Bioprocessing Q3: After 18 challenging months, is the worst behind?

For close to a decade, give-or-take a lumpy spell or two, the bioprocess space saw continuously robust quarterly results on the back of biopharma and third-party manufacturers demanding (often single-use) equipment and consumables in bulk to support bulging biologic pipelines.

Industry growth consistently pegged in at 12% to 13% annually overall, with some of the bigger players seeing even higher year-on-year growth. Sartorius, for example, reported a 21% jump at the end of the last decade, and Thermo Fisher Scientific historically has seen growth in the high-teens (15% to 20%).

But then in 2020 COVID came along, and despite the first couple years seeing bioprocess demand buoyed by the mass of vaccine and therapeutic protein projects that sped through the clinic, the old adage states that “what goes up, must come down.” For the past 18 months the sector has very much been – if not quite in freefall – on a downer.

The dwindled demand for COVID vaccines/therapeutics coupled with a drop in biotech funding led vendors to begin reporting falling orders and lower book-to-bill ratios from the latter half of 2022. The inevitable bioprocess equipment destocking dynamic, part of what was described as “swift normalization of demand” by some, saw quarterly sales drop 15-20% year-on-year among some of the big players.

Over the hump

However, with many of the big vendors having reported their third-quarter 2024 results, the bad times are – optimistically – over.

“Given both Sartorius and Repligen reiterated full year guides in September [at various investor events], and checks at the recent BPI conference [part of Biotech Week Boston in September] were broadly in-line (consumables coming back, equipment struggling), results from Sartorius were not surprising,” Jefferies analyst Tycho Peterson wrote in a note.

“In the face of 18+ challenging months, an in-line print and reiterated guide are enough to build confidence that the worst is behind.”

Sartorius said order intake “increased significantly” by 8.4% to €1.84 billion ($2 billion) for the first nine months in its Bioprocess Solutions Division.

“Following the very volatile development caused by the pandemic, the business situation has stabilized, and we are on track to achieve our full-year guidance,” group chairman Joachim Kreuzburg said in his firm’s earnings results.

“Most of our customers are nearing the completion of their destocking which has led to an increase in order intake particularly for consumables,” CEO René Fáber added during a conference call. “We are encouraged by the above average performance of our Advanced Therapies portfolio and are also well progressing with the integration activities in that area.” He added the firm is seeing increased activity levels from customers, though warned the volatile investment continues to impact the equipment business.

Thermo Fisher also indicated a return to stability. “It was nice to see strong momentum in orders, both sequentially and year-over-year,” CEO Marc Casper told stakeholders on its Q3 call. “Revenue continues to progress in the right direction sequentially in terms of growth, and that obviously is going to be less of a headwind going forward and ultimately going to in not-distant future in terms of bioproduction. That's good.”

Thermo’s bioprocessing business falls within its Life Sciences Solutions reporting segment, which for the third quarter saw revenues of $2.4 billion, a decline of 1.9% year-on-year. Jefferies’ Peterson attributed this to “a small 3Q revenue miss and 4Q guide, which implies a wide range of revenue outcomes,” and noted the bioproduction side saw “healthy order momentum q/q (and y/y) with headwinds flipping to tailwinds in the ‘not too distant future.’”

Monoclonal drive

Danaher is also well on the road to recovery. The conglomerate owns major vendor Cytiva among its bioproduction businesses but does not report its individual company financials. However, on its conference call, Danaher CEO Rainer Blair described the difference between customer size in terms of current demand, with larger biopharma and contract development and manufacturing organizations (CDMOs) leading the charge.

“Production volumes at these customers, who are primarily manufacturing monoclonal-antibody therapies, has continued to grow in line with historical averages. Now we've seen demand at these customers steadily improve throughout the year as they're moving past inventory destocking and anticipate this gradual recovery will continue over the coming quarters,” he said.

“In contrast, we're not seeing the same level of improvement in underlying performance from our smaller customers. Despite a modest improvement in the funding environment, they continue to rationalize their therapeutic programs and remain cautious with their investments.”

As such, Blair expects a low single-digit core revenue decline in his company's bioprocessing business for the full year 2024, despite an assumption of high single-digit core revenue growth in the fourth quarter.

However, he told investors, “as destocking moves behind us, we're increasingly excited about the long term opportunities ahead for Cytiva's leading bioprocessing franchise. Monoclonal antibodies, which comprise the majority of our revenues, remain the largest investment area for our customers.

“We're also seeing accelerated adoption of these therapies and six of the top 10 highest revenue-generating drugs today are monoclonal antibodies. With our comprehensive portfolio, our best-in-class scientific services and innovation focused on increasing yields and enhancing manufacturing efficiencies, we believe we're very well positioned to support our customers today and well into the future.”