The current policy environment featured heavily in these discussions. The US accounts for more than half of the total global demand for prescription drugs, so the latest US policy developments have ramifications for European manufacturing and research and development (R&D) pipelines. US President Donald Trump has long prioritised efforts to reduce prescription drug prices for Americans. In his first administration, he proposed a most favoured nation (MFN) policy that would effectively link US prices to the lowest prices paid for the same drugs in other developed markets. The US courts ultimately overturned the policy, but a May 2025 executive order revived the issue, stating that US consumers must have access to MFN prices for drugs.

Since then, the US government has sent warning letters to at least 17 major pharmaceutical companies directing them to decrease prices in the US or face aggressive action. Meanwhile, the Inflation Reduction Act of 2022’s prescription drug pricing provisions also take effect in January 2026, which will further limit prices for drugs in the US.

“For European life sciences businesses, there are many unknowns in relation to MFN and tariffs on pharmaceuticals. The United Kingdom is a smaller market for global pharmaceuticals, but it has also increased the rebate that pharma companies have to pay on sales to the NHS above a certain threshold, raising further concerns about unpredictability of policy.” – Sharon Lamb, Head of the UK Healthcare Practice Group, McDermott Will & Schulte

This policy uncertainty impacted dealmaking in the first half of 2025. Some investors pressed pause on proposed transactions, and many companies revisited their global pricing policies and cost dynamics. Looking ahead, certain pharma companies likely will adjust manufacturing supply chains to start building closer to target markets, and deal activity likely will pick up going into 2026 as businesses coalesce around new strategic priorities.

China prioritises biotech innovation

The past year has witnessed a boom in Chinese biotech innovation, which often outperforms developments in the US and Europe – and at cheaper prices. As a result, global competition remains intense.

Chinese government policy combined with substantial R&D investment has yielded a robust pipeline of novel drugs at low prices, particularly in oncology and cell therapy. Many European businesses are looking to China as a source of innovation because its reduced drug development timelines and strong ecosystem of biotechs and contract research organisations provide an ideal environment for prolific molecular development.

Chinese innovation could ultimately help reduce drug development costs, but it currently places additional competitive pressure on European businesses.

A burgeoning European opportunity

Despite these pressures, a strong cohort of life sciences companies is emerging out of Europe. Investors are heavily focused on rare disease treatments and pharma services that support such treatments, given such drugs have a relatively low impact on government budgets, benefit from strong patient populations, and may be less vulnerable to uncertainty over tariffs and pricing.

Investors are also interested in cardiometabolic diseases, innovations in oncology, and neuroscience, which continues to deliver a rich pipeline. Immunology and inflammation, and particularly autoimmune disorders such as lupus, also are seeing meaningful early-stage investment and present interesting investment theses.

Given constraints on budgets and the pace of Chinese innovation, European investors are increasingly turning to biosimilars and generics, along with pharma services companies that support generics.

What’s next?

As in many markets around the world, European life sciences businesses and their funders are investigating how artificial intelligence (AI) can enhance drug development. While AI’s full potential to transform drug discovery and create new investment opportunities is yet to be realised, industry participants are already deploying AI to enhance end-to-end data flows and make patient recruitment more efficient. The next tranche of use cases looks set to prioritise reducing the costs and increasing the speed of clinical trials.

At the confluence of business model disruption and technology-driven efficiencies, investors are optimistic about opportunities moving forward. As a means of derisking in today’s climate of uncertainty, many European life sciences companies are prioritising portfolio diversification, which in turn opens up new avenues for growth.

“Diversification has led to increasing licensing and collaboration deals across the life sciences sector. Innovation in life sciences often originates in biotech labs or academic spin-offs that lack the capacity to bring products to market. As these companies turn to external partners to develop promising assets and scale innovation, strategic alliances are becoming central to healthcare’s future and creating new opportunities for savvy investors.” – Sharon Lamb, Head of the UK Healthcare Practice Group, McDermott Will & Schulte

This year may have brought challenges from a policy perspective, but as the dust settles, attendees at HPE Europe 2025 were optimistic about the months ahead.