While some see the agreement on the text of the Critical Medicines Act as a victory for patient safety, a deeper analysis shows a complex industrial change that attempts to balance between relatively high costs of European manufacturing and the uncertain security of global supply chains.

The political agreement reached in the early hours of 12 May marks the beginning of a new era of European procurement in the pharmaceutical industry. After intense trilogue negotiations, the European Parliament and the EU Council have finalised the wording of the Critical Medicines Act.

The CMA is a regulatory framework designed to make sure the essential drugs don’t disappear from hospital wards. Those drugs can be anything from basic antibiotics and insulin to complex oncology treatments. The main change that agreement brings is the reform of the procurement system. Moving forward, EU governments will be discouraged from simply picking the cheapest pill on the market. In lieu of price-centric models, they must prioritise the security of supply. In practice, a company that manufactures in Europe or has diversified sources of the medicine’s ingredients could win a contract even if its bid is more expensive financially.

The threshold for Member States to work together for joint drug purchases has been lowered from five, having previously been nine. Additionally, rather than legally forcing countries to share their medicines, the deal creates a voluntary system where Member States can request help from neighbours during a crisis. This goes together with new rules that require countries to disclose their actual stock levels, making it harder for nations to hide surpluses while others face shortages. A further key provision of the Act is that the EU will designate specific manufacturing initiatives as strategic projects. These will receive permits quick and gain access to national and EU funding to build or modernise factories for medicines and active pharmaceutical ingredients (APIs).

A New Blueprint for Pharmacy Shelves

To understand why the EU is suddenly willing to pay more for its medicine, it is important to look back at how the COVID-19 crisis was handled in the EU. In the previous decades, Europe offshored its API production to countries such as India and China to save costs. Around 40% of the world’s APIs now come from China, and for some critical antibiotics (e.g. amoxicillin or ceftriaxone) that dependency is even higher. This was an efficient economic model until a certain point. The pandemic of Coronavirus exposed the weakness in these supply chains. Furthermore, the current geopolitical climate with heightened trade tensions with the US on one side and unpredictable global logistics on other has made last-minute deliveries a liability. The CMA is in part the Europe’s industrial response to the US Inflation Reduction Act that uses billions of dollars in tax breaks and subsidies to incentivise the pharmaceutical companies to build factories in the States. European legislators were concerned that the companies would likely move their production across the Atlantic and leave Europe fully dependent on foreign suppliers.

The downside to the proposed Act is that it introduces a significant security premium that someone eventually needs to pay for. The “Made in EU” preference was the most debated part of the negotiations. The Parliament pushed for a mandatory 50% local content requirement, but the Council (health ministers of Member States) feared that forcing local procurement would seriously burden public health systems. The compromise reached is a “sliding reward scale” where the government gives the company more benefits the higher the percentage of medicine production takes place in the EU. Fundamental tension remains, especially in an era of higher inflation. It is unclear whether European taxpayers afford a 10% or 15% price hike on medicines just because they are made in EU rather than outside of the continent.

Furthermore, organisations like the European Society for Medical Oncology have warned that the law is focusing too much on factory output and supply chain mechanics. The consequence is that it risks overlooking the clinical reality – the factories, even though they might be labelled strategic, might still not produce the specific oncology drugs currently in shortage.

Possible Outcomes and Next Steps

The companies might experience higher compliance costs, as they now must map and report every vulnerability in their supply chains. The positive consequence is the revenue predictability: large, multi-year contracts awarded based on resilience rather than price offer a stable environment for companies that have invested in infrastructure on European soil. The health ministers of Member States have gained collective bargaining power through easier joint procurement, which is likely to help smaller nations like Malta or Cyprus. However, they are also under pressure to provide strategic projects with state aid, which could potentially redirect funds from other areas of healthcare innovation.

The average patient may not see the difference immediately, but the goal of the Act is to ensure that when a medical doctor prescribes a common antibiotic, it’s readily available on the pharmacy shelves. The cost might be felt indirectly through the slight rise of public health insurance premiums, or a slower publishing of non-critical health services as budgets will prioritise critical security.

The provisional deal will likely move fast to formal adoption, which is expected by the end of summer. The publishing of the final Union List of Critical Medicines remains an essential document to monitor, especially for companies engaged in the production of pharmaceutical products. Both the pharmaceutical companies and Member States will likely make their cases regarding the drugs that will be featured on the list. Inclusion on that list is a double-edged sword. It unlocks funding and strategic project status, but on the other hand it also triggers the strictest reporting and stockpiling obligations. The success of the Critical Medicines Act will be measured by the stability of the prices for essential healthcare. Europe is betting that a more expensive pill that actually exists is cheaper than a discount pill that does not arrive in the longer run.

The CMA is just a single part of the wider reform of pharmaceutical policy in the EU. Together with the Pharma package that deals with the topics of data protection and the production of breakthrough medicines, the bloc is trying to adapt its standards to the challenges that the modern day brings to the industry.

Read the newly published Regulatory Horizon Report created by B&K agency to get familiar with all the latest developments in the pharmaceutical and biotech sectors.