Icon goes on hiring spree as analysts chide CROs on deal risks

Shares of Icon and Parexel slipped a bit yesterday as a crowd of analysts gathered around to criticize the CROs on the downside of a new wave of strategic relationships with Big Pharma companies.

Icon got the comments rolling with an announcement cutting its 2011 financial guidance, noting that it has to make some sizeable upfront investments to support an outsourcing deal it has with Pfizer. Pfizer--which is axing billions out of its R&D budget as it outsources a growing amount of research work--has a pact with Parexel as well, and some of the analysts are growing distinctly uncomfortable with the high stakes involved.

"Icon has a lot on its plate right now, and an admitted appetite for additional strategic arrangements is somewhat unsettling given potential for additional investment requirements," RW Baird's Eric Coldwell noted, in a story from Outsourcing-Pharma, which has been covering this story closely. "We do not believe Icon is a broken story, but we do anticipate additional challenges ahead and we've taken a sharp pencil to our forward estimates."

"Our enthusiasm for strategic deals is waning and Parexel has a lot of them," said David Windley, an equity analyst at Jefferies. Windley also is uncomfortable about the underlying cost of some of these relationships. "Pfizer is more likely to transition projects in most need of help, which translates to lots of cleanup and an extra challenge to the relationship kick-off."

Icon, though, is committed to making it all work out. It's adding 600 to 800 new workers to make sure it has the manpower needed to do the work, according to Outsourcing-Pharma.

"The major achievement of the quarter was our selection by Pfizer as one of their two partners for clinical development," said Icon CEO Peter Gray. "Significant work will be transitioned to Icon over the next two years as this partnership develops which should drive an acceleration in our growth over that time. We are thus increasing our hiring drive and expect to add significant cost in the next two quarters as we gear up to handle work which will be transitioned to us in Q4 and throughout 2012."

- here's the release from Icon with the new numbers
- read the story from Outsourcing-Pharma on the analysts' remarks
- check out Outsourcing-Pharma's report on the Icon quarterly report