23 June 2026
Smaller players within the UK’s world-class life sciences sector are grappling with a shortfall in the capital they need to turn science into growth.
In 2025, multinational healthcare companies – or big pharma – paused nearly £2 billion in planned UK investments.[1] In the biotech sector, funding rounds led by private equity firms fell 49% to just £1.9 billion, while venture capital deals dropped 13%. For the third year running, there were no UK biotech IPOs.[2]
Stripping out two stand-out mega-rounds, the overall contribution by private equity funds would be even lower. Mid-sized scale-up financings almost entirely absent. Domestic institutional investors — pension funds in particular — have also historically underweighted UK life sciences.[3]
Many aspiring life sciences entrepreneurs and medical researchers working at small or mid-sized healthcare companies will have faced challenges securing sufficient funding for their work last year.
This is a critical challenge for the sector. To produce a commercial drug that survives multiple rounds of testing and can pass regulatory hurdles, these smaller companies often depend on demand from bigger pharmaceutical companies, or venture capital or private equity funding.
The hurdles are becoming even more formidable as Chinese labs grow in prominence and assume the role of testbeds for multinational companies – as well as being increasingly important in new drug discovery.[4]
But with the right approach, the sector can meet the challenge.
First, it helps that the UK government recognizes healthcare as a key sector. The UK remains a magnet for medical talent, ranking second globally in research output. It also boasts a vibrant commercial ecosystem for biotechs and spinouts that trails only the US and China.[5],[6],[7]
The pharmaceutical industry contributes £19 billion annually to the UK economy, and the government has named life sciences one of eight growth-driving sectors in its industrial strategy.[8]
Many stock-owning executives of UK’s small and mid-sized pharmaceutical companies could consider equity financing as a way to access liquidity. At a time when industry investments are in short supply, alternative forms of capital may be a differentiator in the race to get new drugs to market.
Trapped in the middle
Why did big pharmaceutical companies pull back on their investments last year? Many analysts cite the UK’s voluntary pricing scheme, which previously required most companies (the smallest are exempt) to rebate 22.9% on sales of eligible drugs to the NHS — compared with just 5.7% and 7% respectively for similar schemes in France and Germany.
Company executives said this was penalizing investment in innovative medicines and eroding their margins.[9] A leading pharmaceutical industry executive said that such clawbacks could cost the industry £13.5 billion in lost revenue over three years.[10]
The rebate rate, which is effectively a function of the amount the government deems is acceptable for the taxpayer to spend on drugs, was subsequently reduced to 14.5% following pressure on the UK government by US President Donald Trump, but it is still higher than those in Germany, France and Ireland.[11]
Access to NHS data is another challenge for small and mid-sized life sciences businesses. The UK has comprehensive NHS health records covering 69 million people, but it is not easy for most firms to access the data – less than 5% of UK trials utilize routinely collected data sets – nor is it updated or structured for data analysis.[12]
Current recruitment approaches frequently result in high screen failure rates, with patients invited to participate only to be deemed ineligible based on information already held in their medical records.[13]
The UK's departure from the European Union (EU) in January 2020 has further complicated the picture. Conducting trials in both the EU and UK now requires compliance with two separate sets of regulations — a burden that disadvantages smaller companies without large legal teams.[14]
All of this means that it is the larger pharmaceutical companies – those that can absorb the margin erosion that results from having to pay for data complexity and clinical trial management services – that are more likely to turn a profit.
Yet there is some cause for optimism. The UK-US trade deal struck in December 2025 — the first to guarantee zero tariffs on pharmaceuticals — is already reversing some of the capital flight.[15],[16] M&A activity has picked up strongly in the first quarter of the year as big companies remain keen to invest in the British life sciences sector.[17] Top British pharma companies have also seen their share prices touch record highs in April, beating global counterparts.[18]
Meanwhile, new regulations aiming to streamline reporting and accelerate the time it takes for companies to conduct trials have also helped – the average time to set up and launch commercial trials has dropped to 122 days.[19]
Nevertheless, founders, executives and early shareholders in UK life sciences companies — businesses with proven science but constrained access to growth capital — should not be wholly reliant on traditional sources of cashflow. They could consider equity-linked financing as a way to plug liquidity gaps when they arise, especially as costs associated with drug development are growing in areas such as clinical trials, compliance and drug marketing.
By accessing liquidity against existing equity holdings, entrepreneurs can continue to fund development, retain ownership and remain well-positioned, helping ensure the UK’s pharmaceutical sector continues to compete and add value to the British economy.
[1] https://www.abpi.org.uk/publications/a-year-of-uncertainty-uk-life-sciences-investment-and-medicine-launches-in-2025/
[2] https://www.fiercebiotech.com/biotech/things-are-looking-are-british-biotechs-considering-ipos-after-years-long-drought
[3] https://www.businessandindustry.co.uk/industrial-strategy/uk-life-sciences-being-held-back-by-lack-of-institutional-investment/
[4] https://www.ft.com/content/18ec669c-f832-4756-bc37-8cb33cb8899a
[5] https://www.timeshighereducation.com/world-university-rankings/2026/subject-ranking/life-sciences
[6] https://www.abpi.org.uk/publications/creating-the-conditions-for-investment-and-growth/
[7] https://www.nature.com/nature-index/country-outputs/generate/health-sciences/global
[8] https://www.icaew.com/library/industry-profiles/pharmaceutical
[9] https://pharmasource.global/content/expert-insight/merck-abandons-1bn-london-research-centre-dealing-fresh-blow-to-post-brexit-britains-life-sciences-ambitions/
[10] https://www.chemistryworld.com/news/uk-loses-life-sciences-investment-as-pharma-companies-halt-expansion-plans/4022160.article
[11] https://www.chasepeople.com/resources/blog/vpag-2026-a-deal-is-done-but-the-hard-work-starts-now
[12] https://www.abpi.org.uk/publications/globally-competitive-uk-wide-data-enabled-clinical-trials-the-time-is-now/
[13] https://becarispublishing.com/digital-content/blog-post/new-abpi-report-sets-out-plan-accelerate-uk-clinical-trials-using-nhs-data
[14] https://www.morganlewis.com/blogs/asprescribed/2025/05/new-measures-to-encourage-clinical-trials-in-the-united-kingdom
[15] https://www.gov.uk/government/news/landmark-uk-us-pharmaceuticals-deal-to-safeguard-medicines-access-and-drive-vital-investmentfor-uk-patients-and-businesses
[16] https://www.abpi.org.uk/media/news/2026/april/abpi-celebrates-a-month-of-major-investment-commitments-into-uk-life-sciences/
[17] https://www.fiercebiotech.com/biotech/things-are-looking-are-british-biotechs-considering-ipos-after-years-long-drought
[18] https://www.ajbell.co.uk/investment/videos/big-pharma-focus-whats-driving-astrazeneca-and-gsk-right-now
[19] https://www.gov.uk/government/news/government-drives-forward-its-150-day-clinical-trial-target
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