Faced with increasing competition from India and China and growing trade tensions, the pharmaceutical industry is now fighting not just for markets but for political recognition of its strategic importance. “It is a cutthroat, cost-competitive business where China and India are incredibly dominant,” says Medicines for Europe Director Adrian van den Hoven.
How do you view the position of the European pharmaceutical industry, specifically regarding generics, in comparison with the US and Asian industries?
If we limit the scope to the off-patent side of the industry, meaning the generic and biosimilar sectors, the major industries are found in India, Europe, and China. The US is less of a major manufacturer in this specific area. While there is some generic and biosimilar manufacturing in the United States, their industry is focused much more on the innovative side.
In Europe, we certainly have an innovative industry, but our generic and biosimilar sector is much larger than that of the United States. Our main competition, viewed at a regional level, is primarily India and China. China has a significant advantage of scale, especially in chemical production, while India is a massive manufacturer of generic medicines.
Where Europe remains competitive is in our sizable Finished Dosage Form manufacturing. We also see significant new investment going into biologic production here. The situation is more challenging regarding Active Pharmaceutical Ingredients. While there is still sizable production in Central and Eastern Europe, as well as Southern countries like Italy and Spain, it is a cutthroat, cost-competitive business where China and India are incredibly dominant. That remains a major challenge for Europe.
Another complicating factor is trade. Since 1994, we have operated in a world of free trade for pharmaceuticals, at least among advanced economies like Europe, the US, and Japan. Now, however, we are seeing increasing trade tensions, threats of tariffs, and non-tariff barriers in emerging countries. The world is no longer as free-trade oriented, which is destabilizing for the industry. It forces us to ask: do we need to secure our production in Europe more than we do today? These trade tensions could evolve into more serious geopolitical tensions, so companies are looking closely at supply chains to mitigate these risks.
You might be interested
Unexpected win for European generics
Do you see any significant impact from Trump’s policies on pharmaceuticals? Specifically regarding tariffs?
A few months ago, we were very concerned about President Trump’s initiative to introduce tariffs on the European Union. In the end, the EU and the US government agreed on a trade agreement where off-patent pharmaceuticals, generics and biosimilars, would be exempt from tariffs. We believe this is a positive outcome because, surprisingly, around 20% of the generic medicines on the US market come from Europe. Roughly 45% come from India.
If tariffs had been applied, the impact would have been very negative. We are glad the European Union negotiated a good deal for us. For the innovator industry, there is still a threat of 15% tariffs, but none have been paid yet. It remains more of a threat than a reality.
A “side effect” of the Trump policy is that while they have applied tariffs to China and threatened India, Europe is increasingly seen as a stable, predictable region for exports. Consequently, we see many Asian companies wanting to enter the European market. We can expect increased competition from Asian companies here as a result.
During the negotiations between the United States and the European Union, did you cooperate with the European Commission?
Yes, very much so.
Can you describe that cooperation?
The main issue is that customs data does not distinguish between the original reference drug and the generic or biosimilar drug. They share the same customs code. The first thing we had to do was understand how much we export to the US and how dependent the US is on European supply.
We were surprised to find that the US relies heavily on Europe for about 22% to 25% of their off-patent medicines. Crucially, they depend on Europe for complex hospital medicines, an area where the US suffers from chronic shortages. We were able to demonstrate to the Commission, and subsequently to the US administration, that if tariffs were applied to European off-patent medicines, it would exacerbate shortage situations in American hospitals. This view was shared by US academics and think tanks. I believe this argument regarding patient harm and shortages is what convinced the US administration to exempt off-patent medicines.
What is your estimation of how durable and sustainable this deal is?
There is a second phase to this deal involving big pharma companies. They have negotiated agreements with the Trump administration to lower drug prices in the US and align European prices to those lower levels. They are now approaching countries, starting with the UK, arguing that innovator drug prices need to increase in Europe to balance this shift.
We have not seen this fully hit the European Union yet, but it likely will. The US administration has threatened trade retaliation if this rebalancing doesn’t happen. This could be destabilizing in the coming months. That said, the US administration seems clear that they do not want tariffs on off-patent medicines from Europe due to shortage concerns. So, while the innovative industry faces turbulence, we are somewhat confident the generic sector will remain relatively unaffected.
Progress on access, missed chances on digitalization
The EU is currently updating its rules for medicines. The so-called Pharma Package, now being negotiated by the Council, Parliament and Commission, aims to improve access, prevent shortages, and modernize how drugs are approved, regulated and supplied in Europe. Where do you see its strengths and weaknesses?
