As a result, the country is set to loose out to other locations, according to the research published by the Association of the British Pharmaceutical Industry (ABPI) and the Confederation of British Industry (CBI).
Out of 100 UK-based pharmaceutical companies surveyed, three-quarters had "little confidence" in the current environment, with 83 per cent expecting the situation to worsen and only one per cent believing it will improve.
Almost all the companies surveyed - 97 per cent - said there is now an increasing level of uncertainty within the UK pharmaceutical market environment.
The UK government's recent decision to abandon the pharmaceutical price regulation scheme (PPRS), which controlled drug prices in the country, has heightened the industry's uncertainty.
ABPI President Nigel Brooksby said that the government has "broken the five-year agreement on pricing, made in 2005 - an agreement that provided that very stability on which our success largely depends".
"Stability is essential for business confidence and investment, and the UK market has long been a springboard for international success for many global companies in the pharmaceutical sector", he said.
The pharmaceutical industry is a key strategic sector for the UK, being the country's leading exporter, employing some 70,000 people, and accounting for a quarter of all UK industrial research and development, with £4bn a year being spent.
However, the country now uses fewer innovative medicines than the rest of Europe over the last three years over 10 per cent of jobs (8,000) in this sector have been eroded.
The industry's propensity towards sending pharmaceutical work to offshore locations that can offer a cheaper and faster turnaround has not helped the situation.
Moreover, 35 per cent of firms interviewed said they were planning to reduce their level of investment in research and development, with a similar number indicating a decline in spending on assets in the country such as buildings and equipment.
Meanwhile, 46 per cent of companies surveyed said the number of UK clinical trials they conduct will drop, while the level of manufacturing is forecast to decrease by 42 per cent.
John Cridland, CBI deputy director general said that the lack of confidence in the UK business environment should be of deep concern to the government.
"The sector needs to be carefully nurtured and its contribution to the UK economy must not be jeopardised".
"We must work together urgently to restore business trust and planning stability, so that the UK can return to providing an environment where global companies have the confidence to invest", added Brooksby.