The European pharmaceutical industry is in danger from Trump's policies and China's biotech boom

Europe, once the go-to location for global drug makers, is now being squeezed by President Donald Trump's aggressive trade and drug 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 growing competitiveness has companies looking elsewhere to make investments. And the issue is not only economic. New launches of critical drugs are at stake, as prices and regulations deter companies from launching them on the continent.

Uncertainty in the United States and the threat of most-favored-nation pricing “has given pharmaceutical companies leverage to push forward negotiations with European governments or European regulators,” ING healthcare analyst Diederik Stadig told CNBC, referring to a 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 become a leader in biotechnology, the innovation engine of the pharmaceutical industry. Global pharmaceutical companies are increasingly looking to the country for innovation and potentially their next blockbuster drug.

For decades, Europe was the world's undisputed laboratory. In 1990, almost half of the world's research and development was carried out in Europe, and about a third in the United States, according to ING research. Today, the US share of R&D has risen to 55%, while Europe's has plummeted to 26%.

For decades, companies have lamented the fragmentation of Europe's capital markets, the adoption of a single market for pricing and clinical trials, and unequal reimbursement policies.

U.S. tariffs and most-favored-nation drug prices have “injected urgency into the debate in a way we've never seen before,” Stadig said.

Washington increasingly views biotechnology and supply chains as a matter of national security, emphasizing the importance of drug supply chains remaining on American soil.

Meanwhile, China has become a leader in innovation, striking major deals with global pharmaceutical companies to access the country's early-stage science.

Ten years ago, molecules developed in China represented only 4% of the global portfolio. Today they represent almost a third, according to ING.

“Ongoing licensing, selective fundraising, and differentiated science suggest China's biopharmaceutical advantage will likely persist despite growing geopolitical friction,” a January PitchBook report found.

A paper published earlier this year by researchers at Bocconi University found that the United States “is consistently more successful than the EU in attracting and retaining R&D activity within its territory, while China emerges as the largest net recipient of foreign R&D worldwide.”

Last week, the United States imposed new tariffs on brand-name drugs 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 they will have a limited impact on many companies.

However, the tariffs mark “another push for Europe to finally get its act together on competitiveness” and add to a growing number of external pressure points that expose Europe's structural weakness, Stadig said.

The United States also remains the most important market for pharmaceutical companies, and there is a significant incentive for companies 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 U.S. were nearly three times higher than in 33 other high-income countries.

But most-favored-nation pricing threatens the profit margins of American pharmaceutical companies. They now must decide whether to delay launches in Europe to avoid having to offer the drug at lower prices to American consumers, or adopt a single global price for a drug, even if it is too high for some markets.

“In all the companies I have worked with, a lot of thought is given to [those options]” Greg Graves, a senior partner at McKinsey, told CNBC in February.

Some drugs launched in the United States no longer reach Europe because prices are much lower, a problem that could be made even worse by most-favored-nation prices.

Depending on the class of drugs, this means that companies will begin to make decisions based on whether they are looking for high volumes or high value.

“For drugs whose value is the answer, we will see postponements in launches in Europe,” Stadig said. And if nothing changes, “we will see a gradual reallocation of investments away from Europe towards the United States”

Industry, experts and companies largely agree that something must change.

Europe has the potential to lead the life sciences. Still, it will continue to lose out to other parts of the world unless it increases spending on new medicines, offers 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 GDP on pharmaceuticals, compared with 2% in the US and 1.8% in China, and EU spending on medicines has remained broadly stable for two decades, according to the trade association.

“We need to increase spending and eradicate government rebates and taxes – these policies are critical to keeping businesses in the EU and improving access,” EFPIA CEO Nathalie Moll told CNBC by email.

“This is crucial not only for patients who will benefit from faster and more equitable 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.

While the United States offers established biotech hubs like Boston and the Bay Area, where science meets funding, Europe remains a patchwork of 27 different regulatory environments, creating a stifling obstacle for the sector.

According to ING, EU biotech companies receive five to ten times less venture capital than their US counterparts.

“The U.K. has been the canary in the coal mine,” Stadig said, citing recent withdrawals by Big Pharma from Britain despite its world-class institutions like Oxford and Cambridge.

Last year, AstraZeneca, Eli Lilly and merckknown as MSD in Europe, halted or scrapped planned investments in the UK, citing several 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 threshold used to determine the profitability of medicines.

The government also said it would reduce the reimbursement paid by pharmaceutical companies to the state-run National Health Service to a maximum of 15% from 23% previously.

But “price is not a silver bullet… you also have to think about the ecosystem,” Stadig said.

Despite the gloomy data on the EU's competitiveness, there are signs of life. The EU's recently proposed Biotechnology Law aims to simplify regulations, accelerate clinical trials and address the investment gap. Spain has emerged as a surprising success story, becoming an attractive center for clinical research thanks to targeted government support.

Last year, the bloc proposed the Critical Medicines Law in a bid to improve the availability, supply and production of critical medicines in the context of shortages during 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 jump into emerging fields such as mRNA research.

“I'm actually optimistic about Europe,” Stadig said. The EU has diagnosed 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 to the FDA.

“Things are happening at the European level,” Stadig said. “It's the member states… the national governments that haven't realized the urgency of this.”

“We're shooting ourselves in the foot in terms of these internal barriers that our national regulation creates.”