Two blows hit the UK life sciences sector this week. On Wednesday the US pharmaceuticals giant Merck announced it was cancelling a £1 billion expansion of its British presence and will vacate its laboratories in London at the cost of 125 jobs.
On Friday, the UK’s largest company AstraZeneca pressed pause on a planned £200 million investment in its Cambridge research centre – the project had been expected to create over 1000 jobs.
This isn’t the first British investment AstraZeneca has pulled out of this year, also culling a £450 million plan to expand a vaccine plant near Liverpool after a cut in government subsidies.
Britain has long been a world leader in life sciences so such high-profile setbacks should sound alarm bells. The sector generates some £108 billion a year in turnover, employs 304,000 people, and makes the single largest contribution to UK business research and development, representing 18% of the total.
Our world-leading research universities, strong pool of talented graduates, and status as a geopolitical bridge between Europe and America have historically made Britain an attractive place for pharmaceutical investment. So why are such large projects now evaporating?
The international context has changed since Donald Trump returned to the White House this year. The President is accusing much of the world of being pharmaceutical free-loaders and paying less for drugs than Americans.
As with so much else, he wants production to return to the US and is prepared to hold the threat of tariffs above the head of any sector prone to heel-dragging.
An increase in corporate cronyism in Trump’s America also gives something of a first-mover advantage to companies that bend the knee, and potentially a disadvantage to those the White House sees as not being sufficiently deferential. Both Merck and AstraZeneca are ploughing funds into US facilities.
In the case of AstraZeneca there’s also the argument over state funding which was offered in the dying days of the last Conservative government before being reduced by the incoming Starmer administration.
The British economy is sclerotic and it is imperative that one of its proudest aspects is protected from further erosion. We need a future where treatments and research are abundant.
But major firms in the life sciences have been warning for years that Britain is becoming a less attractive candidate for investment. A spat over subsidies and the return of a nationalist to the White House don’t explain why the British pharmaceutical industry looks increasingly sickly.
The problems are manifold and structural. The British economy is sclerotic and it is imperative that one of its proudest aspects is protected from further erosion. We need a future where treatments and research are abundant. So how can we get there?
Fixing Prices
The UK’s drug pricing regime is probably the biggest area of concern. Our centralised healthcare system gives Britain a buying power unmatched across most of the rest of the world but our pricing system is comparatively unattractive.
Right now, the Government caps how fast the NHS bill for branded drugs can grow each year. If sales go above that cap then firms must pay back a proportion of their revenue on branded sales back to the state.
The problem is that the rate changes from year to year, and is determined by the overall gap between the spending cap and what the health service is forecast to spend. Officials then spread that gap across the sales of all in-scope medicines to set a single percentage that needs to be paid back.
If the gap is large and the pool of sales it is spread over is small (for example if big products have gone off-patent and dropped out of scope) then the rate can suddenly leap upwards. Which is exactly what happened this year when the claw-back was set at 22.9% on sales of newer drugs. For global companies trying to plan multi-year investments in new plants or research sites, such instability creates peril.
Other countries have similar systems but with more predictable increases, more carve-outs for certain drugs, and lower rates overall – Germany charges around 7% and France around 5–6%.
The British pricing regime has long drawn the ire of Big Pharma. As Professor Sir John Bell – a former government adviser on life sciences – told the Today programme this week:
“…they’re [pharmaceutical firms] all in the same space – and that is they’re not going to do any more investing in the UK”.
“Ten years ago, we used to spend 15% of our healthcare spend on pharmaceuticals. Now it’s 9%. The rest of the world, the OECD, are sitting between 14 and 20%,”
It’s easy to paint this as large pharmaceutical firms being greedy but underinvestment in medicine is reflected beyond Big Pharma’s bottom line, it means fewer new treatments reaching patients and weakening incentives to invest in research and people in the UK. Ultimately, this means less capacity to turn scientific breakthroughs into better health outcomes.
