European Pharma Industry Outlook: Tariffs, Patents & Copycats

With the impending patent cliff, astronomical tariffs and the rise of copycats, European pharmaceutical companies are in a fierce battle for survival.

For the first time in months, the European pharmaceutical industry can breathe a sigh of relief. President Trump has called off the 250% tariff that could have decimated the industry.

While this news has come as a reprieve to European leaders, investors are not as impressed, and it’s not hard to see why. With the impending patent cliff and rising competition from biosimilars and foreign countries, it’s too soon to celebrate.

One Pharma CEO has already lost his job and before the year is over, chances are high that he won’t be alone.

Tariff Nightmare Averted

In 2024, the EU exported €120 billion worth of medical and pharmaceutical supplies to the US. This amounted to roughly 38% of total pharma exports, far ahead of the 16% sent to Switzerland and the 6% that went to the UK.

So, when the US began to threaten a tariff rate of as high as 250%, the market panicked. This caused the STOXX® Europe 600 Health Care to fall to a 52-week low of 936.44 in early April. EU pharmaceutical makers were given two options: begin manufacturing their active pharmaceutical ingredient (API) in the US or face annihilation.

Not only is the US their largest market, but it is also where they charge the most for their medications. According to Washington, drugs cost 2.78 times more in the US than they do in other OECD countries. Raising that price by another two and a half times would have forced Americans to buy only from local companies.

Fortunately, President Trump and European Commission President Ursula von der Leyen were able to reach a trade deal that brought this down to 15%. However, this still puts a €19 billion dent on the current exports, which will further push Americans away. One way to get out of this is to do what Trump wants and manufacture drugs un the US.

In July, AstraZeneca announced a $50 billion investment to start manufacturing all drugs for the US market there. “There’s a couple of products that are not made in the US, but we are rapidly transferring the supply to the US, because we have the capacity,” said its chief executive, Pascal Soriot. Companies in the UK are facing a 10% tariff. While this is better than the EU, it is enough to cost Britain’s largest company by market cap severely. And others are following suit.

Roche and Novartis, which are the largest Swiss companies by market cap, are also going to manufacture drugs in the US. Belgian company UCB is also investing $5 billion in a new plant in the States.

Unfortunately, many of these plants won’t be operational until at least 2029. However, European drugmakers are hoping that these commitments would be enough to persuade Trump to make exemptions.

But even if the tariffs get cancelled, there is a growing problem that is proving more difficult to overcome.

The ‘Compounding’ Nightmare and the Patent Cliff

Arguably the biggest challenge facing European pharmaceuticals companies right now is the battle to protect their intellectual property (IP). While this is often a straightforward legal matter, new regulations in the US have made that difficult. Specifically, the rules around compounding.

When there is a shortage of drugs, compounding pharmacies are permitted to prepare custom medications. Compounded drugs are not FDA-approved and have gotten out of hand since the Covid supply chain disruptions.

One of the companies that has been hardest hit is Novo Nordisk. A year ago, the Danish company was the largest company in Europe by market cap. Since then, sales in its weight loss and Type II diabetes drugs Wegovy and Ozempic have slid considerably. While Eli Lilly would love to take credit with its competitor, Mounjaro, the real problem has been copycats.

As Novo Nordisk was unable to meetup with demand, the FDA had permitted pharmacies to make versions of semaglutide, the active ingredient in Wegovy and Ozempic. However, the Danish drugmaker has been delivering drugs on schedule, but cheaper alternatives are still flooding the market. A month’s supply of Ozempic without insurance cost $968. However, compounding pharmacies were selling their alternatives for between $200 and $499.

This has not only cost Novo Nordisk the top position in drug sales, but it also cost its CEO his job. Lars Fruergaard Jørgensen lost his seat after he announced revised sales figures for the year ahead. Novo Nordisk has shed an astonishing $367 billion in value since its peak in June 2024 and is no longer the most valuable european drugmaker.

Other drugmakers are also filing lawsuits against compounding pharmacies, but that isn’t even their biggest problem. That distinction belongs to the impending patent cliff, which some speculate will be the biggest in history. In 2027 and 2028, drugs worth $180 billon in annual sales will lose IP protection. This figure is bound to increase to over $200 billion in 2030.

While the companies to be most affected are American, AstraZeneca, Novartis and Bayer will sustain minor hits. This is forcing pharmaceuticals to come up with creative solutions to boost their pipelines.

The Need for Strategic Alliances

The last major patent cliff led to a string of megamergers in the industry, led by Pfizer’s $68 billion Wyeth acquisition. However, increased regulatory scrutiny has made those deals less enticing. Instead, companies are looking for Goldilocks acquisitions. Another attractive strategy has been buying licensing rights for Chinese drugmakers.

According to data from EY, US and European companies have struck licensing deals worth $35 billion. The companies buy ex-China rights to early-stage drugs, conduct later-stage trials then sell them globally.

While these deals will ensure that Big Pharma maintain robust drug pipelines, the main objective is to remain relevant in the US.

Trump has made it clear that he wants drugs manufactured in the US and tha’ts rpevisely what he’s going to get. Perhaps this compromise will cause Trump to crackdown on compounding pharmacies. But even if he doesn’t what choice do European drugmakers have?