Europe's pharmaceutical industry at risk? What Trump's policy means for 2025 and beyond

Antidepressants encourage school shootings and COVID-19 vaccines are crimes against humanity – the claims of Robert F. Kennedy Jr. are part of the cacophony of colourful personalities in current US politics. What makes it so explosive is that Kennedy not only bears a famous name, the self-confessed anti-vaccinationist is also the designated health minister of the Trump administration. And the appointment highlights the possible consequences of Trump's policies for pharmaceutical manufacturers in Europe.

Slimming injections, cancer and Alzheimer's drugs, new biologicals – over the past two years, there have been many positive reports of new investment projects by pharmaceutical manufacturers in Europe and Germany. This trend is being driven not only by the development of new products, but also by specific location factors. Manufacturers are currently reaping the rewards of their long-standing development efforts: German manufacturers alone could receive approval for 40 new compounds by 2025. However, clouds are already on the horizon.

As early as 2024, the chemical-pharmaceutical industry was confronted with significant economic and geopolitical challenges worldwide. In both Germany and Europe, the sector faced structural adjustments, cost increases and global market dynamics. The global economy has not picked up as hoped, which is also reflected in the key data of the chemical-pharmaceutical industry. Since the second quarter of 2024, the industry has not been able to build on the good start to the year. This applies not only to the industry as a whole, but also to pharmaceutical manufacturers. Recent analyses show that sales of pharmaceutical products abroad have recently declined and production has fallen.

Germany: challenges for the location

According to the industry association VCI, the chemical-pharmaceutical industry in Germany presents a mixed picture. Although production increased by 2% in 2024, it is still 16% below 2018 levels. Pharmaceutical production in particular recorded a decline of 1.5%, due to supply chain problems, capacity bottlenecks and high location costs. Declining orders from Europe and the US reinforced this downward trend. The order situation remained weak and production capacities were only utilised at 75%. For four years, these figures have been below the economically viable level, resulting in the permanent shutdown of production facilities.

Germany's competitiveness suffers primarily from high production costs, energy prices and an increasing regulatory burden. Markus Steilemann, President of the German Chemical Industry Association (VCI), was highly critical of the political situation: ‘The Commission is regulating Europe into a standstill.’ The demand for bureaucracy reduction and targeted investments to increase the competitiveness of German locations was more urgent than ever in 2024. Chemical companies, in particular, are increasingly willing to relocate their innovation and production capacities abroad, especially to the USA and Asia, where better economic conditions prevail. China has recently invested heavily in its own pharmaceutical industry and is increasingly positioning itself as a competitor to established European and North American companies.

Europe: mixed developments in global competition

The European chemical-pharmaceutical industry also faced major challenges in 2024. According to the VCI, high regulatory hurdles for drug prices in many European countries and the increasing dependence on non-European raw material suppliers exacerbated the situation. Countries such as France and Italy recorded falling purchasing manager indices, indicating weak industrial activity. Nevertheless, Europe remained one of the main buyers of German pharmaceutical exports, although a decline in orders was also noticeable here.

However, the greatest uncertainties are looming from the USA – the largest and most important market for medical technology and pharmaceuticals worldwide, where around half of the global turnover in the pharmaceutical sector is generated. With a share of 16.4% of global exports, the USA is also the largest customer for pharmaceutical products from Germany. If the new US President Donald Trump is serious about his industrial plans, this will not be without consequences for European pharmaceutical manufacturers either. Trump not only plans to introduce a general tariff of around 10% on all imports, his policy also weakens global trade agreements and could lead to a fragmentation of the world economy. This would significantly reduce the planning security for European pharmaceutical companies. One possible consequence: research and production could increasingly be relocated to the USA. In the German pharmaceutical industry alone, around 28% of jobs depend on exports to the USA.

However, it is difficult to assess how real these fears are – Trump's political manoeuvres have been too unpredictable in the past – and the EU Commission is already threatening countermeasures. In addition, the EU is an important innovation area for the pharmaceutical industry. Projects such as the funding of digital health applications (DiGA) and an increased focus on sustainable production methods characterise the trends. Politicians have also recognised this and are supporting the industry's efforts, for example in Germany with the National Pharma Strategy implemented in 2024.

Trends and innovations as the key to the future

Megatrends such as digitalisation, sustainability and biotechnology are increasingly shaping the chemical-pharmaceutical industry. Research and development (R&D) remain central areas. According to the BPI, German pharmaceutical companies continue to invest around 16% of their turnover in innovative technologies and products. Biopharmaceuticals, personalised medicine and digital health solutions such as DiGA are at the centre of the innovation agenda.

The green transformation is another key trend. The pressure to make chemical and pharmaceutical processes and products more environmentally friendly is leading to intensive investment in sustainable technologies. The integration of artificial intelligence (AI) into production and R&D processes is seen as a key innovation to enable efficiency gains and reduce production costs.

Cautious optimism for 2025

The outlook for 2025 is cautiously optimistic. The VCI predicts a small increase in production of 0.5% for the chemical-pharmaceutical industry in Germany. While the pharmaceutical segment could experience a slight recovery, the chemical segment will probably stagnate. Worldwide, the market continues to be driven by strong demand for healthcare services and new drugs. In the current ‘Pharmaceutical Chemicals Global Market Report 2025’, the market research company The Business Research Company forecasts an annual growth rate of 7.4% by 2029.

