As we enter Q2 of 2025, what are some of the key trends across life sciences and health and care that we’ve seen so far, and we think are likely to play out over the remainder of the year? Some of our experts share their thoughts.

Life sciences

The life sciences sector is currently experiencing a period of rapidly accelerating change and development, and 2025 promises to be a very exciting and eventful year. The speed of innovation, especially in regard to AI-related inventions, is breathtaking and creates both challenges and opportunities for investors and regulators alike. In the UK notable developments in the sector are expected, including the launch of a new Life Sciences Sector Plan and 10-year Health Plan by the UK government, as well as a new Life Sciences Strategy by the Scottish Government. In addition, new clinical trial legislation and regulatory changes are expected in the UK, all aimed at streamlining processes and ensuring that new drugs get to patients more quickly.

Investment 

After a difficult couple of years for life science and healthcare investment, 2024 was a much better year. Companies in the sector raised an aggregate of £3.5 billion in investment – a 94% increase on 2023, arguably because of renewed confidence and resilience in the sector. It is hoped that this trend will continue. However, the environment is challenging for companies raising ‘scale-up capital’ in the UK. A recent report from the Association of the British Pharmaceutical Industry (ABPI) highlighted investor hesitance and insufficient liquidity, especially for smaller companies. Large-scale syndicated investment in later-stage and de-risked healthcare and life science companies is expected to remain a preference for VC investors in 2025. However, in the UK there are a number of initiatives underway to try to improve the funding environment. For example, the Cambridge Innovation Fund, recently established by Aviva and British Patient Capital, has raised £100 million and is intended to address problems with scale-up investment for companies in the sector by investing in later-stage deep tech and life science companies.

US public markets also greatly improved in 2024, with a number of new life science and healthcare NASDAQ listings in 2025. By contrast there were no new public listings in the healthcare and life science sector in the UK during 2024 and a number of healthcare companies actually delisted in the UK in 2024. The environment in the UK for listings remains very challenging and is expected to remain so in 2025.

M&A activity remained subdued generally in 2024, although licensing remained a key route to acquire access to innovative assets – especially late-stage assets. With patent cliffs on the horizon for many large pharma companies in the next few years, licensing, collaboration and M&A activity is expected to increase as companies seek to access innovative assets in order to maintain market position.

Whether M&A activity increases in 2025 is difficult to predict. For example, in the US it was predicted in late 2024 that lower interest rates and the new administration being business friendly and having policies to reduces taxes would increase M&A activity in 2025. However, geopolitical uncertainty, including recent decisions by the new US administration – for example, tariffs, concerns about inflation and cuts to federal agencies including the Food and Drug Administration (FDA) – have created material uncertainty. Whilst there are some positive developments in the UK, such as lower interest rates and an improving regulatory and clinical trial environment, the outlook here is closely linked to the international picture and remains uncertain.

UK government support

The UK government has indicated its support for the life sciences sector as a key area for growth in the economy and is currently working on a new Life Sciences Sector Plan as part of the government’s broader Industrial Strategy. It is recognised that the sector currently generates over £100 billion in turnover for the UK with more than 6,800 registered businesses, and that this could be expanded further given the UK’s unique strengths.

The plan is aimed at growth over the next decade and will be issued by the summer. It is hoped this plan will result in an improved ‘joined-up’ government approach including close collaboration with the NHS and the Department for Business. It is also hoped that additional government funding will be made available to support areas such as R&D, investment, the NHS, and the commercialisation of health data in the UK – a potentially unique resource and for the most part untapped.

As of 7 April, it was announced that the government and the Wellcome Trust will contribute up to £600 million to create a Health Data Research Service. This will significantly alter the admission to NHS data by providing a secure, single access point to national-scale datasets, cutting red tape for researchers.

Clinical trials 

The government has recently introduced new legislation to Parliament following the well-received O’Shaughnessy Report into clinical trials. This legislation is expected to enter the statute books later this year. Following a 12-month implementation period it is hoped that the UK will recover from a material downturn in clinical trials in recent years by creating a much more efficient, streamlined, transparent and adaptable framework aimed at ensuring new treatments get to patients as quickly as possible.  It is hoped that this new regime will be attractive to companies developing new drugs. The ABPI has estimated that a 40% increase in clinical trial activity could add £30 billion to the UK economy and result in 26,000 new jobs.

Scottish Government support 

Closer to home the Scottish Government has confirmed the importance of life sciences and healthcare to the Scottish economy and is working on a new life science strategy for Scotland. The most recent economic analysis in 2024 confirmed that the sector had contributed $10.5 billion, with life science exports worth $4.3 billion, and has exceeded expectations and targets set by previous plans. However, it remains the case that the Scottish market is dominated by large service and pharma manufacturing companies and that broadening the base to support growing innovative life science companies engaged in the development of new drugs diagnostics and devices would add to the depth of the sector in Scotland.

In addition, access to skills and infrastructure issues remain challenging, as does access to the NHS. It is hoped that this new strategy will address some of these issues, although government funding is an issue as budgets are stretched. It is recognised however that both angel funding and Scottish Enterprise continue to provide invaluable support to early-stage businesses in Scotland.

