Normalization drags on but bioprocess vendors expect recovery in 2024

This week, Thermo Fisher reported full year sales within its Life Sciences Solutions unit (essentially its bioprocessing/bioproduction business) of $9.9 billion, down 26% from 2022’s $13.5 billion.

A similar pattern was seen among Thermo’s peers, with Sartorius reporting sales of $2.7 billion in its Bioprocess Solutions business, down 19.5% year-on-year, and Danaher Corporation clocking in $7.1 billion in sales in its Biotechnology segment (which incorporates bioprocess giant Cytiva), down 18%.

The decline was not unexpected. Industry and investors are very much aware of dwindling demand for bioprocess and manufacturing services following the unprecedented highs during COVID-19 ­–  the post-pandemic ‘normalization’ in demand. The slowdown has been exacerbated by a lack of biotech funding, along with other macroeconomic factors, including political tensions with China.

But in his firm’s financial call, Thermo CEO Marc Casper reminded stakeholders how the sector has historically been “an incredibly good market” and is on the verge of recovery.

“When I think about the fourth quarter, we did see a sequential pickup in orders in Q4 versus Q3. But the underlying activity is still muted, right, in the market. So we didn't see an inflection,” he said. “Our view is that it will normalize as the year unfolds and as I've said in an investor conference earlier in the year, no one is going to get rewarded for calling the moment of when that inflection happens.”

Similarly, Danaher CEO Rainer Blair said on his firm’s Q4 call that while the first half of 2024 “will look a lot like second half of 2023, down mid to high teens,” the second half will see significant recovery. “We expect to return to mid to high single-digit growth and we believe by then that the destocking in North America and Western Europe will have largely been completed.”

Sartorius CEO Joachim Kreuzberg reiterated concerns of recovery not proving to be as swift as first predicted. Last year, the company lowered its forecast and warned of a prolonged period of decline, but speaking to shareholders last week he said Sartorius is entering “the final phase of this normalization.”

Little trouble in big China?

While all companies are positive for the next 12 months, one unpredictable concern is China. Beyond Sartorius’ claim consumption remains slower in China compared to other regions, Kreuzberg spoke of geopolitical conflicts that are playing a role to some extent. He specifically cited a US draft bill introduced last week that could lead to restrictions on major contract development and manufacturing organization (CDMO) WuXi Biologics.

Danaher’s Blair pointed to the long-term attractiveness of the China market, with the government “prioritizing, among very few priorities, healthcare.” However, the “challenging macro” environment is leading to “a tougher start to the year,” for bioproduction sales in the country “as the activity level essentially remains where it has been here in the second half of 2023.”

For Thermo, total sales from China declined by a high single-digit percentage in the last quarter and –like its peers – a recovery timeline is unclear.

“We're not calling for a meaningful improvement in China this year rather we lap the comparisons as the year unfolds so it becomes a little bit less of a headwind,” he said.

“We all know that at some point, the Chinese government will create some mechanism of stimulus. […] We don't know when that will happen, but at some point it will improve the market conditions because the needs for what we do is very high. So I'm bullish on the long term being better in China than what we've been experiencing currently, and it will take some time to get there.”