Conclusion: The challenges of 2024 have revealed the structural weaknesses and need for adjustment in the chemical-pharmaceutical industry in Germany. Above all, political uncertainties are currently slowing down the expansion of the industry. The industry, accustomed to success, is facing a strong headwind from US trade policy and tighter regulations. But the strength of the European pharmaceutical industry – particularly in innovation and research – gives cause for hope. The industry's R&D share of 10 per cent of production value is three times higher than the industry average. The realignment of production processes and the digital transformation are opening up promising prospects. Politically, the coming years are likely to be turbulent – or as a journalist once wrote: ‘Trump is unpredictable – and proud of it.’

March 2024: Pharmaceutical industry facing challenges and opportunities in 2024

Blockbuster or personalized medicine? The possibilities for pharmaceutical manufacturers seem almost endless. However, the industry, which is accustomed to success, has recently been facing fierce headwinds from competition, regulatory intervention and rampant costs. This is forcing many manufacturers to rethink - and to use new technologies and methods.

Novo Nordisk achieved a major success with the active ingredient Semaglutide: the drug catapulted the Danish pharmaceutical company to the top of the most valuable listed companies in Europe virtually overnight in 2023. And Novo Nordisk has the growth market for weight loss injections almost to itself so far: only the American competitor Eli Lilly has offered an alternative preparation to date. The shareholders' expectations are no coincidence: analysts at the investment bank Goldman Sachs estimate that sales of weight loss injections will grow from the current 6 billion US dollars to 100 billion dollars by 2030. This is another reason why Lilly wants to build a new plant in Alzey in the Palatinate, Germany, and invest 2.5 billion dollars.

The hype surrounding the new slimming products highlights current developments in the pharmaceutical industry. After the boom in the coronavirus years, the industry has recently landed hard. In 2022, the industry in Germany still achieved moderate production growth of three percent; in 2023, production in the successful industry shrank by 1.4 percent, according to the industry association vfa, and in 2024, the association only expects growth of 2.0 percent.

In Germany and Europe in particular, the increased energy prices are causing problems for the industry: In contrast to the chemical industry, the energy intensity of pharmaceutical production is below average, but manufacturers are dependent on inputs from energy-intensive industries. Added to this are inflation, high interest rates, new tax laws and growing political risks.

Pricing power leads to loss of confidence

In the USA, the most important market for pharmaceuticals, additional trouble is looming: in response to rising prices, the Biden administration has decided, as part of the Inflation Reduction Act, that the prices of some of the most commonly used drugs should be negotiable for the first time in future. After the hype surrounding the performance of drug manufacturers in the fight against the Covid pandemic, the crash was abrupt: not least the discussion surrounding the Inflation Reduction Act put the high-price policy of some originator drug manufacturers in the spotlight. The loss of confidence means that future decisions by companies – be it pricing decisions, mergers and acquisitions, investments in artificial intelligence or staff cuts – will be scrutinized closely.

However, it is not just rising costs and the more critical public eye that are putting pressure on the environment for pharmaceutical manufacturers. The impression created by the success stories surrounding weight loss injections is deceptive: competition in the pharmaceutical market is becoming increasingly fierce – and not just for blockbuster topics such as the treatment of diabetes and obesity. More and more manufacturers are therefore researching preparations for rare diseases or individualized therapeutic approaches - and are prepared to take higher risks to do so. In particular, drug manufacturers are hoping for exciting new opportunities from the use of transformative technologies such as artificial intelligence and digital health in biopharmaceutical research. The ability to embrace these technological advances is becoming an increasingly important competitive factor.

Using artificial intelligence throughout the pharmaceutical value chain

This is by no means just about the use of AI in drug development. There is potential in the entire pharmaceutical value chain – from identifying promising active ingredients, planning clinical trials and writing documents to marketing and customer acquisition. The market research company PwC estimates that generative artificial intelligence can make a significant value contribution in more than 200 areas of pharmaceutical production.

However, there is also a need for action in other areas: While sales growth is still important, especially with a view to the "stock market story", in order to collect necessary capital, cost management is also coming to the fore. The Bayer Group provides a prominent current example: the pharmaceutical and agrochemical manufacturer wants to cut thousands of jobs by the end of 2025 – especially in management. Group CEO Bill Anderson is focusing on a cultural change in which managers act more as coaches for their employees, while employees are given more decision-making powers. However, other companies in the pharmaceutical industry have also recently announced cost-cutting measures. This is because cost pressure is increasing: High wage settlements as a result of inflation are a burden, as are more expensive energy and rising prices for primary products. And the latter are increasingly no longer available from traditional suppliers as a result of plant closures in the chemical industry, which is currently being hit even harder. In addition, the patent protection of many of the pharmaceutical manufacturers' cash cows is expiring. According to estimates by the market research company Evaluate Pharma, drugs with an annual turnover of USD 57 billion will lose their patent protection in 2023 alone. And even the manufacturers of biopharmaceutical drugs, who are accustomed to success, have had to tighten their belts since 2022: The heroes of the Covid pandemic have lost significant stock market value and increased interest rates are also weighing on the willingness to invest venture capital.

Conclusion:

2024 is likely to be an exciting year for the global pharmaceutical industry, with both opportunities and challenges. Manufacturers will need to understand their competitive environment like never before and drive innovation while keeping an eye on costs. AI and other new technologies are becoming increasingly important, while strategic mergers and acquisitions are also tried and tested means in the battle for a sustainable position. Because there are also lucrative fields beyond weight loss injections – for example in the fight against cancer and Alzheimer's – in which pharmaceutical manufacturers can make a contribution.