Boxes of medicines are seen on the shelves of Keencare Pharmacy, a member of the Green Light Group, in London, England on September 19, 2024.
Leon Neal Getty Images News | getty images
Europe, once a destination of choice for global drugmakers, is now being squeezed by President Donald Trump’s aggressive trade and drug-pricing policies on one hand and China’s explosive biotech boom on the other.
The pharmaceutical industry is a cornerstone of Europe’s economy, but the continent’s declining competitiveness is causing companies to look elsewhere for investment. And the matter is not just economic. New launches of important medicines are at risk, as prices and regulations discourage companies from launching them on the continent.
“The uncertainty in the US and the threat of most-favoured nation pricing have given pharma companies an opportunity to step up negotiations with European governments or European regulators,” ING Healthcare analyst Diederik Stadig told CNBC, referring to the Trump policy. Where the price of a drug in the US is set at the lowest price paid by another comparable country.
Meanwhile, China has emerged as a leader in biotech – pharma’s innovation engine. Global pharmaceutical companies are looking to the country for innovation and potentially the source of their next blockbuster drug.
from leading to lagging
For decades Europe was the world’s undisputed laboratory. According to research by ING, in 1990, about half of global research and development took place in Europe and about a third in the Americas. Today, the US share in R&D has increased to 55%, while Europe’s share has fallen to 26%.
For decades, companies have lamented Europe’s fragmented capital markets, single-market adoption of pricing and clinical trials, and unequal reimbursement policies.
The U.S. tariffs and most-favored nation drug pricing have “brought an urgency to the debate in a way we’ve never really seen before,” Stadig said.
Washington is increasingly viewing biotech and supply chains as a national security issue, emphasizing the importance of pharmaceutical supply chains on US soil.
Meanwhile, China has developed into an innovation leader, scoring Major deals with global pharma companies for access to the country’s early-stage science.
Ten years ago, Chinese-developed molecules accounted for only 4% of the global pipeline. Today, they represent about a third, according to ING.
“Continued licensing, targeted fundraising and differentiated science suggest that China’s biopharma advantages will likely continue despite growing geopolitical friction,” a Got the January PitchBook report.
A paper published earlier this year by researchers at Bocconi University found that the US “is consistently more successful than the EU in attracting and retaining R&D activity within its own region, while China has emerged as the largest net recipient of foreign R&D worldwide.”
aggressive US policies
Last week America imposed a new Tariff on branded medicines up to 100%. However, they will only apply to drugmakers that have not yet reached a deal with the President to lower drug prices for Americans, meaning it will have a limited impact on many companies.
Still, Stadig said, the tariffs mark “another push for Europe to finally work together on competitiveness,” and add to a growing number of external pressure points highlighting Europe’s structural weakness.
The US also remains the most important market for pharma companies, and there is a significant incentive for companies to produce there because high drug prices make it so profitable..
An often-cited study by the Rand Corporation in 2024 found that drug prices in the US were nearly three times higher than in 33 other high-income countries.
But most-favored nation pricing threatens pharma companies’ U.S. profit margins. Now they must decide whether to delay the launch in Europe to avoid offering the drug to American consumers at lower prices, or adopt a single global price for a drug, even if it is too high for some markets.
“At every company I’ve worked with,[those options]are being considered a lot,” Greg Graves, a senior partner at McKinsey, told CNBC in February.
Already, some drugs launched in the US do not reach Europe because prices are too low, an issue that could get worse under most-favoured nation pricing.
Depending on the category of drugs, this means companies will start making decisions based on higher volume or higher price.
“For drugs that have resolution value, we will see a postponement of launch in Europe,” Stadig said. And if nothing changes, “we will see a gradual reallocation of investment away from Europe and toward the US.”
“We need to increase spending and eliminate government barriers and taxes – these policies are vital to keeping companies in the EU and improving access.”
Nathalie Moll
EFPIA Director General
Industry, experts and companies largely agree that something needs to change.
Europe has the potential to lead in life sciences. Yet, according to the European Federation of Pharmaceutical Industries and Associations (EFPIA), unless it increases spending on new medicines, provides faster access for European patients, and creates a better operating environment for innovator companies, it will continue to lose out to the rest of the world.
According to the trade association, Europe spends about 1% of GDP on pharmaceuticals, compared with 2% in the US and 1.8% in China, while EU spending on medicines has remained largely stagnant for two decades.
“We need to increase spending and eliminate government loopholes and taxes – these policies are key to keeping companies in the EU and improving access,” EFPIA Director General Nathalie Mol told CNBC via email.
“This is important not only for patients who will benefit from faster and more equitable access to medicines, but also for Europe.”
Mol said that without pharma, Europe would face a trade deficit of 88 billion euros ($103 billion) instead of a 130 billion euro surplus.
beyond pricing
While the US offers consolidated biotech hubs like Boston and the Bay Area where science gets funding, Europe remains a patchwork of 27 different regulatory environments, creating a daunting hurdle for the sector.
According to ING, EU biotech firms receive five to ten times less venture capital than their US counterparts.
“Britain has been the canary in the coal mine,” Stadig was quoted as saying. Despite world-class institutions like Oxford and Cambridge, big pharma companies have recently withdrawn from Britain.
last year, AstraZeneca, Eli Lilly And merckKnown as MSD in Europe, it halted or ended planned investments in the UK, citing various issues in the life sciences environment.
In December, the UK government announced plans to increase spending on medicines by 25% to improve the operating environment for drug manufacturers in the country by raising the thresholds used to determine the cost-effectiveness of medicines.
The government also said it would reduce the rebate given by drug companies to the state-run National Health Service to a maximum of 15%, from the previous 23%.
But “cost is not a silver bullet … you need to think about your ecosystem as well,” Stadig said.
signs of life
Despite the grim statistics on EU competitiveness, there are signs of life. The EU’s recently proposed Biotech Act It aims to streamline regulations, accelerate clinical trials and address the investment gap. Spain has emerged as a surprising success story, becoming an attractive center for clinical research through targeted government support.
Last year, the bloc proposed the Critical Medicines Act in an effort to improve the availability, supply and production of critical medicines against the backdrop of shortages during the COVID-19 pandemic and geopolitical issues.
Additionally, US budget cuts and stricter visa rules for the National Institutes of Health (NIH) could allow Europe to get a jump on emerging areas such as mRNA research.
“I’m really optimistic about Europe,” Stadig said. The EU has addressed the problem and prioritized speed at the European Medicines Agency, which has been an issue for a longer time than the US Food and Drug Administration and could become a competitive advantage given recent cuts at the FDA.
“Things are happening at the European level,” Stadig said. “It is member states…national governments that have not felt the urgency of this.”
“We are shooting ourselves in the foot in terms of these internal barriers created by our national regulation.”
