US-UK deal reshapes pharma trade and pricing for life sciences businesses

The US and the UK announced on 2 April their landmark deal on pharmaceutical trade and pricing. The agreement builds on the terms of the US-UK Economic Prosperity Deal agreed on 8 May 2025 and forms part of the UK government’s life sciences sector plan, which is backed by over £2 billion of investment, and its modern industrial strategy.

The deal is likely to reshape the commercial landscape for producers and exporters of medicinal products and medical devices on both sides of the Atlantic in the coming years ahead.

Six shared principles

The deal is underpinned by six shared principles on pharmaceutical trade and innovation. Both countries agree that all nations should contribute fairly to the cost of drug development through medicine pricing and research and development (R&D) funding. They share a common interest in building a global medicines system that promotes innovation.

Both governments have also committed to strengthening their respective pharmaceutical supply chains, improving the operating environment for pharmaceutical companies in the UK and ensuring patients receive access to new medicines more quickly. These commitments are underpinned by the recognition that growing bilateral trade will support the creation of well-paid jobs and drive economic growth.

Zero tariffs secured

One of the most commercially significant outcomes of the deal is the tariff-free arrangement secured for both patented and non-patented UK pharmaceutical exports to the US for at least three years. This is reported to be worth at least £5 billion a year. The UK will be the first country in the world to secure 0% tariffs on pharmaceutical exports to the US.

In exchange, pharmaceutical companies will be expected to launch new medicines in the UK. The US has committed to four undertakings.

Where the UK's price for a new medicine is the lowest among a group of countries, the US will not use that price as an anchor for its own pricing: this approach is designed to encourage pharmaceutical companies to continue launching their products in the UK;

The US has also committed to making use of the provisions in the proposed global benchmark models for efficient drug pricing and guarding US medicare against rising drug costs. This mandatory US drug pricing model issued in December 2025 aims to lower prescription drug costs. The commitment aims to mitigate the risks of launching new medicines in cheaper markets such as the UK.

In addition, the US has committed not to design any experimental pricing programmes in a way that puts the UK at a disadvantage because of how it currently prices medicines. The US has also pledged to prevent deliberate delays by pharmaceutical companies in releasing innovative medicines in the UK.

For manufacturers and suppliers, the tariff-free deal removes a material cost burden and provides a measure of commercial certainty in an otherwise volatile global trading environment. The extension of the tariff-free arrangement to both patented and non-patented pharmaceutical exports affords broader and more consistent protection across the supply chain.

HNS pricing reforms

The UK government has pledged to increase medicines spending from 0.3% of gross domestic product to 0.35% by 2028 and to 0.6% by 2035, enabling suppliers to plan long term with greater confidence.

The deal also introduces significant changes to how medicines are valued and priced within the NHS.

The UK government has committed to increasing the net price paid by the NHS for prospective new medicines by 25% beginning as of this month. This will be implemented, in part, through a higher cost-effectiveness threshold for medicines evaluated by the National Institute for Health and Care Excellence (NICE).

The UK has agreed to raise the NICE quality-adjusted life year (QALY) cost-effectiveness threshold from between £20,000–£30,000 to between £25,000–£35,000 and to adopt the Dutch research foundation EuroQol's five-level EQ-5D measurement tool. This is the first such revision in over two decades and represents a structural shift in how the UK values pharmaceutical innovation.

Higher thresholds mean that treatments previously rejected on costs grounds alone may now be approved, widening the NHS market to a broader range of products and reducing the risk that innovative therapies are launched elsewhere before reaching the UK.

According to the government, the practical impact has already been realised. Two medicines have already been recommended by NICE under the new threshold, including a brain cancer drug for patients as young as 12 and a last-resort treatment for patients with a rare form of stomach cancer.

VPAG rebate cap

A longstanding concern for pharmaceutical companies operating under the voluntary scheme for branded medicines pricing, access and growth (VPAG) has been the level of rebates they are required to pay on branded medicines sold to the NHS.

To improve the UK's commercial environment for pharmaceuticals, the UK government has committed to ensuring that the repayment rate owed by companies under VPAG will decrease to 15% this year and be capped at this level while the scheme remains in force.

The UK government has also agreed not to circumvent this cap through additional discounts, rebates, clawbacks, taxes or other regulatory fees. For new medicines, the total effective rebate owed under all portfolio-wide rebate programmes will not exceed 16%.

Looking ahead, the UK government will establish an industry-government working group to consult on the design of a replacement scheme for the VPAG. The working group will consider novel solutions that work for both industry and government, including outcome-based payments, reduced clawback rates for medicines meeting certain conditions, and a clearer link between the scheme and wider industrial policy. It will also consider the potential for further refinement of differential QALY thresholds. Pilots are expected to launch by September this year and the agreed replacement scheme to be implemented by January 2029.

Medtech protections

The medical technology sector has also secured important protections under the deal. The UK has agreed no additional new tariffs on medtech for at least three years: a commitment that aims to unlock investment in British manufacturing and strengthen the UK's position as a world leader in health innovation. 

With the medtech sector employing over 195,000 people, the arrangement is intended to provide UK businesses with the certainty required to invest, grow, and create jobs.

Crucially, the deal also signals a move towards closer regulatory alignment for medical devices. The US and UK governments have agreed to negotiate expeditiously commitments on the reciprocal recognition of marketing authorisations for medical devices in the context of the economic prosperity deal. This includes commitments on post-marketing information exchange and alignment of regulatory approval processes. In time, this could significantly reduce the duplicative regulatory burden that currently faces manufacturers seeking to commercialise devices in both markets.

Osborne Clarke comment

The deal is expected to reinforce the ambitions set out in the UK's life sciences sector plan, building on an industry that is reported to have contributed £28.5 billion to the economy in 2025. The sector employs over 50,000 people in highly skilled, well-paid roles and exported almost £21 billion in pharmaceutical products worldwide last year.

The government and the UK life sciences industry have jointly launched a new taskforce to accelerate innovation in the commercial environment for medicines, with pilot schemes expected to launch this September. Early investor responses have been encouraging. Bristol Myers Squibb has indicated that it anticipates investing more than $500 million in the UK over the next five years, while UCB has already announced a £500 million commitment to R&D and manufacturing in Surrey.

For producers and exporters of medicinal products and medical devices, the deal represents a meaningful improvement in trading conditions and market access. In particular, zero tariffs on UK pharmaceutical exports, higher NHS reimbursement prices, and a renewed commitment to supply chain investment creates a more attractive environment for both established manufacturers and those looking to enter the UK market.

With the deal set to run for at least three years, companies across the life sciences sector have a window of opportunity in which to plan ahead. Both governments will, however, monitor its progress and are at liberty to amend the terms of the arrangement or terminate the agreement with at least six months' notice.