Biomedical funding in 2025: how UK life sciences CFOs are rebuilding their capital stack after a bruising market cycle

By Editorial Team

UK life sciences is entering a new phase of biomedical funding. Valuations have reset, volatility has increased and CFOs are being forced to rebuild capital stacks that can withstand longer paths to market and tougher public scrutiny.

Introduction: a new funding reality for UK life sciences

After the exuberance of 2020–2021, UK biotech and medtech have had to live through a sharp correction. The good news is that capital has not disappeared. In 2024, UK biotech companies raised around £3.5 billion, almost double the previous year and the strongest performance since the 2021 peak.

PitchBook data collated by Knight Frank suggests UK life sciences venture funding as a whole reached roughly £3.25 billion in 2024, the second highest year on record. Yet this recovery is selective. Early stage innovation is well supported, but follow on funding is more discriminating, and macro headwinds are visible in decisions by large pharma to pause or relocate planned investments.

For CFOs, the question is no longer “can we raise?” but “how do we construct a resilient biomedical funding mix that balances dilution, risk and control?”

What is biomedical funding in 2025?

In practice, biomedical funding in 2025 is a composite of several instruments rather than a single route:

• Equity investment from specialist VCs, crossover funds and strategic investors.
• Grant funding from schemes such as Innovate UK’s Biomedical Catalyst 2025, which offers up to £25 million to UK registered SMEs for industry led small and large R&D projects in health and healthcare.
• R&D tax relief, now delivered through the merged regime and enhanced R&D intensive support mechanisms.
• Innovation loans and venture debt for companies approaching or entering commercialisation.
• Partnership and licensing income from collaborations with larger pharma or medtech groups.

The art for finance leaders is to combine these tools into a coherent capital strategy rather than treating each as a one off opportunity.

Market context: strong science, more disciplined capital

Several macro trends are shaping biomedical funding decisions in 2025:

• Rebound in early stage capital
  Specialist investors continue to back high quality platforms in areas such as oncology, cell and gene therapies, rare diseases and AI enabled discovery. However, they expect clearer paths to value inflection and exit.
• Longer and more expensive development paths
  Regulatory expectations, data requirements and trial complexity have increased. This extends timelines to pivotal endpoints and heightens the importance of non dilutive funding to bridge gaps.
• Concentration of capital
  Capital is increasingly concentrated in fewer, stronger companies. Mid tier assets without clear differentiation or partnership routes find it hardest to attract sustained funding.
• Policy and tax uncertainty
  Changes to R&D tax relief and subsidy rules mean that CFOs must track policy alongside science. HMRC’s September 2025 statistics show that total R&D tax support for 2023–24 fell slightly to an estimated £7.6 billion on £46.1 billion of qualifying expenditure, the first data fully affected by recent reforms.

In this environment, relying solely on equity rounds at ever higher valuations is no longer realistic.

How key biomedical funding instruments work together

Equity: the spine of the capital structure

Equity remains the core of most life sciences capital plans:

• It funds fundamental platform development and early discovery that may not yet be eligible for grant funding.
• It absorbs risk that no lender or public funder will take.
• It signals third party validation to partners and talent.

However, each equity round also creates dilution and, if poorly timed, can lock in valuations that constrain future flexibility.

Biomedical grants: targeted, non dilutive risk sharing

Programmes such as Biomedical Catalyst 2025 are designed to support:

• Translational work that bridges preclinical findings and first in human studies.
• Early clinical trials and feasibility work in medtech and diagnostics.
• Innovative solutions to defined health and healthcare challenges.

Well targeted grant funding can:

• Extend runway without extra dilution.
• De risk key milestones that make future equity more attractive.
• Provide valuable external validation, particularly where expert panels assess scientific and commercial merit.

The trade off is that grants bring eligibility constraints, cost auditing, deliverable milestones and sometimes clawback risks if projects deviate significantly.

R&D tax relief: recurring but contingent cash flow

Under the merged regime, R&D tax relief is evolving from a relatively generous SME subsidy into a more tightly controlled, RDEC like incentive:

• Relief rates differ between standard and R&D intensive SMEs.
• Additional information requirements and compliance efforts have increased.
• Enquiry activity remains elevated in parts of the market.

For CFOs, the right framing is to treat R&D tax credits as recurring but contingent cash flows. They are forecast and scenario tested alongside grants and equity rather than assumed as guaranteed.

Loans and quasi equity: later stage fuel

Innovation loans, venture debt and structured facilities can be appropriate when:

• A product is approaching market or early commercialisation.
• Revenue visibility and gross margins support a credible repayment profile.
• The company wishes to limit further dilution before a major inflection.

