File this one under “Uh-oh!”
Parexel International, one of the largest clinical research organizations, disclosed late Tuesday that it had to delay filing its annual report with regulators because an employee in one of its international offices has apparently stolen money. In a very brief filing with the US Securities and Exchange Commission, the company called it a “misappropriation of corporate funds.”
The company learned about this on Monday, the same day that its annual report was to have been filed with the SEC. As of now, Parexel maintained the amount of stolen funds does not appear to be material, “but there can be no assurance … until the company completes its review.” And when will the annual report be filed? “As soon as (it’s) reasonably practicable,” Parexel wrote, although the company suggested the filing could occur within the normal 15-day extension period the SEC permits.
We asked Parexel about the extent of their investigation and will update you accordingly. A contract research organization, by the way, organizes and runs clinical trials for drug makers. Such companies have prospered in recent years as many drug makers have cut back on certain expenses and tapped others to handle certain functions.
Not surprisingly, Parexel stock has been down on the news. And predictably, a slew of law firms has quickly begun soliciting clients with an eye toward filing lawsuits that allege violations of securities law.
Wall Street analysts, meanwhile, are somewhat sanguine, although they do point out this embarrassing development occurs after the previous Chief Financial Officer, Ingo Bank, resigned last month, a move that was interpreted at the time as a surprise, given that he was on the job about two years.
“Our view on the situation is that it is likely an isolated issue that will probably not trigger further negatives, such as a large charge or covenant violation with lenders. Also, the period of uncertainty should be fairly short,” William Blair analyst John Kreger wrote in an investor note.
“However, similar to the departure of the chief financial officer in July, this increases the risk in the stock, in our opinion, and raises the question: have the company’s internal controls been able to keep up with the high level of growth … in the last decade?”
Meanwhile, RW Baird analyst Eric Coldwell wrote that there is speculation this situation “may have played a role in Ingo Bank’s decision to resign … Based on facts available at this stage, including timing of discovery and deemed immateriality, we consider any such linkage to be irrational at best.”