By Craig Mellow

If you thought the European Union's top export to the U.S. was cars, think again.

The EU shipped 120 billion euros ($140 billion) worth of "medicinal and pharmaceutical products" across the Atlantic last year, three times the volume of auto exports. The bloc ran a $100 billion surplus in the category. Switzerland sold American patients another $35 billion.

Four of the top 10 holdings in the iShares Europe exchange-traded fund are pharma producers: Roche Holding, Novartis, AstraZeneca, and Novo Nordisk.

Investors have marked down this juggernaut's future lately. The Stoxx Europe Total Market Pharmaceuticals & Biotechnology index has swooned more than 20% from a peak in September, while broader European stocks are up 10%. "Volatility should lead to a flight to safety in sectors like healthcare," notes Michael Field, European equity strategist at Morningstar. "That hasn't been the case."

U.S. President Donald Trump is clouding the sector's immediate future with somewhat contradictory initiatives. He has threatened 200% tariffs on imported medicines. He also issued an executive order aimed at making drugs cheaper by "bringing American prices in line with those paid by other nations." Follow-up in either direction could bite into European pharma's profits.

Vaccine skepticism emanating from Health and Human Services Secretary Robert F. Kennedy Jr. is another potential threat. Companies like London-headquartered GSK and France's Sanofi earn nearly 30% of global revenue from vaccines.

Longer term, a venerable industry is resting on rapidly withering laurels, warns Andy Powrie-Smith, communications director at the European Federation of Pharmaceutical Industries and Associations. "Europe absolutely used to be a superpower in pharma," he says.

The Continent's global share of "new treatments" has fallen to 20% from half 30 years ago, he notes. Its share of clinical studies for new drugs has dropped by half over the past decade as research migrates to the U.S. and China. The EU is "falling behind in the most dynamic [pharma] sectors and losing market share to U.S. companies," noted former European Central Bank President Mario Draghi in a monumental review of European competitiveness issued last year.

Trade association EFPIA's chief remedy -- "significantly increasing what Europe spends on medicines and improving access to medicines for patients"--seems an uphill political battle at best, however. How much of all that is in the price? Morningstar's Field ranks pharma as Europe's second-cheapest sector, at an average 14% discount to fair value. Both the global pharma pie and Europe's slice keep growing as the world gets older and sicker. EU exports in the category jumped 14% last year.

Old World companies keep generating new blockbusters, too. Novo Nordisk's weight-loss breakthrough Ozempic was the No. 2 drug worldwide last year, with $17 billion in sales. Sanofi co-developed the No. 3 seller, anti-inflammatory Dupixent.

Morningstar gives four European pharma stocks its top five-star rating at current prices. Roche and GSK (despite vaccine exposure) are its picks among the big names. Smaller stars include Elekta, a Swedish producer of radiotherapy devices, and Danish equipment maker Coloplast. "The pipelines for a lot of these companies are still there," Field says.

UBS analysts put Buy ratings on four out of seven companies covered in a recent report: Roche, Novo Nordisk, Sanofi, and AstraZeneca. Any value-driven rally will still wait until the fog from Washington clears a bit, Field expects. "The danger is this could be a 12- to 18-month story, not a three-month story," he says.

Homework now may pay off later, though.

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July 25, 2025 21:30 ET (01:30 GMT)

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