Facing Wary Investors and the Lure of Outsourcing, Cambridge Biotech Firms Turn Away From Basic Research

Cambridge’s Kendall Square bills itself as “the most innovative square mile on the planet” — but it’s possible that less of that innovation is happening in Cambridge as life science firms outsource more of their research process.

Tariff pressures, a changing regulatory environment, and risk-averse investors have left many Cambridge biotechnology companies seeing decreased new drug development — and, in some cases, turning to contracts with overseas firms to run trials.

The federal government has taken notice. In May, the Trump administration announced two executive orders aiming to move pharmaceutical manufacturing and certain parts of the research and development process back to the United States.

“Reshoring” drug research, though, may be an uphill battle for lawmakers.

Even as companies like Johnson & Johnson, Eli Lilly, and Merck have announced plans to move their manufacturing capabilities to the U.S. to secure tariff exemptions, the biotech and pharmaceutical industry has seen an overall contraction in its workforce. In Cambridge last quarter, 22 percent of life science lab space was vacant, according to a report by the real estate firm CBRE — compared to less than 1 percent four years ago.

“I think that the discovery, pre-clinical area of the industry has changed forever. Whether they outsource more or buy drugs from China and license them in, I don’t think it’ll ever be the same,” Dan Gold, president of New York-based life sciences consulting firm Fairway Consulting, said.

Experimenting, on a Contract

This year alone, more than 180 biopharma companies laid off or are projected to lay off, in total, more than 41,000 employees, according to the life science news site BioSpace. At least 18 of these companies are based in Cambridge.

“Investors are moving to safer investments,” Gold said. “Most of the layoffs are focused on lab people and preclinical people and discovery type of people that focus on early stage innovation, because that’s where the riskiest activity is happening.”

Greg Miller, chief business officer of Parabilis — a mid-sized biotechnology company, based in Cambridge, that uses proprietary peptides to target proteins that were impervious to existing drugs — said that innovations are rarer in the current landscape.

“There are fewer companies that are putting their resources towards true discovery. And investors — I think there’s still an appetite, but the bar is higher,” Miller said.

Instead, companies are pivoting to a more flexible approach to the drug development pipeline: contract research organizations. CROs can provide support in day-to-day research activities and perform clinical trials on behalf of a company.

While not a new phenomenon, the combination of lower investor appetite and rapidly changing regulation has made the flexibility of using CROs more attractive. Even amid a flurry of job cuts at pharma companies, CRO demand has remained relatively constant. According to Gold, outsourcing helps companies manage their workforce and avoid layoffs.

“It doesn’t lock you into a workforce that may not be needed as your drugs move forward. If you hire someone, that’s a Phase One expert, and now you’re in Phase Three, you’ve got to find a way to do something with that person or lay them off,” Gold said. “It just gives you that flexibility to do a fit for purpose talent strategy.”

There is an increasing trend of outsourcing parts of the licensing, manufacturing and research and development processes to foreign biotechs, particularly in China, according to both this year’s EY Biotech Beyond Borders Report and the 2025 MassBioEd Life Sciences Employment Outlook. Broadly, these partners are generally contract research organizations or contract development and manufacturing organizations.

As of the end of the first fiscal quarter of 2025, 13 new partnerships were initiated between American and Chinese biotechs worth nearly $18 billion, surpassing pre-pandemic full-year totals.

Outsourcing looks different for each company. Akebia Therapeutics, a company focused on developing drugs to treat kidney disease, is headquartered in Kendall Square — but has partners in China, Canada, and across Europe who assist with their drug development.

“We have done a lot of manufacturing and medicinal chemistry and pharmacology work in China,” said Steven K. Burke ’82, chief research and development officer at Akebia. “But we also have done extensive activities in Europe and the U.S. So I would say it’s probably divided among the three regions.”

But the current financial pressures prompting turns to contractors have only intensified existing strains as drug development has grown increasingly complicated.

“I’ve been doing this for over 30 years, and it’s just dramatically more difficult to develop drugs today than it was in the past, in terms of the size of the programs, all of these additional regulations, requirements, and that all just drives a huge increase in cost,” Burke said.

