Parexel's Reorganized Research Segment Includes Small-Company Specialty

Parexel will create a unit dedicated to small biotech and pharmaceutical businesses as part of a reorganization of the company's contract research segment.

The new unit, based in San Diego, is one of four "client research units" structured around specific customers. Bernard King, MD, will be general manger for the emerging companies section.

King has held management positions at two smaller companies - Advanced Tissue Sciences and Trega Biosciences - as well as SmithKline and Bristol-Myers.

Parexel has also created a scientific and medical services unit, headed by Warren Stern, PhD, to provide the client research units with expertise in designing development programs.

An advanced technology and informatics group has also been formed to focus on "applying new technologies to accelerate the clinical development process."

Mark Goldberg, MD, will be senior VP of the advanced technology group. Goldberg joined Parexel in 1997 and founded the medical imaging services division. He was previously president and medical director of the telemedicine company WorldCare.

Parexel's reorganization is designed to place managers in closer contact with individual clients and to increase the efficiency of resource use.

In recent months, the CRO industry has been hurt by cancellations of large research projects which created earnings shortfalls for Covance and Quintiles. In response, Covance announced layoffs, and Quintiles said it was moving forward with a global accounting system which would allow better planning of resource use (¹ (Also see "Quintiles Increases Contract Win Rate But Suffers From Halt Of Antiplatelets" - Pink Sheet, 20 Sep, 1999.)).

Parexel's revenues for the third quarter grew 11% to $91.8 mil. However, net income fell 19% to $4.4 mil. for the quarter.

The contract research services segment's net revenue grew to $65 mil. compared to $55.8 mil. in the year-ago quarter. Contract research encompasses a growing share of Parexel's business, taking in 71% of the company's total net revenue, up from 67%.

Gross margins fell for research services, as they did for each of Parexel's segments. The research segment collected 36%, down from 38%. Gross margins for the company overall slipped from 35% to 32%.

The consulting group's net revenue grew from $13.2 mil. to $15.3 mil. and its percent of net revenue ticked up one point to 17%, but gross margins plunged from 31% to 20%. Parexel attributed the fall to underutilized resources resulting from a large project that was completed but not replaced.

Parexel's Barnett consulting subsidiary is planning to expand its strategy consulting business segment to complement its implementation consulting offerings.

The completion of a large registry project also affected the medical marketing services group, which designed and administered the National Osteoporosis Risk Assessment for Merck.

The three-year project involved nearly 4,000 primary care physicians in 33 states and offered bone mineral density scans to over 200,000 women. Parexel has not found a replacement revenue.

Merck, which markets Fosamax (alendronate), presented results from the NORA project in December 1998, showing that Hispanic, Native American and Asian woman may suffer from low bone mass and osteoporosis more frequently than Caucasian women.

Net revenue for the medical marketing services declined 18% for the quarter ended Sept. 30 to $11.3 mil. The marketing segment's share of total revenue dropped to 12% from 17%. Gross margins edged down a point to 27%.