On 2 April 2026, the UK Government published text memorializing its agreement with the U.S. in relation to pharmaceutical pricing.  The UK now refers to this as an “arrangement” (“U.S.-UK Pharmaceutical Pricing Arrangement”).  Our blog post from December discussed the in-principle heads of terms for the deal announced in December 2025, with various details marked to follow.  The text published in April 2026 expands upon the December announcement, providing valuable implementation information, though further clarification of certain aspects of the text is still needed.

This blog discusses the published text, how it clarifies aspects of the agreement between the U.S. and UK, and what ambiguities persist.  We also consider the potential impact for the pharmaceutical industry more broadly, particularly in terms of: (i) U.S. – UK trade in pharmaceuticals; (ii) potential implications for the U.S.’ “Most Favoured Nation” (“MFN”) drug pricing agreements and policies; and (iii) how the published text could further affect the pricing and reimbursement environment for innovative drugs in the UK and elsewhere.

Re-Cap of Arrangement

The following points highlight key aspects of the deal, including elements previously announced in December 2025 in the heads of terms:

  • A recognition that all countries, including the UK, must pay a “fair share for the cost of pharmaceutical innovation through the prices they pay for new medicines.” 
  • Accordingly, there need to be “improvements” in “overall environment for pharmaceutical companies operating in the [UK].”  These improvements include:
    • The UK doubling its spending on “New Medicines” (the capitalized term is undefined in the published text) from 0.3% of GDP to 0.6% of GDP by 2036;
    • Capping the rebates payable by pharmaceutical companies to the UK Government for newer medicines to 15% of net NHS sales under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (“VPAG”) scheme from 2026 to 2028; and
    • Increasing the thresholds at which the UK National Institute for Health and Care Excellence (“NICE”) assesses new drugs to be cost-effective for use in the NHS by approximately 25%.
  • U.S. commitments to reduce tariffs on UK-origin pharmaceutical products, or exclude such products from future tariff actions.  In particular:
    • Upon satisfaction of certain conditions, the United States will reduce national security tariffs imposed under Section 232 of the Trade Act of 1962 (“Section 232”) on UK-origin pharmaceutical imports (currently at 10%) to 0% until at least January 2029.
    • UK-origin pharmaceutical products will not be subject to future U.S. tariffs imposed under Section 301 of the Trade Act of 1974 (“Section 301”), and UK-origin medical technologies will also be excluded from any future tariffs imposed under Section 301 or Section 232.
  • An agreement to take steps to strengthen resilience in U.S. and UK pharmaceutical supply chains to safeguard against future disruption, with a focus on active pharmaceutical ingredients (“API”) and key starting materials used in medicines of public health or national security importance, and reducing reliance on materials from non-market economies (which include countries such as China).
  • Additional terms related to implementation of U.S.-based MFN pricing initiatives.

U.S. – UK Trade Aspects

Trump Administration’s Approach to “Unfair” Foreign Drug Pricing Policies & Practices

The Trump administration has used a variety of trade tools, including threatened tariffs and other trade actions, to exert pressure on foreign governments to relax drug pricing policies and practices that the U.S. Government asserts force U.S. innovators to sell their products at artificially low prices overseas.  For instance:  

  • In an Executive Order issued on 12 May 2025, the President called on the U.S. Trade Representative (“USTR”) and the Secretary of Commerce to take “all necessary and appropriate action” to combat foreign government practices that have the effect of suppressing drug prices below market value in foreign markets.
  • Among other actions, the Office of the USTR and Department of Commerce can impose tariffs or take other responsive trade actions, including under Section 232, Section 301, or Section 338 of the Tariff Act of 1930 (“Section 338”).
  • The Trump administration has already invoked Section 232 to impose tariffs on pharmaceutical imports, which take effect later this year.  It has also stated that it expects to initiate a separate investigation under Section 301 into unfair foreign drug pricing policies, which could result in additional tariffs on countries, most likely on non-pharmaceutical goods.
  • The threat of trade action — and the potential for tariff reductions for countries like the UK that undertake commitments relating to drug pricing — is already being used as leverage for the Trump Administration to pursue negotiation of drug pricing agreements with countries beyond the UK and is likely to be reinforced by formal tariff action under U.S. law in the coming months. 

