- Parexel International Corp. plans to eliminate around 1,200 jobs as part of an expanded restructuring effort aimed at "right-sizing" the company and improving operating margins.
- The contract research organization (CRO) expects the headcount reduction will cost between $49 million to $63 million, but will result in $75 million to $85 million worth of savings. Those savings will mostly materialize in its 2018 fiscal year, however, which starts July 1.
- While executives haven't detailed what parts of the business will experience the most cuts, they have made efforts to trim down the company's nearly 20,000-person workforce in countries where labor costs are higher. "We have an intense focus on labor costs and resource utilization," Parexel's Chief Operating Office Mark Goldberg said on a May 4 earnings call. "We continue to shift roles to our established lower-cost locations, such as India, where feasible."
Restructurings are usually a last line of defense for companies. Either they fix what wasn't working, or they show that a sale might be the best bet. Though this newly-revealed restructuring expansion hints that Parexel is committed to getting itself back on track, recent rumblings indicate a deal might not be out of the question.
Earlier this week, the Wall Street Journal reported that the company is exploring a sale. Fueling that fire was another report that activist investor Starboard Value LP had taken a 5.7% stake in the company.
Parexel did not return BioPharma Dive's request for comment.
Should the company not sell, it will have to keep a watchful eye on its restructuring plan.
Sending jobs overseas will surely save money in the near-term, but the move also carries some risk. Research and manufacturing operations in China, India and other markets with less expensive labor have a relatively poor track record of staying compliant.
In March, for instance, the European Medicines Agency revealed that Micro Therapeutic Research Labs, an Indian CRO, had for years submitted faulty bioequivalence data, an act that threatened more than 20 products —some of which from big drugmakers such as Novartis and Aurobindo — with market suspensions. Should a similar situation happen to Parexel, it could offset the potential gains from its staff reshuffling.
"We are reducing costs carefully, so that our level of client service remain high and so that we will be ready to capitalize on an expected rebound in our business," CEO Josef von Rickenback said during the earnings call. "While right-sizing is an important goal of the restructuring, this is not just about cutting costs. It is an opportunity to advance our strategy by making thoughtful reductions in investments to purposefully shape the company and its direction for the future."
Of particular importance for Parexel is achieving a 14% to 16% adjusted operating margin. The company was far from that during its third quarter, with operating income at $30 million and margins at 5.6% versus $70 million and 13.2% the year prior. Leadership blamed the restructuring efforts for this year's lower figures.
Parexel reported in a 10-Q filing that the restructuring plan, the initial version of which gained approval in January, cost $21.8 million for the first three months of 2017, driven entirely from separation benefits paid out to laid off employees. Before the plan expanded, the company said it only intended to axe 400 positions. As of March 31, the company had reduced its workforce by 257 since the beginning of the year, according to execs.