Pharma Faces Investor Woes and Tariff Threats, Turns to AI and Collaboration for Survival

The pharma industry faces numerous headwinds that have weakened VC and investor confidence, shaken clinical and manufacturing foundations and steered companies to embracing digital innovation, agreed speakers during a virtual discussion on September 20, 2025.

The potential impact of U.S. tariffs on drug development and production also weigh heavily on the industry. Ultimately, the tumultuous environment has reshaped how companies, CROs and CMOs should collaborate, the speakers concurred.

Healthcare investing has become significantly more difficult in the last four years, stretching across the VC, mid-cycle and licensing sectors, said Ali Pashazadeh, CEO of Treehill Partners. Major factors include market saturation in certain disease areas and investor uncertainty about exit opportunities, he explained. In addition, many companies lack the management capabilities to advance Phase II/III assets to market, making them difficult to fund.

“It makes it difficult for a lot of investors to feel comfortable,” Pashazadeh said.

Universities, traditionally a key source of early-stage research, are cutting back on innovation resources, said Khanh Courtney, Biologics Technical Strategy Leader at Element Materials Technology.

Investors are favoring platform-centric approaches with AI-enabled technologies, focusing on scalability, resilience and derisking strategies, explained Mike Walker, VP for Life Sciences Advisory at Microsoft.

Shaky investor confidence has pushed academia, pharma companies, CROs and CMOs to consider cost efficiencies, the speakers agreed.

Creative thinking about funding sources is crucial, Courtney said, such as universities performing small-scale clinical trial manufacturing to generate revenue that funds innovation pipelines, and hospitals taking integrated approaches from discovery to bedside.

Treelink’s analysis of 1,200 Phase 3 programs written by CROs revealed that 85–90% contained material errors while 60% lacked clinically delineated target product profiles, Pashazadeh said. But he claimed there is the potential for 30–40% cost savings in Phase 2/3 development by developing drugs more efficiently and streamlining C-suite teams for single-program development.

“The questions are: How do you innovate drugs, and how you produce them with less resources?” Courtney posed.

The cost-savings measures that appeal to investors are especially relevant in the manufacturing sector. Companies are increasingly maximizing manufacturing facility utilization by offering CDMO services to generate revenue from idle equipment, Courtney said.

Single-jurisdiction manufacturing is no longer viable, Pashazadeh said. Companies developing molecules in China need global studies rather than bridging studies, and U.S. manufacturing presence is essential. Strategic flexibility across multiple geographies is critical for survival, he explained.

A variety of issues, such as an environmental, social and governance considerations and heavy dependence on international players such as India for generics, are pushing CMOs to transform from linear, brittle supply chains to distributed, orchestrated models, Walker said. AI for scenario planning is essential, he added.

There is more of a focus on “modernizing these very, very outdated sites and turning them into a factory of the future, [such as] leveraging technologies like digital twins,” Walker noted. Predictive analytics can also be useful for “what-if” scenarios to determine when tariffs might require shifting operations, he said.

Only 10–15% of current biotechs will exist in five years, Pashazadeh claimed. He argued that AI will help that minority survive but said only 5-10% of companies are actively embracing AI while 60–70% of companies are resistant to the technology, hoping for a return to previous methods.

There is an immediate need for data harmonization and common data standards across ecosystems, along with predictive analytics and digital twin models, Walker said. The solution requires breaking down silos between R&D and commercialization functions, he added.

The International Conference for Harmonization meeting in May 2025 emphasized flexibility, redundancy and leveraging existing data and real-world evidence. These focus points illustrate how the industry is moving toward more efficient, data-driven approaches, Courtney said.

Potential tariffs mean that a U.S. manufacturing partner or facility is essential, Pashazadeh noted. Indian manufacturers, for example, are looking to move 15–20% of capacity sales outside the U.S. due to 50% tariffs.

For smaller U.S. companies, tariffs create binary scenarios: either they adapt or shut down. Pharma and biotech should maintain legal flexibility in M&A and capital raising to avoid being locked into unfavorable terms if tariffs change, Pashazadeh explained.

Building flexibility into manufacturing processes at the development stage by identifying critical quality attributes of raw materials is crucial, Courtney said. This allows companies to pivot to alternative suppliers if tariffs affect one source.

Considering the industry challenges, strategic partnerships and consortium-oriented ventures are becoming increasingly important, Walker explained. Discussions should address IP concerns, scope definition and business model selection.

Pashazadeh noted a concrete example of an APAC gene therapy company partnering with a U.S. CMO to lock down manufacturing and transfer technology to the States, making the CMO a strategic partner, not just a financial one.

Beneficial relationships emerge when contract testing labs, manufacturing labs and development organizations collaborate closely to minimize operational costs and wait times through coordinated scheduling and planning, Courtney said.

Ultimately, a mindshift is necessary for all players to ultimately succeed, the speakers agreed. The problem is the siloed mentality of “I’ll do my phase, and the next phase isn’t my issue,” Pashazadeh said. Rather, stakeholders must take ownership of the entire journey from molecule to patient.

This article was written in partnership with Element.