UK-to-U.S. Pharmaceutical Exports

Consistent with that approach, the key U.S. concessions under the agreement – made in exchange for those undertaken by the UK – would reduce existing tariffs on UK pharmaceutical products, while also taking the threat of certain future U.S. tariffs off the table.  For instance, the deal provides that:

  • The U.S. will reduce to zero recently imposed Section 232 tariffs of 10% on imports of UK pharmaceutical products until at least the end of the Trump presidency in January 2029.  However, this tariff reduction is not immediate, but rather will be implemented only on condition that “all major United Kingdom pharmaceutical companies enter into, and adhere to the terms of, the MFN and Tariff Agreements negotiated with the U.S. Department of Health and Human Services and U.S. Department of Commerce, respectively.”  Absent satisfaction of these terms, the applicable tariff rate for UK-origin products will remain 10%, once tariffs take effect later this year.  Importantly, no clarification has been provided as to what constitutes a “major” UK pharmaceutical company or which companies may be deemed to qualify as such, but it is possible that this condition has already been met by virtue of the agreements with the U.S. Government already announced by two major U.K.-based manufacturers.   
  • UK-origin pharmaceuticals will also be exempt from any “Section 301” tariffs through at least the end of the Trump presidency.
  • UK medical technologies will also be exempt from future Section 232 and Section 301 tariffs.  This may be particularly relevant given the Trump administration’s ongoing Section 232 investigation into medical devices, the results of which are expected no later than September.

MFN Aspects

The fact that 0% tariffs are conditional upon “all major United Kingdom pharmaceutical companies” entering into and adhering to MFN and trade agreements may be intended to encourage certain pharmaceutical companies to pursue or maintain MFN deals in the U.S. with the Trump Administration.  Two UK-based manufacturers have entered into such deals, and it is possible this condition could create incentives for others to enter into MFN deals as well.

Commentators have also noted that because the market access environment in the UK could have MFN repercussions in the U.S., the arrangement could be helpful for maintaining market access in the UK.  Specifically, where a company’s drugs are priced low in the UK, referencing to that UK price as part of U.S. MFN pricing policies could compound downward price pressure and result in lower U.S. prices, thereby creating incentives not to launch, or to delay launching, in the UK.  To that end, the text of the U.S.-UK Pharmaceutical Pricing Arrangement states that it “expects” pharmaceutical companies to launch New Medicines in the UK and for “companies [to] not delay” their launches.  The arrangement further acknowledges that, depending on other jurisdictions and the specific MFN policy, UK prices would not necessarily have a direct effect on U.S. MFN policies as currently conceptualized.

Specifically, for the Medicaid program, the arrangement recognizes that because the GENEROUS model references the second lowest price in the reference country basket, a UK price that is lower than those in other reference countries would not be determinative of MFN pricing in the U.S.  Instead, the U.S. Government:

“commits that—consistent with the provisions of the GENEROUS Model—where the United Kingdom’s price for a New Medicine is the lowest in the reference basket of comparator countries, the Medicaid MFN price will not anchor on this lowest price.”

For the Medicare program, the arrangement similarly recognizes that the design of the GLOBE and GUARD models means manufacturers have options to mitigate the effect of a low UK price on MFN-based rebate obligations:

“The government of the United States also expects that, if the GLOBE and GUARD Models are finalized, companies will make use of the provisions in those models to mitigate the risks of launching new medicines in lower priced countries.”

The arrangement also contemplates that the U.S. government will ensure any models that include reference pricing “are not designed in a way that uniquely disadvantages the United Kingdom under its current drug pricing system”.  While the meaning and effect of this language are unclear, the intent appears to be to communicate lower risk of negative U.S. MFN repercussions stemming from the launch of a new medicine in the UK. 

