Contract development and manufacturing organizations (CDMOs) will be out in force at the J.P. Morgan Healthcare Conference in San Francisco, Jan. 13-16, looking to jumpstart their businesses in 2025. As CDMO executives arrive for the annual event, William Blair analysts have provided an update on certain leading indicator data they contend drive demand for the biopharma outsourcing industry and could be a harbinger for this year.
While CDMOs faced headwinds in 2024, the outlook this year for the outsourcing space is cautiously optimistic based on the biopharma industry’s funding levels, product pipeline, and R&D spending, according to William Blair analysts.
“Capital raised by the biotech industry in the fourth quarter of 2024 was $14.2 billion, up 16% year-over-year but 9% below the $15.6 billion raised in the third quarter of 2024,” William Blair analysts reported. “While we are disappointed that momentum has slowed further after a very strong start to the year, we note that the $14.2 billion raised in the fourth quarter is still roughly in line with the $14.3 billion quarterly average observed during the three years leading up to the pandemic.”
The analysts highlighted that, on an annual basis, capital raised by the biopharma industry in 2024 was $75 billion — 30% above the $57.7 billion raised in 2023 and 31% above the $57.2 billion annual average during the three years prior to the COVID-19 pandemic. At the same time, they said the number of deals decreased sequentially from 1,232 in 2023 to 1,208 in 2024.
The bad news for product pipeline growth is that it continued to “moderate” through the end of December 2024 and remains well below pre-pandemic levels, according to the analysts.
“While the number of preclinical programs grew by a modest 3% in 2024, this represents an improvement from 2% growth year-over-year at the end of September, suggesting that the preclinical pipeline may have troughed after normalizing over the last 18 months,” the analysts wrote.
Still, they said “things look slightly more depressing for clinical programs, with the number of ongoing trials down 1% year-over-year in 2024.” There was a 1% year-over-year decline in total clinical programs through the end of September “but the number of trials decreased sequentially in the fourth quarter, ending the year at 9,786 versus 9,882 at the end of the third quarter,” according to the analysts.
R&D and M&A
Biopharma R&D spending as of the third quarter of 2024 — the latest data available, according to William Blair analysts — was up 8% year-over-year, modestly above the 7% growth seen in the second quarter of 2024 and in line with the mid- to high-single-digit growth over the last decade.
R&D spend by large biopharma companies grew 9% year-over-year in the third quarter of 2024, modestly above the 8% growth rate in the previous quarter and “besting its mid-single-digit average during the last decade,” the analysts said. “Small and midsize biopharma total spend was up 6% year-over-year in the third quarter, which is nicely above the 3% observed last quarter but remains well below its low- to mid-teens historical average.”
The analysts cited data from Evaluate Pharma forecasting that total biopharma R&D spend will increase by approximately 3% in 2025.
“We believe these statistics paint a mixed picture of the biopharma outsourcing industry based on the sequential stepdown in funding and the pullback in the number of clinical programs in development observed during the quarter,” Max Smock, equity research analyst at William Blair, wrote in a Jan. 10 note to investors.
With CDMOs reporting their fourth-quarter earnings starting this month, Smock said his firm remains “cautiously optimistic” that “the better funding environment in 2024 will translate into increased demand from smaller innovators in 2025 and that larger innovators have largely worked through the pipeline reprioritization processes that have been ongoing for the last year and more.”
Simon May, president of Agilent Technologies’ Life Sciences & Diagnostics Markets Group, told Pharma Manufacturing he also views 2025 with cautious optimism.
“We’re coming off a couple of years of challenging conditions that we’ve seen across the sector, and I think we’re seeing some green shoots of recovery in the biopharma sector,” May said. “At the same time, I still think we’re working in an environment that’s got some elements of volatility and unpredictability about it.”
May noted that M&A and investment activity was “severely impacted coming through the other side of the pandemic” and last year the industry experienced a “compounding of all of those factors” with 2024 proving to be a “tough year” for the sector.
However, biopharma dealmaking at this week’s J.P. Morgan Healthcare Conference will be closely watched, as major drugmakers face a daunting patent cliff and M&A announcements typically make big news at the industry’s annual investment event.