Regarding strengths, there is an attempt to support more equitable access to medicines between Eastern and Western Europe. Currently, there is a significant gap in access between countries like Germany versus Bulgaria or Poland. This is the first time legislation has tried to reduce this gap by encouraging the innovator industry to launch in more markets. It was a big step initially, though it has been watered down significantly. Still, it is a step in the right direction.
Another strength involves the “Bolar exemption” and litigation. We see a lot of litigation around secondary patents, often used to delay generic competition. For example, regarding divisional patents, courts or the EPO opposition procedure invalidate about 9 out of 10 of them. The new legislation includes a stronger Bolar clause that should limit frivolous litigation or threats oif litigation, which is good for access to medicines at the loss of exclusivity.
However, the legislation is weak regarding digitalization. It approaches regulation, in an old-fashioned way, failing to integrate future digital technologies. For example, while we are moving toward digital leaflets, the requirement remains that a patient can always ask for a printed copy. The argument is that elderly people cannot use smartphones. However, most elderly people find current paper leaflets impossible to read because the font is tiny, and the text is written by lawyers. It would be better to use digital solutions combined with support services rather than clinging to paper.
Furthermore, the shortage reporting requirements are problematic. Companies must report any risk of shortage, not just actual shortages. We already have close to 6,000 shortage reports in the EU today, though actual shortages are likely around 100. Most of them mean nothing, yet productions line need more precise information than the 6000 reports to react. What makes it even worse, companies already report locally in member states. Now, on top of it, they have to report the same shortages to the European system. Increasing the strictness of manual reporting without using digital technology means companies like Zentiva are paying employees to double-report data, without adding real value or clarity.
So the administrative burden has increased?
Yes, it’s double reporting. If this went into a single digital “pool,” both agencies would have the information simultaneously. But the legislation sadly doesn’t capture this efficiency.
The rules on how long new medicines stay protected from competition have changed during the negotiations. Are you satisfied with the latest version?
The Commission’s original proposal, six years of protection plus additional years for launching in all markets, was a bold attempt to leverage better access for less wealthy countries. To be honest, that failed. The Parliament pushed back, and now the proposal is around 7.5 years, potentially extending to 8.
In the end, it won’t be a revolution. The innovator industry largely succeeded in rolling back the initial proposal. There are still some obligations to market in all countries, and technically a generic could file earlier if those obligations aren’t met, but we need small technical adjustments to ensure generics can file but not receive a license until the protection period expires. Overall, the effect will not be as significant as the Commission originally intended.
Legal fight against irreversible damage
In spring, the pharmaceutical industry has filed a lawsuit against the Urban Wastewater Treatment Directive, claiming the extra costs will endanger manufacturing of critical medicines in Europe. How is it progressing?
There is a lawsuit filed by 14 companies and two associations at the European Court of Justice, as well as a case filed by the Republic of Poland. Unfortunately, these are in the very early stages, and the Court has not yet made decisions on legal standing or timelines.
The danger is that even if the courts eventually decide in favor of the industry or Poland, the process will take years. In the meantime, the law will advance, and companies will have to make immediate decisions about whether to continue producing certain low-value medicines heavily affected by the new tax. We risk an irreversible situation where companies withdraw essential medicines from the market because of the anticipated costs, only for the court to rule in our favor after the damage is done.
Are you also pursuing a political defense, negotiating with the Commission, Parliament, or Member States to change the implementation?
Yes. We are openly advocating for an omnibus reform of the legislation. The Parliament has required the Commission to conduct a new impact study on the Directive regarding its effect on the availability of medicines. This study should be ready by the end of 2025 or early January 2026. Depending on the results, the legislation could be reopened. (At the time of publication, the study was published but the legislation was not reopened.)
Is there support for this within the Council of Ministers?
We believe so. The issue is rising on the agenda of Health Ministers. Previously, this legislation was handled by Environment or Infrastructure ministries, who viewed it purely as a wastewater issue, ignoring the impact of a multi-billion euro tax on patient access to medicine. Now, health ministries, including those in the Netherlands and the Czech Republic, are raising alarm bells. We hope for a reckoning where Health Ministers realize the negative impact this will have on public health.
Finally acknowledging market failure
What is your opinion on the Critical Medicines Act?
The strength of the proposal is that, for the first time, the Commission acknowledges that the root causes of medicine shortages in Europe are economic, specifically regarding tendering and pricing reimbursement procedures. They are finally moving away from blaming manufacturers to recognizing that these markets are dysfunctional.
