Can the coronavirus bring back Europe’s pharmaceutical factories?

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Europe’s consumers have gotten a bargain for years, buying many medicines — especially generics — produced abroad much more cheaply than on the Continent.

But now, as the pandemic has overturned assumptions on everything, there’s a new mantra: Bring drugs production back home.

The coronavirus crisis has dramatically illustrated to Europeans the drawbacks of global supply chains for drugs. Countries like India turned off the tap for essential medicines like antibiotics and paracetamol, right as hospital wards started to fill and health care staff wrestled with surging case loads.

This dependency is relatively new, said Andreas Meiser, managing director of life science consultancy MundiCare, at a public talk, noting that Europe began seriously outsourcing its medicine supply to China and India starting about 20 years ago. It let Europeans get medicines from overseas at prices that the bloc, with its higher labor costs and stricter regulations, couldn’t offer.

To give a scale of the shift, in 2000 Europe held more than half of the licenses to manufacture active pharmaceutical ingredients (APIs) that it needed to meet its demand, while Asia made up roughly a third, according to a report authored by Meiser. Now, the situation has reversed.

West to East, and back again

Pharmaceutical manufacturing has once again caught the eye of Europe’s lawmakers. But experts warn that there could be significant trade-offs in reshoring.

The Commission and EU member countries will need to entice manufacturers back to Europe at a time when prices for generic drugs are rock bottom. Who will foot the bill for this effort remains to be seen.

The European Commission will set out its vision in its pharmaceutical strategy on November 24, a European-level initiative expected to lead the charge to reshore pharmaceutical production. In its pharma strategy roadmap, the Commission said it plans to address “direct dependence on manufacturing in non-EU countries” via encouraging EU manufacturing capacity.

The Commission is backed by Europe’s leaders. Earlier this month, they called on the Commission to increase strategic autonomy by promoting production in Europe. MEPs also asked the Commission to “support local pharmaceutical manufacturing” in a resolution.

MEP Véronique Trillet-Lenoir is among reshoring’s proponents, while admitting it won’t “be easy.” She points to ideas such as financial incentives for manufacturers to public-private research agreements that would include clauses to relocate production. Hospital pharmacies that already produce some basic medicines could also play a role, she said.

Meanwhile, the Commission is reviewing its trade policy by citing the concept of “open strategic autonomy” — an approach that would increase supply independence for certain products while keeping the EU market open.

So far, the Commission has been cautious. Internal Market Commissioner Thierry Breton — who promoted the idea of strategic autonomy already before the pandemic — is now saying “we have to be extremely careful” with reshoring. The new trade commissioner, Valdis Dombrovskis, has pointed to a broader set of remedies including “near-shoring” to neighbors such as Turkey or Ukraine.

Among EU member countries, France is one of the keenest proponents of the idea. It has announced that it will help reshore companies with state aid and has already launched a call for projects. According to Elvire Fabry, a trade expert at the Jacques Delors Institute, Paris has always tried to frame its reshoring plans in a European dimension.

The issue has also caught the interest of the German Council presidency. In a recent paper, it said that shoring up European sovereignty in industrial production is key and that it will “discuss approaches to further improving the supply of pharmaceuticals.” Health Minister Jens Spahn elaborated these ideas in a public speech in October, describing Germany as “the driver among the member states” for greater relocation of production.
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Expectations versus reality

While the focus on drug shortages — and bringing back production as a solution — has gathered momentum, it’s a long-standing issue.

According to a position paper by Trillet-Lenoir, “stock-outs and medicine supply tensions increased 20-fold between 2000 and 2018 and 12-fold since 2008.”

“Concerns with onshoring and local production didn’t start in February 2020 with COVID,” agreed Ken Shadlen, a pharmaceuticals political economist at the London School of Economics. And Europe isn’t the only place where this discussion has taken place, noted Rory Horner, a development economist at the University of Manchester.

For years, plans to build local production of medicines focused on developing countries. Now roles are reversed, with Europe and the U.S. proposing reshoring, Shadlen and Horner note.

But this effort will be a rocky road, experts warned POLITICO. Downsides range from the likely increase in production costs to the environmental harms of new polluting factories in Europe. There’s also the risk that strategic autonomy becomes a pretext of member country competition rather than EU-level solidarity.

