EU efforts to ‘relocate’ drug production stumbles over subsidy rules – POLITICO

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The EU’s stated goal of bringing pharmaceutical production back to the country clashes with the reality of its own rules on public investment.

At least theoretically, the Commission is participating in efforts to revive the manufacture of drugs inside the block. Speaking at a meeting of leaders of the European off-patent medicine industry in Athens last week, Commission Vice-President Margaritis Schinas called the pandemic a “wake-up call” for the ‘Europe is strengthening its pharmaceutical sector.

“Being able to produce and supply drugs (…) is a matter of great strategic and geopolitical importance for our union,” said Schinas.

Commission Vice-President Margaritis Schinas (center) visits an ELPEN pharmaceutical research campus under construction on the outskirts of Athens | ELPE images

But the EU is going to have to let member countries help foot the bill to build new capacity if it wants to bring back its production of drugs, argues Adrian van den Hoven, general manager of the generic drugs lobby Medicines for Europe, despite his own competition rules. designed to restrict how countries help their local industry.

It’s a familiar story: Europe’s place in drug manufacturing has been gradually eclipsed by the rise of China and India. According to a report by the German generic drug association Pro Generika, Asian companies hold almost two-thirds of the certificates of approval needed to produce active pharmaceutical ingredients in Europe, with the rest held by local companies – a ratio that s ‘has been reversed over the past 20 years. . And for 93 active ingredients, no European company holds a certificate.

“We were the biggest producers of active pharmaceutical ingredients in the world,” van den Hoven said, adding that with the right incentives European generics can again compete with China. “But with these rules,” he said. “they don’t qualify.”

Europe remains a major player in cutting-edge innovative medicine. But Asian companies, taking advantage of a cheaper workforce and more lax environmental regulations, now supply a substantial portion of the block’s generic (or non-patent) drugs, and an even larger portion of the active ingredients. and the chemical inputs used to make them. These include drugs like paracetamol or common antibiotics that hospitals rely on for day-to-day operations.

Spurred on by a close call when major exporters threatened to block the shipment of essential drugs at the height of the pandemic, as well as a general shift towards domestic manufacturing under the label of “open strategic autonomy”, Brussels has has set his sights on tightening control over his globalized pharmaceutical supply chains as he pushes for greater autonomy.

Supply chain resilience

With a pharmaceutical reform project published in November 2020, the Commission is committed to strengthening the resilience of supply. While concrete steps are needed before the publication of the Commission’s proposal to rewrite the EU’s basic pharmaceutical rules, expected at the end of next year, the strategy has given some insights, suggesting that the bloc is diversifying. its supply chains, encourages local production and stores strategic medicines.

The Commission’s proposed Health Union package, presented in the wake of the COVID-19 outbreak, would meanwhile give additional powers to the European Medicines Agency to monitor drug shortages. And the new Health Emergency Preparedness and Response Authority (HERA) will be tasked with mapping supply chains that can be accelerated in an emergency – and identifying bottlenecks.

Member countries have indicated that they are ready to give the industry a boost to bring production back to Europe. However, such measures run up against the reality of state aid rules, which require public money to be invested in less developed regions. Countries must also demonstrate that the investments have a so-called “incentive effect”, which means that they must demonstrate that without the funding the project would not have been feasible at all.

In Greece’s case, the industry group representing local pharmaceutical manufacturers says restrictions on subsidies prevent 85% of the country’s drugmakers from tapping into billions of EU funds to help with economic recovery. This is because companies are clustering in the region of Attica, a developed part of the country with very little leeway to distribute public funds.

Commission Vice-President Margaritis Schinas (center) visits an ELPEN pharmaceutical research campus under construction on the outskirts of Athens | ELPE images

“The Commission is getting more and more strict … and the rules on state aid are getting more and more complex,” said competition lawyer Annabelle Lepièce, partner at CMS Belgium.

And while the crisis has shown that the Commission has relaxed the rules in exceptional circumstances, Lepièce added that competition chief Margrethe Vestager has made it clear that it will be temporary.

In one of those measures, the Commission exempted COVID-19 projects – such as the development of vaccines or therapeutic treatments – from state aid rules, a measure it plans to extend until the end of the period. mid-2022. But in terms of production, however, its impact is limited to the handful of licensed vaccines. To date, only two treatments – remdesivir and dexamethasone – mention COVID-19 on the label. Other exemptions cover “serious disruption to the economy” of a member country, but it is not clear how this would apply to pharmaceutical production.

The workaround

One possible solution could lie in the EU initiative for an important project of common European interest (IPCEI).

In May, French President Emmanuel Macron met German Chancellor Angela Merkel and Commission President Ursula von der Leyen to discuss the issue. Following the meeting, the Franco-German couple raised the possibility of an IPCEI focused on pharmaceutical research and manufacturing.

There are already IPCEIs in the field of microelectronics and for the type of batteries used in electric vehicles. Although they require the approval of the Commission, the initiatives are led by the Member States. Above all, they allow countries to invest in strategic industries and are a sanctioned means of circumventing EU state aid rules.

Yet despite the Commission’s stated commitment to strengthening pharmaceutical supply chains, some officials are not excited about the prospect of giving the green light to massive incentives that bypass its own subsidy rules, fearing that what the Member States are touting industrial policy as being really industrial-sized giveaways and there are better tools to tackle the supply problem.

There are also big hurdles that member countries must overcome to prove that an IPCEI is necessary, rather than just an excuse for industry giveaways. Projects approved under an IPCEI must demonstrate “wider relevance and application to the European economy or society” beyond the single industry to which they apply. As a general rule, they should apply to more than one member country and their “benefits should not be limited to the member states which finance”.

“Magic solution”

“I have the impression that this IPCEI is perceived, not only by the industry, but by the government, as a magic solution to everything,” said Giacomo Mattinó, head of unit at the Directorate-General for the Internal Market ( DG GROW) responsible for health matters. He said EU regulations provide wide latitude to implement industrial policy, for example through funding for Horizon Europe research.

“When I talk to member states around the table, I’m not sure they know all the rules so well,” Mattinó said at the conference in Athens, adding that significant progress could be made using a blend existing resources.

Speaking to POLITICO, Schinas acknowledged the industry’s position on the need for help, but noted that one of the roles of the European Commission was that of an “independent competition authority” and that it had to keep that in mind.

The Commission has proven in the past that it is possible to apply the rules in a way that both avoids ‘distortions’, he said, while preserving the bloc’s competitive advantage and facilitating the need to invest.

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