Boxes of medication are seen on the shelves of Keencare pharmacy, a member of the Green Light Group, on September 19, 2024 in London, England.
Leon Neal | Getty Images News | Getty Images
Once the home of global drugmakers, Europe is now being crushed by President Donald Trump’s aggressive trade and drug pricing policies on one side and China’s explosive biotech boom on the other.
The pharmaceutical industry is a cornerstone of the European economy, but the continent’s declining competitiveness is prompting companies to look to other sectors for investment. And the problem is not just economic. New launches of essential medicines are at stake as prices and regulations discourage companies from launching them on the continent.
Uncertainty in the United States and the threat of a most-favored-nation pricing system “gave pharmaceutical companies leverage to end negotiations with European governments or European regulators,” Diederik Stadig, a healthcare industry analyst at ING, told CNBC, referring to Trump’s policies. where the price of a drug in the United States is set at the lowest price paid by another comparable country.
Meanwhile, China has become a leader in biotechnology – the innovation engine of the pharmaceutical sector. Global pharmaceutical companies are increasingly looking to the country to innovate and potentially source their next blockbuster drug.
From leader to laggardFor decades, Europe has been the world’s undisputed laboratory. In 1990, almost half of the world’s research and development took place in Europe and about a third in the United States, according to an ING study. Today, America’s share of R&D has climbed to 55%, while Europe’s has fallen to 26%.
For decades, companies have lamented the fragmentation of European financial markets, the adoption of a single market in pricing and clinical trials, and unequal reimbursement policies.
U.S. tariffs and most-favored-nation drug prices have “injected an urgency into the debate in a way we’ve never seen before,” Stadig said.
Washington increasingly views biotechnology and supply chains as a national security issue, emphasizing the importance of maintaining drug supply chains on American soil.
Meanwhile, China has become a leader in innovation, marking major affairs with global pharmaceutical companies to access the country’s first scientific advances.
Ten years ago, molecules developed in China represented only 4% of the global pipeline. Today, they represent almost a third, according to ING.
“Maintained licensing, targeted fundraising and differentiated science suggest that China’s biopharmaceutical advantage will likely persist despite growing geopolitical frictions,” he said. January PitchBook report found.
A paper published earlier this year by researchers at Bocconi University found that the United States “is consistently better than the EU in attracting and retaining R&D activities at home, while China emerges as the largest net beneficiary of foreign R&D in the world.”
Aggressive US policiesLast week, the United States imposed new customs duties on branded medicines of up to 100%. However, they would only apply to drugmakers that have not yet reached agreements with the president to lower drug prices for Americans, meaning it will have a limited impact on many companies.
Still, the tariffs mark “a new push for Europe to finally get its act together on competitiveness,” and add to a growing number of external pressure points revealing Europe’s structural weakness, Stadig said.
The United States also continues to be the largest market for pharmaceutical companiesand companies have a strong incentive to produce there, because higher drug prices make it very profitable..
A frequently cited RAND Corporation study in 2024 found that drug prices in the United States were nearly three times higher than in 33 other high-income countries.
But most favored nation pricing threatens the profit margins of U.S. drug companies. They must now decide whether to delay launches in Europe to avoid having to offer the drug at lower prices to U.S. consumers, or adopt a single global price for a drug, even if it is too high for some markets.
“Every company I have worked with has had a lot of thought put into it [those options]”, Greg Graves, McKinsey Senior Partner told CNBC in February.
Already, some drugs launched in the United States are not arriving in Europe because prices are much lower, a problem that could become even worse with most favored nation prices.
Depending on the drug class, this means companies will start to make decisions based on whether they are looking for high volumes or high value.
“For value-driven drugs, we will see launch delays in Europe,” Stadig said. And if nothing changes, “we will see a gradual reallocation of investments from Europe to the United States.”
“We need to increase spending and eradicate government clawbacks and taxes – these policies are essential to keeping businesses in the EU and improving access.”
Nathalie Moll
Director General of EFPIA
The industry, experts and businesses largely agree that something needs to change.
Europe has the potential to become a leader in the field of life sciences. However, it will continue to lose out to other regions of the world unless it increases spending on new medicines, provides faster access to European patients and creates a better operating environment for innovative companies, according to the European Federation of Pharmaceutical Industries and Associations (EFPIA).
Europe spends about 1% of its GDP on pharmaceuticals, compared with 2% in the United States and 1.8% in China, with EU spending on medicines remaining largely stable for two decades, according to the trade association.
“We need to increase spending and eradicate government clawbacks and taxes – these policies are essential to keeping businesses in the EU and improving access,” EFPIA Director General Nathalie Moll told CNBC via email.
“This is crucial not only for patients who will benefit from faster and fairer access to medicines, but also for Europe.”
Without the pharmaceutical industry, Europe would have a trade deficit of 88 billion euros ($103 billion), instead of a surplus of 130 billion euros, Moll said.
Beyond the priceWhile the United States offers consolidated biotech hubs like Boston and the Bay Area where science meets funding, Europe remains a patchwork of 27 different regulatory environments, creating a stifling hurdle for the sector.
European biotech companies receive between five and ten times less venture capital than their American counterparts, according to ING.
“The UK has been the canary in the coal mine,” Stadig noted, citing the recent setbacks of big pharmaceutical companies of Britain despite its world-class institutions like Oxford and Cambridge.
Last year, AstraZeneca, Elie Lilly And Merckknown as MSD in Europe, has suspended or abandoned planned investments in the United Kingdom, citing various problems in the life sciences environment.
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In December, the British government announced plans to increase drug spending by 25% to improve the operating environment for the country’s drugmakers by raising the threshold used to determine the cost-effectiveness of medicines.
The government also announced it would reduce the rebate paid by pharmaceutical companies to the state-run National Health Service to a maximum of 15%, down from 23% previously.
But “price is not a silver bullet… you also need to think about your ecosystem,” Stadig emphasized.
Signs of lifeDespite grim data on EU competitiveness, signs of life are emerging. THE The EU’s recently proposed biotechnology law aims to streamline regulations, accelerate clinical trials and close the investment gap. Spain has become a surprise success story, becoming an attractive hub for clinical research thanks to targeted government support.
Last year, the bloc proposed the Critical Medicines Act with the aim of improving the availability, supply and production of critical medicines amid shortages caused by the Covid-19 pandemic and geopolitical issues.
Additionally, US budget cuts to the National Institutes of Health (NIH) and stricter visa rules could allow Europe to move into emerging areas like mRNA research.
“I’m actually optimistic about Europe,” Stadig said. The EU has diagnosed the problem and prioritized the speed of the European Medicines Agency, which has long been a problem compared to 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 the member states…the national governments that have not realized the urgency of this situation.”
“We are shooting ourselves in the foot when it comes to these internal barriers created by our national regulations.”
