Possible effect of the CMA

“To be honest, I welcome any initiative that addresses the resilience of supply routes for pharmaceuticals. The problem, however, is that there are many players and many rules that have to be adhered to in the production of pharmaceuticals. But let's stick to the production of a drug: basically, everything starts with petroleum and its products from refining, and then the journey to becoming a drug is a long one and involves many chemical processes. Let's look at the example of paracetamol, the active ingredient in fever-relieving syrup, which the French president claims a pharmaceutical company in France will be able to supply the entire European market with from this year. There are only a few production steps to make paracetamol, but all the intermediate products are toxic, which is why their handling is strictly regulated by the so-called REACH regulation for the protection of our environment and, of course, human health. This makes their production in Europe almost impossible. So it is not surprising that the French manufacturer of paracetamol has a joint venture with a Chinese company that supplies the last intermediate product, and then only the very last and uncritical step of production is carried out in France.”

“This describes the problem: we have very strict environmental legislation in Europe that protects us and the environment from hazardous chemicals. That is why we buy almost everything, that is, the so-called fine chemicals, in China. This cannot be easily changed because, for example, the chemical industry in Germany has closed down important manufacturing branches for environmental reasons. This topic is hardly discussed in the CMA. I would be pleased if sufficient money were spent on keeping existing production in Europe or, as the case may be, on reconditioning production plants that still exist so that they can continue to be used. A good example is the production of penicillins in Austria, where the Austrian government has spent many millions to enable a generics company to optimize its production, which is then reasonably competitive with production in China. This is how it should continue.”

Incentives for pharmaceutical companies to produce in the EU

“It is right to try to reduce bureaucratic and regulatory hurdles and to obviously want to promote scientific contributions – i.e. new manufacturing methods. It is also right to try to help each other more in Europe to avoid bottlenecks at the individual production steps. But ultimately, as far as fine chemicals are concerned, there is still the almost insurmountable dependency on China. It remains to be seen whether the financial support for the production of the 270 essential drugs in the EU will be sufficient. At least a start has been made.”

Adjustment of drug prices

“For many reasons, production in the EU will not be as cheap as in China. Currently, the profit margin for the production of drugs – and this is only about generics – is so low that no manufacturer will set up a new production facility. In other words, the prices of drugs will have to rise, despite EU funding. But that alone is not enough. European manufacturers also need to be sure that their drugs will be accepted by health insurance companies. Without that, no one will set up a new production facility in Europe; nor will anyone invest large sums in optimizing old facilities.”

Profitability of EU production

“I don't think that it is possible to make production in the EU profitable. Ultimately, the EU must be willing to pay more for the production of medicines in order to provide patients with a sufficient supply of safe medicines. At least the will to do so has been expressed.”

Possible impact of the CMA

“Particularly in the segment of generics, which are important for broad-based care, dependence on Asian manufacturers is significant: around two-thirds of active ingredient suppliers are located in Asia, predominantly in China and India.”
“The EU's planned funding of European production capacities under the Critical Medicines Act (CMA) is a measure that has long been called for by a wide range of stakeholders, particularly because the necessary investment costs are considered to be hardly affordable for the national health systems of the member states. Furthermore, the efficient design of the corresponding production capacities requires economies of scale, which can only be achieved if production is for a larger economic area such as the entire EU.”

“However, the effectiveness of this measure depends on the resources provided. The indicative budget explicitly mentioned for the proposal for the CMA is around 80 million euros for the period 2026 to 2027. If we also consider that this sum roughly corresponds to the costs estimated in earlier studies for the repatriation of a single antibiotic active ingredient and that around 280 active ingredients are addressed by the CMA, it is doubtful that such financial resources will be sufficient to achieve a comprehensive strengthening or even reverse the dependence on Asia.”

Profitability of EU production

“The current dependence on Asian manufacturers for many active pharmaceutical ingredients is a direct consequence of the lower production costs in those countries. In many cases, the production of active ingredients for drugs that are no longer under patent protection is about 20 to 40 percent cheaper in Asia than in Europe. Under these conditions, European manufacturers can hardly survive in the long term in a pure price competition. Without financial support from public authorities, production in Europe – especially of drugs that are no longer protected by patents, such as many antibiotics – was often not sustainable in the past. Accordingly, an economically viable relocation of production – without financial incentives or subsidies – seems unrealistic.”

Incentives for pharmaceutical companies to produce in the EU

“In addition to financial incentives for investments in production capacities, the CMA also contains proposals for adapting public tenders. One example of public tenders is the discount contracts awarded by German health insurance funds. In this context, the CMA particularly addresses the sensible move, from a risk perspective, away from price as the only decisive award criterion. Europe-wide requirements, which, for example, include greater consideration of European production sites in tenders, could actually help to strengthen existing production in Europe. However, experience with the German Supply Shortage Act (ALBVVG) also shows the limits: the ALBVVG stipulates that when health insurance companies issue tenders for antibiotics, additional manufacturers must be considered that produce their active ingredients in the EU. However, German health insurance companies report that for some tender lots, no corresponding active ingredients from European production were offered at all.”
“Another measure concerns the implementation of joint tenders ('joint procurement') by several member states. An example of this was the complex procurement of the corona vaccines by the EU. So far, such tenders have not been seen as a primary means of combating drug shortages, but rather as an instrument for reducing purchase prices and improving the availability of medicines in smaller countries.”

