Q1 leading indicator data provides positive outlook for biopharma outsourcing

Despite recent macroeconomic uncertainty and concerns about AI-related disruption, biopharmaceutical demand is set to improve throughout this year, according to an analysis of first-quarter 2026 leading indicator data by William Blair analysts.

Their 2026 outlook for the outsourcing and services sector is optimistic based on the biopharma industry’s Q1 funding levels, product pipeline, and research and development (R&D) spending — leading indicator data that the analysts contend will drive demand.

While funding momentum has “cooled a bit” in Q1 2026 after a strong end to 2025, the analysts describe the biopharma environment as remaining “healthy” overall. Capital raised in Q1 was $21 billion, up 51% year-over-year but 22% below the $26.8 billion raised in Q4 2025 — which represents the largest amount raised in any period since Q4 2021.

In Q1 2026, biopharma companies announced 20 merger and acquisition (M&A) deals worth approximately $50 billion, up nearly 60% year-over-year — which puts 2026 on pace to be the strongest M&A year since 2019.

“On the funding front, we expect the recent uptick in pharma M&A and positive updates on tariffs and drug pricing to result in sustained funding strength in 2026, ultimately leading to a rebound in demand from smaller innovators,” the analysts wrote in their April 10 report.

In addition to driving a rebound in biopharma funding, the analysts argue that the uptick in M&A “should help large pharma deal with the significant loss of exclusivity headwinds many are facing over the next couple years, which, along with the recent clarity and positive updates these drug developers have gotten for tariffs and drug pricing, will free them up to start reinvesting more aggressively in their pipelines moving forward.”

Mixed data for product pipelines

The analysts called out the fact that product pipeline growth in Q1 remained well below pre-pandemic levels, while the number of total candidates was essentially unchanged compared to the end of 2025.

“Through the end of March, the number of preclinical candidates was up 1% year-over-year and flat compared to last December, with sequential improvement in January largely offset by sequential decreases in both February and March,” the analysts wrote. “Things look fairly similar on the clinical side, with the number of candidates up 1% year-over-year and flat compared to the end of 2025.” 

Pipeline growth in Q1 2026 came from Phase III programs, which were up approximately 1% sequentially and year-over-year, while offsetting a slowdown in growth from Phase I programs on a year-over-year basis — up 1% versus 2% growth in 2025— and a slight reduction in Phase I programs on a sequential basis.

“Phase II programs were flat year-over-year and sequentially, but thanks to the previously mentioned increase in Phase III programs, total late-stage programs grew sequentially for the second consecutive quarter after declining in each of the first three quarters of 2025,” the analysts said.

R&D spending to rise in 2026

Biopharma R&D spending as of Q4 2025 — the latest data available, according to William Blair analysts — was up 8% year-over-year, slightly below the 9% growth observed in Q3 2025 but above average growth observed over the last 10 years.

“Looking at the data by company size, R&D spend by large biopharma companies was up 9% year-over-year in the fourth quarter, in line with last quarter and well above the mid-single-digit growth observed over the last decade,” the analysts said, noting that small and midsize biopharma spend was up 5% year-over-year in Q4 2025, modestly below the 7% growth observed last quarter and well below its low- to mid-teens historic growth average.

The William Blair report cited data from Evaluate Pharma forecasting that total biopharma R&D spending is expected to increase 7% in 2026 (up 4% from their last key metrics update) and 2% in 2027 (down 4% from their last key metrics update).

Lonza well positioned in CDMO space

In a Friday webcast, William Blair analyst Max Smock said the contract development and manufacturing organization (CDMO) sector “continues to be attractive” fueled by potential tailwinds from regionalization and demand for U.S. capacity.

Lonza’s available U.S. capacity and global footprint are major competitive advantages, according to Smock. In a January 2026 note to investors, he said Lonza has an “unmatched” CDMO footprint in terms of both technical and global reach that includes six sites in Europe, five in the U.S., and two in Asia.

“As we continue to see the macro uncertainty that pushed toward regionalization, that should all be a tailwind to increased outsourcing trends — in particular, increased outsourcing to CDMOs that have global manufacturing footprints that can support these customers across geographies,” Smock said in Friday’s webcast. “There’s no bigger beneficiary there than Lonza.”

At the same time, Smock noted that Siegfried’s pending acquisition of two U.S. drug substance facilities — slated to close in Q2 or Q3 2026 — positions it for sustained profitable growth. Siegfried’s global network of 13 facilities in seven countries produces active pharmaceutical ingredients, intermediates, and finished dosage forms.