The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee Donnellan

LONDON, Nov 28 (Reuters Breakingviews) - The biggest threat for European pharmaceutical groups currently comes from the United States. President-elect Donald Trump and his proposed Health Secretary Robert F. Kennedy Jr amount to a toxic cocktail of “America First” nationalism and anti-drugmaker sentiment, which is doubly bad from the perspective of $480 billion Novo Nordisk NOVOb.CO, $230 billion Roche ROG.S and the rest. Ironically, the best way to mitigate these risks is to get closer to the source of the problem. More U.S. manufacturing investments, and even M&A, could help.

Trump’s victory has taken its toll on the drugmakers. Six major Europeans – Novo Nordisk, Roche, Novartis NOVN.S, AstraZeneca AZN.L, GSK GSK.L and Sanofi SASY.PA – have collectively lost $86 billion or 6% of their equity value since the day before the election, compared with a narrower 2% aggregate fall for the major U.S. groups. The general fear in the industry relates to Kennedy, known as RFK, who mistrusts pharma in general and vaccines in particular. Sources at European drugmakers told Breakingviews that they worry about what they see as his lack of public-health pedigree and general anti-science stance. U.S. drugmakers should feel the same.

What’s bothering investors in Sanofi, Roche and their regional peers, however, is that RFK and Trump’s agenda may have an anti-Europe slant. In September, the cabinet nominee said lawmakers should cap drug prices so that pharma groups can’t charge U.S. patients substantially more than those on the other side of the Atlantic. The discrepancy, he wrote in an opinion piece for the Wall Street Journal, relates to the fact that European national health authorities tend to negotiate with manufacturers on behalf of the whole country, allowing them to keep prices low. That doesn’t happen in the United States. RFK name-checked Novo Nordisk’s diabetes and weight-loss medication Ozempic as an example, stating that in Germany it costs one-tenth of the prevailing U.S. level. It’s a sensitive area for the Europeans, since high prices on the other side of the pond often subsidise drug research and cheap sales for the rest of the world.

Meanwhile, Trump’s possible universal import tariff could whack the pharma groups, wreaking havoc on their U.S. competitiveness and profitability. In 2023, the European Union exported 33% of its drugs to the United States, which is typically one of the highest-margin markets in the world. Unless the drugmakers could pass on the costs of the mooted 10% to 20% duties, their bottom lines will take a hit.

The antidote to all these U.S. problems, paradoxically, lies in the source. European drugmakers need to become more American. One option is to boost manufacturing in the United States, thus avoiding tariffs. That would be hard to do quickly, but making large pledges and starting work on a new site could probably win favour with the new administration. Dealmaking could help too. Novo Holdings, the Novo Nordisk parent company, in February said it would spend $16.5 billion on contract drug manufacturer Catalent CTLT.N. The target’s website lists more sites in North America than other regions, implying that the Danish giant has bought itself a handy possible tariff hedge. The only problem with this strategy is that U.S. M&A, like U.S. labour, doesn’t come cheap. Breakingviews calculated at the time that Novo would make a sub-3% return on investment.

Another strategy could be for European pharma groups to use M&A to radically change their revenue mix, instead of just their manufacturing footprint. Buying one of the many large and fast-growing U.S.-focused biotechnology groups, for example, would help. That might sound odd, since RFK’s plans could dent growth in that market. But the idea would be to kickstart a transformation from being a European drugmaker into a U.S. one. Moving key executives to New York, and maybe even listing there, would be the logical next step. If the world’s biggest and most lucrative drug market is becoming more nationalistic, it arguably makes sense for the European giants to get inside the tent.

Many of the companies at risk also have their own idiosyncratic reasons to tilt towards the United States. Novartis, for example, is at the top of the European market and therefore may find it difficult to grow any further in its home region. China, which may have previously seemed like an attractive investment option, now looks dicey given the prospect of a U.S. trade war.

Nor is the People’s Republic sending welcoming signals. Just ask AstraZeneca. The $200 billion Anglo-Swedish drugmaker revealed late last month that Leon Wang, the president of its China business was "cooperating with an ongoing investigation." The company later confirmed that Wang had been detained by Chinese authorities. Astra CEO Pascal Soriot has already kickstarted his U.S. pivot. Earlier this month, he announced a $3.5 billion investment in research and development in the United States, along with a plan to create more than 1,000 jobs.

And despite the RFK worries, U.S. drugmakers still often trade at a premium to their most direct Europe-based rivals, suggesting that investors think growth there will hold up. In the red-hot obesity market, for example, Eli Lilly LLY.N trades at 34 times expected 2025 earnings, according to Visible Alpha, while Denmark’s Novo Nordisk has a multiple of 27. Similarly, European drugmakers AstraZeneca and Novartis trade at 14 and 13 times their respective forward earnings, while Illinois-based Abbvie ABBV.N is at 15.

No one is sure exactly what Trump will do with tariffs or drug prices, and there’s even more uncertainty about how the effects will ripple out to the rest of the world. But investors seem convinced that the European groups will come off worst. All the more reason for a U.S. swerve.

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(Editing by Liam Proud and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))