“From an economic point of view, a significant expansion of European production and, in particular, a relocation of production back from Asia, is only possible with financial support. In addition to funds for investments in corresponding production capacities and facilities, their long-term financing would also have to be secured. This is because even a newly created European production of active pharmaceutical ingredients will have to hold its own in the market against Asian manufacturers, whose production costs are likely to remain significantly lower. The indicative budget mentioned in the CMA proposal cannot provide any major impetus at this stage. The politically discussed additional funding for the CMA, for example from the European Defense Fund, is therefore clearly necessary.” 

Adjustment of drug prices

“It should be emphasized that investments in greater resilience and security of supply almost always involve additional costs, which have a direct or indirect impact on the costs of healthcare. From the perspective of security of supply, it makes sense to move away from price as the only decisive award criterion in tenders for medicinal products. However, European production, for example of antibiotics, is generally more expensive than production in Asia. If public tenders increasingly award batches to manufacturers with European production, higher procurement costs must therefore also be expected, which may also have an impact on drug prices in the medium to long term.” 

Funding gaps in the CMA

“A crucial question is whether further funds will be made available for the CMA over and above the indicative budget of 83 million euros mentioned above – for example from the European Defense Fund. Only then would significant impetus for a sustainable expansion of production capacities in Europe be expected. Even if additional funds are provided, the focus must be on the active pharmaceutical ingredients addressed by the CMA that are truly prone to disruption – for example, due to having only a few manufacturers. According to the draft of the CMA, corresponding analyses have so far only been carried out for eleven of the 280 active ingredients.”
“The draft of the CMA also does not take a detailed look at the influence of other EU legislation on the production and provision of medicines – for example in the area of environmental law or intra-European import mechanisms, which, at least in individual cases, can counteract the CMA's central objectives.”

“Furthermore, stocks and pharmaceutical reserves are an important lever for strengthening security of supply that can be implemented quickly. National stockpiling obligations are already in place in numerous EU countries; in Germany, for example, the ALBVVG provides for corresponding stockpiling obligations. Centralized coordination of pharmaceutical reserves at the European level would be more advantageous from a logistical point of view and can avoid national solo efforts at the expense of other member states. In addition, this could offer the possibility of securing pharmaceutical raw materials and APIs for which there is insufficient European capacity".

Possible impact of the CMA

“The measures of the Critical Medicines Act (CMA) are fundamentally designed to increase the security of supply of critical products in the EU, but the budget currently under consideration is very small. The CMA emphasizes the importance of industrial policy measures to promote European pharmaceutical production for 'strategic projects', i.e. selected critical products or elements in the supply chains. In addition, rules are being created for the mandatory use of the Most Economically Advantageous Tender (MEAT) criteria to take greater account of security of supply in the public procurement of critical products – although there is still room for maneuver in the specific implementation. Possible criteria in procurement could include, for example, stockholding obligations, supplier diversification, supply chain transparency, and so on. In certain cases, priority can also be given to medicines produced in the EU.”

“However, the question of financing is problematic. Although EU funding instruments (e.g. Digital Europe, Horizon) are to be opened up for strategic projects, the CMA itself is only budgeted with 88 million euros for the years 2026/27. Moreover, the majority of the budget comes from the EU4Health program. This budget will not go far in building European production, so the ball is in the member states' court, whose budgets are already under severe pressure.”

“Another question mark is the expansion of procurement requirements to include security of supply by the various procurement organizations. There is still a lot of room for maneuver here, and against this background there is also a risk of dilution.”

“The extent to which the CMA draft reduces the structural reduction of European dependence on imports from Asia depends on the funds made available. The budget of the current draft is very limited, and other financing commitments are not yet available.”

Adjustment of drug prices

“Generally speaking, the prices of medicines are not expected to be affected, as the CMA only targets a specific list of critical medicines. Within this group, two mechanisms are particularly relevant to prices. The first mechanism concerns possible adjustments to public procurement when criteria other than price alone become more relevant – in this case, price increases are likely. However, it is not yet clear how the procurement organizations in the member states will implement this. Procurement cooperations, as envisaged by the CMA, can also reduce prices, as market power in purchasing increases. Currently, the decentralized purchasing of the various procurement agencies in the EU tends to hinder the achievement of the lowest possible prices.”

“A second important mechanism is the planned development of European production capacities. Production costs in the EU are higher, and against this background – depending on the funding model – there may also be price pressure on individual pharmaceuticals. This is particularly the case if the purchase or import of cheaper products is to be restricted in the future (e.g. due to procurement requirements for security of supply). However, due to limited budget resources, it can be assumed that there will be no major changes at the moment. At this point in time, it is not yet possible to say what role the strategic projects will play in the individual member states. Currently, major reshoring projects are for example planned France.”

Profitability of EU production

“In many cases, there is a trade-off between resilience and efficiency in supply chain and production structures. The main reason for the current structures and the associated problems is that companies have overemphasized efficient supply chains. This, in turn, is driven by public procurement, which has so far been primarily based on price, while resilience and sustainability aspects have been given little or no consideration. This circumstance, in turn, must be seen against the background of the high pressure on public budgets in general.”

“In other words, the production of pharmaceuticals in the EU is generally more expensive for a variety of reasons. We currently import cheaper off-patent products from Asia, but we also suffer from supply shortages. The idea of reshoring selected production steps to the EU should be seen in this context.”