European pharmaceutical companies in crisis due to Trump policies and China’s biotech boom

Europe, once a go-to hub for global pharmaceutical companies, is now being squeezed by President Donald Trump’s aggressive trade and drug pricing policies and China’s explosive biotech boom.

The pharmaceutical industry is a cornerstone of Europe’s economy, but the continent’s declining competitiveness is forcing companies to look elsewhere for investment. And the problem is not just economic. Critical new drug launches are at risk as prices and regulations prevent companies from bringing medicines to market on the continent.

ING Healthcare analyst Diederik Stadig told CNBC that the uncertainty and threat of most-favored-nation pricing in the U.S. “gives drug companies leverage to negotiate with European governments and European regulators,” referring to President Trump’s policy of setting drug prices in the U.S. at the lowest prices paid in other comparable countries.

Meanwhile, China has emerged as a leader in biotechnology, the innovation engine for pharmaceuticals. Global pharmaceutical companies are increasingly turning to the country for innovation and the possibility of sourcing the next blockbuster drug.

For decades, Europe has been the world’s undisputed laboratory. According to research by ING, in 1990 almost half of the world’s research and development took place in Europe, and about a third in the United States. Now, the US share in R&D has jumped to 55%, while Europe’s share has plummeted to 26%.

For decades, companies have bemoaned Europe’s fragmented capital markets, adoption of a single market for pricing and clinical trials, and uneven reimbursement policies.

U.S. tariffs and most-favored-nation drug pricing “brings urgency to the debate in a way we haven’t seen before,” Stadig said.

The U.S. government is increasingly viewing biotechnology and supply chains as national security issues, emphasizing the importance of pharmaceutical supply chains remaining on U.S. soil.

Meanwhile, China has evolved into an innovation leader, winning big deals with global pharmaceutical companies to gain access to the country’s early-stage science.

A decade ago, molecules developed by China accounted for just 4% of the world’s pipeline. They now account for nearly a third, according to ING.

A January PitchBook report said, “Continued licensing, targeted funding, and differentiated science suggest that China’s biopharmaceutical advantage will likely persist despite increasing geopolitical frictions.”

A paper published earlier this year by researchers at Bocconi University found that the United States has been “more consistently successful than the European Union in attracting and retaining research and development activities within its territory, while China remains the largest net beneficiary of foreign research and development worldwide.”

Last week, the US imposed new tariffs of up to 100% on branded medicines. However, these will only apply to drug companies that have not yet signed an agreement with the president to lower drug prices for Americans, so the impact on many companies will be limited.

Nevertheless, Stadig said the tariffs would be “another push for Europe to finally get its act together on competitiveness,” adding to the external pressures that expose Europe’s structural weaknesses.

Additionally, the United States remains the most important market for pharmaceutical companies, and high drug prices have made them very profitable, creating a strong incentive for companies to produce in the United States.

A frequently cited 2024 study by the RAND Corporation found that drug prices in the United States are nearly three times higher than in 33 other high-income countries.

But most-favored-nation pricing threatens drug companies’ U.S. profit margins. They must now decide whether to delay the launch in Europe to avoid offering the drug to U.S. consumers at a lower price, or adopt a single global price for the drug that is too high for some markets.

“Every company I’ve ever worked for is thinking through (these options),” McKinsey senior partner Greg Graves told CNBC in February.

Already, some drugs launched in the United States are not reaching Europe because they are priced so low, and most-favored-nation pricing could make this problem even worse.

This means that depending on the class of drug, companies will start making decisions based on whether they pursue high volume or high value.

“For medicines where value is the answer, European launches will be delayed,” Stadig said. And if nothing changes, “investments will gradually be reallocated from Europe to the United States.”

Industries, experts, and businesses largely agree that something needs to change.

Europe has the potential to lead in life sciences. Still, the European Federation of Pharmaceutical Industry Associations (EFPIA) says Europe will continue to lose out to 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.

Europe spends about 1% of GDP on medicines, compared with 2% in the United States and 1.8% in China, according to industry groups, and EU spending on medicines has remained roughly flat for 20 years.

“We need to increase spending and eliminate government clawbacks and taxes. These policies are critical to keeping companies in the EU and improving access,” EFPIA Director-General Natalie Mohr told CNBC in an email.

“This is important not only for patients who benefit from fast and equal access to medicines, but also for Europe.”

Mol said that without pharmaceuticals, Europe would have a trade deficit of 88 billion euros ($103 billion) instead of a 130 billion euro trade surplus.

While the United States has integrated biotech hubs like Boston and the Bay Area, where science and money meet, Europe remains a patchwork of 27 different regulatory environments, creating a stifling hurdle for the sector.

According to ING, EU biotech companies receive one-fifth to one-tenth as much venture capital as their US counterparts.

“The UK is the canary in the coal mine,” Stadig said, citing the recent withdrawal of major pharmaceutical companies from the UK despite world-class universities such as Oxford and Cambridge.

last year, AstraZeneca, Eli Lilly and MerckThe company, known as MSD in Europe, has suspended or canceled planned investments in the UK due to various issues in the life sciences environment.

In December, the British government announced plans to increase spending on medicines by 25% in a bid to raise standards for determining the cost-effectiveness of medicines and improve the operating environment for domestic pharmaceutical companies.

The government also announced that the rebate that pharmaceutical companies pay to the state-run National Health Service will be reduced from the previous 23% to a maximum of 15%.

But “price is not a silver bullet…we also need to think about the ecosystem,” Stadig points out.

Despite the grim data on the EU’s competitiveness, there are signs of life. The EU’s recently proposed biotechnology law aims to streamline regulation, speed up clinical trials and address investment gaps. Spain has emerged as a remarkable success story, becoming an attractive hub for clinical research through targeted government support.

Last year, the bloc proposed the Critical Medicines Act, which aims to improve the availability, supply and production of critical medicines against the backdrop of shortages caused by the COVID-19 pandemic and geopolitical issues.

Additionally, budget cuts to the US National Institutes of Health (NIH) and stricter visa rules could allow Europe to jump into emerging areas such as mRNA research.

“Actually, I’m bullish on Europe,” Stadig said. The EU has diagnosed this problem and prioritized the European Medicines Agency’s speed, which has been a long-standing challenge compared to the US Food and Drug Administration and could be a competitive advantage given recent FDA cuts.

“Things are happening at the European level,” Stadig said. “It is the member states… their governments who do not understand the urgency of this.”

“We are shooting ourselves in the foot in terms of domestic barriers that our state regulations create.”