Quarterly Review of Biotechnology and Pharmaceutical Industry Performance: Q2 2025 Recap

Quarterly Review of Biotechnology and Pharmaceutical Industry Performance: Q2 2025 Recap

The biotech and pharmaceutical industries are currently facing significant changes, with tariffs, AI integration, and M&A activities shaping the landscape in 2025.

As of mid-July, the US has signaled an intent to potentially increase the baseline reciprocal tariff rate to 15 to 20 percent and has threatened a hike of 35 percent on goods currently subject to the 25 percent fentanyl tariff, effective August 1. These tariffs, if implemented, could have a profound impact on the sector. U.S. tariffs of up to 25% on imported medicines and active pharmaceutical ingredients (APIs)—previously exempt—are now in effect, with proposals to escalate tariffs on finished pharmaceutical products to as high as 200%. These tariffs increase input costs for companies, potentially leading to drug shortages as some producers might exit the market due to poor profitability.

AI, however, remains a transformative force across the industry, particularly in drug development and synthetic biology. Pharmaceutical companies are continuously re-evaluating their supply chains due to the higher import costs for APIs and finished drugs resulting from tariffs. Investment in domestic CDMO infrastructure and real-time manufacturing analytics will be crucial for supply chain resilience in a protectionist trade environment.

The uncertainty around tariffs and drug pricing policies has contributed to a noticeable slowdown in biopharma M&A deals. Executives are reportedly holding off on dealmaking for several months until tariff frameworks stabilize. Current deals tend to involve late-stage or marketed assets with risk mitigation clauses like contingent payments. This cautious approach restricts growth opportunities from acquisitions and mergers, affecting strategic expansion and innovation pipelines.

The biotech and pharma sectors are navigating a complex environment marked by tariff pressures, regulatory cost-cutting, and transformative technologies like AI. Analysts note increased recession and stagflation risks linked to reopening protectionist policies, creating market volatility. Despite threats of very high tariffs (up to 200%), some investors view the delayed implementation and uncertainty over actual enforcement as a mitigating factor, keeping markets relatively stable for now. However, policy uncertainty continues to weigh heavily on corporate planning and investment decisions.

Should tariffs rise to the proposed 200% level, there could be substantial reshoring efforts to rebuild domestic manufacturing capacity, but this faces challenges due to long timelines and heavy capital expenses. The initial low tariff rates that are set to rise over time could progressively pressure supply chains and drug prices, particularly in generics, possibly worsening drug shortages and limiting access.

In the year's third quarter, adaptability, resilience, and clear-eyed execution will matter more than ever. Commercial-stage differentiation will become more critical than ever, with investors watching for companies that can combine clinical results, cost control, and regulatory readiness. Significant investments were directed toward immunology, rare diseases, and neurodegenerative disorders in the second quarter, underscoring a broader trend in the industry toward targeted pipeline expansion and addressing unmet medical needs.

The Trump administration's inclusion of enhanced orphan drug incentives under the Big Beautiful Bill could act as a catalyst for rare disease innovation. In the second quarter of 2025, the biopharmaceutical industry experienced a slowdown with only two initial public offerings compared to five in the first quarter.

Despite market turbulence, some pharmaceutical companies have demonstrated strong performance. Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), and Sanofi have shown resilience, with Sanofi acquiring Blueprint Medicines for US$9.5 billion, a startup with a strong focus within the rare disease space, to grow its portfolio of rare disease treatments.

For us, applications of AI where there is proprietary data and high-value applications are of particular interest, according to Bison Ventures. The partnership between Sanofi and Regeneron (NASDAQ:REGN) with Viz.ai, an AI healthcare firm, to integrate AI into COPD management is a testament to this trend.

Investors will be closely watching for companies that can make measurable progress in biopharma's next phase. The cumulative tariff of up to 245 percent on certain Chinese active pharmaceutical ingredients (APIs) has been in effect since April, significantly impacting the pharmaceutical supply chain. These challenges, coupled with the transformative potential of AI, make for an exciting and challenging time in the biotech and pharma sectors.

1. Life science and science continue to evolve, steered by factors such as tariffs, AI integration, and M&A activities in 2025.
2. The US may increase their reciprocal tariff rate to 15 to 20 percent, potentially affecting medical-conditions products and chronic conditions like chronic kidney disease, COPD, type-2 diabetes, and cancer.
3. A 35 percent hike on goods subject to the 25 percent fentanyl tariff, effective August 1, could increase health-and-wellness costs for companies.
4. Tariffs of up to 25% on imported medicines and APIs, previously exempt, have been enforced, potentially leading to pharmaceutical shortages.
5. Proposals to escalate tariffs on finished pharmaceutical products to as high as 200% could worsen drug shortages and limit access.
6. AI integration is a transformative force in the industry, particularly in drug development and synthetic biology.
7. With higher import costs for APIs and finished drugs due to tariffs, pharmaceutical companies reinvest in domestic CDMO infrastructure.
8. Real-time manufacturing analytics investment is critical for supply chain resilience in a protectionist trade environment.
9. The uncertainties around tariffs and drug pricing policies have slowed biopharma M&A deals.
10. Current deals involve late-stage or marketed assets with risk mitigation clauses.
11. The cautious approach restricts growth opportunities from acquisitions and mergers.
12. The biotech and pharma sectors face a complex environment marked by tariff pressures, regulatory cost-cutting, and transformative technologies like AI.
13. Analysts note increased recession and stagflation risks, creating market volatility.
14. Despite threats of very high tariffs, some investors view the delayed implementation and uncertainty over actual enforcement as a mitigating factor.
15. If tariffs rise to 200%, substantial reshoring efforts to rebuild domestic manufacturing capacity may occur.
16. However, reshoring faces challenges due to long timelines and heavy capital expenses.
17. Initial low tariff rates that are set to increase over time could progressively pressure supply chains and drug prices, particularly in generics.
18. In the third quarter, adaptability, resilience, and clear-eyed execution will be crucial.
19. Commercial-stage differentiation will become more critical, with investors seeking companies that can combine clinical results, cost control, and regulatory readiness.
20. Significant investments were made in immunology, rare diseases, and neurodegenerative disorders in the second quarter.
21. The Trump administration's inclusion of enhanced orphan drug incentives may act as a catalyst for rare disease innovation.
22. The biopharmaceutical industry experienced a slowdown in the second quarter of 2025, with only two initial public offerings.
23. Some pharmaceutical companies, such as Novartis, Johnson & Johnson, and Sanofi, have demonstrated resilience during market turbulence.
24. Collaborations like Sanofi's partnership with Regeneron and Viz.ai to integrate AI into COPD management are testaments to industry trends.
25. Investors will watch for companies making progress in biopharma's next phase, facing challenges in areas like respiratory conditions, digestive health, eye-health, hearing, and skin-conditions.
26. The healthcare and renewable-energy sectors, along with industries such as manufacturing, energy, retail, transportation, entrepreneurship, and automotive, are also marked by transformation and uncertainties.
27. In a broader sense, industries like real estate, finance, aviation, and venture capital are also affected by economic shifts, diversity-and-inclusion initiatives, investment trends, personal-finance, and private-equity, shaping the overall business landscape in 2025.

Read also: