Opportunities for Europe’s pharma sector:

In physics, the ‘three-body problem’ describes how three bodies of roughly comparable mass interact, with each one’s movement changing the gravitational field experienced by the other two. Their long-run trajectories are mathematically unpredictable. The best one can do is understand the nature of the forces at play and model possible outcomes.

The biopharma sector is living through its own version of the problem. Three major forces are acting on it simultaneously: the rise of AI in drug discovery and clinical development; the US shift towards most-favoured-nation pricing and tariff-driven reshoring; and China’s emergence as a major source of pharmaceutical innovation. Each has substantial gravitational pull on its own. Together, they are reshaping the sector’s very characteristics, its investment logic, how it is financed, and who captures the value.

Europe needs to understand the range of possible outcomes, the options that the interaction of these forces create, and what policy instruments it can deploy to remain a leading actor.

AI is rewriting the rules of drug discovery

Artificial Intelligence is improving and accelerating the ability to identify targets and molecules, beginning to reduce costs, accelerating lead optimization and lowering failure rates.¹ The global AI in drug discovery market stood at €6bn in 2025 and is growing rapidly.² The competitive landscape is broad and diverse. Large pharma companies are integrating AI to compress their development timelines. Big Tech is positioning itself as the compute, cloud and AI infrastructure layer. For example, American Palantir’s Foundry platform for real-world evidence synthesis makes data usable at scale. A dynamic startup ecosystem of ‘TechBio’ companies has emerged, whose business model is closer to a technology platform than to a traditional pharma company, which either builds AI platforms to design and optimize therapeutic molecules or uses those platforms to advance its own drug pipelines.

AI-powered foundation models learn directly from experimental data and are at the centre of global competitive dynamics. Access to high-quality data is the critical input. China is moving fast in this space, as exemplified by BioMap, which launched a life sciences AI foundation model in 2023 (‘xTrimo’) that has since advanced to 2.1 trillion parameters. Europe’s closest equivalent is Bioptimus, a France-headquartered startup building a universal AI foundation model for biology, with a scope and ambition beyond drug discovery to encompass disease understanding, diagnostics and more.

MFN pricing is already changing behaviour

The application of most-favoured-nation (MFN) pricing principles in the US market will have a significant impact on pharma revenues, as prices from a number of European countries will become the benchmark for those in the US. By some estimates, MFN policies could reduce U.S. life sciences R&D spending by 18.5% and cut clinical trial activity by up to 75%.³ Tariff threats compound this, driving reshoring investment. Companies face simultaneous pressures on cost structures and on the revenue those structures were built to generate.

Crucially, MFN-based policies are already changing behaviour before they are fully implemented. Investments are being shifted, pricing decisions are being delayed, products withdrawn from some markets, and global launch sequences restructured. The case of Insmed’s Brinsupri is instructive. A first-in-class treatment for non-cystic fibrosis bronchiectasis, approved in the US in August 2025 and by the European Commission in November 2025, it has had its HTA (Health Technology Assessment) submissions paused across major European markets. Insmed’s CEO explained that until there is clarity on the MFN policies going forward, ‘the prudent thing to do is to put things on hold until we know what that’s going to look like’.⁴

China’s rise is structural

China is establishing itself in the novel molecules sector and next-generation modalities. Asia as a whole now accounts for 43% of the global innovative pipeline, and 29% of global drug candidates are developed in China.⁵ Chinese companies have been achieving their first European Medicines Agency (EMA) approvals and reimbursement coverage in multiple member states, notably in immuno-oncology.

The dealmaking landscape signals a maturing and more diversified ecosystem. Where Chinese companies once predominantly out-licensed assets (with a focus on immuno-oncology) to Western partners, co-development structures are becoming more common. Lilly's latest agreement with Innovent goes beyond traditional licensing: Innovent leads programmes from concept through to completion of phase II clinical trials in China,⁶ while Lilly progresses global development and commercialization rights.⁷ The Sanofi-Sino Biopharm agreement is a recent example of a European pharmaceutical company agreeing a deal worth up to $1.5bn for global rights to a first-in-class drug (for a rare blood cancer).

The playing field is yet to become level, however. Western pharma companies retain much of the value-creation potential through their commercialization power and access to major markets. The US remains the dominant centre of gravity for revenue and capital. But the gap is narrowing, and Chinese companies benefit from structural advantages that compound over time. PhRMA, the US trade association for R&D-based pharmaceutical companies, has acknowledged that China is ‘poised to become the next biopharmaceutical powerhouse, expanding its investment in medical research, discovery and development’.⁸ The underlying diagnosis is hard to dispute, and in the US the political pressure to respond is growing.

Developments, including the US’s Biosecure Act, the start of a US International Trade Commission factfinding investigation to examine Chinese state support and pricing practices in the biotechnology sector and to assess how these practices may be affecting the market share and competitiveness of the US industry,⁹ alongside a growing appetite for national security restrictions, are real but unlikely to halt China’s global trajectory. To the extent they do, the pressure will be redirected towards Europe, which is largely unprepared for what that means in reality. As Rob Davis, CEO of the US’s Merck, recently stated, ‘They’re moving very quickly, trying to drive the large pharma model. They’re not where we are yet, but they’re moving very quickly.’¹⁰

What these forces mean in combination

Before assessing what all this means for Europe, it is worth noting what these forces are disrupting. Biopharma’s underlying model was already under strain before MFN trade rules, AI or China changed the equation. The industry has kept a broadly similar rate of novel drug approvals while spending significantly more on R&D.¹¹ This matters for how Europe reads the current moment. AI genuinely could reduce development costs and improve target selection in ways the existing model could not. China's rise could expand the innovation base and introduce competitive pressure that forces the rest of the sector towards greater efficiency. MFN pressure, whatever its implementation risks, reflects a legitimate signal that the current model was not indefinitely sustainable. Europe’s response should be calibrated to this more complex reality and not address these forces one by one and in silo but position itself as an indispensable part of the transition already underway.