A recent round of negotiations between the government and pharmaceutical firms ended after Whitehall was unwilling to budge on its proposals. Following Merck’s withdrawal the Health Secretary Wes Streeting is reportedly keen to re-open talks. But success this time will require a willingness to be more radical.
The pricing regime makes only a crude split between newer and older medicines. It needs to go further and properly distinguish between breakthrough drugs, other new launches, and older products, with the pain shared differently.
If the NHS runs into a budget overspend then older drugs which have already enjoyed years of revenue should carry a greater proportion of the claw-back. Truly breakthrough drugs should bear less of the burden and be given a safe launch window where they are exempt entirely. Other drugs should sit somewhere between the two, helping to make Britain a priority market for innovative medication.
Big Pharma might not like paying at all but a system that can be easily planned for is much better than one that can’t.
The Government should also set out in advance how the claw-backs will be calculated. This means setting a predictable formula rather than arriving at a balancing number later in the year that can lurch alarmingly.
A more sensible system would keep the cap on NHS spending growth but add upper bounds so that the worst-case scenario is more predictable. It should also smooth out emergency spikes over several years rather than rapidly increasing the percentage up-front. Big Pharma might not like paying at all but a system that can be easily planned for is much better than one that can’t.
Speeding Up Access
Our drug-pricing regime isn’t the only thing putting pressure on our life sciences sector though, the UK is also falling behind on the testing and rollout of new medications.
Between 2017 and 2023 Britain fell from 4th to 8th for number of Phase III industry trials, with Spain, Germany, and the US all seen as more attractive Western nations to test and deploy novel treatments.
In large part this was because hospitals were stretched following the pandemic but the problems were regulatory too. The paperwork to set up trials has taken too long with each trial site having to negotiate costs and contracts locally.
It now takes around 250 days to open a commercial trial in the NHS compared to around 100 in Spain. The medicines regulator has also suffered from a backlog of applications that it was too slow to process.
On this, the Government has made some progress. The ethics approval process has been streamlined and more funding for the regulator has helped get approvals down to an average of 41 days.
Ministers have also drawn up national standardised costings and contracting to avoid local hospitals negotiating from scratch. In March 2026 a new target of 150 days or less for trial set-up will come into place.
This is likely to be a sticking point, with hospital capacity still badly constrained. To help ease this burden and limit delays to new medications coming to market, the Government should do two things.
Firstly, it should reform the current rules to allow decentralised testing with at-home dosing and electronic monitoring for lower-risk trials like label changes or extensions of existing drugs. This would free-up research staff and hospital capacity for more-complex high-risk trials. Other countries, including the United States, are already making use of this and with the right oversight there is little reason why this couldn’t be done here.
Secondly, we should allow a new opt-in route for early access to medicines. The UK already has limited schemes but these are narrow; patients still don’t have a broad, supervised way to opt in to promising treatments once basic safety has been shown and the potential benefits are clear.
A more ambitious approach would be to open a supervised “early choice” track for patients with serious conditions, where they and their doctors can decide to use promising medicines once they have cleared the basic safety threshold.
This would not replace the conventional approval system but would run in parallel to it. Patients who opt in would do so with full information about the risks, and all outcomes would be captured in a national registry.
That data could then be used to strengthen the evidence base and speed up approvals. In effect, this would turn patients’ real-world experiences into part of the approval process – with the right safeguards, it could cut years off the time it takes for life-changing medicines to reach those who need them most.
In the immediate term, the focus must be on pragmatic reforms that reassure pharmaceutical firms about Britain’s stability and attractiveness as a leading destination for life sciences investment.
It’s difficult to skirt around the fact that Britain does spend much less on medicine than peer countries though. The buying power of the NHS is in part what makes this possible but if we are to maximise our access to the best treatments we are going to need to be willing to spend more. Whether our current healthcare delivery model is the best vehicle for that funding is a question for another day.
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