By Sneha S K
(Reuters) -Contract research organizations are reporting better-than-expected second-quarter profit, a sign that Wall Street analysts say reflects a rebound in biotech and pharmaceutical spending after a cautious stretch driven by tighter sector financing.
Danaher, Medpace, IQVIA, ICON and Thermo Fisher have posted strong results owing to steady demand from the industry for tools and services that are used in the development of novel medicines.
“Biotech funding has started to tick up month over month from April to June, and perhaps our biggest takeaway from IQVIA results as well as Medpace is that the macro environment, while still challenged, has perhaps stabilized,” said TD Cowen analyst Charles Rhyee.
Contract drug manufacturers witnessed reduced spending from biotech clients in the past two years, hurt by a slump in investor funding and higher interest rates.
The S&P Biotech ETF index hit an 18-month low in April and is trading at about half its 2021 peak.
Analysts had initially feared that recent policy changes under U.S. President Donald Trump’s administration such as potential tariffs on pharmaceuticals and a trade war with China could further squeeze R&D budgets across the sector.
Several CROs also operate in the country, and count biotechs there as clients. China is also a key source of raw ingredients and supplies for the pharmaceutical and medical device industries.
However, CRO executives flagged robust demand across regions for their drug development products such as instruments and analytical tools used in trials and manufacturing.
Some companies also experienced fewer order cancellations than initially expected, with IQVIA’s CEO Ari Bousbib saying their clients “continued launching new drugs despite the uncertainty”.
IQVIA’s results point to a potential inflection in its biopharma demand environment, which would bode well as we enter 2026, said Evercore ISI analyst Elizabeth Anderson.
Medpace raised its full-year revenue expectations by $280 million at the midpoint, citing better-than-expected funding, fewer cancellations and accelerated decision-making.
“Although funding challenges remain acute for many of our clients, the large majority of those clients with ongoing studies were able to obtain sufficient funding to keep the trials running. The funding environment has been stable to improved,” said Medpace CEO August Troendle.
Despite signs of recovery, some analysts remained cautious.
“CRO results thus far indicate an improving end-market… However, we do not yet have high conviction that clinical trial demand has returned to full health,” Leerink Partners analyst Michael Cherny said.
(Reporting by Sneha S K in Bengaluru; Editing by Leroy Leo)
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