Cost and research cuts across biotech and pharma are affecting some of the contracting companies that rely on the industry.
Steve CutlerThe latest victim is Icon, a Dublin-based contract research organization that reported earnings on Thursday that missed investor expectations by about $100 million and were 1.2% below prior year figures. CEO Steve Cutler said the company was “not where we anticipated to be at this point in the year.”
Analysts at William Blair were more blunt: “Worse-than-feared results and macro commentary drive shares meaningfully lower.” Investors ran for the hills, with Icon’s stock $ICLR down almost 20% on Thursday.
Three negative trends hit the company in the third quarter, Icon said: Large pharma companies are cutting budgets, including two unnamed customers that had “slower than expected ramp of new project work”; a volatile biotech industry that’s led to cuts and pullbacks at smaller companies; and a reduction on vaccine R&D.
In response, it plans to make its own cost cuts this quarter. That includes “looking at where we have an excess of people in certain areas,” Cutler said, adding that Icon will be “taking fairly decisive action” to save money.
Cutler believes that Icon is at or near the bottom of the slowdown with those two large pharma customers and said he anticipates improvement by the back half of 2025. But he conceded that Icon only has clear visibility into 2025 budgets on one of the two companies. Overall, Icon has “a transition period to work through over the next two to three quarters.”
While Icon didn’t disclose the names of the two large companies that have pulled back, it has a longstanding relationship with Pfizer, which has announced several rounds of cost-cutting over the last 12 months. UBS analyst Dan Leonard presumed on the call that Pfizer was one of the two companies that pulled back, which Cutler declined to confirm. A spokesperson for Pfizer did not immediately respond to a request for comment.
Icon’s relationship with small biotech companies has been uncertain as well. Cutler said that his business has somewhat mirrored the up-and-down trends in financing, but even when companies raise capital, they’ve been slow to spend it.
“They have delayed decisions, they have delayed awards, de-scoped projects and there has been some uptick in the cancellation side of things,” he said.
Icon’s troubles continue a chill that swept through the contract sector in the second quarter, forewarned in August by Charles River Laboratories. The large contractor said then that it was seeing a large decline in discovery and safety assessment offerings, describing the changes as “unusual activity for our pharma clients.” But Cutler rejected the notion that preclinical slowdowns would result in a larger, more sustained worsening of the clinical development business.
Numerous large pharmaceutical companies have been trimming pipelines and staff as part of a wave of restructurings. Pfizer, Bayer, Roche, Johnson & Johnson and Bristol Myers Squibb are just a few of the major drugmakers who have looked to shave costs and narrow R&D priorities.