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Price War in the US and EU

From the series Industry and pharmaceuticals

The contention in the biopharmaceutical field between the two sides of the Atlantic addresses the issue of costs, in two different ways. In a letter to the Financial Times published on April 23rd, Vas Narasimhan and Paul Hudson, the CEOs of Swiss company Novartis and French company Sanofi respectively, presented a harsh diagnosis of the state of European biopharmaceuticals compared to their major competitors, the United States and China. Narasimhan, an American son of immigrants from Tamil Nadu, and Hudson, a Briton, head two of the world's ten largest pharmaceutical multinationals. The two executives see "a strong outlook for the US – thanks to policies and regulations conducive to fast and broad patient access to innovative medicines". In contrast, Europe, "while home to some of the most important biopharma companies in the world", risks decline. "Against a backdrop of waning European biopharma competitiveness, the uncertainty of tariffs is further reducing incentives to invest in the EU". Furthermore, "in the new world context, Europe's pharmaceutical model of producing in Europe and exporting to the US cannot continue. It needs to strengthen its domestic market". They note that in recent weeks biopharmaceutical companies have announced investments in the US of over $150 billion, while there have been no such plans in Europe.

The view from Europe

"Europe's largest issue is failing to properly value innovation", according to Narasimhan and Hudson. "European price controls and austerity measures reduce the attractiveness of its markets. Launch prices are suppressed, patented medicines' growth capped, and prices reduced when new applications are found". As a result, more than 30% of medicines authorised in the United States were still not available in the European Union after two years. The US and China encourage innovation, while Europe penalises it: "Over time it is inevitable that clinical trials and R&D will further shift to the US and China". The CEOs of more than 30 pharmaceutical companies (including US companies) operating in Europe have urged European Commission President Ursula von der Leyen to introduce measures to compensate for the costs of innovation and deliver "radical policy change" in pharmaceuticals [Reuters, April 15th]. The "major European pharmaceutical reform" currently being finalised by the Commission has also attracted criticism, particularly the planned changes to intellectual property protections. For the EFPIA (European Federation of Pharmaceutical Industries and Associations), it is "a missed opportunity to position Europe's life-sciences sector at the forefront of global competition" [If Sale 24 Orc, June 10th]. Novartis and Sanofi are calling on the European Commission and European States for greater price liberalisation and incentives for investment in innovation to make their markets more attractive. Without deregulation, they write, European decline is inevitable.

According to research by the non-profit organisation RAND, based on 2022 data, the gross prices of prescription drugs (or "ethical" drugs) in the United States are on average almost three times higher than those in other OECD countries. RAND considers gross manufacturer prices because the final cost, after various discounts applied by companies along the distribution chain to wholesalers, pharmaceutical managers, health insurers, hospitals, and pharmacies, is not always known. Even taking into account estimated discounts, however, average prices remain three times higher than the OECD average [RAND, International Prescription Drug Price Comparison, 2024].

The view from America

The Trump administration brandished this figure in its May 12th executive order, which announced an "aggressive" plan "to bring prices for American patients and taxpayers in line with comparably developed nations". In reality, not all prescription drugs cost more in the United States. According to RAND, the average price of brand-name drugs is more than four times higher than in OECD countries, but generic products, where competition is fiercer, cost a third less (67%). Generic drugs account for 90% of prescriptions in the US, compared to an average of 41% in the other OECD countries considered.

In the executive order, the White House accuses manufacturers of offering discounted prices "to access foreign markets and [subsidising] that decrease through enormously high prices in the United States". The United States is "subsidising drug-manufacturer profits and foreign health systems". The world benefits from American research supported by "generous subsidies".

Under the order, the Department of Health is tasked with setting "price targets" to be negotiated with companies, based on prices in other countries, according to the "most favoured nation" principle. In the event of non-compliance, the order threatens rules imposing reductions and other "aggressive action" such as importing from countries with better prices.

