Dusseldorf If you want to know how dependent Europe is on medicines from Asia, you can find out best in Kundl. The last “Gallic village” of European penicillin production is located in the 4891-inhabitant community in the district of Kufstein in Tyrol.
The Swiss Novartis group manufactures penicillin V here, as the only manufacturer of the antibiotic in Europe. The production of this vital substance has long been based in Asia – as is the case with most important medicinal substances, which can be produced much more cheaply in the Far East.
Politicians want to reduce this dependency and resettle important productions in Europe – alarmed by the supply bottlenecks during the corona pandemic. In practice, however, Europe and Germany are becoming less and less attractive as locations for the pharmaceutical industry. Legal regulations that push down drug prices are a burden on the business. Now energy prices are exacerbating the situation.
A previously unpublished study by IW Köln, which is available to the Handelsblatt, comes to the conclusion that pharmaceutical companies could reconsider planned and future investment decisions in Germany. The researchers explicitly cite the higher European energy price level and the resulting weakening of the business location as the reason – a very poor basis for “return campaigns” of production.
The pharmaceutical industry is not considered to be energy-intensive, unlike the chemical or steel industry. The direct energy costs account for only one percent of the total costs. However, the sector obtains a large part of its preliminary products from energy-intensive industries.
Pharmaceutical companies are hit twice by rising energy costs
These products have become significantly more expensive due to the rise in energy prices. However, due to the cap on drug prices, higher costs cannot simply be passed on to consumers. The profit margins suffer as a result, especially for the manufacturers of inexpensive, patent-free imitation products (generics), e.g. for common painkillers.
“Increasing energy costs hit us twice as a company,” complains the generics manufacturer Teva, which is known in Germany primarily for drugs under the Ratiopharm brand. “On the one hand directly via our energy costs, but also via our preliminary products, which become more expensive when energy costs rise.”
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The pharmaceutical industry obtains around half of its primary products from its own industry. The other half are chemicals, paper and cardboard, glass and plastic. In December 2022, the aggregate producer price in these four industries had risen by a good 18 percent compared to the previous year – prices in the entire manufacturing sector had risen by only 13 percent, according to the study by IW Cologne.
“Rising energy and raw material prices are a major challenge, since there are currently hardly any opportunities to pass on the prices on the European markets,” complains Novartis, for example.
Manufacture of generics in China 20 to 60 percent cheaper
“Butter, bicycles or air travel can become more expensive, but this does not apply to essential medicines,” says Bork Bretthauer, managing director of the Pro Generika lobby association. “Here the prices are set in concrete at basement level.”
The study by IW Cologne concludes that the production of generics in Germany in particular could be threatened. The location has long been unattractive for them: the last German antibiotics manufacturer closed its doors in 2017, and since then Germany has been even more dependent on Asia for antibiotics. In China, for example, production is between 20 and 60 percent cheaper than production in western countries, according to a study by Teva.
Will certain medicines soon no longer be manufactured in Germany?
“The question is spreading whether it is still worthwhile to produce certain preparations,” says a spokesman for the generics manufacturer. One consequence of the high energy costs could be that even more suppliers no longer produce certain products in Germany and that the production of cheap basic medicines does not even start there.
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Although electricity and gas prices have fallen in the meantime, economists assume that the costs of energy on the European markets will level off at a higher level than before the crisis in the medium term.
Companies could reconsider planned investments
“The danger is that companies will reconsider investments they have already planned because of the economic pressure and will in future make decisions to settle research and production sites in favor of other countries,” says Simon Schumacher, economist for Germany as a pharmaceutical location at IW Cologne and co-author of the study.
This also applies to the active ingredients, most of which come from China and India. One of the last remaining active ingredient manufacturers is Euroapi, a spin-off of the French pharmaceutical company Sanofi.
“There is no fair competition with China and India”
Euroapi produces a total of 200 active ingredients at six locations in Europe, and 25 in Frankfurt. One of them: Metamizol. For Metamizol, Euroapi is the only remaining Western manufacturer, “Otherwise there are only in China,” says Pierre Haller, General Manager of the company.
“The energy prices play a major role for us and lead to an increase,” says Haller. Also with metamizol: It is now difficult to produce the active ingredient to cover costs. “That’s one of the things that’s being put to the test.”
There is no fair competition with China and India, “for example with regard to our higher environmental standards, which we will not deviate from either,” says Haller. Without state support, it is therefore not possible to become independent of Asia again in the production of active ingredients. On the contrary: then the exodus would continue.
“One thing is absolutely clear: It doesn’t make the location any more attractive if the energy costs are higher than at other locations,” concludes Claus Michelsen, chief economist of the Association of Research-Based Pharmaceutical Companies. “Ultimately, this limits our growth opportunities, investments and research and development budgets suffer from the development.”
More: Merck boss considers decoupling from China “not feasible in the next two decades”