The 60 Billion Euro Squeeze: How Europe and the US Are Both Coming for Drug Prices
The 60 Billion Euro Squeeze: How Europe and the US Are Both Coming for Drug Prices
On a Tuesday morning call with analysts, Novartis CEO Vas Narasimhan had two numbers to report. The first: Q1 net sales of $13.1 billion, down 1 percent year-on-year — the company's first quarterly sales decline in more than two years. The second: a warning that Germany's plan to cut more than €60 billion from its national health system was, in his words, very concerning. In the pharmaceutical industry, that is a code for something worse.
Germany's healthcare cuts were announced in April. But Novartis's Q1 earnings this week turned them from a proposal into a data point. Narasimhan's frustration — unusual for a CEO who typically speaks in polished abstractions — reflects something the industry has been circling for months: the deal that made modern pharma possible is under simultaneous pressure from two directions it has never faced at the same time.
That deal, rarely stated explicitly but deeply embedded in how drug pricing works, goes like this: high US prices fund global drug development, and European governments implicitly accepted that arrangement in exchange for having access to those drugs at all. The US pays a premium. Europe pays less. R&D gets funded by the gap.
On one side of the pressure: Trump's most-favored-nation drug pricing policy, which ties US prices to those in comparably wealthy countries, and the broader Inflation Reduction Act machinery that is beginning to compress US drug revenues. Narasimhan estimates MFN — most-favored-nation, a pricing rule that requires the US to match the lowest price charged in other wealthy countries — currently impacts 5 to 10 percent of Novartis's sales in the Medicaid segment, a number he expects to grow. The reality of MFN is going to set in in the next 18 months, he said on CNBC.
On the other side: Europe's own austerity reflex, now sharpened by the same fiscal pressures driving US pricing pressure. Germany is not alone. France has pushed cost-effectiveness evaluations into its pricing process. A new bill moving through the German legislature would extend the same price controls applied to generic medicines — cheap copies of off-patent drugs — to innovative ones: medicines that took a decade and billions of dollars to develop. The EU published sweeping pharmaceutical reform legislation in March, part of an attempt to remain competitive in drug manufacturing. The head of the European Medicines Agency said the continent is at a critical point for drug access.
In the past, pharma could absorb European pricing pressure because US margins stayed high enough to subsidize global R&D. Now both constraints are tightening at the same time. MFN is creating a huge hesitation to launch in Europe if it exposes price in the US, which, of course, is the major driver of profit for the entire industry, Bill Coyle, global head of biopharma at consulting firm ZS, told a conference last week.
The numbers bear out the shift. GlobalData estimates a roughly 35 percent decline in new drug launches in Europe since May 2025. Roche CEO Thomas Schinecker and AstraZeneca CEO Pascal Soriot, speaking at the same Barcelona conference last week, both warned that Europe is falling behind in the medicine race — that the continent risks becoming, in Soriot's words, a mere sales office rather than a place where drugs are invented.
Novartis's own results this week illustrate the pressure in microcosm. Its Entresto — a heart drug that represented billions in annual revenue — fell 42 percent after its US patent expired, the biggest loss of exclusivity in the company's history. Growth drivers like Kisqali, Pluvicto, and Scemblix partially offset the decline, but the direction is clear: legacy franchises are crumbling faster than new ones can compensate.
The counterargument — that pharma CEOs have issued variations on this warning before and the system has always adapted — is fair. The IRA is being litigated. The German bill has not passed. Europe's fragmented markets have historically resisted the kind of coordinated austerity that would truly force the issue.
But the convergence is real. When the world's largest single-payer system, the world's largest pharma market, and the world's most lucrative drug pricing regime are all moving toward price containment in the same 18-month window, the historical cross-subsidy model faces a pressure it has not survived before.
What that means practically: expect more drugs to launch in the US first and Europe later — or not at all. Expect companies to exit therapeutic areas where price-controlled markets represent a large share of potential revenue. Expect capital to flow toward drug modalities that can survive compressed pricing.
The €60 billion figure is a budget number. What it actually represents is the price of finding out whether pharma can function as a global innovation engine without the cross-subsidy that has funded it for 40 years.