What are the top trends for pharma and life sciences businesses in 2025?

What are the key trends that will continue to impact the pharma and life sciences sector in 2025 and beyond?

Emerging technologies 

Companies in the sector will continue to increase their use of Artificial Intelligence (AI), machine learning as well as blockchain technology to increase efficiencies and enhance research and development of new pharmaceuticals. These technologies are revolutionising the development of processes and are helping to drive efficiencies as well as using the data to improve the effectiveness of drugs by quickly analysing patient data as part of the trial process to predict success rates.

Focus on sustainability 

The industry continues in its shift to reduce its environmental impact. Companies in the sector are evaluating their manufacturing processes and implementing green technology to reduce waste, energy and water consumption and using renewable energy where possible. There is also increased regulatory pressure with The Corporate Sustainability Due Diligence Directive (CSDDD) obliging large companies to identify, mitigate, and where necessary remedy human rights and environmental impacts in their operations and ‘chain of activities. As well as this the Corporate Sustainability Reporting Directive (CSRD) is now in force across the EU, with the first sustainability statements set to be published in 2025.

Development of personalised medicine

A key trend that will impact the sector in 2025 will be a shift towards more patient-centric approaches, including tailoring medicine to individual patients thereby increasing the effectiveness of treatment for various conditions.     Examples of this approach can be found in Genomic and Molecular profiling which aims to understand a patient's genetic makeup to identify precision treatments and therapies. More recently, the UK government announced that they are set to introduce a new framework that will see highly personalised treatments developed in or near hospital settings to alleviate pressure on hospitals and give patients more appropriate care [1]. Developing these pharmaceuticals and treatments requires intensive research and development, as well as a highly skilled workforce, centred on innovation.

Economic and political uncertainty

Businesses must be prepared for economic fluctuations and environmental challenges. Difficulties in this area, coupled with geo-political factors, could exacerbate market stability. Furthermore, new regulations and policies will be implemented which businesses will need to comply with which may result in increased costs.  Proposed trade policies in the US could significantly exacerbate inflationary and supply chain issues globally. 

Mergers & Acquisitions (M&A) activity outlook for 2025

2024 proved to be a quieter year for M&A activity across the sector, both in terms of deal volume and value. However, we expect activity to pick up as we move into 2025. The current slow market has been further exacerbated by the Autumn Budget, particularly for mid-market deals, with some businesses extending their sale timelines due to the uncertainty on how changes announced would impact valuations. We also expect IPO activity to increase over the course of the year, driven by greater political stability in key markets such as the UK. We anticipate high investor demand to continue for pharmaceutical and medical devices, but uncertainty will remain on valuations due to increased cost pressures.   

Based on these trends and the wider industry, what are the areas businesses in the sector should focus on in 2025?

Continued focus on regulatory change

Pharma and life science businesses need to be aware of several regulatory changes that could have a significant impact on their operations and lead to a potential increase in costs. Some of the changes, that in our view, will have the biggest impact in 2025 are:

• Tax changes following the Autumn Budget: with additional labour costs coming into force with the increase in National Living Wage (NLW) as well as the increase of National Insurance contributions (NICs) for employers, businesses in the sector will be required to monitor costs appropriately to remain competitive, to manage costs and maintain their profit margins. 
• Sustainability and ESG reporting: this new year is set to bring a new era for sustainability reporting with the arrival of the Corporate Sustainability Reporting Directive (CSRD). The directive will require around 50,000 companies operating in the European Union to publicly disclose how their environmental, social, and governance (ESG) activities impact their business, and how their operations impact people and the planet. In one of our previous articles we looked at what the CSRD entails and how you can start planning for the regulations, Sustainability assurance: Are you ready for CSRD?
• There is also increased regulatory pressure with the Corporate Sustainability Due Diligence Directive (CSDDD) requiring companies to identify, mitigate and, where necessary, remedy human rights and environmental impacts in their operations and ‘chain of activities. It mandates for companies to establish due diligence processes for human rights and environmental issues, as well as a transition plan to ensure they make their business model compatible with the 1.5°C 2050 climate neutrality objective of the Paris Agreement.  
• Bribery and corruption: As we move into 2025 we have observed increased regulator activity following a post-Covid lull in the sector. The US FCPA (Foreign Corrupt Practices Act) and the UK Bribery Act enforcement remain key risks for the pharma industry, particularly when dealing with government entities. We expect higher levels of enforcement than in recent times. Any pharmaceutical or life sciences organisations that fail to meet these requirements will face adverse financial and reputational damage, that will have a significant impact on their business. 
• In the Autumn Budget the retention of R&D tax reliefs and the Patent Box regime, offering a 20% tax credit in the majority of cases for R&D spending and a 10% corporate tax rate on profits from qualifying patents was welcomed by the sector. However, HMRC is taking a tougher stance on R&D Claims with increased scrutiny leading to a rise in the number of claims reviewed. In light of this, it’s important to maintain comprehensive documentation to support claims and be vigilant on compliance with filing requirements.