As the introduction of AI reduces the capital intensity of bringing a new drug to market, MFN is cutting the revenue that drugs can generate. Larger pharma companies will focus on clearly differentiated assets and continue licensing early-stage innovation externally. For mid-sized companies the pressures are particularly acute. Ten mid-sized US companies recently formed the Mid-Sized Biotech Alliance of America, arguing that the MFN push will ‘destroy biotech innovation’.¹²

If MFN pricing reduces US revenues and causes companies to deprioritize reference-price-sensitive markets, such as in Europe, where a launch would set an unfavourable price anchor for the US calculation, the space created is unlikely to remain empty. Western publicly listed companies also face different investor pressures from those of Chinese companies. The latter are backed by a different investor base and a state ecosystem oriented towards obtaining global market share by volume. Chinese companies with lower cost bases and rising regulatory credibility, with US Food and Drug Administration (FDA) and EMA approvals increasing, are well-positioned to fill that space. At its most extreme, this creates a race to the bottom.¹³ In a world where China can rapidly follow discoveries with a better and faster alternative, the return on original research reduces and the traditional innovation bargain begins to break down. That bargain – whereby an invention is disclosed in exchange for time-limited exclusivity – no longer holds when a competitor can erode this exclusivity faster than it can be monetized. Faced with the risk that a Chinese competitor reads their patent, adapts the idea and reaches the clinic first, some early-stage biotech founders have started moving towards developing in secret. The cost, if this becomes systemic, is paid by the research commons in the form of slower knowledge transfer, duplicated work and a model of open science at risk of hollowing out.¹⁴

Whoever controls biological AI foundation models controls an increasingly critical layer of the drug discovery process, where insights into biology are generated. The US dominates on computing capacity and AI venture capital, but Europe is also showing a lot of promise in this space. Access to high-quality biological data and sustained investment are strategic priorities that will mean Europe remains competitive.

Europe’s gravitational pull: genuine strength or avoidable vulnerability?

To stay with metaphors borrowed from astrophysics, Frank Le Deu describes the economics of the pharma sector as one where the US acts as the sun.¹⁵ Pharma may be a globalized sector, but its economic centre is singular. The trajectories of the three forces described in this article are in part a challenge to that, and they point to an opportunity for rebalancing the sector’s excessive reliance on the US market and for fostering more innovation through genuine competition between geographic centres. Can Europe exert sufficient gravitational pull to benefit from this shifting environment, and importantly, can it support its pharma sector in navigating through it?

Europe is not starting from scratch. Its healthcare systems generate rich longitudinal patient data. It has deep manufacturing expertise and capacity in small molecules and biologics, world-class academic research, diversified pharmaceutical companies, and a regulatory agency in the EMA whose credibility is growing at a moment when the FDA’s independence is under unusual political scrutiny. These are real advantages, but they are not being converted into capability fast enough.

Some important steps have been taken. The European Health Data Space provides the legal architecture for a pan-European health data market. It can be a competitive advantage and global differentiator for Europe. The Biotech Act introduces an investment target of up to €10bn, alongside regulatory sandboxes and biotechnology development accelerators, reforms to speed up multi-country trials. There is intent to deepen European venture capital markets. There are steps towards a US-style Advanced Research Projects Agency at EU level. These are meaningful moves in the right direction.

The launch of a pan-European initiative to make biological data AI-ready, announced at the Franco-German Summit on Digital Sovereignty in Berlin in November 2025, is a promising pilot for what Europe’s data infrastructure could become. Thomas Clozel, CEO of Owkin, one of the initiative’s driving forces, stated that: ‘Europe can be number one in biological AI. While the race for general-purpose LLMs has largely been won by American companies, the field of biology-native reasoning systems remains wide open, and it plays directly to Europe’s strengths: its healthcare systems, its academic excellence, and its unmatched biomedical data.’¹⁶

But there is a stubborn gap between intent and operational country-level reality. The implementation of the European Health Data Space lies largely with member states. It needs to be complemented with the infrastructure to operationalize it, aligning health systems, data authorities, researchers and industry around common processes and shared data infrastructure, not just harmonizing the legal framework. There might also be a case here for incentives that steer companies towards deliberate choices to process clinical and biological data via European sovereign infrastructure. Legislative proposals of relevance that are linked to the Savings and Investment Union, such as the revision of the existing European Venture Capital Funds Regulation, will not arrive before the third quarter of 2026 at the earliest. On MFN, governments in Europe have so far tended towards a holding position, watching developments rather than shaping them. The instruments for action exist; faster market access, volume guarantees, joint clinical trial infrastructure, a joint clinical assessment system and structured access to health data could all be deployed. A fast pathway to patients for ATMPs (Advanced Therapy Medicinal Products) could be a good place to start.

Europe holds many of the inputs that can strengthen its gravitational pull in this shifting environment, but the gap between the assets at Europe’s disposal and their rapid and coherent deployment is a political problem, not just a technical one. The EU and member states need to read the situation in the same way. Many influential factors, such as reimbursement timelines and strong clinical research infrastructure, lie with member states.

This is not just a health policy issue, nor only a national industrial policy issue, but one of collective sovereignty and patient access. A moment of shared recognition for sustained and collective action, such as has emerged in energy and defence, needs to happen, but if Europe waits until the cost of fragmentation becomes tangible, structural changes (loss of scientific leadership, companies scaled elsewhere, new dependencies, among other consequences) will not be easily reversible.