(Reuters) - Thermo Fisher on Wednesday raised its annual profit outlook and posted a better-than-expected second-quarter profit, banking on improved demand for its tools and services used in clinical trials.

Contract drug manufacturers witnessed cut back on spending by their biotech clients in 2023 amid rising interest rates.

The public funding environment for early-stage biotechs is expected to improve in the second half of this year, on hopes of interest rate cuts from the Federal Reserves in September. Some analysts have noted that funding for biotechs could stabilize due to a strong 2023 for regulatory approvals in the United States.

The forecast raise from Thermo comes a day after rival Danaher ( DHR ) said that it witnessed "positive momentum" for its products and services used to develop biological drugs. Yet, it reaffirmed that core revenue is expected to be down low-single digits this year.

Thermo Fisher now expects annual profit in a range of $21.29 to $22.07 per share, compared with previous forecast of $21.14 to $22.02 per share.

Yet, shares of the medical equipment maker fell 3% to $535 in premarket trading as the raised forecast came in below analysts' expectations of $21.70 per share for the year, according to LSEG data.

On an adjusted basis, the Waltham, Massachusetts-based company earned $5.37 per share for the quarter ended June 29, compared with analysts' expectations of $5.12 per share.

Sales in its laboratory and biopharma services segment, which provides products used in clinical trials, came in at $5.76 billion, above analysts' expectations of $5.48 billion.

Revenue from that segment makes up more than half of Thermo Fisher's total sales, which were $10.54 billion for the quarter, slightly beating estimates of $10.51 billion.