Parexel to close four sites in early stage cuts

07-Jun-2011 - Last updated on 08-Jun-2011 at 10:27 GMT

Parexel is closing four facilities and downsizing another five in a restructuring of its loss making early phase unit.

In May Parexel outlined plans to cut early phase capacity by up to 30 per cent and has now revealed further details. All nine of Parexel’s early phase sites will be affected, either by closure or downsizing, as it adjusts to what it believes are irreversible changes in the sector.

“We believe that a critical reanalysis of study design is leading to more complex but streamlined development approaches”, said Mark Goldberg, chief operating officer at Parexel, at an investor day held last week.

In this new environment biopharm is focusing on making an early assessment of proof-of-concept and then going back to do other work on the most promising compounds. Adoption of this strategy has resulted in fewer studies per molecule and overcapacity in the early phase sector.

Following cuts by some its peers Parexel is restructuring its early phase operations. Of its nine sites, in Europe, the US and South Africa, Parexel is closing four and downsizing the rest. Taking these measures will cut bed count by 28 per cent and cause around 300 layoffs.

At this stage discussions with works councils and other groups are on going and Parexel is unable to give further details. Parexel expects to have completed the restructuring by January 2012, although this is subject to progress in discussion with works councils and other groups.

Shifting focus

Global overcapacity has led to competitors offering discounts of 20 per cent, said Goldberg, and this has hit margins at Parexel. Parexel believes making the cuts and focusing resources on growth early phase areas, notably trials in patients, will help return the unit to profitability.

Up to one-third of new early phase business at Parexel is for patient – healthy volunteer hybrid work, said Goldberg, and in light of this the company plans to refine its early phase business to “straddle Phase I and II”.

Expanding relationships with external early phase sites is one element of the post-restructuring strategy. Working with external partners should help Parexel retain scale and access to patient populations.

Parexel is keen to keep up a solid presence in early phase as it views the unit as an important element of being a full service provider. Furthermore, Parexel, like Icon, referred to increased interest in early phase strategic partnerships and needs to keep scale to compete for this work.

In a note to investors Eric Coldwell, equity analyst at RW Baird, said: “Parexel is competing effectively for strategic partnerships on a platform supported by its global footprint, eClinical technology offerings, and therapeutic expertise.”

Losses at Perceptive Informatics

Like the early phase unit, Perceptive Informatics, the eClinical business at Parexel, is on course to make a loss in fiscal 2011. Parexel confirmed the unit is running at a loss during its investor day.

To return the unit to profitability Parexel is working to automate manual tasks, which could increase efficiency by 20 per cent, and offshore back office functions to low-cost countries.