US-UK tariff deal and reimbursement increase a gamechanger for UK pharma

For months, there has been the dual threat to UK pharma of massive tariffs for exports into the largest market - the US. As well as that, there has been increased costs with reduced pricing through greater clawbacks under the VPAG reimbursement scheme. At a stroke, this has changed and propelled the UK into an exciting positive place for pharma.

What has happened?

The Government has hailed the UK-US pharma deal as safeguarding medicines access and driving vital investment for UK patients and businesses. This has seen the UK become the only country in the world so far to have a zero tariff on pharma entering the UK. The Government has hailed this as cementing the UK's place as a world leader for life sciences investment. There will also be preferential terms for the UK's medtech exports. This deal lasts for at least the next three years.

In a double boost for pharma, part of the terms of the deal has involved the UK investing more in pharma. The pharma industry had bemoaned the growing reimbursement that pharma must pay back at the end of the year under VPAG (Voluntary Scheme for Branded Medicines Pricing and Growth). This provides that the overall spending on medicines cannot increase and pharma must share out the cake between them. So if spending on medicines goes up, it does not really - because pharma suppliers have to pay back some of their revenue after they have banked it. The five year VPAG deal for 2024-2028 was meant to see the rebate at 15%. However, in the current year, it has reached 23%. Big Pharma has threatened to leave the UK unless something was done.

And now something big has changed. Firstly, there will be a reimbursement cap under the current VPAG deal for new medicines of 15% from 2026. In further good news, the National Institute for Health and Care Excellence (NICE) will be improving the threshold at which medicines are deemed to be cost effective - a 25% price increase. This involves the Government raising the standard cost effectiveness threshold to £25-35k per QALY (quality adjusted life year). Meanwhile, NICE will also consult on use of a new value set for measuring health-related quality of life. This may further increase the cost-effectiveness of medicines. The announcement has also vowed that there will be an increase in the percentage spend on medicines out of the healthcare budget in the UK from the current rate of 9% to 12% by 2035.

The UK has also secured support under the US's "Most Favoured Nation" drug pricing, so that the UK will have access to the latest treatments. This could encourage pharma to provide breakthrough treatments for British patients.

Science Minister Lord Vallance commented: "We are entering an era of preventions and cures, and this landmark deal will ensure British patients are among the first in the world to access them. This is a vital agreement that delivers 2 big benefits. It will help us get the best and most innovative treatments to patients right across the UK quickly. And with a world-beating deal on US tariffs, it is a huge boost for our pharmaceutical industry - cementing the UK as the destination of choice for life sciences businesses to invest, innovate, and grow."

This is incredibly positive, although it is clear from a recent event I attended between the Department of Health and Social Care (DHSC) and the Association of the British Pharmaceutical Industry (ABPI) that there are further details still to work through. The DHSC intends to do that with the ABPI as well as other industry groups such as EMIG (the Ethical Medicines Industry Group) - which VWV actively support.

There is also a desire to get the VPAG deal for 2029 onwards agreed by mid-2027 so that industry can plan ahead. Although the 15% VPAG reimbursement cap only applies to new medicines, the Government is looking to make commitments to protect the biosimilar industry too.

In addition, there are calls for more still to be done. Emma Walmsley, the outgoing CEO of GSK, said further improvements in the commercial environment for life sciences are "absolutely critical" following the UK-US deal.

The 2026 PING Conference will look at Britain's place in the global pharma world and how it will lead Europe by 2030, under the UK's Life Sciences Sector Plan. This news will provide a welcome boost to that ambition.

If you have any thoughts on this announcement or would like to be invited to the PING Conference, please contact Paul Gershlick in our Pharmaceuticals and Life Sciences team.