced technology tools,
including medical imaging, to facilitate the clinical development
"Their key strength is they're viewed as a visionary in the
industry," adds Kreger. "They've been consistently growing and
gaining share. Their new business wins have been better than
other companies in the industry and higher than their own
Parexel's key weakness for the investor? "They have
consistently had one of the lower profit margins in the
industry," said Kreger. "They opt to do the best for their
clients even if it means a lower return for investors."
But commentary on Parexel's fourth-quarter conference call
suggested that "sequential" margin improvement should begin in
the first quarter and continue throughout the year, said Kreger
in a report.
Overall, Parexel is faring handsomely on the financial front.
In the fourth quarter, earnings soared 240% to 34 cents a share.
Revenue climbed 26% to $457.8 million.
Analysts polled by Thomson Reuters expect Parexel to stay on
the fast track. They see fiscal 2013 first-quarter earnings
rising 45% to 29 cents a share. They expect full-year fiscal 2013
earnings to increase 27% to $1.40 a share. They see a 29% jump in
"Our belief is the company will probably have very strong
growth over the next couple of years based on the backlog built
up and the amount of activity drug companies are engaging in with
respect to late-stage trials," said Van Fleet.
Still, it's not resting on its laurels. In July it launched
the Parexel BioPharm unit, focused on the needs of small and
midsize biopharma companies to help them achieve their
Recent data indicate that small and midsize companies are the
"engine" of the biopharma industry, the company said in a press
release. A hefty 81% of ongoing development programs originate
from sponsors outside the top 25 biopharma companies, it