Analyst downgrades Parexel, takes cautious view of contract research sector in early 2010

Analyst cautious on drug research outsourcing

NEW YORK — A William Blair & Co. analyst said Monday that contract pharmaceutical research companies may fall short of investor expectations in the coming months as their clients cut spending, but he said a recovery is possible later in the year.

Contract research organizations perform clinical and preclinical trials for drug companies. Analyst John Kreger said the stocks missed out on a broader market recovery late last year because contract bookings have been weak and investors are unsure when drugmakers will increase spending on research.

Some clinical studies that were delayed due to the economic crisis may begin in the second half of this year, he wrote.

Pharmaceutical Product Development Inc., the largest publicly traded contract research organization, will be the first company to report its quarterly results, on Jan. 19, making it a key indicator for the sector, Kreger said. He kept a “Market Perform” rating on the stock.

In afternoon trading, the company’s stock rose 47 cents, or 2 percent, to $23.30.

Kreger downgraded shares of Parexel International Corp. to “Market Perform” from “Outperform,” and trimmed his profit estimates for Parexel, Icon PLC and Covance Inc.

Parexel stock rallied despite the downgrade as the company raised its service revenue guidance earlier Monday. The stock rose $1.65, or 11 percent, to $17.05. Shares of the Waltham, Mass., company set an annual high of $17.11 during intraday trading.

The analyst kept “Outperform” ratings on Icon and Covance and a “Market Perform” rating on Charles River Laboratories International Inc.

Icon stock edged up 30 cents to $24.17, while shares of Covance rose $1.04 to $55.64, and Charles River Labs stock picked up 52 cents to $34.91.