According to research by HSBC Innovation Banking and Dealroom, the UK’s health tech sector attracted almost two billion dollars in VC funding in the first quarter of 2025—making it the top-performing sector nationwide. This figure is more than twice the investment raised by fintech and software, traditionally the favourites of venture capital firms.

Major funding rounds have driven this growth. Isomorphic Labs, an AI-powered drug discovery startup founded by DeepMind’s Sir Demis Hassabis, raised $600 million. Verdiva Bio, a weight-loss drug company challenging Ozempic, secured $410 million in January 2025. These investments reflect a broader trend: nearly 50% of all health sector funding in Q1 2025 went to AI-enabled startups, showing the deep fusion between digital innovation and life sciences.

In total, UK startups across sectors raised $4.2 billion in Q1, up 8% from the previous year. Six megadeals and one of the highest average deal sizes since 2020 signal renewed investor confidence.

AI: The Engine Behind Health Tech Innovation

AI continues to dominate the UK innovation landscape in 2025. UK AI startups raised $2.4 billion in the first half of the year, representing 30% of total national VC funding. AI is playing a pivotal role in both health and fintech—the UK’s two most-funded innovation verticals.

Applications in healthcare include drug discovery, metabolic health, neurology, and synthetic biology. These areas are attracting robust funding, particularly in Series B and C rounds, as more companies move beyond proof-of-concept to commercial scale.

While London remains the country’s AI capital, regional innovation hubs are thriving. Oxford, Cambridge, Cardiff, and Glasgow are all attracting significant investment, showing that health tech innovation is not confined to the capital.

Government Reform: The 10-Year Health Plan and NHS Transformation

Complementing this investment boom is a bold government strategy to reform the NHS. The 10-Year Health Plan, launched as part of the UK’s broader health mission, outlines three radical shifts:

1. Hospital to community: Prioritising local and preventative care over reactive hospital-based services.
2. Analogue to digital: Embracing digital transformation across NHS operations.
3. Sickness to prevention: Refocusing healthcare delivery toward prevention, early detection, and lifestyle management.

To operationalise these changes, the plan introduces a new operating model, a reshaped innovation strategy, and a revised workforce plan. A national dialogue, Change NHS, engaged over 250,000 people—including patients, staff, and health system leaders—to co-develop these reforms.

A New Financial Model: From Spending to Value

The government is also overhauling NHS finances with a shift to value-based healthcare. The goal: better outcomes for every pound spent. Key changes include:

• Annual productivity targets of 2% from 2025 to 2028.
• Ending automatic deficit bailouts and restoring financial discipline.
• Phasing out block contracts and introducing outcome-based bonuses for high-quality care.
• Testing “year-of-care” payments to encourage long-term, proactive treatment.

By 2030, the government aims for most NHS providers to move into financial surplus. In parallel, trusts will retain 100% of land sale receipts, access private capital through new Public Private Partnership models, and trial low-risk pension funding options.

The UK’s Life Sciences Challenge

Despite these initiatives, experts caution that the UK may fall short of its 2035 goal to become the world’s third-largest life sciences economy—unless it accelerates reforms. While government-backed plans involve 33 key actions, they must be matched by increased domestic investment and regulatory flexibility.

The UK’s punitive price caps on novel drug sales and unpredictable reimbursement mechanisms deter pharmaceutical investment. Currently, up to 40% of new drugs are never launched in the UK, and the voluntary pricing scheme could demand up to 33% of revenue repayment from pharma companies.

“We must build on what works—streamlined regulation, dynamic pricing, targeted public-private investment, and patient-centred innovation,” argues the former Chair of the UK Vaccine Taskforce.

The European Context: A Mixed Picture

While the UK dominates European VC share (30% in 2025), the broader EU is also pushing forward. Digital health transformation is supported by initiatives like the European Health Data Space, which aims to ensure universal electronic health record access by 2030.

EU funding programmes have committed over €16 billion to health tech innovation from 2014 to 2027. However, the European deal volume in digital health fell to its lowest in five years in 2024, signalling investor caution. Early-stage investments still dominate, but interest is growing in physician support tools, treatment planning, and clinical AI applications, as investors move away from telehealth and remote monitoring.