Impact Upon UK Pricing & Reimbursement Landscape

Increased UK Government Spending on Medicines

Under the deal, the UK Government commits to increase spending on New Medicines from 0.3% to 0.6% of GDP by 2036. The published text clarifies this will be a staggered increase (0.35% of GDP by 2028; 0.4% by 2030; 0.6% by 2036). 

There is also a related commitment to increase NHS spending on New Medicines from 10% to 12% of the NHS budget by 2036.  The latter is significant and novel, as it requires the NHS to earmark a minimum percentage of its budget for new medicines.

Increased NICE Cost-Effectiveness Thresholds

In the UK, NICE carries out clinical and cost-effectiveness assessments of new medicines, with positive recommendations reserved for medicines that fall within NICE’s ICER cost-effectiveness thresholds. 

As previously announced in December 2025, the U.S.-UK Pharmaceutical Pricing Arrangement has resulted in NICE increasing the baseline thresholds at which NICE assesses new drugs to be cost-effective for use in the NHS from £20,000-£30,000 to £25,000-£35,000 (an increase of between 17% and 25%).  This change was already in effect before publication of the agreement text.  NICE will also implement a new value-set to measure health-related quality of life.  

In principle, the changes should mean that more novel treatments could receive a positive NICE recommendation at a price that is more sustainable for companies continuing to innovate. 

Capped VPAG Rebate Rate

Innovative medicines are subject to price-control regulation in the UK, often through an opt-in scheme called “VPAG.”  Under VPAG, companies must pay the UK Government a rebate calculated as a percentage of the net sales of their branded medicines supplied to the NHS.

VPAG rebates have become a significant concern for industry in recent years.  In 2025, the VPAG rebate rate for newer medicines (i.e., medicines that are typically between three and twelve years post-marketing authorization) was 22.9% of net NHS sales, far exceeding projections and historical rates.

These rebates apply to branded medicines but not generics, leading many commentators to regard them as a major impediment to innovation.  The pharmaceutical industry and the UK Government unsuccessfully attempted to re-negotiate VPAG rebates over Summer 2025, with talks ending acrimoniously.  The subject became a key issue in trade discussions between the U.S. and UK.

Under the U.S.-UK Pharmaceutical Pricing Arrangement, VPAG rebates for newer medicines will be capped at 15% until the end of 2028 (i.e., the end of the current VPAG).  The VPAG rate for 2026 has already been set at 14.5%.

Future VPAG and NICE Reforms

The text of the U.S.-UK Pharmaceutical Pricing Arrangement sets out a timeline for the VPAG successor scheme.  It seems the process for identifying “options” under which the scheme could operate has already begun, with these options to be finalized by June 2026.  The options will be “piloted” from September 2026 for approximately a year, with the terms of the successor scheme to be fixed by June 2028, some six months before the scheme comes into effect.

This is a major change to the way in which the UK Government has previously negotiated such deals.  Generally, the UK Government has adopted a “take it or leave it” approach.  The idea of identifying and piloting options years ahead might give much-needed transparency and foresight to an often opaque process. 

The deal states the UK Government will form an “an industry-government working group to consult on the design of a new scheme to replace the VPAG.”

The group is to consider “novel solutions that work for both industry and government.”  This will include “outcome-based payments” and “a clear link between the scheme and wider industrial policy that result in substantially lower claw-back rates for medicines meeting certain conditions.”  Again, the practical impact is still to be seen, but the expectation is that rebate rates should better reflect the value of, and clinical need for, a drug, rather than being a universally applied and therefore relatively blunt tool.

The text also refers to “the potential for further refinement of differential QALY thresholds for different medicines,” which hints at future reforms of the NICE system, in which QALY thresholds vary for different types of medicine.

Safeguards and Possibility for Industry Push-Back

The published text includes broadly worded safeguards and anti-circumvention language.  In particular:

  • The UK Government must ensure against:

“the imposition of increased or overly burdensome access barriers or stricter utilization management controls that offset the net price increase of prospective New Medicines by lowering the utilization of such medicines,” and

“increased discounts or rebates, including portfolio-wide concessions […] or price discounts or retrospective payment requests contained in [NHS] contractual supply arrangements such as Managed Access Agreements, Patient Access Schemes, and Framework Agreements.”

