By Puyaan Singh and Sahil Pandey
(Reuters) -Labcorp on Tuesday forecast lower annual revenue growth for its contract research unit as a prolonged funding crisis continues to weigh on its early-stage drug development clients.
Contract research firms have witnessed reduced spending from biotech clients over the past two years. The funding crisis, which was expected to improve this year, could be prolonged due to the political uncertainty of the Trump administration.
“The issue we’re seeing is the timing of studies starting… We were hoping that would start to return to more normality,” CEO Adam Schechter said during a call with analysts.
Comments about continued pressure on the unit weighed on shares, which fell 5.5% in afternoon trading, even though the company raised its annual earnings forecast and reported better-than-expected third-quarter earnings.
While the weakness in early-stage development is frustrating, the impact on the stock is being overstated, as the segment itself is a small contributor to core earnings, said Michael Cherny, an analyst at Leerink Partners.
The company expects the contract research unit to grow between 5.7% and 7.1% this year, up from its previous range of between 6.1% and 7.5%. Early-stage revenue for 2025 is expected to grow in the low single digits compared with the mid-single digits previously estimated, said CFO Julia Wang.
Labcorp said it is taking steps to address weaker demand in early-stage drug development by divesting or restructuring about $50 million in annual revenue through site consolidation.
Its full-year revenue growth forecast was also cut and is now expected to be in the range of 7.4% to 8%, down from Labcorp’s previous estimate of 7.5% to 8.6%, due to a stronger dollar and the timing of certain acquisitions.
The company expects 2025 adjusted earnings of $16.15 to $16.50 per share, up from its previous range of $16.05 to $16.50 a share.
For the quarter ended Sept. 30, Labcorp reported adjusted earnings of $4.18 per share, beating analysts’ consensus estimate of $4.13, according to data compiled by LSEG.
(Reporting by Sahil Pandey and Puyaan Singh in Bengaluru; Editing by Alan Barona)