US pharmaceutical giant Merck is scrapping a planned £1bn expansion of its UK operations, saying the government is not investing enough in the sector.

The multi-national business, known as MSD in Europe, said it would move its life sciences research to the US and cut UK jobs, blaming successive governments for undervaluing innovative medicines.

One science industry expert told the BBC that, following Merck’s decision, many major pharmaceutical companies could stop investing in the UK.

A spokesperson for the government defended its investments in science and research, but acknowledged there was “more work to do”.

Pharmaceutical companies have been refocusing on investing in the US following pressure from President Donald Trump, including threats of sky-high tariffs on drug imports.

Merck had already begun construction on a site in London’s King’s Cross which was due to be completed by 2027, but said it no longer planned to occupy it.

The company will also vacate its laboratories in the London Bioscience Innovation Centre and the Francis Crick Institute by the end of the year, which will lead to 125 job losses.

A spokesperson for the drug company said the decision “reflects the challenges of the UK not making meaningful progress towards addressing the lack of investment in the life science industry and the overall undervaluation of innovative medicines and vaccines by successive UK governments”.

Speaking in the House of Commons, science minister Ian Murray said Merck’s decision was “deeply disappointing” but that it was “a commercial decision for them”.

The company recently announced 6,000 job losses and $3bn (£2.2bn) per year cost cuts.

Mr Murray said global economic pressures and the US trade policy had compounded its problems.

He added that pharmaceutical companies were getting a lower proportion of NHS drugs spending due to the actions of previous Conservative and coalition governments.

However, Conservative shadow science secretary Julia Lopez said the message from Merck bosses was “unsparing”.

“Simply put, the UK is not internationally competitive”, she said.

“The government must wake up, and do so now.”

Sir John Bell, emeritus regius professor of medicine at Oxford University, told the BBC’s Today programme that he’d spoken to several bosses of major companies in the past six months, “and they’re all in the same space, and that is, they’re not going to do any more investing in the UK”.

One of the problems, he said, was the amount of money the NHS spends on medicines.

“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%,” Sir John said.

“The large companies do have to work in a system where they can sell their products, and if they can’t sell their products here, they’ll go and do their business somewhere else.”

Richard Torbett, head of the Association of the British Pharmaceutical Industry, said the decision was “an incredible blow”.

“We’ve really got to see it as a wake up call to try and understand what is driving companies to make these difficult decisions and what can we do to turn that round,” he told the BBC’s Wake Up To Money programme.

“The lack of competitiveness of the UK is the big thing that’s driven the decision,” he added.

“We’ve got systematic under-investment in the products that come out of the end of innovation.”

MSD is the latest pharmaceutical company to abandon or reduce investment plans in the UK.

In January, AstraZeneca walked away from plans to invest £450m in expanding a vaccine manufacturing plant in Merseyside earlier this year, blaming reduced government support.

The UK boss of another pharmaceutical giant warned last month that NHS patients would lose access to cutting-edged treatments because Britain was “largely uninvestable”.

Norvartis’s Johan Kahlstrom said the company had “already been unable to launch several medicines” in the country due to the “declining competitiveness” of the UK market.

In 2023, AstraZeneca chose to build a new factory in the Republic of Ireland instead of the UK.

The firm’s boss said at the time it wanted to build the site in north-west England, but a “discouraging” tax rate meant it chose Dublin instead.

Industry sources told the BBC the sector had been attracting major funding in the hub around Kings Cross focused on the intersection between life sciences and AI.

They pushed back on claims that the decision was linked to ongoing negotiations over drug prices, in which industry has been lobbying hard for the NHS to approve more and pay more for medicines.

The current pricing regime was set and agreed to by drug companies in 2023 – less than 18 months ago.

Since then, pharmaceutical firms have come under pressure from the Trump administration to lower drug prices for American customers and to invest more in the US – affecting their ability to invest elsewhere.

In an August interview with CNBC, Trump suggested that tariffs on pharmaceuticals imported to the US could reach up to 250%.

The threat followed an executive order signed by the president in May aimed at reducing drug prices for American consumers.

Dr David Roblin, chief executive of London-based biotechnology company Relation Therapeutics, told the BBC the fundamentals that drove MSD to invest in the UK in the first place had not changed.

“The academic environment in the UK continues to produce innovative ideas and people to run with those ideas, which attracts foreign investment,” he said.

“The environment to do research is still outstanding: we’ve got great academics, the NHS does provide a research platform, for example the UK Biobank is proving to be a real attractor for companies like mine,” he said.

What has changed, Dr Roblin said, was the political landscape in the US which big pharma has to respond to, “because the US remains the largest market for pharmaceuticals on earth,” he added.

A spokesperson for the Department of Industry, Science and Technology said: “The UK has become the most attractive place to invest in the world, but we know there is more work to do.

“We recognise that this will be concerning news for MSD employees and the government stands ready to support those affected.”

In Labour’s election manifesto, the party said that as part of its life sciences plan it would develop “an NHS innovation and adoption strategy in England”.

“This will include a plan for procurement, giving a clearer route to get products into the NHS coupled with reformed incentive structures to drive innovation and faster regulatory approval for new technology and medicines,” it said.