European pharmaceutical industry endangered by Trump’s policies and China’s biotech boom
Boxes of medication are seen on the shelves at 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 focal point for global drugmakers, Europe is now under pressure from President Donald Trump’s aggressive trade and pricing policies on the one hand 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 elsewhere for investment. And the problem is not just economic. New launches of critical medicines are at stake as prices and regulations prevent companies from bringing them to market on the continent.
Uncertainty in the U.S. and the threat of MFN pricing “have given pharmaceutical companies leverage to advance negotiations with European governments or European regulators,” ING health analyst Diederik Stadig told CNBC, referring to a Trump policy The price of a drug in the USA is set at the lowest price paid in another comparable country.
China has now developed into a leading company in biotechnology – the innovation engine of the pharmaceutical industry. Global pharmaceutical companies are increasingly looking to the country to innovate and potentially source their next blockbuster drug.
From pioneer to laggard
For decades, Europe was the world’s undisputed laboratory. According to a study by ING, in 1990 almost half of the world’s research and development took place in Europe and about a third in the USA. Today, the US share of research and development has increased to 55%, while Europe’s share has fallen to 26%.
For decades, companies have complained about Europe’s fragmented capital markets, uniform market pricing and clinical trials, and inconsistent reimbursement policies.
U.S. tariffs and MFN drug pricing have “lent an urgency to the debate that we’ve never seen before,” Stadig said.
Washington is increasingly viewing biotechnology and supply chains as a national security issue, emphasizing the importance of keeping drug supply chains on American soil.
China has now emerged as an innovation leader, signing major contracts with global pharmaceutical companies to gain access to the country’s early scientific discoveries.
Ten years ago, molecules developed in China accounted for just 4% of the global pipeline. Today they make up almost a third, according to ING.
“Continued licensing, targeted fundraising, and sophisticated science suggest that China’s biopharma advantage is likely to persist despite rising geopolitical tensions,” said a January PitchBook report.
A paper published earlier this year by researchers at Bocconi University concluded that the US is “consistently more successful than the EU in attracting and retaining research and development activity on its territory, while China is becoming the world’s largest net recipient of foreign research and development activity.”
Aggressive US policy
Last week, the US imposed new tariffs on brand-name drugs of up to 100%. But they would only apply to drugmakers that have not yet reached agreements with the president to lower drug prices for Americans, meaning they will have limited impact for many companies.
Still, the tariffs represented “another impetus for Europe to finally get its act together on competitiveness” and added to a growing number of external pressure points that exposed Europe’s structural weakness, Stadig said.
The US continues to be the most important market for pharmaceutical companies, and there is significant incentive for companies to manufacture there because higher drug prices make the market so profitable.
A widely cited 2024 RAND Corporation study found that drug prices in the U.S. were nearly three times higher than in 33 other high-income countries.
But MFN pricing threatens the profit margins of pharmaceutical companies in the United States. They must now decide whether to delay the launch in Europe to avoid having to offer the drug at lower prices to American consumers, or whether to impose a single global price for a drug, even if it is too high for some markets.
“Every company I’ve worked with puts a lot of thought into this [those options]” McKinsey senior partner Greg Graves told CNBC in February.
Already, some drugs that come onto the market in the U.S. don’t make it to Europe because prices are much lower, a problem that could get worse with MFN pricing.
Depending on the drug class, this means that companies make decisions based on whether they are targeting high volume or high value.
“For drugs where value is the answer, we will see delays in market launch in Europe,” Stadig said. And if nothing changes, “we will see a gradual reallocation of investment away from Europe and towards the US.”
“We need to increase spending and eliminate government clawbacks and taxes – these measures are crucial to keeping businesses in the EU and improving access.”
Nathalie Moll
EFPIA Director General
Industry, experts and companies largely agree that something has to change.
Europe has the potential to become a leader in life sciences. Yet it will continue to lag behind other parts of the world unless it increases spending on new medicines, provides faster access for European patients and creates a better operating environment for innovative companies, according to the European Federation of Pharmaceutical Industries and Associations (EFPIA).
According to the trade association, Europe spends about 1% of GDP on medicines, compared with 2% in the US and 1.8% in China, with EU spending on medicines remaining largely flat for two decades.
“We need to increase spending and eliminate government clawbacks and taxes – these measures are crucial to keeping businesses in the EU and improving access,” EFPIA Director General Nathalie Moll told CNBC by email.
“This is crucial not only for patients, who will benefit from faster and more equal access to medicines, but also for Europe.”
Without pharmaceuticals, Europe would have a trade deficit of 88 billion euros ($103 billion), instead of a surplus of 130 billion euros, Moll said.
Beyond pricing
While the US offers consolidated biotech hubs like Boston and the Bay Area where science meets funding, Europe remains a patchwork of 27 different regulatory environments, presenting a crushing hurdle for the sector.
According to ING, EU biotech firms receive five to ten times less venture capital than their American counterparts.
“Britain has been the canary in the coal mine,” Stadig noted, pointing to the recent withdrawals of major pharmaceutical companies from Britain despite its world-class institutions such as Oxford and Cambridge.
Last year, AstraZeneca, Eli Lilly And Merckknown in Europe as MSD, paused or scrapped planned investments in the UK, citing various problems in the life sciences environment.
In December, the British government announced plans to increase spending on medicines by 25% to improve the operating environment for drugmakers in the country by raising the threshold for determining the cost-effectiveness of medicines.
The government also said it would cut the discount that pharmaceutical companies pay to the state-run National Health Service to a maximum of 15% from the previous 23%.
But “price is not a panacea…You also have to think about your ecosystem,” Stadig noted.
Signs of life
Despite bleak data on the EU’s competitiveness, there are signs of life. The EU’s recently proposed biotech law aims to streamline regulations, speed up clinical trials and close the investment gap. Spain has become a surprising success story and, thanks to targeted government support, has become an attractive center for clinical research.
Last year, the bloc proposed the Critical Medicines Act to improve the availability, supply and production of critical medicines amid shortages during the Covid-19 pandemic and geopolitical issues.
Additionally, US budget cuts to the National Institutes of Health (NIH) and stricter visa regulations could allow Europe to enter emerging areas such as mRNA research.
“I’m actually optimistic about Europe,” said Stadig. The EU has recognized the problem and prioritized speed at 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.
“A lot is happening at the European level,” said Stadig. “It is the member states … the national governments that have not recognized the urgency of this matter.”
“We are shooting ourselves in the foot when it comes to these internal barriers that our national regulation creates.”
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