“We still have to determine who will pay for it,” said Fabry, the trade expert, noting that reshoring will bring additional costs to be passed on to patients or to the health care system. Taxpayers could also be on the hook, since pharma producers might need to be convinced with the help of subsidies.

A spoonful of state aid helps the medicine go down

Since newer, high-tech drugs are mainly produced in Europe, the reshoring argument mainly concerns generics — which are typically older and have gone off patent, meaning that anyone is free to produce them. Competition here is intense, leaving prices at rock bottom and manufacturers with little incentive to produce on the Continent.

“I’ll be extremely brutal: There’s no point of creating a plan of investments, of getting engagement from investors, if we don’t solve the economic problem,” said Enrique Häusermann, president of Italy’s generics medicines lobby Assogenerici.

Adrian van den Hoven, of the generics lobby Medicines for Europe, also stressed the importance of economics. While he supports reshoring in principle, he warned against “pie in the sky” thinking and said the Commission must “go beyond flowery statements.”

“What we see mostly from politicians is rhetoric,” he added. “We need to produce.”

In substance, this would mean that European health systems would have to pay more for drugs than they usually do — something that might not go down well for an industry usually regarded with suspicion by the public.

Furthermore, though conversations around high drug prices usually refer to the branded drugs industry, a hike in the cost of their unbranded counterparts will add more pressure on health systems that are stretched thin.

Van den Hoven said cutting red-tape could facilitate relocation, while mandating that hospitals diversify their suppliers to reduce their dependencies on a small number of businesses. He also said subsidies to increase the production capacity of existing manufacturing could be be a solution.

He points to a recent agreement to upgrade a penicillin factory built by Sandoz, the generics division of Swiss drugmaker Novartis, as a successful example of cooperation between industry and government. The Austrian government pledged €50 million to help Sandoz reach its goal of investing more than €150 million in the plant over five years.

“This factory supplies the whole of Europe,” he explained.

The devil is in the details

If Europe does decide to take a step in the direction of reshoring, the next question is about priorities.

MEP Nathalie Colin-Oesterlé, the rapporteur of the Parliament’s resolution on medicine shortages, suggested starting with 50 drugs identified by the pharmaceutical industry as the most exposed to supply shocks. She said the EU should ensure their supply also by investing on a contingency reserve — akin to an emergency European pharmacy.

Van den Hoven, meanwhile, said he has asked the EU to look at its existing manufacturing footprint for medicines and active ingredients. But he also pointed out that Brussels has little oversight on its pharmaceutical manufacturing footprint.

Furthermore, even if Europe manages to identify some strategic medical supplies to be reshored, it still might not be prepared for new pandemics, say experts.

“It will always take time to switch production to whatever drug is particularly needed at that time,” noted Horner from the University of Manchester. “Whether that necessarily actually improves response to future pandemics is unknown.”

Another underestimated downside of reshoring is its environmental impact at a time when Brussels is stepping up efforts toward a green transition. Ingredients’ production is very chemical and pollution intensive, he added.

An industry without borders

If the generics lobby is still skeptical of reshoring plans, it does have the prospect of European-level aid to give it some comfort.

By contrast, for the branded medicines industry, which researches and produces the high-tech and high-priced drugs of the future, talk of “strategic autonomy” leaves it spooked. These drugmakers may be headquartered in Europe, but many make the bulk of their profits in the U.S. and, increasingly, China. For them, a threat to free trade is a threat to their bottom line.

Nathalie Moll, who heads the branded drug lobby European Federation of Pharmaceutical Industries and Associations (EFPIA), said she prefers to talk about “strategic resilience” rather than autonomy, on grounds that no one country “is an island” that can manufacture its own drugs. She also highlights that Europe is the biggest exporter of finished pharmaceutical products, which contributed €110 billion in positive trade balance in 2019.

Laura Guttierez, head of global corporate public affairs and policy at French drugmaker Sanofi, agrees. She said that reducing dependencies shouldn’t be “something negative, about closing our borders to others.”

It’s not just Big Pharma that’s worried. Germany’s Spahn has also warned that reshoring policies must keep in mind the global market.

“If we say we only buy European, then this will lead to reactions,” the health minister said. “We need to make sure that any policy that we pursue, whatever instruments we pursue, we don’t shoot ourselves in the foot.”

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