Europe Needs Pharmaceutical Innovation, Not Higher Prices Without Conditions

The current debate on the European Biotech Act has concentrated mainly on faster clinical trials, investment, and Europe’s industrial position. These measures address the supply side of health innovation. Yet biopharmaceutical research and development (R&D) also responds to demand: to the decisions of public health systems on which new treatments to reimburse, for which patient groups, and at what net price. The key economic question is whether countries acting together could provide stronger incentives for treatments that offer substantial added clinical value at a reasonable incremental cost per unit of health gained. Any increase in public pharmaceutical expenditure should be assessed against the additional health it produces and its opportunity cost: the health gains it may displace.

A sound economic and health policy should weigh three distinct effects. First, a larger market and higher expected revenues may increase global pharmaceutical innovation. Second, whether any additional research investment, clinical trials, or manufacturing will be located in Europe cannot be inferred from rising pharmaceutical expenditure. Their location depends on scientific capacity, local costs, human resources, infrastructure, and regulation, including tax treatment, not simply on the higher prices European purchasers pay. Third, an innovation that reaches the market does not necessarily increase net population health once the resources used to finance it are taken into account. Evidence on global innovation cannot, without further analysis, justify policies intended to attract R&D to Europe or to improve population health.

The US most-favoured-nation (MFN) pricing policy adds an industrial, commercial, and geopolitical dimension to health policy. Linking certain US prices to prices abroad may influence European launch decisions and negotiations, although its actual effects remain uncertain. As the European evidence on international reference pricing indicates, such links create externalities for the reference countries and can impede differentiated pricing. European governments should progressively phase out their own international reference-pricing mechanisms rather than copy the US approach. Retaliatory tariffs on pharmaceuticals imported from the US are no answer either: insofar as they are passed on, European buyers, including public purchasers, would bear the tax.

Bigger Markets Do Not Guarantee Better Medicines

Expected returns determine private R&D decisions: both the price and the size of expected market revenues matter. Empirical evidence supports a market-size effect. Its magnitude, however, depends on the policy context. European countries together represent a large pharmaceutical market. Coordinating its purchasers would not create additional demand, but it could make future volumes and reimbursement conditions more predictable.

The other determinant is what health systems are prepared to reward. Joint clinical assessment can and should establish incremental benefit; economic evaluation must then weigh that benefit against costs and available treatments. On one side, incentives for future pharmaceutical innovation must be balanced against the health lost when higher medicine prices divert resources from other healthcare services. On the other, whether joint and coordinated purchasing affects firms’ choices among R&D projects is an empirical question on which evidence remains limited.

A higher price for a new medicine may benefit the patients who receive it and nevertheless reduce health overall. With a fixed healthcare budget, additional pharmaceutical expenditure displaces services that may be more cost-effective. A recent estimate for Spain puts the marginal cost of producing one quality-adjusted life year at around €27,000 to €34,000, depending on the econometric specification.

These figures represent health opportunity costs, not normative reimbursement thresholds. What matters is the comparison between the incremental health gained and the health forgone elsewhere. Industrial objectives, such as attracting research and manufacturing, can justify public policies, but their costs should be made explicit rather than charged implicitly to healthcare budgets.

The Beneluxa Initiative provides evidence of cooperation, though not yet of its additional economic value. Its first decade included 15 joint health technology assessments, four joint price negotiations, and three multinational reimbursement agreements. Nordic countries have cooperated in purchasing selected medicines, while Baltic joint procurement has focused mainly on vaccines.

These experiences demonstrate the feasibility of cooperation, but not its economic benefits. The number of agreements tells us little about their effects on net prices, patient access, or population health. Those effects must be assessed against what each country could have achieved independently.

Joint Buying Must Beat Going It Alone

Shared horizon scanning and forecasts of treatment needs and volumes could make European pharmaceutical demand more predictable. First, EU joint clinical assessments are beginning to give countries a common assessment of comparative effectiveness. Economic evaluation and assessment, however, will and should remain a national decision.

Second, joint negotiation or procurement may strengthen buyers’ bargaining power, but its economic value depends on the relation between the additional benefits and the coordination costs compared with national purchasing. Outcomes-based agreements and reassessment can address uncertainty. Countries should participate selectively and retain their financing decisions. The relevant test is whether cooperation delivers additional benefits compared with feasible national alternatives.

Cooperation should not be read as a uniform European price. Differences in incomes, health opportunity costs, and added therapeutic value justify different net prices. The economic reasoning behind value-based differential pricing is directly relevant here.

Joint negotiation can coexist with different national contributions or net prices; reimbursement remains a national responsibility. Supply guarantees, evidence requirements, or additional investment commitments may be negotiated, but their additionality and costs need verification. If an industrial investment merits a subsidy, a direct and transparent instrument may be preferable to an opaque premium on a medicine’s price.

The Biotech Act and pharmaceutical reimbursement address different margins of the innovation process. Europe has good reasons to improve the conditions for clinical research and investment. It also has an opportunity to influence the direction of R&D through the health benefits its purchasers are prepared to finance.

Bringing EU purchasers together can strengthen bargaining power, but the effects depend on the negotiating terms and on manufacturers’ responses. More innovation of high clinical value, better access, and higher net population health are the outcomes to assess. Higher medicine prices are not an objective in themselves.

Disclosure: the author serves as Vice-Chair of the Spanish Advisory Committee for Pharmaceutical Financing (CAPF), a scientific advisory body attached to the Spanish Ministry of Health. This article is written in a personal capacity. The views expressed do not represent those of CAPF, the Ministry of Health, or UPF–Barcelona School of Management. No external funding was received for this article.