Europe races to placate pharma as Trump turns up the pressure 

Keystone / Til Buergy

Tariff deals with the US have bought time but investment momentum is elsewhere.

Pharmaceutical companies have long complained Europe spends too little on drugs. It took the arrival of Donald Trump — threatening steep tariffs and accusing European countries of “freeloading” on the US — for the warnings to register. 

In response to the threats, European governments raced to strike deals. The UK secured a zero tariff arrangement in return for higher spending on medicines and lower costs for drugmakers. The EU and Switzerland accepted a 15% cap. 

The question is whether these concessions will be enough to reset relations between the sector and Europe. 

“Europe now has an opportunity to raise its game and keep pace with a sector that is moving forward,” said Nigel Layton, head of life sciences and pharma at Forvis Mazars. “Whether this agreement is enough will depend on what happens next, but for now, it’s a positive signal that progress is possible.” 

The message drugmakers have been at pains to convey for some time is that without policy changes, Europe will fall further behind the US on innovation and access to medicines and may struggle to keep pace with China’s rapid progress. 

One of Trump’s complaints has been that because US consumers pay significantly more for medicines, European countries are “freeloading”. 

His administration is pushing for the industry to adopt a “most favoured nation” pricing policy, which would mean cutting US prices to the levels paid in many other developed countries. 

On a GDP per capita basis, high income European countries spend roughly half of what the US does on innovative medicines, according to a report by EY. At the same time, pharma R&D investment in Europe has fallen. 

According to the European Federation of Pharmaceutical Industries and Associations lobby group, by 2022 the continent’s share of R&D investment in rich world countries had fallen to 31%, compared with 41% two decades previously. 

In 2024, R&D spending in Europe increased 4.4% year-on-year but it was outpaced by the US at 5.5% and China with 20.7%. 

The industry had become particularly frustrated with the UK, which drives a hard bargain on how much the country’s National Health Service pays for prescription medicines and has strict value-for-money rules on new drugs. 

Partly emboldened by Trump, over the past year major drugmakers have said they will cut back their investment in the UK. 

Eli Lilly paused plans for a laboratory site in central London in September and Merck, known as MSD in Europe, has scrapped a proposed £1 billion research centre. In January, AstraZeneca cancelled a £450 million plan for a UK vaccine manufacturing plant. 

The UK setbacks are part of a pattern of waning investment across Europe. 

“It’s a trend that’s very visible,” said Nathalie Moll, director-general of EFPIA, “and that investment has gone to the US and Asia, mainly China. It’s not that it has disappeared, the money has just moved elsewhere.” 

Moll said obstacles included rising rebates — discounts on bulk medicine sales to healthcare systems — and the high cost of R&D in Europe. 

This has led to the continent for the first time falling behind China for the launch of new medicines, while the share of clinical trials in the European Economic Area has nearly halved over the past decade, falling to 12% in 2023, from 22% in 2013 despite a global increase in trials. 

“Those obstacles make Europe unattractive,” she added. “And because they’re so different and so varied, there’s no way of fixing them in one go. You have to go country by country and product by product and address it, otherwise compared to countries like the US or China that have huge populations and one system, it’s already a competitive disadvantage.” 

The main demand of industry however — that the UK and the EU spend more on medicines — has become increasingly difficult to meet. Public finances are squeezed, healthcare costs are rising as populations age and European governments are spending more on defence because of the Russian war on Ukraine and disengagement of the US. 

The UK’s pharma deal with Washington is forecast to cost £3bn and raise NHS spending on medicines from about 9.5 per cent of its budget to 12%. 

“The big question is where will the extra money come from?” said Francis Ruiz, a policy fellow at the London School of Hygiene & Tropical Medicine. “If the government is committing extra funding to increase the pharmaceutical spend . . . this could be a good deal for the UK. But if this is coming out of existing NHS budgets it could lead to lives lost as more cost-effective treatments are crowded out to make way for expensive new drugs.” 

Some patient groups have already raised the alarm about this possibility. Ceri Smith, head of policy at the MS Society, a UK charity focused on multiple sclerosis, said the lack of clarity about where the funding would come from was “concerning” given that vital services for people with MS, such as physiotherapy, are already struggling because of a lack of funding. 

Yet the pharma industry would like governments to go further. 

Eli Lilly chief executive David Ricks told the Financial Times that his company would like the UK’s National Institute for Health and Care Excellence, which decides which drugs are used by the NHS, to approve its Alzheimer’s medicine Kisunla. 

Nice has previously declined to recommend the drug, saying this year that while it delays the onset of moderate Alzheimer’s by four to six months, “the overall costs of purchasing and administering the drug remain high and the benefits too small”. Kisunla costs about $32,000 a year in the US. 

“The UK will serve as a litmus test for what will happen in the [most favoured nation] related to Europe,” said Sean Conroy, an analyst at Shore Capital. 

“You’ll start to see a bit more clarity with the negotiations with the EU. It’s in pharma’s interest to get prices up elsewhere outside of the US . . . and that could mean higher prices in Europe. They had the bargaining chip to pause investments in the UK.” 

Copyright The Financial Times Limited 2025