  • In addition, the UK Government “will not circumvent the maximum repayment rate of 15.0 percent by the establishment of additional discounts, rebates, clawbacks, taxes, customs, or other regulatory fees.”

These are broad provisions, whose practical impact is yet to be seen.  However, the trajectory is clear: guarding against the deal being eroded by future UK Government or NHS policies (i.e., policies that undermine the benefits secured by the deal).  As such, the UK and NHS must not impose “overly burdensome access barriers” or similar utilization management controls that might undermine the uptake or use of an innovative medicine, so that medicines that benefit from an improved pricing environment are not simply blocked off from use in the NHS. 

Collaboration on Supply Chain Security Issues

The U.S. and UK Governments commit to working together to “support UK companies exporting to the United States to meet U.S. national security requirements for medical products.”  Particular attention will focus on “active pharmaceutical ingredients and key starting materials used in medicines and medical countermeasures of high public health or national security importance.”

The text identifies supply chain resilience as a key area of focus, with the establishment of a “U.S.-UK Pharmaceutical Supply Chains Partnership.”  This is to act as a forum for “collaboration on crisis management, addressing identified shortages of critical medicines due to supply chain issues, and reducing reliance on non-market economies for key starting materials, as well as wider resilience-building activity.”

The potential for mutual recognition of medical device authorizations feeds into this work-stream.  The text indicates the UK and U.S. Governments will work together to enhance the mutual recognition of medical device authorizations.  The aim is to reduce access to market barriers that have plagued med tech recently.

In addition, there is a commitment to “explore opportunities, as appropriate, to expand regulatory cooperation and reliance approaches for other regulated medical products relevant to public health preparedness and emergency response.”

Next Steps, Monitoring & Termination

Progress and compliance with the deal will be secured through annual meetings between U.S. and UK Government representatives, including involving the U.S. Secretary of Commerce and the USTR.  No doubt, one of the aims is to ensure the UK upholds its side of the bargain, in particular that future NHS policies do not undermine the deal.

The deal may be terminated by either party upon six months’ notice. 

Comment

Whilst the text of the U.S.-UK Pharmaceutical Pricing Arrangement provides some additional certainty regarding the practical measures introduced by the deal, additional questions regarding implementation remain, particularly with respect to tariff reduction commitments and supply chain security initiatives.  The agreement also brings potentially significant upheaval to the UK’s pricing and reimbursement landscape, though many of these changes will be welcomed by industry.  In particular, innovative pharmaceutical companies will likely welcome the UK pricing and reimbursement changes envisaged under the deal, given that these include key measures such as increased UK Government spending on medicines, long-awaited increases to NICE’s cost-effectiveness thresholds, and a cap on VPAG rebates for newer medicines that were trending concerningly upwards.

Covington will continue to follow developments closely and provide updates. 

If you would like to discuss the latest developments and what they may mean for your company’s operations, please contact: Grant Castle, Kristie Gurley, Arun Venkataraman, Kate McNulty or Raj Gathani.

Tags: life sciences, Medical Devices, Medicinal Products, Pharmaceutical Companies, Pricing, UK, UK Pricing and Reimbursement
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Photo of Grant Castle Grant Castle

Grant Castle is a partner in London, Brussels, and Dublin practicing in the areas of EU, UK, and Irish life sciences regulatory law. He supports innovative pharmaceutical, biotech, medical device and diagnostics manufacturers on regulatory, compliance, legislative, policy, market access and public law…

Grant Castle is a partner in London, Brussels, and Dublin practicing in the areas of EU, UK, and Irish life sciences regulatory law. He supports innovative pharmaceutical, biotech, medical device and diagnostics manufacturers on regulatory, compliance, legislative, policy, market access and public law litigation matters in the EU, UK, and Irish Courts.

He is one of the Co-chairs of Covington’s Life Sciences Industry Group and is Head of Covington’s European Life Sciences Regulatory Practice.

