Resetting Europe’s Innovation Compass

Sometimes statistics don’t tell the full story. This is particularly true if you look at EFPIA’s recently published European Economic Impact report, which looks at the contribution of the pharmaceutical industry to Europe’s economy, as well as those of other regions.

The report finds “a strong and growing sector”.

It shows that research and development (R&D) expenditure in Europe has grown on average by 4.4 percent each year between 2010 and 2022, from €27.8 billion to €46.2 billion. Good news? Yes and no. If we look at the wider picture, Europe’s position is clearly becoming more and more precarious against a backdrop of falling competitiveness. While global research into medicines and vaccines is growing, Europe’s share of the pie is getting smaller as the distribution of R&D shifts elsewhere.

R&D spending in Europe is consistently outpaced by the US and increasing competition from China. In the US, R&D investment grew by 5.4 percent between 2010 and 2022 (from €30.7 billion to €71.5 billion) and five times greater (20.7 percent) in China (from €1.4 billion to €14.8 billion).

If we look at Europe first:

In 2022, global R&D spending in the sector was €143.6 billion; Europe accounted for 32.2 percent of this. As a sector, we contribute more to the EU trade balance than any other. Added to this, 16 of the world’s top 50 life sciences universities are based here.

• In 2022, the industry contributed €311 billion to the EU — 2.0 percentof its gross value-added (GVA).

• The industry supports 2.3 million jobs in the EU — a 2.1 percent increase year on year between 2016 to 2022.

• Driven by consistently high levels of research and innovation — and a GVA of €197,000 per worker — the pharmaceutical industry in Europe is three times as productive as the European economy as a whole.

However, the report also found that in the US, for example, GVA per hour per worker is double that of the EU.

China’s growth is one of a number of trends that is now shown to correlate with a relative decline in the number of new molecule entities (NME) discovered in Europe. The EU fell behind China for NME discovered in 2023. NMEs are drugs with an active ingredient, marketed for the first time, and vital to R&D activity.

The report suggests that China’s life sciences boom is due to its dedication to improving its regulatory environment, increased funding streams and strategic investment in advanced technologies. This is clearly paying off, and while it might send shockwaves through Europe, lessons can be learned.

As other regions ramp up their investments and streamline regulatory frameworks, Europe cannot afford to become a secondary or even tertiary player in global health innovation.

Europe’s fragmented regulatory environment exacerbates the gap, reducing the EU’s competitiveness as a location for clinical trials. Recent research showed that 60,000 fewer patients living in Europe had access to clinical trials since 2018, missing out on new research in immunisation, cancer, rare diseases and paediatrics. Europe’s global share of commercial trials — those sponsored and funded by a pharmaceutical company — is half of what it was a decade ago.

Meanwhile, commercial trials in China rocketed, making up 18 percent of those taking place globally. For the most innovative therapeutics, advanced cell and gene therapies, China holds a 42 percent share, the biggest in the world.

The impact of Europe’s decline reverberates beyond patient care. Skills and expertise are migrating — nearly three-quarters of European science graduates choose to remain in the US after completing their PhDs. Over time we stand to lose our ability to recruit and retain the next generation of scientists.

In Europe we have fantastic ideas, the skills, world-class academic institutions and pockets of brilliance, but our processes are slow, and our eco-system is very fragmented. The scale and pace at which we are losing global share of research shows there is only a finite amount of time to turn things around.

What needs to happen?

Pharmaceutical companies support local economies, boost regional development, create highly skilled jobs, and bring funding to hospitals and research centres. In fact, the data shows that productivity per worker in the pharmaceutical sector is higher than in the economy as a whole. The recognition of the importance of the sector by EU leaders is a positive step. However, overcoming Europe’s widening competitiveness gap needs immediate and robust action now. Mario Draghi’s much anticipated report on how to boost Europe’s competitiveness makes for hopeful reading.

The revision of the Pharmaceutical Legislation offers the opportunity to update a 20-year-old regulatory framework to create a unified and streamlined regulatory environment to foster innovation and competitiveness in Europe, on a par with the Food and Drug Administration, among other regulatory bodies.

The industry has also outlined a detailed roadmap for policymakers through a Strategy for European Life Sciences, aligning closely with recommendations from the Draghi and Letta reports, which emphasize the urgent need to power up Europe’s innovation capacity.

Together with insights from the EFPIA’s Clinical Trials Ecosystem Report, these recommendations form a comprehensive approach to addressing regulatory, investment and operational challenges, setting the foundation for Europe to secure its position as a global leader in health innovation. Europe has the potential. And now the ambition. It is time to turn things around.