By Puyaan Singh and Sahil Pandey

(Reuters) -Labcorp ( LH ) forecast lower annual revenue growth for its contract research unit on Tuesday, as a prolonged funding crunch continues to weigh on its early-stage drug development clients.

Contract research firms have witnessed reduced spending from biotech clients in the past two years. The funding crunch, which was expected to improve this year, could be prolonged due to policy uncertainty from the Trump administration.

"The issue that we're seeing is with timing of study starts ... We expected that to start to come back to more normalcy," CEO Adam Schechter said during a call with analysts.

The comments on continued pressure on the unit weighed on shares, which were down 5.5% in afternoon trading, despite the company raising its annual profit forecast and reporting better-than-expected third-quarter earnings.

While the weakness in early-stage development is frustrating, it is being overdone in the impact on the stock, as the segment itself is a small contributor to core profit, Leerink Partners analyst Michael Cherny said.

The company expects the contract research unit to grow by 5.7% to 7.1% this year, down from its prior range of 6.1% to 7.5%. Early-stage revenue for 2025 is expected to grow low-single digits compared to mid-single digits estimated before, finance chief Julia Wang said.

Labcorp ( LH ) said it is taking action to address weaker demand in early-stage drug development by divesting or restructuring about $50 million in annual revenue through site consolidation.

Its full-year revenue growth forecast was also trimmed and is now expected to be in the range of 7.4% to 8%, down from Labcorp's ( LH ) prior estimate of 7.5% to 8.6%, due to a stronger dollar and the timing of certain acquisitions.

The company expects 2025 adjusted profit of $16.15 to $16.50 per share, up from its previous range of $16.05 to $16.50 apiece.

For the quarter ended September 30, Labcorp ( LH ) reported adjusted earnings of $4.18 per share, beating analysts' consensus estimate of $4.13, according to data compiled by LSEG.