The outlook for the biopharmaceutical outsourcing and life science tools sector is positive based on the biopharma industry’s funding levels, product pipelines, and research and development (R&D) spending, according to an analysis of second-quarter 2026 leading indicator data by William Blair analysts.

“In the biopharma outsourcing space, we believe these data points largely support our view that despite some lingering macro uncertainty and overhang around AI-related disruption, biopharma demand is poised to improve materially as we move throughout this year,” the analysts wrote.  

The report described the funding momentum in Q2 2026 as “strong” with total levels marking the highest quarter since Q4 2021. On a trailing 12 months (TTM) basis, total funding was $95 billion, up 69% year-over-year, which is now the second quarter in a row of positive TTM funding. Capital raised by the biotechnology industry in Q2 2026 was $29.4 billion, up 133% year-over-year and 38% above the $21.4 billion raised in Q1 2026.

“While bioprocessing growth has largely normalized, we view the continued improvement in biotech demand as a clear positive as it adds further confidence to the high-single-digit guides provided for 2026,” the analysts said.

When it comes to life science tools, Big Pharma remains the sector’s largest customer base, but small biotech and academic headwinds are diminishing, the analysts contend.

“On the tools side, we still expect more of a step-function change in demand driven by the improving funding environment and stable (i.e., not worsening) academia along with resilient biopharma spend, with results improving sequentially throughout the year and 2027 a more ‘normal’ year.”

The analysts said they expect the “robust uptick” in mergers and acquisitions (M&A) in the first half of 2026 — in Q2 in particular — and more certainty on tariffs and drug pricing to “result in sustained funding strength in 2026, ultimately leading to a rebound in demand from smaller innovators.”

In addition to driving a rebound in biotech funding, the report also noted that the increase in M&A “should help large pharma deal with the significant loss of exclusivity headwinds many are facing over the next couple years, freeing them up to start reinvesting more aggressively in their pipelines moving forward.”

Drug development pipelines

While pipeline growth has remained below pre-pandemic levels, the analysts said the number of total candidates has started to show an upward trend.

“Through the end of June, the number of preclinical candidates was up 2% year-over-year and up 1% compared to last December,” the report states. “On the clinical side, the number of candidates in the pipeline was up about 5% both year over-year and when compared to the end of 2025.”

Clinical pipeline growth in Q2 2026 was primarily driven by an increase in Phase I candidates — up 3% year-over-year in April, up 6% year-over-year in May, and up 9% year-over-year in June. Phase II and III programs both saw an approximately 2% year-over-year increase, roughly flat on a sequential basis versus the end of May.

R&D spending on the rise

Biopharma R&D spending as of Q1 2026 — the latest data available, according to William Blair analysts — was up 6% year-over-year, slightly below the 8% growth observed in Q4 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 5% year-over-year in the first quarter, slightly below last quarter and in line with the mid-single-digit growth observed over the last decade,” the analysts said, noting that small and midsize biopharma spend was up 8% year-over-year in Q1 2026, modestly below the 5% growth observed last quarter and below its low- to mid-teens historic growth average.

The analysts cited data from Evaluate Pharma forecasting that total biopharma R&D spending is expected to increase more than 3% in 2026 (down from 7% in their last key metrics update) and 2% in 2027 (in line with 2% in their last update).