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By Lauren Adams, CFA | 11-10-2011 12:00 AM

A CRO Under the Microscope

Parexel CFO Jim Winschel on the benefits of contract versus in-house research for pharma firms, the advantages of global operations, and recent business acceleration.

Securities mentioned in this video
PRXL Parexel International Corp

Lauren Migliore: Hi, my name is Lauren Migliore. I'm a health-care analyst here at Morningstar.

Contract research organization Parexel is a leading provider of outsourced research and development services to pharmaceutical and biotechnology companies.

With us today is the firm's CFO, Jim Winschel, to speak with us about the competitive landscape in the drug development industry.

Thanks for joining us, Jim.

James F. Winschel: Thanks, Lauren.

Migliore: Well, let's start off with an overview of the industry. Can you outline the benefits that CROs offer over traditional in-house drug development?

Winschel: Sure. One of the things that has happened in the past is there have been some independent studies done, which indicate that if you do the work in-house, it's going to take you anywhere from three to six months longer to actually complete the study that you might be doing. So, what we offer to these clients is faster development time, generally lower cost, productivity and efficiency savings, and really flexibility, if you think about it. If a pharmaceutical company has locations all around the world in order to do drug development, and a drug gets canceled for whatever reason, or they stop development on it, then suddenly the pharma company's got a group of employees who have some kind of lag time in order to be re-engaged under the next study coming through for their particular company.

But in the case of a CRO, when we have those kinds of cancelations, we can immediately redeploy those individuals to the next study that's coming in the door, and the global presence that we have means that the pharma company doesn't have to keep this very heavy and expensive infrastructure in place.

Migliore: Got it. So, the CRO industry is still very fragmented, though we have several hundred providers offering a range of drug development services. So what advantages does a global CRO like Parexel have over their smaller competitors?

Winschel: Well, one of the things that happens with a small CRO or a mid-sized CRO when they win a big global study is that they have to do work with partners, and they might have a partner in Europe, with a partner in Asia, and maybe even a partner in South America. The pharmaceutical companies tend to be frustrated in those circumstances, because if something then goes wrong in the trial, people start to point fingers in other directions and things, and not necessarily take responsibility for the work that is done; whereas, the global, big CRO has got responsibility for the whole thing, and there's no finger pointing to be done in that particular respect.

What I like to think of it is, sort of one-stop shopping. T-hat can get all of this work done from us, from the beginning of actually designing and developing the protocol, in conjunction with them, all the way through to helping them get that particular drug to peak sales at the earliest possible opportunity.

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