Regulation in the UK – an improving situation 

There is a general acknowledgment that post Brexit, the regulatory situation in the UK has resulted in issues in providing approvals for both clinical trials and new drugs. However, the situation has improved substantially and is expected to continue to do so during 2025 following substantial investment in the Medicines and Healthcare products Regulatory Agency (MHRA) during the last 18 months. The MHRA has issued a road map of its plan for devices and has announced that it will offer abridged approvals for devices already approved by other regulatory bodies, such as the US FDA. A number of measures have been taken in the last six months, including a suite of guidance intended to assist device manufacturers. Additional measures are expected in 2025, with draft guidance on digital mental health technology and AI development and deployment expected imminently. Consultation with stakeholders remains a priority. This is a rapidly developing area in 2025.

Health and care 

The prevailing opinion across the UK is that the healthcare system, and NHS in particular, exists in a state of intolerable strain, with many regarding it as ‘broken’. The difficulties in obtaining swift treatment as compared to pre-pandemic service levels are well documented.

Fixing the NHS 

A priority of the UK Labour government will be to demonstrate progress across the board in terms of healthcare issues. The electorate will want to see prompt delivery. Certain statistical approaches may be employed to regionalise and break down lists in an attempt to show progress on certain fronts.

The funding challenge remains the dominant concern for public health provision, and one which will dictate much of the development of both public and private health services for years to come. Rather than pouring billions of additional funding into the current system, it is broadly expected that a ‘no more money without reform’ message will be adhered to.

Waiting lists are going to be key, but an estimated average of £2,000 required to deal with each waiting list case makes for an eye-watering figure to clear a backlog currently in the tens of thousands.

External providers have been standing by to open up new diagnostic centres and provide capital in areas such as eye care. Those sorts of initiatives are great on the waiting list front, but the money associated with such ‘easier’ functions is then taken out of the NHS and cannot be utilised to subsidise other hospital functions, as would be the norm.

Moving healthcare away from hospitals and into the community is also being touted as a way achieving better outcomes and driving efficiency. Research suggests that every £100 spent on community care would otherwise cost £131 for hospital care. Challenges in establishing the proposed broad service community hubs include building appropriate new facilities in suitable locations. Furthermore, experience suggests that they can only be effective if the whole system buys into the change in approach.

Scottish Government priorities

In Scotland the capital budgets of NHS bodies have been essentially frozen over the last couple of years, with proposed spending carefully assessed and paused in many cases.

According to an analysis of the latest Health and Social Care budget, the Scottish Government anticipates that the health capital budget for 2025-2026 will support a range of priorities including, for example:

• Capital allocations to health boards for small-scale projects and maintenance
• Additional funding to support health boards’ priority maintenance and business continuity spending to support resilience
• Further to the earlier decision to put certain capital projects on hold, progression of business cases for the:
• replacement of Monklands Hospital in Airdrie
• the Belford Hospital in Fort William
• the Princess Alexandra Eye Pavilion in Edinburgh
• Replacement of NHS Greater Glasgow and Clyde’s radiopharmacy facility
• Major projects in construction such as:
• Baird and Anchor Hospital in Aberdeen and
• Golden Jubilee Phase 2
• Continued support for the national replacement programmes for ambulances and radiotherapy equipment
• Investment in other equipment such as scanners (e.g. MRI, CT)
• Contractual costs associated with the end of PFI contracts
• Leases e.g. for fleet vehicles
• Health research.

Otherwise, NHS boards continue to look at options available to them to divest themselves of excess land in order to release much-needed funding for other new build and refurbishment options.

At a macro level, there is a notable political discussion about how many NHS-related management bodies there should be in Scotland, with the current complex picture of more than 22 bodies comparing unfavourably with UK comparators like Manchester, where a similar population require only one or two.

Care provision

Aftershocks of the pandemic have continued to play through to operators of care homes, who have had to manage significant recruitment and retention issues, further strained by the changes to immigration policy in 2024, and a shift in occupancy. The increase in employer’s national insurance contributions to 15% from April 2025 has had a significant financial impact after care providers were unsuccessful in their attempts to persuade government to provide an exemption for the health and care sector. Operators of care homes have addressed their costs with unprecedented fee rises, recorded as being in excess of 10% in most cases.

From a real estate perspective, the sector has benefitted from a successful 2024, with the market experiencing greater stability and increased deal activity compared with 2022 and 2023. Buyer confidence has returned, which is reflected in increased transactional activity across the market thanks to the drop in inflation and interest rates. There is, however, a real challenge to there being a good range of care homes in the market, as margins of operators are often high, (25% on average), particularly for facilities serving non-state funded residents, meaning that care home owners are less likely to choose to sell.

Demand is expected to continue to outweigh the available supply. The UK care home sector is driven by an ageing population, increasing life expectancy and strong demand for long-term care. Occupancy of care homes is now reported as being back up to around 90%. The market was valued at approximately £23.7 billion in 2023, with 410,000 residents utilising the services.  By 2030, one in five people in the UK will be aged 65 or older, creating increased pressure on care facilities to meet evolving needs, with an estimated 144,000 additional beds required over the next 10 years. This rising demand is especially notable in specialised areas of care.

Despite the need, statistics suggest that total bed numbers actually reduced last year given the age of some assets and the need to refurbish inadequate assets. Increased development is key but any non-purpose-built assets are challenging to refurbish appropriately, meaning new-build development is preferred. The variable quality of assets being sold skews the overall pricing picture across the market as pricing for the plush and desirable A* graded assets is so high.

Investment in this market will not be without its challenges, with rising costs in energy and wages, staffing shortages and regulatory pressures. Awareness of the key opportunities and challenges will be crucial to success.

As the sector continues to evolve our dedicated team will keep you updated on the changes that may impact your business. If we can help at all, please get in touch.

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