AI may accelerate drug pipelines, but services firms see a slowdown

The organizers of CPhI Worldwide, the big pharmaceutical services exhibition set for October in Barcelona, just published a preview of their annual survey of drug industry executives. The focus is on artificial intelligence; the tenor is upbeat.

Within 10 years, over 50% of drugs that win approval will involve AI in development or manufacture, according to the report. Over 60% of respondents from about 250 drug firms foresee the first fully AI discovered and developed drug winning the US Food and Drug Administration’s nod in 5 years; 20% of respondents predict such an approval in 2 years.

The report finds that AI-enabled biotech companies are more attractive to venture capitalists than companies with drug candidates in early- and late-stage development. Overall, the report extols the speed and cost savings afforded by AI in areas such as clinical trial design and in silico modeling.

But at ChemOutsourcing, a smaller meeting of pharmaceutical services firms in New Jersey earlier this month, there was far less focus on AI and a more dour outlook for the business of manufacturing pharmaceutical ingredients for drug companies.

Price pressures, a prolonged dip in biotech stock prices, and general hesitancy on the part of venture capital firms to invest in small and mid-sized drug companies foreshadow a slowdown in contract manufacturing next year, many in attendance said.

“I think 2024 is going to be a bit of a transitional year,” predicted Kenneth Drew, vice president of US operations for the Italian services firm Flamma. A downturn would follow a decade of double-digit annual growth for many services companies in a sector that thrived during the pandemic.

With financing tight, biotech firms are now often focused on only their lead drug candidate, a strategy that Drew likened to keeping all eggs in one basket. “If that basket breaks, it can kill a company,” he said, a development that would reverberate at Flamma and other companies that serve such firms.

But Stefan Loren, managing director for healthcare investment banking at Oppenheimer, said in a keynote address at ChemOutsourcing that the disappearance of a few small to mid-sized biotech companies may not be a bad thing for the sector. He noted that the number of publicly traded biotechs has risen from 125 in 2012 to 706 in 2023, diluting the availability of investment capital.

“Biotechs have to fold, go bankrupt, or be swallowed up” through mergers and acquisitions, Loren said, noting that generalist investors are not currently investing in small companies. Such culling could combine with a drop in inflation to fuel a biotech recovery going into next year, Loren said.

James Bruno, president of the consulting firm Chemical and Pharmaceutical Solutions, cautioned that a brighter 2024 may not be within reach for services firms. “The financial markets are opening up, but I don’t think small pharma actually sees that yet,” he said, and that doesn’t bode well for services firms.