Berlin is about to squeeze its pharmaceutical industry to plug a health-insurance gap. European regulators have other ideas.
Germany’s statutory health insurance system faces a projected financing gap of €19bn next year. Chancellor Friedrich Merz’s government has chosen to close it, in part, by hitting drugmakers. Lawmakers have approved plans to double the compulsory manufacturer rebate on patented medicines from seven to 15.5 per cent. The health ministry estimates the measure will save insurers about €12bn by 2030. The industry says the cure is worse than the disease.
The warnings are coming from the top. “The industry is increasingly viewed primarily as a cost factor within the healthcare system,” said Kai Beckmann, chief executive of Merck KGaA, which has invested €2.5bn at its Darmstadt headquarters over the past decade. “Given the deteriorating framework conditions, it is becoming increasingly difficult to justify such investments over the long term.”
A record export base
Boehringer Ingelheim, a privately held German drugmaker, announced in June that it was cancelling about €900m in planned investments for Germany through 2030, Financial Times reports. Médard Schoenmaeckers, Germany head of Boehringer Ingelheim, said the company had been “surprised” by the legislation and would cancel some planned investments. The decision also reflected broader uncertainty over Europe’s policy direction, he said.
Germany is the world’s top exporter of pharmaceutical products. Its pharmaceutical exports reached a record €116.4bn last year, accounting for 7.4 per cent of the nation’s sales abroad. It generated a trade surplus of almost €43bn, roughly one-fifth of Germany’s total. That strength is now at risk.
You might be interested
The evidence of a weakening competitive position is already accumulating. Private companies conducted 568 clinical trials in Germany last year, down from 641 a decade ago, according to industry body the Verband Forschender Arzneimittelhersteller. Once the world’s largest location for such trials after the United States, Germany has slipped to fifth place, behind China, Spain, and Australia. Consultancy Charles River Associates found that 175, or a third, of 526 new medicines approved by the US Food and Drug Administration between 2016 and 2025 were not marketed in Germany.
Han Steutel, president of the VFA, said government policies were “weakening Germany’s competitiveness” just as investment decisions were being made “in direct competition with the US, China and other European locations.” The new rebate law lands as Germany’s carmakers and chemical groups are already cutting tens of thousands of jobs, squeezed by high domestic costs and intensifying competition from China.
Brussels pulls the other way
Germany’s squeeze arrives at a delicate moment for European pharmaceutical policy. The European Commission has spent three years designing a reform package intended to make the EU’s single market for medicines more integrated, more predictable, and more competitive. The Commission frames the overhaul as a way to ensure “timely and equitable access to safe, effective, and affordable medicines”. The European Parliament has backed the text in committee. The package is to enter into force before the end of this year, with most provisions applying from 2028.
The reform expands rules that allow firms to prepare regulatory, pricing, reimbursement, and procurement steps before patent protection expires, without treating those preparatory acts as sales. It also strengthens supply obligations and creates clearer incentives for launching products across the Union. In theory, it should reduce friction for companies operating across multiple member states.
In practice, the German measures pull in the opposite direction. EU law still does not harmonise drug prices. Health pricing and reimbursement remain national competences. So Brussels can streamline approvals, coordinate regulation, and set incentives. Yet it cannot stop Berlin from making one of Europe’s biggest markets less attractive on price.
The American complication
Washington adds a further twist. The Trump administration’s proposed “most favoured nation” pricing policy, introduced last year, seeks to align US prescription drug prices with those in other developed nations. US prices were on average three times higher than Germany’s in 2022. If Washington links its prices to Germany’s, companies face a double squeeze: lower revenues in Europe drag down what they can charge in America.
“We need to invest more in the US and into China where we see a rapid development of innovation,” said Mr Schoenmaeckers. “We need to see innovation valued, or we don’t see those investments coming back to Germany or Europe.”
You can’t have the lowest tenders and the highest costs. — Peter Goldschmidt, CEO of Stada
The consequences are already visible. US-based Eli Lilly said in June it was halving a planned €2.3bn investment in a new weight-loss and diabetes drug manufacturing site in Alzey. Swiss group Roche, which says it has created 1,800 jobs in Germany and invested approximately €3.8bn since 2020, said it was placing “all future investment decisions” in Germany on hold. Roche told the Financial Times that the new law “imposes a substantial burden on Germany’s research-based pharmaceutical industry and sends a negative signal to companies seeking to invest.”
A single market, incompletely built
The deeper problem the story exposes is structural. Europe’s single market for pharmaceuticals remains incomplete. Firms selling across the EU must still navigate different national pricing systems, different reimbursement choices, and different commercial incentives. The new EU package builds a more coherent legal architecture; however, it cannot close that gap on its own.
Peter Goldschmidt, chief executive of generic drugmaker Stada, put it plainly: “Germany is not competitive as a production hub any more. You can’t have the lowest tenders and the highest costs.”
BioNTech, one of Germany’s most celebrated biotechnology successes, illustrates the drift. It listed on the Nasdaq in 2019 rather than Frankfurt, relies on US dealmaking to fund growth — its 2025 collaboration with Bristol Myers Squibb is worth up to $11.1bn — and plans to close three out of four German sites used to supply Covid-19 vaccines outside the United States. Its founders, physicians Uğur Şahin and Özlem Türeci, are planning to leave the company and establish an independent business. They have not decided whether their new venture will be based in Germany.
Brussels is building a single market in law. Berlin is making it harder to sustain in practice. If the EU is serious about pharmaceutical competitiveness, it may eventually have to confront the gap between the two.
