Contract Research Organizations Are Weak Again

As I mentioned earlier this week, the weakness in Parexel International (PRXL) - one of the top US contract research organization [CRO] companies (healthcare) [Apr 14: Keep an Eye on... Parexel International]. Then Tuesday Affymetrix (AFFX) (not a direct competitor) blew up [Apr 15: Affymetrix Blows Up on Warning], blaming a slowdown in research by customers.Now today the whole CRO group is showing some serious weakness. Keep in mind a 5% move down in this group is like a solar stock or fertilizer stock dropping 15%, as these are slow moving entities.

Covance (CVD) down 5%
Parexel International (PRXL) down 7%
Pharmaceutical Product Development (PPDI) down 6%
ICON (ICLR) down 4%

These are the 4 names I follow and was interested in potentially buying at a lower valuation to diversify the portfolio - there are a few others, also weak. Again, healthcare spending is supposed to be a safe (recession proof) haven - I am wondering what is going on; if this is some sort of sector rotation or are healthcare companies having trouble getting funding in credit markets or simply pulling back R&D spend as business slows... strange to see this sector get hit like this without any news...

Looks like most report earnings in the next 2 weeks so it will be interesting to see if the stocks are telegraphing to us "those in the know" are exiting stage right and there is some sort of sector wide trouble.

Disclosure: No positions but watching closely

Comments

[LoveShorting:]

Thanks Mark, good info. I used to own CRL (have you thought about following them?) At the time, I picked them over CVD (Maybe it is my home town bias?) and definitely over PPDI (less attractive numbers) and Parexel (personal distaste). Anyway, when they just weren't making me any money, I moved to ICLR because I wanted the same play (selling to biotechs) but with overseas exposure. Based on all this, even though all 4 numbers in your article show loss, I was pleased to see ICLR best. Long term? Definitely up.

2008 Apr 26 07:50 PM