Medpace: easing the bottleneck in drug development

As with any investment, your capital is at risk.

You have likely heard of Moore’s Law, the idea that computing power has grown exponentially as the number of transistors on a chip doubles roughly every two years, while costs fall. Drug development has followed the opposite pattern. Eroom’s Law (Moore’s Law backwards) describes how the number of new drugs approved per billion dollars of R&D spending has roughly halved each decade since the 1950s.

Drug development keeps getting harder

One reason is the ‘better than the Beatles’ problem, where new drugs must clear an increasingly high bar by outperforming existing, effective treatments. Meanwhile, the diseases still lacking effective treatments are often more complex, requiring more time, money and scientific insight to address.

The difficulty of clinical trials and regulatory approval is often underappreciated. Although more than 2,000 Phase I drug trials begin each year, roughly 90 percent of drugs never make it to market. Many fail because they are not safe or effective enough, but others stumble because of poor trial design and execution.

Ageing populations and rising healthcare pressures are increasing demand for treatments, while advances in technology, including gene sequencing, have expanded the pipeline of potential medicines. However, converting promising compounds into approved drugs remains challenging.

As investment manager Mike Taylor explained in a recent podcast, this is a type of bottleneck that Global Alpha often looks for in attractive investments – areas where demand exceeds capacity, expertise is scarce, or one essential step determines the pace of progress elsewhere. In this case, clinical trials and regulatory approval have become a critical chokepoint between scientific discovery and commercial success.

Specialist support where it matters most

Medpace addresses this bottleneck. This clinical research organisation, or CRO, designs and runs clinical trials on behalf of drug developers. Most drug developers specialise in scientific discovery, not clinical trials or regulatory approval. Medpace allows them to focus on developing new treatments while it manages a process where poor execution can cause costly delays and postpone access to potentially life-saving treatments.

Before a trial begins, Medpace’s doctors and scientists plan the trial, deciding which patients should be enrolled, what outcomes should be measured and how the study should be structured to produce reliable evidence for approval. Once underway, its operational teams manage the process end to end, from selecting clinical trial sites to supporting patient recruitment to preparing regulatory submissions. This expertise can be valuable to Medpace’s customers.

An overlooked long-term growth runway

Medpace’s operational performance has remained strong, supported by disciplined execution and continued demand for its clinical research services. But the market has become more focused on the possibility of softer near-term demand, which has revived memories of the biotech funding downturn that began in 2022.

However, the evidence so far points more to temporary volatility in contract wins and cancellations than to a structural deterioration in the company’s competitive position. We believe that, over our investment horizon of five years and beyond, Medpace’s growth opportunity remains significant. Despite generating $2.5bn of revenue in 2025, the company addresses less than 10 percent of its core market. Meanwhile, that market should keep growing as clinical trials become more global, specialised and complex, extending Medpace’s growth runway.

Why AI can strengthen the proposition

Another reason for the market’s pessimism is the fear that AI could reduce biotech companies’ reliance on CROs like Medpace by helping them manage more trial-related work internally, reducing the amount of work outsourced and, in turn, slowing Medpace’s revenue growth. More automation and easier access to key technologies could also make it more economical for large CROs, typically focused on big pharma, to serve smaller biotechs – Medpace’s core market.

These concerns overlook Medpace’s market positioning and value proposition. Smaller biotechs place greater value on a CRO that can provide highly tailored, dedicated service, underpinned by specialist expertise. Many complain that large CROs allocate fewer or less specialised resources to their projects. This pushes them back towards highly skilled and responsive providers such as Medpace. And customers deeply value Medpace’s proposition, with its repeat business rate consistently above 80 percent.

Medpace’s pricing model also makes it more attractive to customers and resilient to AI disruption. Its use of fixed-fee or milestone-based contracts gives customers certainty that costs will not spiral during the trial. For Medpace, this model creates both risk and opportunity. Underestimating the complexity of a trial can increase costs and hurt margins. However, if AI can reduce administrative work, identify problems in the trial process earlier and limit overruns or wasted effort, the efficiencies could lift Medpace’s margins and help it turn more revenue into cash.

Downstream, AI could tackle Eroom’s Law. By reducing the cost and improving the efficiency of exploring new drug targets and modalities, it creates more “shots on goal” for drug developers. Phase I success rates by AI-native drug developers are about 80-90 percent, almost double the long-term industry average. Over time, this could drive increased demand for Medpace’s services as more potential medicines enter the development funnel.

The infrastructure underlying medical progress

Healthcare innovation is one of the defining structural trends of our lifetime. Ageing populations, strained healthcare systems and a deeper understanding of human biology and disease are spurring demand for innovative treatments.

By designing and running high-quality clinical trials, Medpace helps innovative drug developers generate the evidence needed to bring promising treatments to market. This is underpinned by the company’s culture and business model, which prioritise scientific excellence and close working relationships with customers.

Looking ahead, AI could extend the upside as it accelerates drug discovery, expanding demand for Medpace’s high-quality clinical trial services, and differentiating the value of the company’s integrated business model.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in July 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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