Review and optimisation of supply chains

With geopolitical tensions and potential trade tariffs on the horizon, it’s more important than ever to ensure a robust supply chain. This, coupled with increased regulation, means that supply chain management is high on the agenda for businesses in the sector. Investment in building a resilient supply chain that is adaptable and resilient is a key area of focus to enable businesses to weather unforeseen issues. Some businesses in the sector are shifting their supply chain where possible, to focus on more local or regional suppliers, rather than global suppliers with added complexity and risk. Whilst this may increase the cost of production, some efficiencies can be found to mitigate this with the implementation and integration of AI and machine learning. Given the requirements of the CSDDD and CSRD, businesses will need to take care when relocating supply chain activities to ensure that appropriate due diligence is conducted. 

Ensuring access to skilled labour to fuel R&D and product development

Skilled labour is essential to the sector to support R&D and product development, particularly the development of personalised medicines. With rising employment costs in the UK expected in 2025 (due to the increase in NIC)  as well as changes to rules for non-domiciled individuals impacting global recruitment, businesses will need to reassess their employee rewards strategies to attract and retain staff in a competitive industry. Areas for employers to focus on regarding the attraction and retention of talent include:

• Salary sacrifice – this is where an employee forgoes part of gross salary in exchange for certain non-cash benefits, reducing the salary on which tax and NIC are payable. Under current legislation, benefits including pensions, low-emission vehicles and cycle-to-work schemes are eligible for tax and NIC relief arising from these arrangements.
• Bonus waivers – where an employee agrees to forgo a bonus which has become due, and instead it is invested in their pension, the bonus does not go through payroll and is not subject to tax and NIC deductions. The employer saves the NIC it would have paid on the bonus.
• Equity incentives – tax-advantaged employee plans can reward employees based on future share price growth while mitigating income tax and NIC. Companies can choose between all-employee plans, such as share incentive plans (SIPs) or save-as-you-earn (SAYE) arrangements, or discretionary plans, such as company share option plans (CSOPs) and enterprise management incentives (EMIs). However, many financial service activities (such as banking, insurance, lending, debt-factoring, hire purchase and leasing, as well as some service providers to such businesses) are excluded from the EMI regime. Other types of non-tax advantaged equity reward arrangements may also offer the opportunity to limit employment costs, though these usually involve employees accepting extra risk and means existing equity holders could have their interests diluted.
• Apprenticeship levy – incorporating qualifying apprenticeships into the organisation could mitigate NIC cost and allow draw-down on the apprenticeship levy 'pot' available (or co-investment) funding with the government.
• Car Allowance NIC reclaim – where an employer provides an employee with a car allowance and currently reimburses them at less than 45p per mile for business journeys for driving their own vehicle, there is an opportunity to reduce NIC for both the employee and employer – further details can be found here.

Embracing AI whilst managing risk

With technologies such as AI having a significant impact on the industry it’s essential to have the right foundations in place to avoid costly mistakes. It is critical that organisations understand where risks reside and who is responsible for them.

There are a number of areas that pharma and life sciences businesses need to consider whilst implementing AI:

• Develop a digital strategy: Integrate AI into your overall technology landscape to ensure it complements existing systems.
• Identify use cases: Clearly define how AI will be used within your organisation to address specific needs.
• Ensure data quality: Accurate and comprehensive data is crucial for effective AI implementation.
• Understand risks and regulations: Be aware of the risks and regulatory requirements associated with AI. This is especially important in the pharma and life sciences sector as part of the development of medicine requires a lot of patient data collected which means respecting data privacy laws is of utmost importance to avoid fines and reputational damage.
• Build the right talent: Address the talent gap by hiring or training staff with the necessary AI skills.
• Create a business case: Develop a clear ROI analysis to justify AI investments

The pharma and life sciences sector is poised for significant transformation in 2025 and beyond, driven by technological advancements, a heightened focus on sustainability, and the shift towards personalised medicine and therapies.

Companies must navigate economic and political uncertainties, adapt to regulatory changes, optimise their supply chains and manage their finances efficiently to remain competitive and resilient. Embracing emerging technologies like AI and blockchain, committing to sustainable practices, and ensuring access to skilled labour will be crucial for the success of these businesses going forward.

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[1] UK launches world-first framework for point of care medicine manufacturing | UK Healthcare News