As the threat of pharma import tariffs in the U.S. sparks a domestic investment boom, the trend is stirring up criticism of the pharma status quo in Europe, where the same medications often sell at much lower prices.
Now, as the Trump administration reportedly weighs resurrecting a previously failed international reference program for drug prices in the States, CEOs from Novartis and Sanofi are airing their grievances with their own biopharma market in a letter urging the European Union to “fairly reward innovation” with higher drug prices overseas.
In the letter, which was published by The Financial Times on Wednesday, Novartis CEO Vas Narasimhan and Sanofi chief Paul Hudson pressed European officials to act “decisively and urgently," lest companies further shift their investments to the U.S.
At the heart of the matter, Europe is “failing to properly value innovation” in the form of new therapies and indication expansions, the CEOs wrote. Conversely, China and the U.S. are incentivizing breakthroughs via "policies and regulations conducive to fast and broad patient access to innovative medicines," Narasimhan and Hudson argued.
To boost Europe’s competitive position in the global market, the duo recommends that the EU implement a Europe-wide list price for drugs that “fully values a medicine." Narasimhan and Hudson argued these list prices should be set within the range of U.S. net drug prices and adjusted via rebates to EU member states.
The European Union should also establish a “Europe-wide spend target” for innovative medicines and vaccines to "fairly reward innovation," while individual countries in the EU should stop “artificially capping” biopharma market growth and reducing prices for new indications. These factors each contribute to a “clear disincentive” for industry innovators, the CEOs said.
“Europe’s pharmaceutical model of producing in Europe and exporting to the U.S. cannot continue,” Narasimhan and Hudson wrote. “It needs to strengthen its domestic market.”
To highlight the market imbalance, the European execs cited a stack of multi-billion-dollar investments that several drug majors have unveiled in the U.S. in recent weeks. In fact, Narasimhan's Novartis earlier this month committed $23 billion to build and expand 10 U.S. facilities over the next five years, in a move designed to help the Swiss drugmaker produce all its key medicines for U.S. patients entirely within the U.S.
The onshoring trend is one that many prominent drugmakers are following as the threat of pharmaceutical import tariffs in the U.S. continues to loom. President Donald Trump has teased the prospect of drug tariffs for months, but pharma imports were notably excluded from the batch of levies announced on "Liberation Day" in early April.
Still, the threat certainty persists, considering a recent comment from Commerce Secretary Howard Lutnick and an ongoing Section 232 investigation into national security implications of the global pharma supply chain.
While the full scope and impact of any potential pharma tariffs remains to be seen, the implication that they're on the way seems to have already spurred a major investment push in the country. Aside from Novartis, Johnson & Johnson, Eli Lilly and Roche have also made major pledges to beef up their U.S. footprints in recent months.
Conversely, the European Union could stand to lose billions of dollars in biopharma cash unless it delivers “rapid, radical policy change,” pharma CEOs from the European Federation of Pharmaceutical Industries and Associations (EFPIA), including Narasimhan and Hudson, recently warned European Commission President Ursula von der Leyen.
Broader drug pricing threats in the U.S.
Perhaps more worrying for the industry than tariffs, at least in the U.S., is the potential for a broader drug pricing policy that would tie domestic medicine prices to lower drug costs in other countries.
The framework would look similar to a policy Trump introduced during his first term, dubbed the "most favored nation" clause. Trump's price reform effort was protested by industry trade groups and eventually blocked in the courts because the Commander-in-Chief "had not gone through the proper rulemaking process,” John Barkett, managing director of BRG’s healthcare transactions and strategy practice, said in a November episode of Fierce’s "The Top Line" podcast.
According to anonymous industry sources, the Trump administration is again weighing the policy, Reuters reported Tuesday. The program, which would likely be implemented by the Centers for Medicare and Medicaid Services (CMS) if formalized, would look to close the massive gulf between U.S. drug costs and the prices those same medicines sell for overseas.
While the administration currently sees the option as a “mid-level priority," one of Reuters' sources dubbed the potential pricing policy the biggest “existential threat to the industry and U.S. biosciences innovation," placing parity pricing for drugs over the threat posed to the industry by pharmaceutical import tariffs.
Last fall, the Congressional Budget Office (CBO) analyzed several drug pricing policies that have been brought to the table, including a similar measure to Trump's that would cap U.S. prices based on overseas costs.
That option could result in average price reductions of about 5%, CBO found at the time, making it the most impactful framework out of the seven reviewed by the office at the time.