Finding a remedy for European medicine shortages
Open strategic autonomy and crisis resilience in the pharmaceuticals industry.
Open strategic autonomy: for some time already, this is the new ‘buzzword’ in the European Union (EU), after being confronted heavily with a range of existing supply chain vulnerabilities and strategic dependencies. To paraphrase how Jaap de Hoop Scheffer, former NATO Secretary-General, has described it: after the Cold War, European states have grabbed a beach chair, poured themselves a drink and leaned back while watching happily how their security was being taken care of by the United States, and their production by China. Clearly, we are in a different world today, and the EU seeks to adjust to this by boosting its own capabilities in a range of sectors.
Most of the debates centre around the defence industry, semiconductors, energy supplies, and critical minerals for the green transition. This article focuses on another increasingly pressing issue: pharmaceuticals. This is not a new problem. Between 2000-2018, shortages in the EU have increased by a factor of 20. The Covid-19 pandemic added a whole new dimension to the problem of medical supplies. And, as you have probably noticed, newspapers over the past year have been filled with one headline after the other about record drug shortages. It is, therefore, worthwhile to examine the problem, its causes, and current developments at the EU level in more detail.
Public health and the EU
As a starting point, the EU only has complementary competencies in the field of public health. This means that the Member States are still in charge of designing their own systems and policies, although of course with a goal of harmonisation. These systems can therefore also vary significantly between the Member States. This does not have to be a problem in normal times, but a crisis like the Covid-19 pandemic illustrated how countries not only had different levels of preparedness and capabilities but also risked becoming competitors of each other in ensuring supplies. As a solution, joint procurement at the European level was agreed upon, which meant that these risks did not materialise. This step can be seen as an accelerator in an already ongoing process towards a European Health Union (EHU), as explained in more detail below. Since the pandemic, many new initiatives have been taken up in this regard. One central focus point is improving the security of supply and crisis resilience. Before coming back to the policies on this topic, the next section will first describe the causes of the supply-problem.
Medicine shortages: a multi-headed monster
The European Commission has a straightforward definition for a medicine shortage: this “occurs when the supply of a medicine does not meet the demand for that medicine”. Most shortages can be inconvenient for patients, but do not present big problems, let alone at a strategic level. This is something of all times, and in almost every case, there will be an alternative medicine available. Yet, the number of shortages has been rising, with stocks becoming more and more depleted. This in itself poses a problem. There are, however, also ‘critical shortages’, where problems become even more salient. This category includes medicines for which no clear alternative is available and where lack of supply can pose serious risks to patients. An example can be medicines for rare diseases. Here, there is more and more European level-involvement, intending to secure consistent and adequate supply.
There is no single factor that can explain why so many European countries find themselves in this situation. As with other problems, like unemployment, it is an interaction between global trends and national capacity, which, as mentioned, differs across the different European healthcare systems. At the global level, a key factor is the concentration of production in only a small number of countries. More specifically, production has been outsourced to Asian countries. Even more specifically, to China. Again, the parallels with other sectors are obvious. Especially when it comes to the ingredients in pharmaceuticals, China has near total control over the global market, although exact figures are debated. The production of antibiotics and painkillers is also almost entirely in China’s hands. Europe is estimated to be dependent on China for about 70% in terms of the total weight of pharmaceutical ingredients. India is another big player in production, but is itself reliant on Chinese resources for this, meaning that it does not provide a real alternative in most cases.
The global supply chain is, thus, extremely vulnerable. First, a single production error or logistical problem can disrupt the entire market when production is concentrated in the hands of so few actors. Moreover, in a world in which dependencies are becoming geo-economic and, by extension, geopolitical tools, concerns are rising about overreliance. Needless to say, the fewer alternatives are available, the more leverage the dominant state has. As an example, manufacturers already warn for a scenario in which China undertakes hostile action against Taiwan. If Europe would seek to respond with sanctions, China may use the medicine sector as leverage to prevent Europe from taking bold action. If Europe still does pursue such a policy, medicine stocks in Europe may very quickly deplete, as the necessary resources and production facilities cannot easily be moved elsewhere. This is one potential argument for diversification. Of course, this is a more hypothetical and not necessarily imminent scenario, but being dependent on a small number of actors is already causing problems now, without this having to be the result of intentional political actions. Finally, global demand has simply risen, due to growing and ageing populations. As a consequence, supply is not always managing to keep up.
This global landscape explains one side of the story. Then, as mentioned, there are also national factors that result in different scores. For this, the case of the Netherlands is instructive. The Netherlands is among the more vulnerable countries in Europe. In 2023, five out of thirteen million medicine users were, in one way or another, confronted with empty shelves. Also, the country is likely to take a bigger hit when supply is scarce. The main reason: medicines in the Netherlands are too cheap. Even though raising prices perhaps does not sound like a very appealing solution, it is still a solution recommended by, for example, Dutch bank ABN Amro.
