It's been a volatile time recently for PAREXEL International (Nasdaq: PRXL ) shares. The contract research services provider's stock opened last Monday at $27.50 and closed on Friday at $23.61, down 16.5% for the week. In recent trading today, the shares were back up 9% on heavy volume.
The apparent reason for the hubbub is PAREXEL's work for German biotechnology company TeGenero AG. PAREXEL was running a phase 1 clinical trial in the U.K. for an experimental monoclonal antibody developed by the German firm, and six male participants in the study became critically ill. That news broke Tuesday, and in response, PAREXEL shares nosedived. Today, Reuters reports that four of the men have regained consciousness and talked to their families, leading to the recent spike in PAREXEL's shares.
In light of these dramatic developments, the ups and downs in PAREXEL's shares might seem perfectly reasonable, but in fact, like a lot of knee-jerk market reactions, the buying and selling doesn't make a ton of sense. PAREXEL is merely a contractor carrying out a service. It doesn't own the drug in question. TeGenero is ultimately responsible for the drug, its effects, and the study design. PAREXEL, meanwhile, should still get paid for the work it's done for the German biotech.
Of course, it's possible that PAREXEL didn't follow regulatory guidelines or made errors during the trial. British authorities are investigating, but the company's internal inquiry so far shows that everything was done above board and in line with the study protocol. However, the Financial Times recently suggested that PAREXEL skirted British pharmaceutical industry guidelines that state "widespread or public advertising for clinical trials is unacceptable" and "neither payment, nor the level thereof, should be mentioned in a public notice."
Still, these guidelines are not law, and more importantly, the recommendations seem utterly ridiculous. How are companies like PAREXEL, PPD (Nasdaq: PPDI ) , and Covance (NYSE: CVD ) supposed to recruit study participants without public advertising? By telepathy? And while in a perfect world folks would participate in drug studies out of altruism, most people probably wouldn't volunteer unless told up front they will be paid.
It's been a rough week for PAREXEL. Surely, no contract research firm wants people getting sick on its watch. But based on current evidence, the frenzied buying and selling of the firm's stock has been much ado about nothing.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
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