The decisions by Eli Lilly and Boehringer Ingelheim in June 2026 are a clear warning signal for Germany as a pharmaceutical location. The US company Eli Lilly is halving its investment in a state-of-the-art production facility for injectable medicines in Alzey (Rhineland-Palatinate), which was originally planned at 2.3 billion euros. Instead of up to 1,000 highly qualified jobs, significantly fewer will now be created. Boehringer Ingelheim is canceling planned new investments of 900 million euros for the years 2027 to 2030 at German locations. Both companies explicitly cite the federal government's austerity plans in the healthcare system as the reason for this step.
Under the leadership of Chancellor Friedrich Merz (CDU), who was elected to office on May 6, 2025, the black-red coalition of CDU/CSU and SPD has initiated a comprehensive austerity package for statutory health insurance. Health Minister Nina Warken (CDU) plans higher mandatory discounts and stricter reimbursement rules for pharmaceutical manufacturers. These measures are intended to reduce statutory health insurance expenditures by several billion euros. For companies with long development and investment cycles of 10 to 15 years, this destroys the necessary planning security. The consequences are immediate: investments are canceled or halved before the facilities even go into full operation.
This is happening under a government that positions itself as business-friendly and actively involved in industrial policy. In government statements and New Year's addresses, Friedrich Merz emphasizes the need to "no longer sell Germany short" and to strengthen its competitiveness. At the same time, his coalition is focusing on cost containment in the healthcare sector, which directly impacts the margins of research and manufacturing companies. The contradiction between pro-industry rhetoric and concrete policy is obvious and damages the credibility of the location.
The Lilly Investment in Alzey: From Groundbreaking to Withdrawal
As late as April 2024, Chancellor Olaf Scholz had celebrated the groundbreaking for the Lilly plant in Alzey – one of the largest single investments in the German pharmaceutical location since reunification. The project was to encompass 2.3 billion euros, create around 1,000 highly qualified jobs, and produce injectable medications, including weight-loss injections, starting in 2027. Under the new Merz government, the scope is now being halved. Over a billion euros has already been invested, the shell construction is well advanced, and 300 employees have been hired. However, the remaining expansion will be significantly reduced. CEO Dave Ricks cited the federal government's planned healthcare reforms as the central reason. The expected return under the new discount and reimbursement conditions is no longer sufficient to justify full capacity.
Boehringer Ingelheim argues similarly. The family-run company from Ingelheim, which has overtaken Bayer as the highest-grossing German pharmaceutical group in recent years, is cutting 900 million euros in new investments for infrastructure and laboratories between 2027 and 2030. Germany CEO Médard Schoenmaeckers made it clear: "The next innovation is currently not going to Germany, given the circumstances. We need to keep pace with developments in the USA and Asia." The combination of deteriorating framework conditions in Europe and targeted location policy in the USA and China makes the decision economically understandable.
Political background under Friedrich Merz
The black-red coalition under Merz took over the government after the federal election in February 2025 and the election of the chancellor on May 6, 2025. It faces significant fiscal challenges: high spending on defense, aid to Ukraine, energy and climate policy, and demographic change. Healthcare is considered one of the largest spending blocks of the statutory health insurance (GKV). The reforms promoted by Minister Warken aim for higher manufacturer discounts, stricter benefit assessments, and a tightening of the AMNOG procedure. The goal is to relieve the statutory health insurance funds by several billion euros per year.
Critically viewed, the Merz government is thus continuing a course that already caused uncertainty under previous governments. Although the CDU is traditionally considered more business-friendly, short-term cost containment prevails under the pressure of budget consolidation. Long-term industrial policy goals – such as strengthening pharmaceutical production and research in Germany – are taking a backseat. Merz's appeals for "self-confidence" and "no longer selling ourselves short" contrast with measures that are causing foreign investors like Lilly and domestic corporations like Boehringer to cut projects.
The AMNOG system and its further development under the current government
The Act on the Reorganization of the Pharmaceutical Market (AMNOG) of 2011 was intended to promote innovation while controlling prices. New active ingredients undergo a benefit assessment by the Federal Joint Committee (G-BA). Depending on the attested additional benefit, reimbursement amounts are negotiated with health insurance funds. The system enables patients to gain rapid access to new medications. However, it harbors structural problems for the industry.
Long negotiation times, strict assessment criteria, and the possibility of subsequent discount adjustments reduce planning security. Under the Merz administration, these mechanisms are to be further tightened. Higher mandatory discounts and a more restrictive approach to benefit assessment will primarily affect companies with complex, expensive therapies – including oncology, rare diseases, or personalized medicine. For a company like Boehringer Ingelheim, which is heavily involved in research on respiratory and metabolic diseases, or for Lilly with its focus on diabetes and obesity, the expected return on investment decreases significantly.
In international comparison, the German system is one of the strictest. In the USA, there is no comparable central price regulation for patented drugs. Higher prices and margins attract capital, research, and production. China specifically promotes its domestic biotechnology with state subsidies and accelerated approval processes. In this competition, Germany is losing not only investments but also the ability to retain clinical trials and production capacities.
