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Goldman Sachs expects a gradual recovery in end-market growth throughout the year as the Tools and the contract research organizations (CROs) enter 2025 after underperforming in 2024.
Bioprocessing is anticipated to gain momentum as the year progresses, with instruments poised for recovery by mid-year, potentially achieving healthy growth rates by the fourth quarter. However, investor skepticism remains high following overly optimistic guidance in 2024.
Improved visibility, normalized supply chains, and stable ordering patterns suggest better conditions for 2025, although debates around large pharma spending are expected to dominate early-year discussions.
Goldman Sachs analyst Matthew Sykes is cautiously optimistic about a potential recovery in the Life Sciences Tools sector in 2025. However, investor interest in this area remains low.
The analyst writes that the health care sector saw the fastest pace of net buying in five months last week—except for segments like Life Sciences Tools & Services.
This hesitation stems from repeated disappointments in market recovery, ongoing declines in revenue and earnings forecasts, and persistently high valuations.
Danaher Corporation (NYSE:DHR) and Thermo Fisher Scientific Inc (NYSE:TMO) are scheduled to release their fourth-quarter 2024 earnings next week.
Sector allocations among traditional, long-only investors have slightly increased, which is a positive sign.
A BofA Securities report in December highlighted that the Life Sciences Tools sector struggled in fiscal year 2024.
Pharmaceutical and biotech companies' spending dropped after pandemic-related overspending, and demand in China stayed weak. This led some Life Sciences companies to lower their already-conservative fiscal year revenue forecasts as the year progressed.
For most of fiscal year 2024, Life Sciences company valuations remained higher than pre-COVID levels but declined after the U.S. elections. Looking ahead to fiscal year 2025, initial forecasts and management comments suggest a mixed outlook.
Over the past two years, hedge funds have driven most of the sector's activity, but their recent pullback, combined with mutual funds' growing interest, could pave the way for broader investor engagement—if the sector demonstrates sustainable recovery.
For this to happen, large biopharma companies, the sector's key customers, need to stabilize spending amid challenges like the Inflation Reduction Act and patent cliffs.
Increased R&D investment would also be crucial. While M&A could support this shift, their net impact is expected to be neutral.
However, M&A activity may still encourage investment to replenish product pipelines for major pharmaceutical companies.
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