US, UK agree deal on pharmaceutical Tariffs, drug pricing

The Trump administration reached a deal with the UK to allow tariff-free imports of pharmaceutical products in exchange for a significant reduction in rebates drugmakers pay to Britain’s National Health Service.

The US agreed to “exempt UK-origin pharmaceuticals, pharmaceutical ingredients, and medical technology from Section 232 tariffs,” the Office of the US Trade Representative said Monday. The US will also “refrain from targeting UK pharmaceutical pricing practices” in certain trade investigations during President Donald Trump’s term, according to the statement.

While the US and UK had agreed to a trade framework earlier this year that set a broad tariff rate on British goods, the two countries had yet to sort out how key products would be treated, including pharmaceuticals. Trump’s push to level the playing field on drug prices and to end what he has called “freeloading” by some nations on US research and innovation underpinned the negotiations.

Under the agreement, the UK government will boost spending on medicines by 25%, by lifting the threshold used by the NHS to determine if a drug is cost-effective — a key demand of drugmakers who say it acts as a limit on sales.

The UK will also reduce the rebate paid by drugmakers on their medicine sales to the NHS to a maximum of 15%, the two governments said in statements, from the current level of about 23%. The details were reported earlier by Bloomberg.

Rebates

The UK uses a complex program to put a limit on NHS spending on medicines, called the voluntary scheme for branded medicines pricing, access and growth, or VPAG. If a level of spending on medicines is exceeded, drugmakers pay money back to the government via a rebate on sales of its medicines.

This has been a key complaint among drugmakers, who say they are paying back much higher amounts in the UK than in other European countries.

The spat was undermining the Labour government’s relations with Big Pharma at a time when it needed investment to boost productivity. AstraZeneca Plc was one of a number of companies to have pulled back on projects in recent months.

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“The deal is an important step towards ensuring patients can access innovative medicines needed to improve wider NHS health outcomes,” Richard Torbett, chief executive of the Association of the British Pharmaceutical Industry, said in a statement. “It should also put the UK in a stronger position to attract and retain global life science investment and advanced medicinal research.”

The pharmaceutical giant Bristol-Myers Squibb Co. said it expects to invest more than $500 million in the UK over the next five years based on the country’s new commitments, according to Chief Executive Officer Chris Boerner. That will include research, development and manufacturing, he said.

Criticism

But Diarmaid McDonald, executive director at the Just Treatment patient lobby group, called the deal a “betrayal” of NHS patients.

“Big Pharma have got what they want. Donald Trump has got what he wants,” he said in a statement. “The government has folded and thousands of patients will pay for this with their lives, as precious funds get stripped from other parts of the health service to line the pockets of rich pharmaceutical execs.”

The government’s dispute with the companies on pricing became part of the talks on the US trade deal, which will see the UK get a zero-tariff rate on pharmaceutical goods for at least three years.

Trump has similarly offered relief to pharmaceutical makers from other large trading partners, including an agreement to cap the rate applied to drugs from the European Union at 15%.

Several drugmakers, including AstraZeneca, had already agreed to deals with the White House to lower their US prices in exchange for relief on tariffs.

Trump has used powers under Section 232 of the Trade Expansion Act, which allows the US government to tariff goods seen as critical to national security, to target numerous sectors, including pharmaceuticals, in a bid to force companies to reshore production and secure lower prices on imported drugs for Americans.

The administration is also using Section 301 of the Trade Act to investigate drug costs, an effort to pressure countries on their own prices.