Pharmaceutical Sector Underperformance in 2025: The NHS Pricing Crisis and Investor Sentiment

The pharmaceutical sector's underperformance in 2025 has become a defining story of global healthcare markets, driven by escalating pricing pressures from the UK's National Health Service (NHS) and a corresponding erosion of investor confidence. As the NHS navigates a complex balancing act between affordability and innovation, pharmaceutical firms are facing unprecedented financial strain, with ripple effects across global markets. This analysis unpacks the mechanisms behind the crisis, the sector's response, and what lies ahead for investors.

The NHS Pricing Quagmire: A Perfect Storm of Rebates and Tariffs

The UK's pharmaceutical pricing framework has long been a battleground for cost control, but 2025 has seen tensions reach a boiling point. At the heart of the crisis is the Voluntary Scheme for Branded Medicines Pricing (VPAG), which governs rebate rates for drugmakers. By September 2025, the proposed headline payment percentage for branded medicines had surged to 23.8%, a 55% increase from the 15.5% rate in 2024, according to the government's proposed review (government's proposed review). This adjustment, intended to align the statutory scheme with the voluntary VPAG, has placed immense pressure on firms like AstraZeneca, Eli Lilly, and Merck, which now face rebate rates exceeding 23.5%—far higher than the 5.7% to 7.9% average in France, Germany, and other European markets, according to a Fierce Pharma report (Fierce Pharma report).

Compounding the issue is the U.S. government's aggressive stance on global drug pricing. President Donald Trump's 100% tariffs on branded medicines, effective October 1, 2025, have forced UK-based firms to raise domestic prices to offset losses, as reported by The Independent (The Independent). This move, tied to an executive order demanding higher international prices to reduce U.S. costs, has created a zero-sum game: firms must either absorb losses in the UK or pass them on to patients, risking backlash from both regulators and consumers.

Investor Sentiment: Flight from the UK and a Shift to the U.S.

The financial strain has triggered a mass exodus of pharmaceutical investment from the UK. Major firms have suspended or canceled projects worth billions: AstraZeneca paused a £200 million Cambridge facility, Merck scrapped a £1 billion London site, and Novartis declared the UK “no longer attractive” for innovation, according to an Evrimagaci report (Evrimagaci report). These decisions have sent shockwaves through investor sentiment, with shares of UK-focused pharma firms underperforming global peers. For example, data in The Pharmacist show AstraZeneca's stock fell 12% year-to-date in 2025, outpacing the S&P 500's 8% gain (The Pharmacist).

Investors are also recalibrating their portfolios. According to a report by Bloomberg, pharmaceutical firms are redirecting capital to the U.S., where higher drug prices and government incentives (e.g., the 21st Century Cures Act) create a more favorable environment. This shift has exacerbated the UK's challenges, as reduced R&D investment threatens to slow the pipeline of innovative therapies—a critical concern for the NHS, which relies on cutting-edge treatments to manage rising demand.

Broader Implications: Innovation, Access, and Systemic Risk

The crisis extends beyond financial metrics. Health experts warn that the NHS's focus on cost containment risks creating a “critical threat” to patient access. With drug spending as a share of the NHS budget falling from 15% in 2021 to 9% in 2025, the report raises fears of supply chain disruptions and delayed approvals for new therapies. Meanwhile, the National Institute for Health and Care Excellence (NICE) faces criticism for its cost-effectiveness thresholds, which have not kept pace with the rising costs of drug development, a point made in The Pharmacist.

For pharmaceutical firms, the stakes are existential. As BBC News reported, one analyst noted, “The UK's pricing model is becoming a test case for whether innovation can coexist with affordability in a post-pandemic world” (BBC News). Companies that fail to adapt—through price hikes, market diversification, or lobbying for policy changes—risk long-term underperformance.

Conclusion: A Sector at a Crossroads

The pharmaceutical sector's 2025 underperformance underscores a broader tension between public health priorities and corporate profitability. While the NHS's cost-control measures aim to ensure sustainability, they risk deterring innovation and alienating key stakeholders. For investors, the path forward requires careful navigation: hedging against regulatory risks in the UK while capitalizing on growth opportunities in markets like the U.S. and Asia.

As Health Secretary Wes Streeting acknowledged, this is a “live conversation” with no easy answers. But for the sector to thrive, policymakers and pharma leaders must find a middle ground—one that balances affordability with the incentives needed to drive the next wave of medical breakthroughs.