By Natasha Dangoor

LONDON -- Britain will spend more on new medicines in exchange for avoiding tariffs on U.K. pharmaceutical exports to the U.S., the first major success in President Trump's drive to get other countries to pay more for medicines that he says are unfairly subsidized by American consumers.

The U.K. government will raise the net price it pays for new patented medicines by 25% and revamp a tax program to ease the burden on drug companies, according to a statement Monday by the U.S. Trade Representative.

"For too long, American patients have been forced to subsidize prescription drugs and biologics in other developed countries by paying a significant premium for the same products in ours," U.S. Trade Representative Jamieson Greer said. He added that he hoped more countries would follow the U.K.'s "constructive negotiations."

Trump's pressure campaign came as the U.K. was already under pressure from some of the world's biggest pharmaceutical companies, which said in recent months that they are pausing new investments in the country. The companies cited uncompetitive drug-pricing controls that mean Britain spends far less on medicines than its peers. The U.K. spends 9% of its health budget on drugs versus a global average of 15%, according to the Association of the British Pharmaceutical Industry, a trade group.

In September, Merck scrapped a half-built $1.3 billion London research center and AstraZeneca, the country's largest company by market capitalization, paused a $260 million investment in Cambridge.

There was no immediate response by the companies to the deal.

To prevent a further exodus, the U.K. pledged it would spend billions of pounds more for medicines, in part by updating a formula used to determine whether the government health system gets good value for patented medicines. The formula hasn't been raised since 1999 to account for inflation.

The U.K. government said the extra 25% spending on new treatments would be the country's first major increase in over two decades, allowing the approval of new medicines that previously might have been declined on cost-effective grounds, such as certain cancer treatments or therapies for rare diseases.

As part of the deal, the U.S. guaranteed the U.K. would get zero tariffs for its pharmaceutical exports to the U.S. for at least three years, the governments said.

The U.K. has long been a powerhouse in medicine discovery, from the 1928 penicillin breakthrough to the landmark Oxford-AstraZeneca Covid-19 vaccine in 2020.

But it has been losing this advantage. In 2009, Swiss pharma giant Novartis operated seven sites in the U.K., two of which were manufacturing sites, and employed 4,000 people. It now has one site, focused mostly on commercial operations, with 1,200 employees. Its main manufacturing sites are now in the U.S., China, Japan and European Union countries.

"When the U.K. becomes a less attractive market for launching new medicines and investing in innovation, it impacts where global companies choose to locate jobs, research and infrastructure," said Johan Kahlström, country president of Novartis U.K. and Ireland.

The pharmaceutical industry in the U.K. is also battling a high clawback tax under which as much as a quarter or more of revenues from high-value drugs are given back to the government, compared with a far lower level in most European countries, according to the Association of the British Pharmaceutical Industry.

The new deal will ensure that tax falls to 15% next year, the U.S. Trade Representative said.

Trump signed an executive order in May to bring U.S. drug prices in line with the lowest level paid by other rich countries, which he calls the "Most Favored Nation" policy.

Part of his deal with Pfizer, the first major drug maker to reach an agreement with Trump, was that U.S. trade officials would pressure other countries to pay more for its drugs, so then Pfizer would plow some of that money back into the U.S.

AstraZeneca, Eli Lilly and Novo Nordisk followed suit and reached a deal to sell drugs in the U.S. at a discount. AstraZeneca also announced plans to list shares directly on the New York Stock Exchange as it ramps up its commitment to the U.S.

So far this year, more than a dozen drug makers have pledged to spend over $350 billion collectively by the end of this decade on manufacturing, research and development and other functions in the U.S., a Wall Street Journal tally of company announcements showed. The moves were aimed partly at mitigating the threat of tariffs.

Pascal Soriot, chief executive of AstraZeneca, said that drug prices in the U.S. are out of proportion compared with other countries and that the company is growing headcount and investment in America. "It is a critical part of our industry," he said.

AstraZeneca pledged to spend $50 billion by 2030 on new manufacturing and research capacity in the U.S. -- in Virginia and Texas in particular. Outside America, the company is investing in sites in Barcelona and Beijing.

Some health economists in the U.K. question whether the cash-strapped National Health Service should divert resources away from other needs.

"The purpose of the NHS budget is to maximize health gains for the population, and research shows that the health benefits that we're getting from those new treatments are generally very small," said Sally Gainsbury, senior policy analyst at Nuffield Trust, a British healthcare think tank.

Research has showed that over a 20 year period, NHS coverage of new drugs displaced more population health than it generated. The analysis also suggests spending money on new medicines proved half as cost effective as improving existing services.

Mark Sculpher, professor of health economics at the University of York, said there is no logical link between the prices the NHS pays to pharmaceutical companies and their decisions to locate manufacturing in the U.K. He said Britain needs to adequately encourage research and development through tax incentives and partnerships with academic institutions. "This is just a negotiation tactic from pharmaceutical companies," he said.

Write to Natasha Dangoor at natasha.dangoor@wsj.com

(END) Dow Jones Newswires

December 01, 2025 13:33 ET (18:33 GMT)

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