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EU pharma overhaul favours access over innovation

  • The European Commission has released a revised package of pharmaceutical legislation, which will try to improve access to medicines across all EU member states.
  • The regulations look to reduce the period of market exclusivity for innovative medicines, unless they cater to an unmet medical need or are launched in all EU markets simultaneously.
  • Some pharmaceutical companies argue that this could deter investment in research and development (R&D) and drug discovery in the region.
  • Despite remaining objections, EIU expects the legislation to be confirmed by the European Parliament.

After nearly two decades without reform, on April 26th the European Commission unveiled proposed changes to its pharmaceutical regulations in a bid, among other things, to improve the availability of life-saving drugs across the region. The legislation, if approved by the European Parliament, will cut the standard period of market exclusivity for innovative medicines from ten to eight years, but allow drugmakers to earn back years by launching new products in all EU markets simultaneously or proving that their products address unmet medical needs.  Germany and other member states have lobbied – largely unsuccessfully – against these reforms, arguing that they will deter investment into drug research and development (R&D). After multiple delays, however, the revised EU pharmaceutical package does accommodate a few more exemptions to the cuts in market exclusivity, which could make it less jarring for research-based pharmaceutical companies. 

Long overdue change

Following the pandemic and all its supply and manufacturing disruptions, the desire to make drugs more affordable and available is stronger than ever. In the US this has resulted in provisions in the Inflation Reduction Act in the US to cut drug prices, while India has tweaked its essential medicines list. The EU’s proposed reforms to its pharmaceutical regulations – which constitute the biggest overhaul for 20 years – aim to address persistent problems with the availability, affordability and waiting times for treatments across the EU, particularly in the east of the bloc.

These delays partly reflect market fragmentation in the EU, where marketing authorisation can be sought at a centralised level (via the European Medicines Agency) or via national regulators that can offer mutual recognition. There are also multiple levels of decision-making over pricing and reimbursement, as well as formularies, with regulators operating at different speeds. This means it takes nearly 900 days on average for new drugs to become available in Romania, while the wait time in Germany is just 130 days, according to the European Federation of Pharmaceutical Industries and Associations’ (EFPIA), an industry association for research-based pharmaceutical companies.

By reducing the period of market exclusivity for new drugs, the legislative package aims to allow generics to be launched more quickly, improving access. According to Medicines for Europe, an industry body for off-patent drugmakers, generics account for 67% of all dispensed medicines in the EU, but for only 29% of pharmaceutical expenditure. By comparison,  90% of all prescriptions dispensed in the US in 2021 were for generic drugs, according to data from the US Food and Drug Administration (FDA). On top of this, the regulatory overhaul will aim to reduce variations in generic penetration across the EU (see chart). The new regulations also aim to streamline the approval process and tweak incentives for R&D, so that drugmakers are more focused on producing new medicines for unmet needs.

The key element of the Commission’s regulatory package include:

  • Cutting the minimum period of market exclusivity for new medicines to eight years from a previous ten, so that generic versions of novel medicines can be launched earlier than previously expected.
  • Allowing drugmakers to earn back up to four extra years of market exclusivity by either launching their medicines in all EU markets simultaneously or proving that their medicines address life-threatening unmet needs for patients.
  • Reducing market exclusivity for orphan drugs (targeted at rare diseases) from ten to nine years, unless they address important unmet needs.
  • Encouraging companies to develop new antibiotics by giving them transferable data exclusivity vouchers of up to one year, which can be used for any authorised medicine of their choice.
  • Speeding up marketing authorisation by moving to electronic applications, providing more regulatory support before appraisals, reforming the committee structures within the European Medicines Agency.
  • Reducing the risk of medicine shortages by setting up an EU-wide list of critical medicines and improving monitoring of supply chains.

Pharmaceutical companies offer a mixed reception

Generic drug-makers have broadly welcomed the proposed reforms, which are likely to lower regulatory barriers to entry for their products. However, Medicines for Europe remains concerned that, in trying to address shortages, the Commission has so far done little to encourage and support manufacturing of medicines in the EU. Although the region retains its role as the world’s main source of pharmaceutical exports (see chart), higher energy costs and wage inflation are weighing on local drugmakers.

Meanwhile, some research-based pharma companies argue that the cuts to the period of marketing exclusivity will reduce the incentive to conduct pharmaceutical R&D in the EU. Commenting on earlier drafts, the Chief Executive Officer (CEO) of Denmark-based Novo Nordisk, Lars Jorgensen, warned that the company would be forced to look at markets outside Europe unless changes were made. The CEO of US-based Eli Lilly, David Ricks, said that the reforms would make it less worthwhile for the industry to invest into developing newer medicines for chronic conditions.

According to the OECD, the pharmaceutical industry spent US$114bn on R&D across 33 OECD countries in 2018. This number is estimated to have risen further during the pandemic as companies and governments focused on pushing covid-related treatments and vaccines through regulatory channels. However, the EU’s pharma R&D spending (both public and private) still lags behind that of the US. With drug prices also likely to come under pressure as the continent struggles to recover from the pandemic and the war in Ukraine, returns on investment are likely to become narrower.

Even so, after over two years of debate, EIU expects approval of the package to begin during 2023 in the face of remaining opposition. The hope is that this will help the EU to improve access to medicines, hold down drug prices and address unmet medical needs across the continent, including the urgent challenge of antimicrobial resistance.

The industry insights and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries and 95% of world output, helping organisations identify prospective opportunities and potential risks.