Shrinking Footprints

As costs rise, CROs and CDMOS — both U.S.-based and abroad — have been a boon to the industry. But as companies are incentivized to outsource parts of their drug development, biotechnology hubs in the U.S., like Cambridge, have seen downstream effects.

“There’s a renaissance in drug development, and part of it is because working with contract research organizations has become so practical and efficient,” said Pablo Lapuerta, CEO of 4M Therapeutics, a biotech startup developing a lithium-free treatment for bipolar disorder.

Funding biopharma companies has been a notoriously long and expensive endeavor for many investors. Clinical trials that support FDA approvals of new drugs have a median cost of $19 million, according to a report by the Johns Hopkins Bloomberg School of Public Health. CROs help make the journey of bringing a drug to market more accessible.

“$10 million can help a biotech organization a lot now, when it couldn’t many years ago,” Lapuerta said.

4M Therapeutics — which is based in New Jersey but relies on techniques developed, in part, at Harvard and MIT — is currently preparing to run clinical trials with a budget of around $10 million, Lapuerta said, without actually owning a laboratory themselves. Instead, they rely solely on a network of contract laboratories for the various tasks necessary in their drug development.

As a general trend, investment into research and development for new drug discovery is slowing, with budget growth forecasted to drop to 3 percent over the next six years compared to a 8 percent compound annual growth rate between 2016 and 2024.

Parabilis employs CROs to help scale up the work done by the company’s scientists here in Cambridge, according to Miller.

“We certainly do a lot of the proprietary work in house. And then we have trusted CROs, that we have long standing relationships with that we do depend on to scale some of the optimization functions,” Miller said.

“People are looking to hire more agile workforces, consultants, fractional in a room, that’s become a very prominent part of our industry, even in the C-suite,” Gold, the biotech investment consultant, said.

But even as CROs allow for increased efficiency and cost-cutting, some worry about patent protection — particularly when it comes to working with foreign companies.

Miller said that he expects increased scrutiny of CROs amid questions about “the sensitization of third party involvement, and whether you know your asset is protected.”

On Oct. 9, the U.S. Senate passed the BIOSECURE act, aiming to restrict biotechnology collaboration with Chinese companies. The act prohibits federal agencies from contracting with any pharmaceutical company using certain Chinese equipment or services.

But countries like China are still popular locations for biotechnology outsourcing. According to a survey by the Biotechnology Innovation Organization, 79 percent of 124 US companies had at least one contract or agreement with a China-based or -owned manufacturer in 2024.

“The legislation was passed last year suggesting that we should be cautious in the future by working with laboratories in China for strategic reasons,” Lapuerta, the 4M Therapeutics CEO, said. “And yet, there’s just been so much industry activity with China.”

“Some companies are trying to emphasize manufacturing in the United States, but are still doing shorter terms like biology and in geographic locations like China,” he added.

But Gold said that even promises to return manufacturing to the U.S. could be relatively empty.

“That stuff takes a lot of time to build that infrastructure. I don’t know that this administration is going to be around when that comes to fruition,” Gold said. “I think the accountability there is not that high.”

Overall, outsourcing, layoffs, and a move away from in-house, original discovery speak to an environment of risk aversion that Gold said could not only hamstring life-saving breakthroughs, but could have concrete impacts on Cambridge as a biotech hub.

“Companies will be leaner, the lab space will be more readily available,” Gold said. “I think real estate prices have already changed dramatically, and I think they’ll continue to change. And I don’t know where this big discovery, basic research lab course goes.”

“It’s almost sort of heartbreaking that you could be on the precipice of major breakthroughs that would get stunted for potentially political reasons, and would help hundreds of millions, maybe billions of people,” Gold said.

—Staff writer Stephanie Dragoi can be reached at stephanie.dragoi@thecrimson.com.

—Staff writer Thamini Vijeyasingam can be reached at thamini.vijeyasingam@thecrimson.com. Follow her on X @vijeyasingam.