Grant regularly advises on:

EU and UK regulatory pathways to market for pharmaceuticals and medical devices, including in vitro diagnostics and on associated product life cycle management;
Pharmaceutical GxPs, including those governing pharmacovigilance, manufacturing, the supply chain and both clinical and non-clinical research;
Medical device CE and UKCA marking, quality systems, device vigilance and rules governing clinical investigations and performance evaluations of medical devices and in vitro diagnostics;
Advertising and promotion of both pharmaceuticals and medical devices; and
Pricing, reimbursement and market access for both pharmaceuticals and medical devices.

Grant also handles procedural matters before EU, UK and Irish regulators and UK and Irish market access bodies, where necessary bringing judicial reviews for his life sciences clients before the EU, UK and Irish Courts.

Chambers UK has ranked Grant in Band 1 for Life Sciences Regulatory for the last 21 years. He is recognized by Chambers UK, Life Sciences as “excellent,” “a knowledgeable lawyer with a strong presence in the industry,” who provides “absolutely first-rate regulatory advice,” according to sources, who also describe him as “one of the key players in that area,” whilst Chambers Global sources report that “he worked in the sector for many years, and has a thorough understanding of how the industry ticks.” He is praised by clients for his “absolutely first-rate” European regulatory practice. Legal 500 UK notes that he is “highly competent in understanding legal and technical biological issues.”

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Photo of Kristie Gurley Kristie Gurley

Kristie Gurley advises life sciences clients on complex pricing, reimbursement, and market access issues. Kristie brings unique insight from her recent experience serving in the Office of the General Counsel of the U.S. Department of Health and Human Services (HHS), where she supported…

Kristie Gurley advises life sciences clients on complex pricing, reimbursement, and market access issues. Kristie brings unique insight from her recent experience serving in the Office of the General Counsel of the U.S. Department of Health and Human Services (HHS), where she supported the Centers for Medicare & Medicaid Services (CMS) on drug pricing issues, including implementation of the Inflation Reduction Act (IRA). In this role, Kristie served as a lead attorney on the IRA Medicare Drug Price Negotiation Program, including with respect to policy development, operations, and the first cycle of negotiations. She also supported the Medicare Prescription Drug Inflation Rebate Program and additional IRA implementation efforts, Medicaid Drug Rebate Program rulemaking and agency determinations, and the Center for Medicare & Medicaid Innovation’s development and launch of a model for cell and gene therapies.

Kristie’s practice involves strategic, policy, and regulatory advice supporting market access for drug and biological products. Kristie provides advice related to federal health care program coverage and reimbursement, Medicaid price reporting, agency engagement, payer contracting and formulary access, value-based contracting, and other issues under federal and state drug pricing regimes. In addition to regulatory counseling, Kristie advises on strategic commercial transactions, litigation opportunities, compliance and enforcement risk, and policy advocacy.

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Photo of Arun Venkataraman Arun Venkataraman

Arun Venkataraman leverages 20 plus years of government and private sector experience to provide legal, policy, and strategic advice to clients on a range of international trade matters.

Arun joined the firm after serving in senior roles at the U.S. Department of Commerce.

Arun Venkataraman leverages 20 plus years of government and private sector experience to provide legal, policy, and strategic advice to clients on a range of international trade matters.

Arun joined the firm after serving in senior roles at the U.S. Department of Commerce. Most recently, he served as the Senate-confirmed Assistant Secretary of Commerce for Global Markets and Director General of the U.S. and Foreign Commercial Service at the International Trade Administration (ITA) from 2022-2025. Arun led the federal government’s efforts to expand commercial opportunities for U.S. firms overseas and foreign firms in the United States, including by facilitating deals between U.S. and foreign companies, improving commercial policy environments, resolving barriers to trade and investment, and negotiating governmental agreements to promote commercial partnerships. He also served as Counselor to the Secretary of Commerce, advising the Secretary on all aspects of foreign economic policy within the Department. In this role, Arun led negotiations with foreign governments on technology policy, as well as Section 232 steel and aluminum tariffs.

