The UK and the US governments have agreed in principle on drug pricing and tariffs/trade on pharmaceuticals between the two countries, months after the countries formed an initial trade pact. What is the new deal and the impact on pharma?

By Patricia Van Arnum, Editorial Director, DCAT, pvanarnum@dcat.org

New trade agreement on pharmaceuticals
The trade agreement on pharmaceuticals follows the larger and more general trade pact between the US and the UK, the US-UK Economic Prosperity Deal, which was announced in June (June 2025), and which specified that the two countries would negotiate preferential treatment outcomes for UK pharmaceuticals and pharmaceutical ingredients. The outcome of those efforts are now reflected in the new framework agreement on pharmaceuticals, which provides that UK pharmaceutical exports to the US  will continue to face zero tariffs for three years in exchange for the UK agreeing to increase drug pricing thresholds for innovative medicines. The UK exported £6.6 billion ($8.8 billion) worth of medicinal and pharmaceutical products to the United States in 2024, according to information from the Association of the British Pharmaceutical Industry (ABPI), an industry trade association representing UK-based pharmaceutical companies.

Under the deal announced this week (December 1, 2025), the US has agreed to exempt UK origin pharmaceuticals, pharmaceutical ingredients, and medical technology from certain types of tariffs, so-called Section 232 tariffs, and refrain from targeting UK pharmaceutical pricing practices in any future Section 301 investigations for the duration of President Trump’s term. Section 232 of the Trade Expansion Act of 1962, as amended, allows the President to impose import restrictions, such as tariffs, based on an investigation and affirmative determination by the US Department of Commerce that certain imports threaten to impair US national security. The US Department of Commerce had initiated a Section 232 investigation for the imposition of pharmaceutical-industry tariffs in April (April 2025), and the statutory time frame for this process would require any actions to be taken by the end of this year (2025). A Section 301 investigation is authorized by Section 301 of the Trade Act of 1974i and allows the United States Trade Representative (USTR) to address “unfair” foreign practices that burden US commerce, such as those violating trade agreements or being “unreasonable” or “discriminatory.” These investigations can be initiated by a petition from an interested party or by the USTR itself. If an investigation finds an issue, the USTR can determine what action to take, which could include imposing tariffs..

In exchange, the UK will reverse a trend of declining expenditures by the UK’s National Health Service (NHS), its publicly funded healthcare system, on innovative medicines and increase the net price it pays for new medicines by 25%. In addition, the UK will further ensure that higher prices for new medicines are not materially eroded by a demand for portfolio-wide concessions under the UK’s Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) or other rebate schemes. The UK has also committed that the repayment rate owed by companies under the current VPAG scheme will decrease to 15% in 2026 and remain at or below that level for the duration of the scheme.

Further details on UK drug price determinations
A key part of the deal will be an increase to the baseline threshold used by the National Institute for Health and Care Excellence (NICE), the UK government body responsible for evaluating the cost of new drugs to decide whether to recommend them for use in NHS. The prices of existing medicines used by the NHS will not be affected, but in the future, new medicines will be assessed under revised cost-effectiveness thresholds.

NICE uses a quality-adjusted life years (QALYs) assessment to estimate the health benefits of new medicines. The QALY combines both the length of life gained from a treatment and its impact on quality of life compared with current treatment. It currently assess value for money for the NHS by applying a cost-effectiveness range of £20,000–£30,000 ($26,722– $40,076) per QALY gained. This means that for a medicine to be considered cost effective, it should typically generate one additional year of perfect health (or an equivalent combination of additional life expectancy and health-related quality of life improvements) for no more than from £20,000–£30,000 ($26,722– $40,076) over the cost of current care.

Under the new agreement with the US, slated to go into effect in April 2026, the UK government, with the appropriate regulatory changes, will ask NICE to increase its baseline threshold from £20,000–£30,000 ($26,722– $40,076) to £25,000–£35,000 ($33,389– $46,729), an increase of 25% at the lower end of the threshold and 17% at the upper end. NICE says it currently recommends 91% of the medicines it evaluate, representing approximately 70 drugs per year. Its analysis suggests that increasing the standard threshold to £25,000–£35,000 ($33,389– $46,729) will allow it to  recommend an additional three to five new medicines or indications per year.

NICE’s baseline cost-effectiveness threshold has not been increased for over 20 years, according to information from ABPI. If NICE baseline cost-effectiveness threshold had been adjusted for inflation since 1999, the UK’s average threshold would be £48,300 ($64,476), almost double its current value. The international average for similar countries to the UK that use either explicit or implicit thresholds is around £33,400 ($44,595), meaning the agreed change brings the UK closer to the average although it will remain in the lower half of like countries.

ABPI says the increase in the standard threshold will address the country’s past decade of underinvestment in medicines, which has seen the proportion of health spending on medicines fall from around 14% to 9%. Over the next 10 years, the country will increase investment in new medicines from around 0.3% of gross domestic product (GDP) to 0.6% of GDP, with certain key target milestones. To ensure this is delivered, the UK will reduce the level of repayments on NHS sales required from companies under the Voluntary Scheme for Branded Medicines Pricing and Access (VPAG), which currently requires companies to repay 23.5% of their NHS sales revenues. The repayment rate for newer medicines in the VPAG scheme will be capped so that it will not exceed 15% for the next three years 2026-2028, with adjustments made to ensure companies do not need to self-fund the changes to the NICE threshold, according to ABPI. “Critically, the deal calls for rapid talks between the ABPI and the UK government to design and agree a new, more sustainable scheme model from 2029 onwards,” the association said in a December 1, 2025, press statement.

Overall, the innovator drug industry in the UK views the trade deal with the US as positive. “The deal is an important step towards ensuring patients can access innovative medicines needed to improve wider NHS health outcomes,” said Richard Torbett, Chief Executive of ABPI, in the ABPI statement. “It should also put the UK in a stronger position to attract and retain global life science investment and advanced medicinal research.”

In addition, as part of raising the standard threshold, NICE is seeking the UK government’s support to use a new value set for valuing health-related quality of life. “The value set comes from asking thousands of people from the public to judge how good or bad different health states would be,” said NICE in a December 1, 2025, statement. “These are then used to calculate numerical values, which help healthcare decision-makers compare different treatments and understand their impact on health-related quality of life.”

NICE says it will introduce the new value set for use alongside EQ-5D-5L, a health-related quality of life questionnaire that NICE uses for health technology appraisals, following peer review and publication. This change may additionally impact the cost-effectiveness of medicines.