The clinical trials industry is experiencing a significant downturn, with new data revealing a 20% reduction in overall trial activity compared to the same period last year, according to Aditya Kotta, Head of Business Development at global contract research organization Novotech. The analysis, based on clinical trial registries including ClinicalTrials.gov and Australian and New Zealand registries, underscores the profound impact of current funding challenges on pharmaceutical research and development.
Oncology Trials Hit Hardest by Funding Constraints
The decline has been particularly severe in oncology, with trial activity dropping by approximately 60% compared to the previous year. This represents a dramatic shift for a therapeutic area that typically accounts for 30% to 40% of total clinical trial market share, according to Kotta's presentation at the 12th annual Outsourcing in Clinical Trials (OCT) UK and Ireland conference in London.
The funding crisis has created a challenging environment for biotech companies, with an 18% reduction in the total number of publicly traded biotechs over the past 40 months. Under current market conditions, raising capital to produce Phase II and III datasets has become "incredibly hard," Kotta noted.
The XBI biotech ETF data shows that biotech continues to underperform compared to the S&P 500, with a considerable downslide following the COVID-19 period. The market capitalization disparity is stark: the top five biotech and pharmaceutical companies collectively have a market cap that would only equal one of the top five tech companies.
Geographic Shift Toward Ex-US Trial Locations
In response to these challenges, biotech companies are increasingly pursuing "ex-US" strategies for early-phase clinical trials. Australia has emerged as a particularly attractive destination due to its favorable regulatory environment, reduced costs, and high-quality data output. The rate of decrease in trials in Australia is far less compared to US trials, suggesting companies are actively shifting to alternative locations.
"The current market landscape for fundraising is similar to what we saw in 2019 so maybe a return to normalcy for those of us who have been in the industry prior to the Covid-19 bubble," Kotta highlighted, noting that the market had favorable conditions for companies to raise money based on preclinical data in 2020, but has shown a downward trajectory in 2025.
Companies are also exploring investigator-initiated trials in China, which are characterized by faster timelines and lower costs, allowing sponsors to quickly achieve proof of concept. Other regions gaining attention include New Zealand, the broader Asia-Pacific region, and Eastern Europe for early-phase data generation.
Therapeutic Areas Showing Resilience
Despite the overall decline, certain therapeutic areas have demonstrated relative strength. Obesity and RNA-based therapies have held value since the beginning of this year, according to Kotta. There has been a recent optimistic spike in valuation growth in oncology, immunology, infectious disease, and central nervous system (CNS) disorders, as well as in modalities such as gene therapies and RNA-based therapeutics across US public biotechs.
The focus has shifted toward later-stage development among US publicly traded companies, though Kotta noted a recent bounce-back in early-stage companies in recent months. For early-stage assets, companies are now prioritizing proof-of-concept data and streamlining their focus to achieve results swiftly and efficiently, with some concentrating resources on a single lead asset to maximize the likelihood of generating compelling data.
Operational Adaptations and Cost Considerations
The funding environment has forced companies to adapt their operational strategies. From the perspective of sponsors, cost has become less important compared to time to data readout, leading companies to spend more on trials to advance their assets against competitors. Another trend observed is the need for flexible contracting terms, including deferred payments and milestone-based schedules.
Even though there remains uncertainty about whether data produced in other countries can be used for registrational purposes with the US Food and Drug Administration (FDA), sponsors are willing to shift to alternative trial locations for early-phase data generation.
Patient Engagement and Site Management Challenges
The funding crisis has coincided with ongoing operational challenges in clinical trials. Industry experts at the OCT conference highlighted that nearly 30% of patients drop out of trials not due to adverse events or safety concerns, but due to fatigue or lack of motivation, according to Esther Kitto, vice president of clinical operations at Resolution Therapeutics.
The issue of non-enrolling clinical sites remains a consistent challenge across the industry, with companies working to widen outreach and participation, expand patient pools, increase recruitment rates, and reduce the number of inactive sites to address enrollment inefficiencies.
Market Outlook and Strategic Implications
The current environment represents a significant shift from the post-COVID funding bubble, when companies could raise capital based on preclinical data alone. The return to 2019-level market conditions suggests a normalization of funding requirements, with investors placing greater emphasis on later-stage data to overcome funding challenges.
For the clinical trials industry, this translates to increased competition for limited resources, greater emphasis on operational efficiency, and strategic geographic diversification of trial activities. The data suggests that companies able to adapt to these new realities through flexible contracting, geographic diversification, and focus on high-value therapeutic areas may be better positioned to navigate the current challenging environment.
