Pharmaceutical Pricing: What Europe Must Do to Ensure Affordability and Patients Access to Drugs
Yogan A. Patel · Posted on: October 23rd 2025 · read
The average cost of bringing a new drug to the market has exceeded $2.3 billion, and that’s before it reaches a single patient’ (1). It is common knowledge that the global pharmaceutical market is highly divergent in terms of drug pricing. It is important to note that drugs are priced at particular levels so as to enable investment to be made in Research and Development for future drug development and to recoup the costs incurred to bring a drug to the market and for those that were halted due to clinical trial failures, funding etc.
What has created significant tension recently, however, is the actions taken by Donald Trump. US manufacturing companies have set high prices due to no centralised negotiation, like the NHS in England, and the fragmentation of their healthcare system.
This is about to change, as pressure to reduce prices is being enforced, which would force US pharma companies to recoup their revenue losses with higher drug prices for the European market. Furthermore, will the Indian and Chinese pharma companies that are impacted by the US tariffs look to increase their prices for the European market to recover their losses? With all these global politics, how should Europe respond to this new reality?
US High-Pricing Model on Drugs Under Investigation
"Taking a closer look at the US market, it has historically benefited from a higher pricing model for brand-name prescription medications compared to other developed nations. The reason lies in the nature of the healthcare system being completely fragmented. In particular, the US system relies on a mix of private insurers and government programmes, such as Medicare and Medicaid. This has enabled both to maintain a bargaining power, setting high prices for their drugs and eventually driving higher profits."
Yet, it seems that this is slowly coming to an end with the enforcement of the Inflation Reduction Act (IRA) (2). This Act, for example, enabled Medicare to negotiate prices for a specific number of high-cost drugs, a drastic change that jolted the industry. The US government is now actively trying to match its prices more closely to those in the European market, causing a major shift in the strategic direction of big pharmaceutical firms.
The UK and Europe: Centralised Systems Under Stress
On the contrary, the UK's healthcare system operates much differently. In particular, the National Health Service (NHS) acts as a powerful buyer negotiating favourable prices. It operates under a voluntary pricing scheme, the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG), which caps the growth of branded medicine sales to the NHS. If a company's sales exceed this cap, they must pay a "clawback" to the government. As a result, the UK has achieved some of the lowest drug prices in Europe.
In most European countries, the healthcare system for drug prices mainly relies on reference pricing, value assessments and negotiation to keep costs low while at the same time ensuring access. However, the IRA enforcement will drastically change the landscape in the UK. Specifically, US manufacturers will be obligated to lower their drug prices domestically, looking to other markets to balance out the losses, meaning that the UK and other European countries with low, negotiated prices are now prime targets for price increases.
The Mounjaro case
The recent case of Eli Lilly and its weight-loss drug, Mounjaro (tirzepatide), is a powerful example of what had been said above. Eli Lilly announced a significant price increase from 1 September 2025 for Mounjaro's private market sales in the UK. As the company commented, this is an effort to "align prices across developed countries," effectively bringing the UK's private market prices more in line with the higher rates seen in the US and other parts of Europe (3). While this specific price increase does not immediately affect NHS, it highlights the broader trend of pharmaceutical companies seeking to "rebalance" their global pricing strategies. The ultimate concern is that this pressure will impact future NHS negotiations, leading to higher costs for the health service. The end result is likely to be higher taxes as the taxpayer is the ultimate funder or to savings having to be made by the Government in other areas.
Europe's Approaches: Pushback and Driving Competition
Despite these pressures, European countries have various options.
- Centralised Negotiation Organisations like the NHS already possess significant bargaining power. The current impasse in negotiations between the UK government and the Association of the British Pharmaceutical Industry (ABPI) underscores this point. The government is pushing back against the industry's demands, which it sees as "unaffordable," while the ABPI argues that the UK's current "clawback" payments are disproportionately high compared to other European nations (4). The outcome of these talks will be a bellwether for future pricing dynamics.
- External Price Referencing Many European nations use a system known as external price referencing (EPR), where the price of a drug is set by referencing its cost in a "basket" of other countries. This mechanism can be used to resist price increases, but it can also have unintended consequences, such as delaying the launch of new drugs in a country if the manufacturer fears it will set a low price point that will be used for reference elsewhere (5).
- Alternative Sourcing and Biosimilars A key strategy for Europe is to foster competition. Once a drug's patent expires, generic and biosimilar versions can be produced at a fraction of the cost. The UK's Medicines and Healthcare products Regulatory Agency (MHRA) is a crucial player here, as faster licensing and approval of these off-patent alternatives can save the NHS billions of pounds annually and strengthen supply chain security (6). This is a vital tool for cost-containment and for reducing dependence on a single manufacturer.
- European Cooperation The EU, while leaving pricing and reimbursement to individual member states, is pursuing a new pharmaceutical strategy aimed at enhancing accessibility and affordability. This includes measures to foster greater competition and address supply chain vulnerabilities (7). Greater collaboration among European nations in negotiating with pharmaceutical companies could also strengthen their collective bargaining position.
What It Means for the UK Market
The current climate presents an opportunity for UK and EU-based pharmaceutical companies, especially in the generics and biosimilars sector. While the UK has a strong history in life sciences, there have been concerns about a decline in biopharma labour productivity and a loss of manufacturing capacity to other countries. The current pressures on pricing and supply chains could be an impetus for a resurgence in domestic manufacturing and innovation. Pharmaceutical companies need expert guidance to navigate this climate.
The current and previous UK government's ambition is to make the UK a world leader in life sciences. However, striking a balance is key here. Is it possible to foster innovation and investment while ensuring drug’s access and affordability?
