MSD gives warning to UK ahead of $1.3bn facility work

In 2017, MSD made the decision to open a $1.32 billion, 220,000 sq. ft. research facility in the heart of London’s ‘knowledge quarter’ around King’s Cross.

Ahead of the breaking ground ceremony, head of discovery sciences and translation medicines at MSD (known as Merck & Co in North America), Dean Li, has told the Financial Times that the UK is at risk of losing out to other countries for these large-scale investment projects.

He told the newspaper that the location in London is ideal for its close proximity to academics working in early-stage discovery, but warned that other factors are making the UK less attractive, particularly difficulties in running clinical trials and clawback taxes that keep the prices that pharma companies can charge for medicines very low.

“We hope that the UK government and the UK people and the UK ecosystem make the appropriate investments such that MSD sits there and say, ‘Yes, we were right to build it’,” Li told the FT.

Some reforms are already underway to try to tackle the clinical trial problem, including a new scheme to slash the time it takes to get approval for later-stage studies, but the rebate rates levied on branded medicines sales to the NHS remain a major area of conflict between the industry and government.

Negotiations are ongoing about the rebate level that should be paid in a voluntary scheme that companies can choose to join, in the wake of a sharp rise in demand for medicines since the pandemic has seen the rate spiral to 26.5% from an average of around 7% pre-COVID-19.

Meanwhile, the statutory rebate rate for companies not in the voluntary scheme has been set at 27.5%, a near three-fold increase in the last few years which has already led to some pharma companies opting to make investments outside the UK.

MSD’s decision to invest in the London facility pre-dated the pandemic, but other companies have altered their plans as a result. That includes AstraZeneca, which said earlier this year it had decided to build a $360 million manufacturing facility in the Republic of Ireland instead of the UK, blaming the tax burden imposed on companies.

Last week, the Association of the British Pharmaceutical Industry (ABPI) said that unless the UK takes action to reduce the rebate rates levied on branded medicines sales, it could lose £1.9 billion investment in R&D spending in 2028, with a cumulative £5.7 billion of R&D investment lost between 2024-28.

The ABPI argues that the rebate system is a false economy that is costing the UK economy far more than is being saved through lost investment, jobs and tax revenue.

Construction work will begin at MSD’s new site next week and it is due to be completed in 2025, bringing together around 800 R&D from other UK locations and around 120 new hires in the areas of neuroscience, as well as inflammation and immunology.