Dependencies of EU health ecosystem in generic API production

The pharmaceutical industry is a key asset to the EU economy. A well-functioning industry is essential for the overall ability of the EU to address its current and future health challenges. While the APIs (Active Pharmaceutical Ingredient) for innovative drugs and high-tech pharmaceuticals are mainly sourced from Europe, the production of small molecular generics and APIs has been outsourced. In 2021, the European Commission (EC) revealed that 80% of API volume was imported into the EU and 45% of volume came from China followed by India, Indonesia, US, UK.

The pandemic has underscored that a shortage of medicines leads to severe consequences. In 2020, the EC published the Pharmaceutical Strategy for Europe that is set to build the EU’s open strategic autonomy sector by diversifying production and supply chains, promoting strategic stockpiling, and increasing production and investment in Europe. Although the supply chain security is high on the political agenda, shortages of critical medications continue to rise.

Reshoring the production of APIs is considered an approach to secure the supply. Although it is often associated with high costs (mainly labor and infrastructure investments), pharma companies invest to expand the local pharmaceutical production base in Europe especially for complex APIs and high-margin generic products. Reshoring of simple generics and API production remains low because it is a relatively low margin business that requires substantial investments in environmental controls.

Significant opportunities exist to develop Ukraine’s pharmaceutical capabilities in alignment with its own and Europe’s strategic interests

Integrating Ukraine into the EU market and including it in the Pharmaceutical Strategy for Europe could support the EU’s efforts to develop necessary strategic manufacturing capacity. Critical products such as antibiotics, antithrombotics, pain medications and opioids, for which the EU does not have sufficient capacity to produce can be manufactured in Ukraine. The advantageous geographic proximity and established logistics, cost structure, human resources could make Ukraine a relevant partner for EU companies. Harmonizing industry regulation with EU norms offers the level of control and visibility that could not be achieved with pharmaceutical production in Asia.

In 2022, the Cabinet of Ministers defined the pharma industry as a priority sector of the economy, thereby strengthening state support in this area. Today, the pharmaceuticals and APIs manufacturing sector in Ukraine consists of 113 companies including domestic companies and subsidiaries of international enterprises. The State Statistics Service estimated the market value at US$ 3.0 bn in 2021 with a 5-years historic CAGR of 16%. Local companies meet 49% of local market demand in value. Approximately 20 companies hold licenses to manufacture APIs. Several companies, such as Farmak, Borshchahivskiy Chemical and Pharmaceutical Plant, and Darnytsia hold GMP certificates issued by official European authorities. However, they have not yet secured a significant presence in EU markets. In 2021, the export of domestic products was US$ 315.4M with Uzbekistan, Azerbaijan, Kazakhstan, Belarus, and Moldova being the largest export destinations.

Local companies must develop critical capabilities in quality and competitiveness. Otherwise, they will face significant challenges if the prospects for EU and Ukrainian GMP synchronization diminish as Ukraine moves closer to EU integration. EU GMP regulations may require them to make substantial investments in production facilities which they may not be able to afford. Moreover, there should be a clear understanding that pharmaceutical production must also prioritize environmental sustainability.

Contract manufacturing and technology transfer have been shown to be an effective approach to expand medicine availability without extensive time and cost investment in developing the know-how. Generally, technology is transferred for one or more of three stages of production of medicine such as packaging, formulation and API and/or raw material production. Technology transfer allowsacquisition of intellectual property, knowledge, and equipment, thereby strengthening the business case for investment. In addition, besides the beneficial impact on medicine availability, transferring technology improves the economic and social development of the country by increasing employment opportunities.

Multinational pharmaceutical companies, although not completely leaving Russia, are starting to look for alternative cost-competitive ecosystems for expansion. Ukraine should be quick and proactive in mobilizing resources to convince international partners of its potential to supply APIs and generics from the EU Critical Medicines List and beyond. The government, represented by the Ministry of Health and the Ministry of Economy, needs to engage in evidence-based discussions with investors, businesses, and policymakers to outline future prospects for investment promotion in pharma. Public and private sector stakeholders express willingness to promote the dialogue about incentives for strategic onshoring, attraction of advanced manufacturing technologies, and private-public partnerships.