John Whelan: What direction is Europe's Competitive Compass pointing?
European Commission president Ursula von der Leyen said the compass would drastically reduce the regulatory and administrative burden on firms.
The Competitiveness Compass unveiled by European Commission President Ursula von der Leyen last Wednesday, aimed at reviving the EU economy, includes plans to reshore the production of critical drugs to Europe and reduce dependency on everyday medicines manufactured in India and China.
The policy could impact the continued development of the US multinationals that have invested heavily over recent decades in pharmaceutical manufacturing plants in Ireland. Attracting European pharmaceutical companies to invest in Ireland rather than their home country could prove a challenge too far for IDA Ireland, which has offered access to the European market to US and Asian corporations.
However, there are other aspects of the EU compass which could support a wide range of small companies to grow their market share across Europe, assisted by fewer regulatory burdens and access to a more expansive single finance market.
As outlined by commission president Ursula von der Leyen in her launch of the compass, it will include policies to drastically reduce the regulatory and administrative burden on firms, lower barriers to trading across EU market and financing competitiveness by establishing a European Savings and Investment Union.
The European Federation of Pharmaceutical Industries and Associations (EFPIA), welcomed the compass, saying it “strongly supports” the objective of simplification of the EU regulatory environment.
But also raises the need for more investment in the industry.
“As the sector that contributes most to Europe’s trade balance, we have raised concerns about the growing innovation and investment gap between Europe and the US and China,” said EFPIA director general Nathalie Moll.
It is also the sector that contributes most to Ireland’s trade balance, with the IBEC Pharmachem lobby group in their pre-Budget 2025 submission echoing the call for more investment in the sector, stating the industry needs significant increases in public investment in research and innovation to drive sustainable economic growth, as well as boosting productivity, and continuing to attract international business investment.
Recent trends across multiple economic indicators show a decline of Europe’s overall attractiveness as a location for pharmaceutical companies to invest, with prior areas of strength in research, clinical trials and manufacturing now failing to keep up with the pace of progression in other global regions.
And whereas the US continues to be the leading country in attracting pharmaceutical foreign direct investment, there is also clear evidence pharmaceutical industry investment in research and development is growing at a slower rate in Europe than in the US and China, with the latter showing dramatic increases in state investment.
This has attracted the majority of large US and European multinational companies to locate R&D centres in China, with Novo Nordisk located in Beijing, Sanofi in Suzhou and Roche, Pfizer, Novartis, GSK, Eli Lilly, J&J and Amgen locating in Shanghai.
The proposal in the compass to loosen up the State-aid rules could enable the Irish Government to more aggressively fund start-up companies in the pharmaceutical and medical devices sector. However, the Irish government has been opposed to this in the past, on concern it would enable other EU countries with bigger budgets to more aggressively support their SME sector.
Another factor decreasing pharma spending on R&D in Europe is the loss of exclusivity for approved drugs, according to European lobby group EFPIA and IBEC, which point to the 46 key drugs that have already lost or are set to soon lose exclusivity, under revised EU intellectual property rights legislation. EFPIA say the loss of protection for it members brands will drop their sales from €150bn in 2024 to a projected €50bn in 2029.
From a strategic perspective, there is a need for the Competitiveness Compass to offer a predictable and enforceable IP system to provide legal certainty and encourage innovation and investment.
There are also objections from the European Trade Union Confederation, which said the Competitiveness Compass is full of proposals for businesses, but nothing for ordinary citizens.
With European industry up in arms over what it sees as competitive disadvantages and macroeconomic data appearing to go in the wrong direction, the European Commission is faced with Hobson's choice — it is dammed if it does and dammed if it does not implement the Competitiveness Compass.
