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Belgium Leads the Charge On the EU’s Medicines Reshoring Plans

In the mountain town of Kundl, Austria, 10 fermenting vats — the largest 250,000 liters in volume — bubble with the Continent’s pharmaceutical future.

The new plant, inaugurated by pharmaceutical company Sandoz on November 10, doesn’t bring just jobs and money to Kundl. It also brings scale to antibiotics production in Europe.

“The site has the capacity to produce a minimum 4,000 [metric] tons of active pharmaceutical ingredient [annually],” explained the site’s director, Hannes Woerner. Though destined for the international market, that would be enough to supply all of Europe’s demand for amoxicillin, the most common form of the antibiotic penicillin.

The plant is an early green shoot in an EU-wide attempt to revive the industry of pharmaceutical production, once dominant in Europe. According to an analysis by bank ING, the European Union can currently only meet a quarter of its own demand for off-patent medicines. The rest has to be imported.

Europe depends on Chinese sellers for the majority of its antibiotics supply — a situation that had the Austrian government worried. So in 2019, it promised €50 million in subsidies to Sandoz. In return, the company created a state-of-the-art antibiotic facility that could handle all production in-house.

The end result will be high-quality, EU-produced antibiotics, not to mention carbon emission reductions equivalent to 12,000 households annually compared with the previous process. Now, Europe’s leaders want to replicate this across the EU.

And Belgium will be the one pushing this during its upcoming presidency of the Council of the EU.

Bringing it home

The plant is part of a wider trend toward reshoring pharmaceutical production, propelled by a perfect storm of political, health and security concerns.

First, the COVID-19 pandemic saw a scramble for limited vaccine doses and a spike in concern about relying on non-EU countries for critical medicines after India threatened to shut down paracetamol exports. Then, last winter saw EU countries scramble to deal with widespread shortages of common medicines.

At the same time, rising geopolitical tensions put a spotlight on Europe’s reliance on external suppliers for critical technologies such as microchips.

Belgium was the first country to push for the inclusion of medicines in the bucket of critical technologies. A majority of EU countries quickly jumped on board, asking the European Commission to take action.

It obliged. The Commission this October announced plans to create a Critical Medicines Alliance by 2024, with the aim of identifying the most vulnerable drugs that could benefit from extra measures to shore up supply. It also said it is looking at using subsidies to encourage more local production.

“The fact that the Commission now considers the European production of older, basic medicines to be a matter of general public interest represents a complete paradigm shift and an important new milestone,” said Belgian Health Minister Frank Vandenbroucke at POLITICO’s health summit last month.

New resources 

The problem is, there’s one big reason factories left Europe in the first place: Money. Higher labor and operation costs, plus more stringent environmental rules, mean it’s more expensive to make medicines in Europe than for example in Asia. Without public funding, the Austrian plant would just not have been viable.

Within the EU, subsidies are banned to avoid unfair competition. But those rules have carve-outs being applied ever more frequently to investments in strategic industries such as hydrogen, semiconductors — and now, critical medicines.

The Commission’s October announcement set out how state assistance for pharmaceuticals could work in practice. Important Projects of Common European Interest (IPCEI) are available tools. They allow for subsidies into innovative new technologies, and are already in the process of being used.

And another tool could be coming, the Commission indicated, focusing on production R&D for off-brand pharmaceuticals.

Then there’s an instrument called a Services of General Economic Interest (SGEI), which allows a government to pay a provider to run a service — for example, post offices or public transport— that otherwise wouldn’t be economically feasible at the market rate.

A Commission official, who was granted anonymity to speak freely, said an SGEI could help make sure EU countries have medicines during times of emergency. Once criteria were agreed, “Member countries could go to the market and say, ‘Look, I want production capacity for this or that medicine,’” the official explained. This would establish production lines that otherwise would not be economically viable.

But Europe isn’t the only region that can subsidize medicines production if it chooses. And it might not even have the deepest pockets.

India, for example, announced more than $1 billion in government investment to boost national pharmaceutical manufacturing — “an order of magnitude” of difference compared with what the EU is doing so far, according to Sandoz’s head of global business Ian Ball.

The United States is also joining the race to reshore. On November 27, U.S. President Joe Biden invoked the Defense Production Act — which allows the state to intervene in economic policy on national security grounds — to make more essential medicines in America.

Green, clean — and pricey

But the EU doesn’t just want production closer to home. It also wants it to be less environmentally damaging. It’s cracking down, for example, on polluting chemicals like per- and polyfluoroalkyl substances (PFAS).

On that front, French pharmaceutical company Seqens in 2020 announced a new paracetamol production plant in Rousillion. Set to begin commercial production in 2026, it will manufacture 15,000 metric tons of paracetamol’s active ingredient a year — enough to meet half of Europe’s demand.

The company’s secretary-general, Gildas Barreyre, said that its use of new technology allows for the elimination of 75 percent of direct carbon emissions compared to the conventional process.

Like the Sandoz plant, the Seqens facility has received government backing, covering 30 to 40 percent of the investment.

But regardless of such subsidies, EU-produced medicines will simply be more expensive than those produced in Asia, where such environmental ambitions don’t play into the equation.

Factoring in such concerns, “You can’t have life-saving medicine for less than a cup of coffee,” Sandoz’s Ball told POLITICO.

Despite some signals that pharmacies, hospitals, and other buyers are starting to consider carbon emissions and supply security in their purchasing equations, price is king.

The Commission is planning to remedy this with new procurement guidelines that take into account a wider spectrum of factors, like environmental impact or supply chain security. But for economically squeezed European governments, medicines cheaper than coffee are a godsend. Just how much they’re willing to invest in local supply chains remains a question that Belgium will have to grapple with during its Council presidency.




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