Before joining the Biden Administration, Arun was Senior Director, Global Government Engagement, at Visa. He developed and executed engagement strategy, in advocacy before the U.S. and foreign governments, as well as with trade associations, international organizations, and other stakeholder groups on a range of international policy issues including digital economy, trade, tax, and sanctions.

During the Obama Administration, Arun served as ITA’s first-ever Director of Policy, where he led efforts across the Commerce Department to remove global trade and investment barriers and strengthen the global competitiveness of U.S. industry, including in such markets as China and India. This included leading Department efforts to support Trans-Pacific Partnership (TPP) negotiations, pass Trade Promotion Authority (TPA) legislation, and secure improvements in China’s competition law and semiconductor policies.

Arun also served in the Office of the U.S. Trade Representative (USTR) as the Director for India, where he led the development and implementation of U.S.-India trade policy, for which he received the agency’s Kelly Award for outstanding performance and extraordinary leadership. He also served as USTR’s Associate General Counsel, representing the United States in litigation before the World Trade Organization (WTO) and in bilateral and multilateral negotiations on international trade agreements.

Prior to USTR, Arun was a Legal Officer in the Appellate Body Secretariat at the WTO, where he advised on appeals in litigation between countries under WTO rules. He also served as a Law Clerk for Judge Jane A. Restani at the U.S. Court of International Trade.

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Photo of Kate McNulty Kate McNulty

Kate McNulty advises U.S. and international clients on a range of complex international trade issues, dynamic U.S. and global tariff matters, and related trade compliance questions, including tariff stacking. She provides legal, policy, and strategic advice to companies, trade associations, and governments on…

Kate McNulty advises U.S. and international clients on a range of complex international trade issues, dynamic U.S. and global tariff matters, and related trade compliance questions, including tariff stacking. She provides legal, policy, and strategic advice to companies, trade associations, and governments on international economic policy matters, and assists clients in navigating geopolitical risk. She advises clients on the negotiation and enforcement of international trade agreements, including enforcement proceedings arising under the facility-specific rapid response labor mechanism of the USMCA.

Kate regularly represents clients before U.S. agencies such as the Office of the U.S. Trade Representative (USTR) and the U.S. Department of Commerce, including in proceedings arising under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. She also litigates before the U.S. Court of International Trade and represents clients in antidumping and countervailing duty (AD/CVD) proceedings.

Prior to joining Covington, Kate held various positions in the U.S. government. Most recently, Kate served in the Office of Multilateral Trade Affairs at the U.S. Department of State from 2009 to 2018, where she managed trade enforcement matters for the Department—including U.S. government actions under Section 301 and Section 232—and also participated in the negotiation of international trade agreements on behalf of the U.S. government.

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Photo of Raj Gathani Raj Gathani

Supporting clients in the pharmaceutical, healthcare, medical device and consumer products sectors, Raj Gathani’s practice is built around EU and UK regulatory and strategic advice.

Increasingly, Raj concentrates on post market-launch projects, such as advising on advertising compliance, communications, interactions with healthcare professionals…

Supporting clients in the pharmaceutical, healthcare, medical device and consumer products sectors, Raj Gathani’s practice is built around EU and UK regulatory and strategic advice.

Increasingly, Raj concentrates on post market-launch projects, such as advising on advertising compliance, communications, interactions with healthcare professionals and patients, pricing controls and reimbursement strategies particularly in the UK and the Republic of Ireland.

Healthcare, its structure and delivery are specialist practice areas for Raj, particularly having operated healthcare and pharmacy businesses for eight years prior to joining the firm. This experience enables Raj to provide in-depth advice to healthcare clients –particularly those in the digital health space – as well as other life sciences companies whose work engages medical practice, dispensing and health-services rules.

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Photo of Dan Spivey Dan Spivey

Dan Spivey is an associate in the Life Sciences Regulatory team. Dan advises clients in the pharmaceutical, healthcare, medical device, and food and beverage sectors on a range of regulatory matters.

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