Medicines are set to become more expensive: Novartis and Roche are playing Europe and the USA against each other

Since Donald Trump threatened Swiss pharmaceutical giants with tariffs on drug imports into their largest and most lucrative market, the industry has been in turmoil. However, the company's CEOs are directing their warnings not to the US president, but to Bern and Brussels. Their message: The old continent threatens to become unattractive for investment if manufacturers don't receive more money for their drugs from health insurers and patients.

Europe urgently needs to make its market more competitive, Novartis CEO Vas Narasimhan said in a conversation with journalists on Tuesday: "I hope the EU Commission and the Swiss government will think about how innovation can be valued. They shouldn't simply hope that we produce here just because other aspects of the location are good." Politicians must make it clear that medicines should be manufactured here – "and pay appropriately for it."

Thomas Schinecker, CEO of Roche, recently echoed the same sentiment: "Switzerland is known for being very expensive in many areas of life. But not when it comes to medications," he told media representatives last week. It is somewhat surprising that in a country like Switzerland, which profits so much from the pharmaceutical industry, some medications are therefore not accessible. "We are also making this clear to the government," Schinecker said.

The pharmaceutical industry bases its approval and marketing decisions on the prices it can charge for its drugs in a given country. In the US, manufacturers achieve significantly higher prices because they have greater negotiating power there. In Europe and Switzerland, prices are more regulated and negotiated with national authorities. According to the industry, their research is not sufficiently recognized.

Last week, Novartis CEO Vas Narasimhan, along with Paul Hudson, CEO of French competitor Sanofi, wrote a letter to the Financial Times. The executives cited investments of more than $150 billion in the US that pharmaceutical companies had recently announced in response to the impending import tariffs.

The outlook for the American market is very good, thanks to favorable policies and regulations. "Unfortunately, the same cannot be said for Europe," the letter stated. Among other things, the EU needs a uniform price list based on US prices, the company's CEOs demanded.

Roche and Novartis have also pledged significant investments in the United States. At the beginning of April, Novartis pledged $23 billion in spending over the next five years . American demand will soon be largely met by American production. Narasimhan described this as a shift in strategy. Roche doubled down last week, pledging $50 billion to be invested in research and production facilities.

However, much of the money is likely not new and is apparently primarily intended to make a good impression in Washington. Roche's announced investments amount to as much as 80 percent of last year's sales. Theoretically, this would place a heavy burden on the company's cash flow and potentially impact the amount of dividends.

But the all-clear has been given: The previously planned total expenditures for research and development and new facilities will not be increased, CEO Schinecker assured. At the same time, Roche and Novartis are not planning any cuts in ongoing expenditures elsewhere.

Novartis CEO Narasimhan stated that the company will maintain its strong presence in Slovenia, Switzerland, Austria, and France. However, the CEO is putting pressure on new investments: "What we do in the future really depends on how European politicians change the playing field."

Meanwhile, there's no impression that the pharmaceutical giants in the US are facing an existential crisis: Novartis raised its full-year outlook on Tuesday. The company now forecasts sales growth in the high single-digit percentage range. All possible tariff effects are taken into account, it said. Between January and March, Novartis generated sales of $13.2 billion, 12 percent more than in the same period last year.

Roche increased sales to 15.4 billion Swiss francs in the first quarter, as the company announced last week – an increase of 7 percent over the same quarter last year. The US business accounted for 40 percent of revenue. Roche confirmed its full-year outlook despite the threat of tariffs. Production capacity in the US is not yet fully utilized, and inventories have already been increased.

While tariffs are a short-term problem, the level of drug prices is a persistent, structural issue for the industry. In fact, prices in the US are usually much higher than in Switzerland, explains Simon Wieser, head of the Institute of Health Economics at the Zurich University of Applied Sciences (ZHAW). "But this is primarily due to the misregulated US pharmaceutical market," he says.

Compared to other European countries, however, the prices of patent-protected medicines in Switzerland are still relatively high, says Wieser. This is also because the Swiss authorities, when setting domestic prices, base their prices on the "window prices" in other countries – list prices that, due to high discounts, are significantly higher than the actual prices paid.

The expert disagrees with the pharmaceutical industry's argument that excessively low prices limit the availability of medications for Swiss patients. Access to new medications is certainly possible, albeit complicated for everyone involved, says Wieser – and points to regulations that allow reimbursement for drugs not approved in Switzerland in individual cases.

Steadily rising health insurance premiums are likely to dampen people's willingness to pay more for medication in this country. In 2023, when total healthcare costs in Switzerland reached almost CHF 94 billion, medication accounted for CHF 11.4 billion of that. This was an increase of almost 20 percent compared to 2019, the period before the coronavirus pandemic.

Nevertheless, the industry is accustomed to better business from America: In 2023, Switzerland spent almost 12 percent of its economic output on health—the third-highest figure among OECD countries. This was slightly less than Germany, but far below the USA, which achieved a share of almost 17 percent of gross domestic product.

Higher prices in Europe could also become more important for the industry because the paradisiacal conditions in the US are not set in stone: There are efforts there to give authorities more power to negotiate prices. President Joe Biden has taken the first steps. Donald Trump also pursued this goal during his first term before being stopped in court due to technical errors.

At the time, Trump, despite industry resistance, sought a regulation that would align US drug prices with the lowest prices abroad. He may now revisit this goal. Pharmaceutical companies likely hope that by raising prices in Europe, they will also narrow the gap to American prices. This would not only earn them more in Europe, but also weaken the arguments for price regulation in the US—thus killing two birds with one stone.