A perfect storm: Europe's generic industry weighs cuts to output amid energy crisis, pricing pressures and more

A confluence of public health emergencies, armed conflict and historic pricing pressures is taking a toll on Europe’s supply of cheaper, off-patent medicines. In particular, soaring gas and electricity costs are threatening to upend certain manufacturers’ operations lest the EU intervene, the companies warned.

Aside from the economic pressures inherent to Europe’s generic drugs industry, the COVID-19 pandemic and the war in Ukraine have presented a slew of new problems for manufacturers in the form of “dramatically increased” inflation, soaring raw material and transportation costs, and record-high energy prices, Medicines for Europe wrote (PDF) Tuesday in an open letter to the EU’s energy and health ministers.

Inflation now stands at more than 9%, while raw material costs have spiked by between 50% and 160%, according to the lobbying group, which represents copycat drug makers such as Teva, Novartis’ Sandoz unit and Fresenius’ Kabi business.

Meanwhile, given the spike in gas and electricity prices fueled by Russia’s invasion of Ukraine, “some of our producers are at risk of having gas supplies rationed or not being able to continue manufacturing activities due to the high prices,” Medicines for Europe warned.

“This threatens to undermine medicines supply and our industry’s efforts to invest in manufacturing in Europe,” the trade group added.

Now, ahead of a Friday meeting of EU energy ministers aimed at easing the energy crisis in Europe, Medicines for Europe is asking officials from the bloc to roll out measures to lower energy costs for the generic medicines sector, “which cannot legally increase prices anywhere in Europe due to reference pricing.”

Further, the lobbying group wants EU officials to specifically acknowledge the generic drug business’s essential role in the bloc to ensure companies benefit from proposed interventions in price setting for electricity supply, regardless of their size.

While cheaper, off-patent drugs have accounted for some 70% of medicines dispensed in Europe over the past decade, the copycat drug industry has historically been beholden to “strict price regulation, budget austerity measures, and lowest-price tender rules,” Medicines for Europe contends. That, in turn, has fueled “substantial price erosion” and created an “unsustainable situation for manufacturers.”

Aside from its request that the off-patent medicines sector be included in relaxed state aid rules, the letter’s authors also asked that the pharmaceutical industry be excluded from demand reduction measures related to gas supplies.

“Any shutdown of production, even temporary, would have detrimental effects on the supply of medicines to patients and would demand a significant effort and long delays to resume operations,” the lobbying group warned.

Sterile biologics and antibiotics, for instance, require “specialized heating and cooling” for manufacturing and delivery, in addition to “energy-intensive” processes for active ingredient or formulation steps.

“This requires a continuous supply of energy at affordable prices and, which enable European manufacturers to compete with China where industrial energy prices are controlled,” Medicines for Europe said.

The plea comes as the generic companies' suppliers increase costs across the board, despite the copycat industry’s inability to do the same, the group said.

“[W]e cannot operate in an environment combining rampant cost inflation with policies that continuously lower prices,” the lobbying group said.