Baillie Gifford is an Edinburgh investment partnership founded in 1908, famous for ultra-long-horizon, high-conviction growth investing — its early stakes in Amazon, Tesla and NIO are classics. Its "actual investors" philosophy holds world-changing companies on 5-10 year views; AUM is around $120bn. The Insights column carries its managers' investment views and thematic research.
This article highlights Medpace, a company that runs clinical trials for drug developers—think of it as a 'picks and shovels' business in a tough industry. Drug development is getting harder and more expensive, and clinical trials are a major bottleneck. Medpace's specialized services are highly valued by small biotech firms, with over 80% repeat business. While some worry AI could replace outsourcing, the author argues AI will actually boost Medpace's efficiency and create more opportunities. With less than 10% market share, Medpace has huge room to grow. For ordinary investors, it's a reminder to look for firms solving structural problems with durable advantages, but also to be aware of industry cycles.
The report holds a strongly optimistic view on Medpace, a key service provider in the drug development bottleneck, believing the market has overreacted to AI threats and short-term demand fluctuations.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Medpace | Hold/Watch / Strongly bullish | Market pessimism stems from short-term fluctuations; long-term growth is positively driven by clinical trial globalization and AI. | Revenue $2.5 billion; core market penetration <10%； repeat business rate >80% |
Eroom’s Law reveals the persistent escalation of drug development costs, and clinical trials along with regulatory approval have become the key bottleneck between scientific discovery and commercial success. The article notes that since the 1950s, the number of new drugs approved per billion dollars of R&D spending has roughly halved every decade (Eroom’s Law). Two reasons explain this: first, new drugs must outperform existing effective therapies, raising the bar ever higher (the “better than the Beatles” problem); second, tackling complex diseases still requires more time and capital. The author emphasizes that the difficulty of clinical trials is often underestimated — “although more than 2,000 Phase I drug trials begin each year, roughly 90 percent of drugs never make it to market,” with many failures stemming from poor trial design and execution. The firm believes this is exactly the type of investment opportunity it often seeks — a bottleneck area where demand exceeds supply and specialized expertise is scarce.
Medpace, as a clinical research organization (CRO), has penetrated less than 10% of its core market, indicating substantial long-term growth potential, while current market pessimism largely reflects short-term volatility. The article points out that Medpace designs and executes clinical trials, helping drug companies avoid costly delays, and its operational performance remains strong thanks to “disciplined execution.” Despite market concerns over a downturn in biotech financing, the article argues that “the evidence so far points more to temporary volatility in contract wins and cancellations than to a structural deterioration.” The company generated $2.5 billion in revenue in 2025, but it “addresses less than 10 percent of its core market,” a market set to expand with the globalization, specialization, and increasing complexity of clinical trials, providing a long runway for growth.
Market fears that AI will reduce demand for CROs overlook Medpace’s positioning and value; instead, AI may expand demand for its services by improving efficiency and accelerating drug discovery. The author rebuts the view that “AI will lead biotech companies to outsource less,” arguing that small biotech firms prioritize highly customized services, while large CROs often lack sufficient resources — “Many complain that large CROs allocate fewer or less specialised resources to their projects,” which in turn drives clients back to Medpace. Its repeat business rate, “consistently above 80 percent,” is evidence of this. Moreover, if AI can reduce administrative costs and identify trial issues earlier, it could boost Medpace’s profit margins. Over the longer term, “Phase I success rates by AI-native drug developers are about 80-90 percent, almost double the long-term industry average,” which would generate more drug candidates entering the development pipeline, thereby increasing demand for Medpace’s services.
The article strongly favors Medpace, believing that market concerns over the AI threat and short-term demand fluctuations are overblown. Its long-term value stems from its pivotal role in the drug development bottleneck and the positive tailwinds from AI. Institutional perspective bias: As a growth-oriented investor, Baillie Gifford has a long-standing preference for holding companies with structural growth momentum, which may lead it to underestimate short-term headwinds.