UK-US Pharmaceutical Trade Deal: Impact on UK Drug Pricing, Tariffs, and Investment

A landmark agreement between the UK government and the US administration guarantees zero tariffs on UK pharmaceutical exports to the United States for at least three years in exchange for commitments from the United Kingdom to increase UK National Health Service (NHS) spending on medicines and reform the drug pricing scheme. This represents a strategic move to balance NHS budgetary needs, strengthen the international competitiveness of the UK life sciences industry, support industry sustainability, and advance the UK government’s goal of attracting investment and improve patient outcomes while remaining responsive to global trends and pressures.

This LawFlash analyzes the context, terms, and implications of this historic deal for the UK life sciences sector, NHS patients, and future industry competitiveness.

The UK-US Pharmaceutical Agreement

The UK-US pharmaceutical trade deal marks a pivotal moment in transatlantic relations, establishing zero tariffs on UK pharmaceutical exports to the United States for at least three years. This action comes after previous comments by the US administration indicating an intent to impose tariffs as high as 100% on branded drug imports, a move that would have severely disrupted the sector. Those tariffs were likely to be issued pursuant to findings from the pending investigation on the national security impact of US imports of pharmaceuticals and pharmaceutical ingredients under Section 232 of the Trade Expansion Act of 1962, as amended (Section 232). Section 232 authorizes the US president to “adjust imports” of specified articles, including via a higher tariff, if he finds that imports of such articles threaten to impair US national security, following an investigation by the US Department of Commerce. Per an announcement by US President Donald Trump in late September, the Section 232 tariffs on branded pharmaceuticals were set to take effect on October 1, 2025 but were subsequently paused to allow for negotiation of agreements.

These proposed Section 232 tariffs are separate from the global reciprocal tariffs imposed by the US on most foreign imports to reduce trade deficits and rectify unbalanced trade. For the UK specifically, the United States has imposed a 10% reciprocal tariff on most goods since April 2025. Many pharmaceutical products and ingredients in Chapters 29 and 30 of the Harmonized Tariff Schedule of the United States were exempted from the US reciprocal tariffs, regardless of country of origin. However, this exemption did not apply to any subsequent Section 232 tariff actions.

Key Provisions

Under the new US-UK pharmaceutical deal, the United States has agreed to zero tariffs on UK pharmaceutical exports to the United States for at least three years, and to exempt UK-origin pharmaceuticals and pharmaceutical ingredients from Section 232 tariffs. The US also agreed to refrain from targeting UK pharmaceutical pricing practices in any future investigation under Section 301 of the Trade Act of 1974, another tariff authority, for the duration of President Trump’s term. The deal will also secure preferential terms for medtech exports, meaning no additional new tariffs on medical devices.

In exchange:

• Britain commits to investing around 25% more in innovative, safe, and effective treatments. This will be implemented through changes to the National Institute for Health and Care Excellence (NICE) cost-effectiveness thresholds, which NICE uses to evaluate new medicines and decide which are cost-effective for use in the NHS. The current threshold is £20,000–£30,000 per Quality-Adjusted Life Year (QALY), which is the cost the NHS will pay to achieve one year of good health and has been in place since NICE was set up in 1999. This will increase to £25,000–£35,000 from April 2026 apply to all technology appraisal guidance. Existing NICE recommendations will remain unchanged, but future medicines will be evaluated using these revised thresholds.
• The rebates under the Voluntary Scheme for Branded Medicines Pricing and Access (VPAG) will be amended. VPAG establishes a budget cap on the total expenditure by the NHS on newer branded health service medicines. If the spend is over this budget cap, member companies must make rebate payments to the UK Department of Health and Social Care (DHSC) to cover excess expenditure. This is calculated as a percentage of eligible net sales, which currently requires companies to pay rebates of more than 20% of revenue. The deal will lower the repayment rate for newer medicines to a maximum of 15% for 2026–2028.

IMPACT FOR THE NHS, PATIENTS, AND INDUSTRY

It has been well publicized that the NHS budget is under pressure and that companies find the United Kingdom a difficult market to launch medicines due to the pressures on medicines pricing. The fact that the NICE thresholds have remained unchanged for over 20 years means it can be challenging for new products to secure funding and be launched in the United Kingdom. There have also been reports that while the United Kingdom’s spending on medicines is around 9% of the health budget, the rest of Europe spends between 14% and 20% on medicines.

Similarly, the high rebate amount under VPAG has been described as unsustainable and also not in line with other European countries, where average rebate rates are in the single digits. Negotiations between the DHSC and the Association of the British Pharmaceutical Industry (ABPI) on VPAG amendments have been contentious, with the ABPI rejecting government offers that failed to address high repayment rates and restrictive cost-effectiveness thresholds.

The changes announced this week seek to address these issues and address industry concerns about unpredictably high payment rates and underinvestment in new treatments. The UK-US deal is widely seen as positive news for NHS patients, as it should expedite access to innovative medicines and support the competitiveness of UK life sciences. The agreement’s reforms are designed to reverse the trend of declining investment and competitiveness in the UK, providing incentives for pharmaceutical companies to reinvest in UK research and manufacturing. A number of companies have already reacted to the news that this deal could lead to additional investment in the United Kingdom. Industry leaders, including ABPI Chief Executive Richard Torbett, have welcomed the agreement as “an important step towards ensuring patients can access innovative medicines needed to improve wider NHS health outcomes” and a means to attract and retain global life sciences investment.

WHAT TO EXPECT NEXT

While the agreement provides immediate relief for UK pharmaceutical exports and addresses some longstanding concerns, many details remain unresolved. Negotiations are anticipated between the ABPI and UK government to design a new, more sustainable VPAG model from 2029, with further technical improvements expected.

The increased NICE threshold and reduced rebate rates should enhance the UK’s attractiveness for pharmaceutical investment and innovation, but ongoing pressure on NHS budgets and global market volatility could pose additional challenges. Stakeholders will closely monitor the implementation of these reforms and their impact on patient access, industry investment, and the UK’s global standing in life sciences.

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