Further structural cost drivers
In addition to health policy, high energy costs are burdening the industry. The production of active ingredients and sterile filling are energy-intensive. Following the energy crisis of 2022/2023, prices in Germany are significantly higher than in the USA or parts of Asia. Against this backdrop, companies scrutinize every new facility. If returns continue to decline due to additional discounts, locations with more favorable energy supplies become more attractive.
Tax burdens and high non-wage labor costs add to this. In international comparison, Germany has a high tax burden. For research-intensive companies with high personnel and investment costs, this negatively impacts competitiveness. The Merz administration has announced tax reforms, but concrete relief for the industry has so far been limited.
Bureaucracy and approval procedures
Another central disadvantage of the location is the high bureaucratic burden. Clinical trials, production facilities, and approvals require the involvement of numerous authorities: BfArM, Paul-Ehrlich-Institut, ethics committees, environmental authorities, and local licensing agencies. What is completed in months in the USA, Singapore, or parts of China often takes years in Germany. The fragmentation of the European regulatory framework exacerbates the problem.
Under the Merz government, the Medical Research Act was further developed to shorten approval times. In practice, however, implementation remains sluggish. Companies report unchanged high administrative hurdles in recruiting trial centers or obtaining permits for new facilities. This delays not only investments but also the conduct of clinical trials. Germany has lost ground in the global ranking of industry-sponsored clinical trials and lags behind the USA, China, and in some cases Spain.
Shortage of skilled workers and demographic change
The pharmaceutical industry employs around 133,000 people in Germany. The sector relies on highly qualified specialists in chemistry, biotechnology, pharmaceutical technology, engineering, and IT. Demographic change means that many experienced employees are retiring. At the same time, numerous positions remain unfilled. Recruiting international talent is made more difficult by complicated visa and recognition procedures.
The Merz government has announced skilled worker initiatives, but implementation is slow. For a company like BioNTech, which is now investing heavily in oncology research after the corona boom, the shortage of qualified personnel is an additional hindrance. The planned job cuts at BioNTech – up to 1,860 jobs through the closure of production sites in Marburg, Idar-Oberstein, and Tübingen – show how quickly a success story can falter under changed conditions. mRNA production will largely be relocated to Pfizer in the USA. This is not only a corporate setback but also a setback for the location.
Global competitive dynamics and supply chain dependency
The relocation of active ingredient production to Asia is a long-term trend. Over 80 percent of non-patented drugs in Germany are based on generics, the active ingredients of which largely come from China and India. State subsidies, low costs, and targeted industrial policy have led to a concentration there. In crises – as during the corona pandemic – deliveries are prioritized or stopped. Germany risks supply shortages of antibiotics, painkillers, and other essential medicines.
The Merz government has announced resilience strategies, but concrete measures for reshoring or diversifying production capacities remain limited. Subsidies for domestic production would be expensive and contradict the current austerity course. Instead, the focus is on diversification – which, however, is progressing slowly. At the same time, the USA is further expanding its positions with targeted incentives (Inflation Reduction Act, CHIPS and Science Act), and China with "Made in China 2025" strategies. In this three-way race, Germany is losing ground in both research and production.
Impact on innovation and security of supply
The structural problems have a direct impact on innovative strength. The share of German patents in the global pharmaceutical industry has fallen significantly since 2000. Clinical trials are moving abroad. New drugs reach the German market sometimes with delays or not at all because the expected return is insufficient under current reimbursement conditions. This weakens not only the industry but also the security of supply for patients in the long term.
Under the Merz government, there is a risk that the existing backlog compared to the USA and China will continue to grow. The government emphasizes the importance of the pharmaceutical industry for growth, jobs, and strategic sovereignty. However, the concrete measures – especially in the healthcare sector – send contrary signals. Investors and companies react rationally: they relocate projects to where the framework conditions are more reliable and profitable.
Necessary reforms under the current government
Credible location policy under Friedrich Merz would have to include several elements. First, a reform of the AMNOG system that creates more planning security and a more balanced relationship between cost containment and innovation promotion. Second, a noticeable acceleration of approval processes – not just on paper, but in practice. Third, a reduction in energy costs for energy-intensive industries through targeted relief or investments in affordable, reliable energy. Fourth, an active skilled labor policy with faster recognition procedures and attractive framework conditions for international talent. Fifth, a real resilience strategy for critical active ingredients and production capacities that goes beyond announcements.
In its first months, the Merz government announced reform packages for pensions, taxes, and healthcare. Whether these packages address the structural problems of the pharmaceutical industry or exacerbate them will become clear in the coming months. The recent investment cuts by Lilly and Boehringer are an early test of the credibility of the economic policy agenda.
Conclusion
Germany's pharmaceutical location faces profound challenges. High costs, bureaucratic hurdles, a shortage of skilled workers, a restrictive reimbursement system, and global competition with the US and China have led to a gradual loss of importance in recent years. Under the Merz administration, the situation is intensifying: the austerity plans in healthcare under Health Minister Nina Warken are hitting the industry at a time when planning security and international competitiveness are crucial.