Dutch regulations ensure a relatively strict price ceiling, because of a law introduced in 1996, when prices were still substantially higher than in other countries. The competition between health insurers for the lowest market prices further lowers the price. In a situation of scarcity, suppliers will therefore find it more attractive to export to neighbouring countries, where they can receive higher returns. In addition, a policy used by health insurers is often mentioned as being part of the problem. These insurers work with a so-called ‘preference policy’, which means that in case of several comparable options being available, they mark only one or very few medicines as preferred remedy. This severely restricts the room of operation for producers, making the market less attractive. This is only one example of how countries’ policies affect outcomes. In Germany, prices tend to be considerably higher, amongst others because of a lack of strict price regulation and a stronger negotiation position for the pharma-industry. Each country makes its own policy choices, balancing various important interests. Yet, this also results in a fragmented European landscape.
Policy initiatives: the Belgian Presidency to the rescue
The development towards an EHU, as a bit of background information, has its roots in the Covid-pandemic. In October 2020, Ursula von der Leyen called for the creation of such a Health Union. Although it is not necessarily a concerted and comprehensive strategy and is rather spread over many small steps, the main vision is to create better health protection, more pandemic preparedness, and stronger and more resilient healthcare systems. There is also no clear end state defined to the project and it will thus be a work in progress, with security of supply being one aspect. Other priorities include the health system’s digitalisation and integration, Europe’s Beating Cancer Plan, and improving access to healthcare. For now, the main (financial) instrument is the so-called EU4Health programme, which runs from 2021 to 2027, with a record 5.3 billion European budget. Important to emphasise, however, is that the role of the European Commission remains a supportive one.
The Belgian Health Minister Frank Vandenbroucke has been a vocal proponent of adding an industrial pillar to the further development of the EHU. During the time of the Belgian Council presidency, covering the first half of 2024, this topic was made a priority. Together with the European Commission, a Critical Medicine Alliance was launched, which started its work in April this year. The Alliance – consisting of 250 representatives from the Commission, Member States, pharma-industry, patients, and healthcare professionals – focuses specifically on industrial policy consulting, representing one aspect of a broader package of measures to ensure the security of supply.
Even before the Alliance has made its final recommendations, Commission President Ursula von der Leyen has proposed the next step, which is the Critical Medicines Act. The act will seek to address the critical shortages in Europe. The groundwork for this Act was already prepared in late 2023, when the European Medicines Agency published a list of medicines considered critical. This list still contains more than 200(!) medicines, but the focus will be on about 10-20 of them. This list includes for example antibiotics, insulin and several vaccines. Taking antibiotics as an example, there is only one factory left in the EU (Austria) that can produce this, although also this one needs governmental support to survive. The next Commission, and especially the (candidate-) Health Commissioner Olivér Várhelyi, will take up this proposal and seek to incorporate it into the development of an EHU.
The Critical Medicines Act follows a very similar logic as the Critical Raw Materials Act and the Chips Act adopted earlier, and fits neatly into the framework of open strategic autonomy. The Commission aims to boost European production, diversify supply chains, and achieve more coordination and solidarity between European states. An important first step is to gain a better understanding of the current vulnerabilities as well as challenges. Increasing joint procurement is also on the table, although not all EU-countries are always equally enthusiastic about such proposals.
Research & Development
If not in production, surely, Europe is at least still doing well when it comes to research and innovation, right? Well… if all of the above does not already sound alarming enough, the recently published ‘Draghi-report‘ on European competitiveness adds yet another concern. The report focuses on the development- and innovation-side of the pharmaceutical industry more than the production-side. Here, the EU has traditionally occupied a strong global position. Yet, the main conclusions of the report – that the EU is losing its competitiveness due to fragmentation, regulation, and a lack of innovation – also apply directly to the pharma-sector. Like in other sectors, the industry is increasingly leaving the European continent. This point can be a whole separate article, but it is another element of a vulnerable health industry. To end on a slightly more positive note, the European industry has also proven to be robust and innovative, and is likely to remain an important player. Moreover, publications like the Draghi-report and proposals such as the Critical Medicines Act can also give a boost to the industry and its innovation capacity.
Moving forward
Real self-sufficiency in the medicine industry is neither realistic nor desirable. Yet, given the current chokepoints and strategic dependencies in the supply chain, Europe will quickly need to step up its efforts in diversification. Partly this will mean stimulating more European production, partly it is about creating alternatives in line with the ‘de-risking’ approach. Investments to stimulate innovation capacity in Europe are another important element to stay ahead of the curve.
Finally, it is important to simultaneously approach the issue from a societal resilience-lens. Finland is an interesting example here. The Finnish National Emergency Supply Agency is an agency entirely dedicated to ensuring readiness for crises or disruptions. Amongst others, a task they have is to oversee a stable supply of pharmaceuticals. This, in combination with the Finnish general focus on ‘preparedness’ and social security, contributes to lowering the vulnerabilities. This is not to say that countries should start stockpiling medicines massively, as this directly undermines the goal of European solidarity and a common response. Indeed, measures in this direction quickly cause uproar. Instead, it would be good to come up with a more collective approach, in which shortages are commonly defined and in which stockpiling happens progressively and in a coordinated manner. Together with the aforementioned policy initiatives, these steps contribute to more crisis-resilient and stronger health systems.
Yannick has obtained a master’s at the Centre International de Formation Européenne and is currently pursuing a master’s in Crisis and Security Management at Leiden University.
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