However, loans introduce fixed obligations that can become problematic if trials slip or reimbursement decisions are delayed. They must be integrated into the capital stack with particular care in life sciences.

Opportunities and challenges for CFOs

From a CFO’s perspective, this multi instrument landscape creates both opportunity and complexity.

Opportunities

• Better alignment between capital sources and specific risk stages in the pipeline.
• Potentially lower overall cost of capital by judicious use of grants and R&D incentives.
• Stronger signalling to investors where public funding bodies have endorsed projects.

Challenges

• Managing interaction between grant funding, R&D tax relief and subsidy control to avoid double funding.
• Coordinating application timelines so that multiple funding streams converge on critical milestones rather than leaving gaps.
• Ensuring audit ready documentation that satisfies Innovate UK, HMRC and future due diligence teams.
• Avoiding over dependence on any single instrument, particularly where policy risk is elevated.

FI Group insight: making biomedical funding coherent rather than opportunistic

Independent consultancies such as FI Group are increasingly used by life sciences businesses as external funding strategists rather than simply application writers.

Working alongside CFOs and finance teams, FI Group typically helps to:

• Map the entire R&D and clinical pipeline against suitable biomedical funding calls, including Biomedical Catalyst, other Innovate UK competitions and European programmes.
• Model forward scenarios where grants, R&D tax relief and equity are sequenced to minimise dilution and cash volatility.
• Analyse the subsidy and state aid implications of combining multiple public funding sources.
• Build evidence and process frameworks that withstand HMRC review and grant audits.

In practice, boards often draw on funding advisers’ guidance to decide which competitions merit serious investment and which would be a distraction.

This article draws on research and practical experience provided by FI Group as a specialist in innovation funding, R&D tax incentives and grant advisory.

Actionable steps for life sciences CFOs in 2025

To move from opportunistic to strategic biomedical funding, CFOs can:

1. Audit the current capital stack
   • Catalogue all existing grants, tax incentives, loans and equity commitments.
   • Identify concentration risk, covenant hot spots and expiry dates.
2. Link funding to specific value inflection points
   • Decide where Biomedical Catalyst or similar grants can de risk pivotal studies.
   • Match equity rounds to moments where risk is demonstrably reduced.
3. Industrialise R&D tax relief
   • Treat R&D claims as a governed process with clear ownership, not a year end scramble.
   • Align project accounting with R&D definitions to simplify evidence.
4. Design a three year public funding roadmap
   • Build a calendar of relevant Innovate UK and European calls.
   • Plan internal capacity and co funding so that only the best fitting competitions are targeted.
5. Use external challenge and independent review
   • Involve advisers such as FI Group to test assumptions, stress test scenarios and check compliance with evolving rules.
   • Use this external view when preparing board packs on major grant or funding decisions.

FAQs on biomedical funding in 2025

1. What are the main sources of biomedical funding for UK life sciences companies in 2025?

The main sources are equity investment, grant funding schemes such as Biomedical Catalyst 2025, R&D tax relief, innovation loans and, for later stages, venture debt or structured facilities. Many companies also rely on strategic partnerships and licensing income with larger pharma or medtech groups.

2. How important is Biomedical Catalyst 2025 for early stage companies?

Biomedical Catalyst 2025 is particularly important for UK registered SMEs that need to fund translational and early clinical work without excessive dilution. It offers non dilutive support for industry led small and large projects tackling health and healthcare challenges, which can extend runway and strengthen future equity negotiations.

3. Can companies combine biomedical grants and R&D tax relief?

Yes, in many cases projects can benefit from both grant funding and R&D tax relief, but costs must be allocated correctly and subsidy control rules respected. Publicly funded expenditure may receive relief at different rates or be restricted, so CFOs should model scenarios carefully and, where necessary, seek specialist advice.

4. How are recent changes to R&D tax relief affecting biomedical funding plans?

The merged regime and targeted support for R&D intensive SMEs have reduced relief for some claimants but preserved meaningful support for companies with substantial qualifying R&D. CFOs now need to forecast R&D tax receipts more cautiously, allow for greater compliance work and consider grants and loans as more central pillars of the funding mix.

5. When should a life sciences business consider innovation loans or venture debt?

Innovation loans or venture debt become realistic once there is line of sight to revenues and a clear commercialisation plan. They are generally unsuitable for very early preclinical or discovery work. CFOs should only pursue them once repayment capacity has been stress tested under conservative assumptions, alongside other biomedical funding sources.