The proposal includes demand-side measures, such as taking into account more criteria than just lowest price, and multi-winner tenders to prevent consolidation. This is crucial because currently, over 80% of Member States rely on single-winner, lowest-price tenders, which drives market consolidation and fragility.
Can that lead to the monopolization of the market?
They certainly lead to consolidation. Take oncology drugs and antibiotics, both dominated by generics. In recent years, we have seen major shortages in these areas, yet simultaneously, the prices for these drugs dropped. In a normal market, if there is a shortage of for example milk, the price goes up. In pharma, the prices dropped, and licenses were withdrawn during shortages. This proves the market is not functioning correctly.
Let’s return to the Critical Medicines Act. Are there any other positives?
Definitely the fact that they acknowledge that German and French stockpiling mandates, which require marketing authorization holders to hold several months of stock, as disruptive to all the small or medium sized countries. There are some measures which could be stronger, requiring stronger proportionality as not to harm neighbouring countries.
And weaknesses?
A weakness of the Act is the lack of financial support for the off-patent sector. If the EU wants to encourage manufacturing security in Europe, there should be access to regional aid or EU funds. Yet, since the manufacturing is not considered ‚innovative‘, no matter the processes, that is very difficult to obtain. Currently, the expectation is that the private sector bears all the risk of investing in European manufacturing, despite the higher costs compared to Asia.
Do you have ideas on how reimbursement schemes – systems that determine which medicines are covered and how their costs are repaid – could be modernized?
Pricing and reimbursement systems in Europe are based on reference pricing, meaning they take a basket of products, take the cheapest ones and set the reimbursement price at that level. It is designed solely to drive prices down. This works until you hit an inflation crisis, like the one caused by the war in Ukraine. While inflation rose by nearly 30%, generic prices dropped by 8%.
We need systems with a dynamic component. For example, in Canada, when the number of suppliers drops below three, the reference price automatically increases to attract more manufacturers. When suppliers increase, the price goes back down. Additionally, off-patent medicines should be exempt from “clawback” taxes, as we are already generating savings for the system. These changes are not revolutionary and could be implemented easily by Member States.
Regulatory lag in a field Europe created
Regarding the Biotech Act, expected to be adopted by the European Commission in 2026, do you think it will help the position of biosimilars in the EU?
It definitely should. Biosimilars were invented in Europe, and they offer massive savings and expanded patient access.
We see three or four areas where the EU can help. First, regulatory modernization. The EU is moving too slowly on “clinical tailoring” for biosimilars, while the UK and US, who were not pioneers in this field, are moving faster. Second, support for high-tech, greenfield biotech investments is needed to ensure security of supply. Third, we need a focus on skills and education to address the shortage of technical talent in the pharmaceutical sector.
Finally, we need automatic lifting of restrictions. When a biosimilar enters the market and lowers the price, health systems should automatically reimburse more indications or remove waiting periods, like requiring a patient to fail on other drugs for two years before accessing a biologic, where medically appropriate.
With the EU now planning its long-term budget for 2028–2034, what financial support would help the pharmaceutical industry most?
I expect there will be a budget devoted to competitiveness. The EU must stop putting money into projects that don’t deliver and focus on areas with guaranteed results, like pharmaceutical manufacturing.
Investing here has a multiplier effect on skilled labor and technology. The EU needs to help companies compensate for the structural disadvantages of operating in Europe: higher wages, higher energy costs, and regulatory compliance costs that are roughly 20% higher than elsewhere.
Funds should also support digitalization and green technology to boost efficiency. Furthermore, there should be a dedicated “European Security Fund.” If the EU wants to guarantee the supply of critical medicines during a crisis or war, it needs to contract and pay manufacturers to reserve that capacity. We are also talking with NATO about this. Companies cannot afford to maintain idle capacity for crisis response out of charity. It requires a contractual partnership.
Do you still see the concept of Value Added Medicines (VAMs) as attractive?
Absolutely. For many public health challenges, VAMs are the most cost-effective solution. In cardiovascular disease, simple combination products can drastically improve adherence and reduce mortality. In antimicrobial resistance, improving delivery devices or repurposing older antibiotics can save lives.
The challenge is getting healthcare systems to value them. They aren’t expensive innovative drugs, but they aren’t bottom-dollar generics either. Procurement needs to be flexible enough to recognize the value they bring.
Finally, regarding repurposing medicines for rare diseases, like rare childhood cancers: this is currently charity work, not a business. Companies often lose money doing it and face regulatory hurdles. We need a system of vouchers or public funding to support this, as it would cost very little in the grand scheme but would mean the world to the families affected.
