"Europe's Drug Supply Crisis: A Call for Diversification"

Europe's reliance on external suppliers for critical medicines has left it vulnerable to disruptions, as seen during the COVID-19 pandemic and recent antibiotic shortages. The proposed Critical Medicines Act aims to address these vulnerabilities by incentivizing European-based manufacturing and strengthening procurement practices. However, the effectiveness of these measures remains to be seen.

The COVID-19 pandemic exposed serious vulnerabilities in the European medicine supply chain. EU countries suddenly found themselves competing for limited supplies of sedatives and antibiotics for ICU care, while in late 2022 national health systems struggled to obtain basic antibiotics like amoxicillin due to a surge in global demand and limited suppliers. This is an issue decades in the making. In the years leading up to COVID Europe became increasingly reliant on low-cost Asian destinations like India and China for the production of everyday medicines and their ingredients. With few incentives to keep low-margin generic, antibiotic, and active pharmaceutical ingredient (API) production within Europe, over 80 percent of the APIs used in Europe were being imported from just five countries by 2021, with China alone supplying about 45 percent. This concentration of production outside of Europe’s borders meant that any disruption in Asia – whether from factory shutdowns, export restrictions or geopolitical tensions – could trigger medicine shortages in Europe. Something needed to be done.

The Critical Medicines Act proposes several specific measures to incentivize European-based manufacturing of essential medicines. One of the key measures is to provide incentives for both the expansion of existing manufacturing sites and the development of new facilities within Europe. This is aimed at reducing the continent's reliance on external suppliers, particularly from low-cost Asian destinations like India and China, which have been the primary sources of everyday medicines and their ingredients. For instance, the Act encourages investment in advanced technologies, digitalization, and sustainable production processes. This focus on higher value investments is crucial given Europe's higher regulatory and environmental costs. As Stephan Eder, executive vice president for Western Europe and Germany at the German generics giant STADA, notes, "Given Europe’s higher regulatory and environmental costs, investment in advanced technologies, digitalisation, and sustainable production processes will be critical to ensuring competitiveness."

Additionally, the Act proposes providing incentives for non-EU manufacturers to establish backup production in Europe or diversify their manufacturing footprint. This approach aims to strike a balance between having robust and diverse supply chains both in and outside of Europe. For example, the EU could provide incentives for non-EU manufacturers to establish backup production in Europe or diversify their manufacturing footprint. This could see the EU providing incentives for non-EU manufacturers to establish backup production in Europe or diversify their manufacturing footprint.

The effectiveness of these measures is likely to be significant in reducing Europe's reliance on external suppliers. For example, in 2020, Sandoz – formerly part of Novartis but now an independent entity – announced a major EUR 150 million investment to modernize and expand its Austrian antibiotic manufacturing facilities. EUR 50 million of that total was co-funded by the Austrian government. This investment is a clear indication that a supportive policy environment can lead to increased manufacturing within Europe.

Furthermore, the Act aims to address the long-held bugbear of the European generics industry, which is the continent’s procurement practices. Currently, many generic medicine tenders rely on a lowest-price, single-winner system. While cost-effective, this increases the risk of shortages if the sole supplier encounters production challenges. The Act proposes a transition to a system that considers factors beyond the lowest price, such as supply chain resilience, environmental sustainability, and geographic diversification. This shift is likely to encourage more European-based manufacturing by ensuring that procurement decisions prioritize long-term supply security.

The Act also proposes regulatory and governmental policy recommendations focused on short- to medium-term actions, such as recommendations to marketing authorisation holders (MAHs) to increase manufacturing capacity and diversify the suppliers in the supply chain. This could include the addition of alternative manufacturing sites and monitoring forecasts of supply and demand of medicines and available stocks in the entire supply chain. The Act also suggests recommendations to certain actors in the supply chain, such as MAHs, and the European Commission to stockpile medicines to protect against fluctuations in demand or supply.

These changes are expected to have a significant impact on the cost and availability of medicines for European patients. By prioritizing long-term supply security and geographic diversification, the Act aims to reduce the risk of shortages and ensure a more stable supply of medicines. However, this may come at a higher cost, as the focus shifts from the lowest-price, single-winner system to a more comprehensive approach that considers factors beyond cost. The Act also aims to support the production of more diverse critical medicines, which could lead to increased availability of medicines for European patients. Overall, the changes proposed by the Act are expected to strengthen the resilience of the European medicine supply chain and ensure a more stable and diverse supply of medicines for European patients.

The Critical Medicines Act addresses the economic challenges faced by European generic drug producers by proposing several measures aimed at incentivizing investment in European-based manufacturing and supporting the expansion of existing sites and the development of new facilities. One of the key economic challenges highlighted is the rising production costs and regulated prices that have hindered the production of generic drugs. For instance, "the prices of the generics that the respective countries had set have remained unchanged for the past two decades, making the situation much worse" (Medicine Shortage in the EU: A Deep-dive into Its Causes and Cures by EOS Intelligence). This has led to a lack of interest among European drug producers in boosting their production capacity, especially during times of increased energy costs due to events like the Russian invasion of Ukraine.

To tackle these issues, the Act proposes financial incentives to boost European medicine production. Belgium, for example, advocates for the integration of medicine manufacturing into Europe’s security strategy, which involves allocating targeted state aid and EU funding to support the production of critical medicines, with a particular focus on generics. This approach aims to reduce dependence on external suppliers and mitigate the risk of shortages. Additionally, the Act suggests a transition from the current lowest-price, single-winner system in generic medicine tenders to a more sustainable procurement system that prioritizes long-term supply security, environmental sustainability, and geographic diversification.

The impact of these measures on the long-term sustainability of the European pharmaceutical industry could be significant. By providing financial incentives and supporting the development of advanced technologies, digitalization, and sustainable production processes, the Act aims to ensure that European manufacturers can compete globally. For example, Sandoz, formerly part of Novartis, announced a major EUR 150 million investment to modernize and expand its Austrian antibiotic manufacturing facilities, with EUR 50 million co-funded by the Austrian government. This kind of investment, if replicated, could lead to more robust and diverse supply chains both in and outside of Europe, as suggested by Stephan Eder, executive vice president for Western Europe and Germany at the German generics giant STADA.

Overall, the Act's measures to address economic challenges and incentivize domestic production could enhance the resilience and competitiveness of the European pharmaceutical industry, ensuring a more sustainable future for medicine supply in Europe.



In conclusion, the Critical Medicines Act represents a significant step towards ensuring Europe's resilience to future health crises by diversifying drug supplies and strengthening the pharmaceutical industry. However, the success of these measures will depend on the effective implementation of the proposed incentives and regulatory changes. It is crucial for policymakers to continue monitoring the supply chain and adapting to new challenges to ensure a stable and secure supply of medicines for European patients.