In a move to solidify Europe’s position in global research and innovation, Ursula von der Leyen recently pledged to increase the European Union’s (EU) research spending in her next term as European Commission President. Her promise comes at a juncture for the biopharma industry in Europe.
Indeed, although its research and development (R&D) expenditures were about the same level as the U.S. industry in 1990 according to the European Federation of Pharmaceutical Industries and Associations (EFPIA) report, it has since been distanced by a comfortable margin. Indeed while Europe was spending €7,766 million in 1990 slightly ahead of the U.S. with €6,460 million, the U.S. is now in the lead with €71,459 million R&D expenditures in 2022 compared to €47,010 million for Europe.
While Europe is undoubtedly a prominent biopharma industry it faces challenges, including higher regulatory burdens and escalating R&D costs within Europe, which have pushed some research activities to emerging markets such as China and India. Von der Leyen’s vision to boost research spending offers a lifeline, but the question remains: will this investment be enough to restore Europe’s leadership in pharmaceutical innovation?
Let’s take a closer look at how European biopharma is holding up against the U.S. and emerging markets such as China.
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The role of the biopharma industry in Europe
According to the EFPIA 2024 report, the industry employs over 900,000 people across Europe, with its indirect economic impact being three times that number due to its influence on related sectors such as raw materials, logistics, and services.
Furthermore, the pharmaceutical industry is notable for its R&D intensity. In 2023, the sector invested approximately €50 billion ($55.23 billion) in R&D, making it one of the most research-driven industries. Europe’s pharmaceutical R&D spending accounted for 20.9% of the global health industry’s R&D investment in 2022.
The biopharmaceutical industry’s contributions extend beyond economic metrics. Notably, the EFPIA reports that Europe’s pharmaceutical industry is increasingly specializing in the development of gene and cell therapies. As global demand for such therapies rises, Europe is actively contributing to R&D in this area.
However, despite these advances, the EFPIA report identifies a rapid growth in the market and research environment in emerging economies such as Brazil, China, and India, leading to a gradual migration of economic and research activities from Europe to these fast-growing markets.
The European Union is increasingly aware of these challenges and von der Leyen’s commitment to boost Horizon Europe and the EU’s broader R&D capabilities is aimed at reversing the trend of research activities migrating to other regions. This political momentum aligns with the pharmaceutical industry’s demands for a more supportive regulatory and investment landscape to sustain its global standing.
Could von der Leyen’s proposed increase in EU research spending be the much-needed catalyst for Europe to regain momentum?
R&D investment: Driving innovation
The pharmaceutical innovation industry in Europe had a steady increase in R&D spending over the years, approximately 19.2% between 2020 and 2022. While it is still behind the U.S. in terms of total expenditures the growth rate of R&D expenditures has been favorable to Europe from 2020 to 2023 with the U.S. only increasing their investment by 3.9%.
A significant challenge facing Europe is the rapid growth of pharmaceutical markets in emerging economies like China and India. Between 2018 and 2023, these markets grew at an impressive rate – 12.3% for Brazil, 9.9% for India, and 5.4% for China. This has led to a gradual shift of research and economic activities to these regions, where regulatory environments can be more favorable, and operational costs lower.
In comparison, the top five markets in Europe grew at a rate of 7.4%. While it does seem like this rate is more than convincing, even surpassing China’s market growth rate, this number only accounts for the top-performing markets in Europe, with the likes of France or Germany. Overall, Europe is not growing at this rate, and the fragmentation of markets across the EU creates additional complexity in comparison to a more centralized market like China.
The U.S. continues to lead in pharmaceutical innovation in terms of R&D intensity. This dominance is driven by a combination of factors, including a robust funding ecosystem for life sciences, more flexible regulatory pathways, and a highly integrated market that enables faster commercialization of new therapies. In contrast, Europe’s regulatory landscape is often viewed as fragmented, with differences in approval processes and pricing regulations across member states, which can delay market access for new medicines.
Challenges for Europe’s biopharma industry: Regulatory and financial pressures
Europe’s biopharma industry faces several structural challenges that hinder its innovation capacity. One of the most significant hurdles is the regulatory complexity across EU member states. Unlike the more centralized regulatory systems in markets such as the U.S., where the Food and Drug Administration (FDA) provides a single, streamlined approval process, Europe’s regulatory environment is more fragmented. Each member state has its own regulatory authority, which can complicate the approval process for new medicines.