The issue of drug prices is a long-standing one in the US. In Europe, where single-payer healthcare systems prevail, prices are negotiated by government agencies, which have strong bargaining power with regards to companies. In the US, manufacturers set list prices and then negotiate discounts with insurance companies, hospitals, and intermediaries such as Pharmacy Benefit Managers (PBMs).

Towards the end of his first term, Donald Trump had already tried unsuccessfully to impose a price cut on 50 drugs. In 2022, with the Inflation Reduction Act (IRA), then-President Joe Biden shook up the pharmaceutical market by allowing Medicare, the federal healthcare programme for the elderly, to negotiate prices directly with pharmaceutical companies, which had previously been explicitly prohibited. The following year, the Biden administration released a list of the first ten drugs targeted by the new policy, and in 2024, amidst a presidential election campaign that included healthcare spending as one of its main issues, Biden and candidate Kamala Harris announced a "historic" agreement with drug companies that will take effect in 2026 unless cancelled. The cut will average 25%, and the Congressional Budget Office has estimated that Medicare will save $100 billion over a decade [Financial Times, March 20th, 2023].

Regulation or market

The reforms contained in the IRA had to overcome fierce opposition from multinational pharmaceutical companies, which argued that a price cap would discourage investment in the research and development of new medicines. Six Big Pharma companies from three continents sued the Biden administration on several grounds, including violation of the First Amendment for "the taking of private property for public use without just compensation" [The New York Times, August 29th, 2023]. The US companies Merck, Bristol-Myers Squibb and Johnson & Johnson, Japan's Astellas Pharma, Britain's AstraZeneca and Germany's Boehringer Ingelheim were also supported by the Chamber of Commerce and the PhRMA (Pharmaceutical Research and Manufacturers of America) lobby.

President Trump's current executive order, on the other hand, has so far elicited a "lukewarm" response from companies, which are sceptical about its practical implementation. According to legal and health policy experts quoted by the British Medical Journal, "the executive order reads more like an aspirational statement than a serious attempt to initiate a policy change". The "legal powers" to impose a price-control mechanism not provided for by Congress (traditionally resistant to regulatory interference, especially on the Republican side) are being questioned. Legal disputes are on the horizon. A more likely scenario is "isolated price reductions" through voluntary negotiations [BMI, "Can Trump Really Lower US Drug Prices and Raise Them in Other Countries? Probably Not", June 6th, 2025].

The order seems to be more aimed at intermediaries such as PBMs, big groups that negotiate with companies on behalf of insurers and hospitals. This criticism is shared by the drug companies, which add a dose of protectionism. In a May 12th statement on the order, PhRMA President Stephen J. Ubl said that the "real reasons" prices in the US are higher are "foreign countries not paying their fair share and middlemen driving up prices for US patients. The administration is right to use trade negotiations to force foreign governments to pay their fair share for drugs. US patients should not foot the bill for global innovation".

Between competition and opportunity

For any State, it is a question of public spending, which weighs heavily in the confrontation between powers. Imperialist metropolises are struggling to bear the costs of healthcare. New equipment and increasingly promising – but also more expensive – diagnostic and therapeutic methods are challenging the sustainability of national budgets. Life-sciences companies, on the other hand, are engaged in international competition based on their capacity for innovation.

The rise of China looms over the United States and Europe. According to Narasimhan and Hudson, "China, now the second largest biopharma market, has expanded its position by attracting multinationals and creating a vibrant biotechnology environment". A 2023 European Commission analysis of the 2,500 companies worldwide with the highest R&D expenditure found that 12% of the companies investing the most in health research are based in Europe, compared with 55% in the US and 17% in China [Financial Times, April 26th, 2024].

In medical biotechnology, Chinese companies have produced many promising new molecules, but these require further development to an advanced stage and investment that Chinese companies lack. Western groups, primarily European ones, offer the necessary capital and guarantee marketing licences outside China. Chinese biotech companies have signed 98 cross-border licensing agreements worth around $60 billion. In the first quarter of this year, there were 33 agreements worth $36.2 billion. The "new frontier" of Chinese biotechnology is a challenge for Western groups, but is also an opportunity.

Lotta Commisita, July-August 2025

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