While the European Medicines Agency (EMA) oversees the approval of many medicines at the EU level, individual member states still retain control over pricing, reimbursement policies, and market access decisions. This variation between countries creates uncertainty and inefficiencies for pharmaceutical companies, as they must navigate different rules, timelines, and approval processes for each market. This fragmentation can delay the introduction of new treatments, increasing the time and cost required to bring innovations to patients.
In addition to regulatory fragmentation, the European pharmaceutical sector faces barriers to funding access, largely due to austerity measures implemented by several European countries over the past decade. Following the 2008 financial crisis, governments across Europe introduced austerity-driven fiscal policies aimed at reducing public spending, including cuts to healthcare budgets, Greece being the most evident example. These measures have had long-lasting effects on healthcare systems, limiting the availability of resources for R&D investment.
As the EFPIA report notes, public funding for pharmaceutical innovation in many European countries has been reduced due to these policies, which has constrained the ability of pharmaceutical companies to engage in large-scale, high-risk research projects. With tighter public budgets and less government support, companies face difficulties in securing sufficient funds for R&D projects, particularly in emerging fields like gene and cell therapies.
Small and medium-sized enterprises (SMEs) in the biotech and pharmaceutical sectors have been particularly vulnerable. These companies, which often rely more heavily on public funding or grants, have found it difficult to secure the resources necessary for innovation. Without consistent funding mechanisms, SMEs face challenges in sustaining research in high-cost areas like rare diseases or new therapeutic technologies. EFPIA has called for increased support for these companies, as they are crucial to driving disruptive innovations within the European pharmaceutical industry.
The European healthcare sector has also seen reductions in reimbursement rates for pharmaceuticals, leading to downward pressure on pricing. As governments attempt to contain healthcare costs, they impose stricter pricing regulations and cuts in reimbursement for medicines, reducing the profitability of launching innovative therapies in Europe. This creates a difficult environment for pharmaceutical companies that are less incentivized to invest in high-risk R&D if the financial return on investment is uncertain.
These regulatory and funding hurdles reduce Europe’s competitiveness in the global biopharma industry and innovation, especially when compared to markets like the U.S., where a more integrated system allows for quicker commercialization of new therapies.
Ursula von der Leyen’s pledge to put innovation “at the center of Europe’s economy”
After her reelection as president of the European Commission in July, von der Leyen pledged to increase EU research spending in her political guidelines for the next term. This could play a crucial role in addressing the challenges European biopharma is facing. By boosting the research budget and fostering collaboration across member states, the EU could streamline regulatory processes, making it easier for pharmaceutical companies to innovate and bring new treatments to market. Increased funding could also help alleviate some of the fiscal pressures faced by the sector, enabling more extensive research into new technologies.
Although we are still far from the objective set in 2003 for each member state to spend 3% of their gross domestic product (GPD) on research, von der Leyen’s reelection is “good news for research,” said Christian Ehler, member of the European Parliament and co-rapporteur for Horizon Europe to Science Business.
One solution already in motion is Horizon Europe, the EU’s flagship research program, which has allocated significant funding to health and pharmaceutical research. Strengthening this initiative could help close the gap between Europe and the U.S. by providing the financial and structural support needed to accelerate drug development. An increase in funding could help mitigate the migration of R&D activities to non-European markets. With a total budget of €95.5 billion ($105.46 billion) for 2021-2027, Horizon Europe represents one of the world’s largest public R&D funding frameworks.
The tenth framework program (FP10), a potential successor to Horizon Europe (FP9), is still in its conceptual stages but is expected to be more focused and less complex than Horizon Europe, with an emphasis on creating conditions for researchers to thrive, building public-private partnerships, and prioritizing strategic areas like biotechnology and AI.
“I believe her (von der Leyen’s) commitments to provide the circumstances for researchers to thrive, to create new public-private partnerships, and to focus on strategic priorities indicate that FP10 can be different in nature than Horizon Europe by being more focused and less complex.”
However, simply increasing funding will not solve all of Europe’s issues in innovation. A more unified regulatory framework across the EU could reduce the administrative burden on pharmaceutical companies, ensuring faster approval times for new therapies. Initiatives to harmonize drug pricing and reimbursement policies across member states would also help create a more competitive environment, making Europe more attractive for R&D investments. Perhaps, FP10 is a step in that direction, but only time will tell.
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