It would take a brave politician to try to sell higher drug prices as a win for European sovereignty — but that’s what the generics industry will ask lawmakers to do.

Europe has long been reliant on everyday medicines like antibiotics and painkillers produced mostly in India and China, where wages are low and environmental standards are relatively lax. The upside for Europe has been a steady supply of low-cost drugs on the back of cheap labor and weak environmental standards.

But with global supply chains increasingly affected by geopolitical, environmental and market shocks, having dependencies for strategically important goods like essential medicines has left the bloc exposed. Anxiety over worsening drug shortages has led to countries including Germany to call for “reshoring” the production of essential medicines. 

Bringing drug production closer to home, however, means reckoning with the unseen costs that have allowed prices to stay so low. “The reality is that pharmaceuticals are not very green and it has been very convenient for us for many years to outsource this to China and India,” Els Torreele, a global health researcher and former head of the Doctors Without Borders (MSF) Access Campaign, told POLITICO.

Greener production techniques exist, but come with large up-front investment costs.

"There'll be costs, for sure, and basically the buyers of medicines are going to have to absorb part of this cost," said Adrian van den Hoven, director general for generics lobby Medicines for Europe.

It's a conundrum for Europe to contend with if it pushes ahead with reshoring, not least because generics account for 70 percent of all drugs sold in Europe, and 9 out of 10 critical medicines — but just 29 percent of pharmaceutical expenditure, according to data from IQVIA.

Outsourced pollution

During its coming mandate, the European Commission has committed to deliver a Critical Medicines Act to reduce Europe’s dependence on other countries for essential drugs. Exactly how it will do that is still unclear and will be the topic of debate within the Critical Medicines Alliance, a broad coalition to advise the Commission on how to mitigate drug shortages. 

One of the problems the alliance is likely to consider is whether it’s even possible to reshore medicine production while limiting the environmental damage that Europe has been able to outsource.

“[Reshoring]’s not a bad solution, but also you need to think of the environmental impact,” said Luna Dayekh, a pharma supply chain researcher at nongovernmental organization Health Care Without Harm, in Brussels.

Generic drugs are associated with substantial carbon emissions and pollution. The effects of the latter are mostly felt far away in the communities near manufacturing sites in India and China, which dominate global chemical and generic medicine production.

The consequences for people and local ecosystems can be severe. Research has found extreme concentrations of pharmaceuticals in wastewater released from drug factories. One Chinese factory released enough ethinyloestradiol, a drug used in birth control medications, to disturb the reproduction of fish.

Antibiotic pollution can reduce the diversity of — and create drug-resistant — microbes in soil. Antimicrobial resistance is one of the greatest public health threats now and in the decades to come.

“It really affects an entire ecosystem that we also depend on, that a lot of [people’s livelihoods] depend on, especially when it comes to agriculture,” Dayekh said.

Competitiveness worries

Reducing pollution in manufacturing is possible, but it requires investment.

Generics-makers operate with thin profit margins, and with prices so low, they are already driving manufacturers from the market.

The European Union has tried to help keep generic production in Europe alive with the help of state aid. In 2023, the Commission approved €28.8 million from Austria for a new Sandoz factory in Kundl. The plant is the last in Europe producing the antibiotic amoxicillin from scratch and wasn’t possible without public support, according to the Commission.

It’s a familiar story: That same year, French President Emmanuel Macron pledged €160 million in state aid to reshore the production of 50 essential drugs.

Greener production techniques could lower day-to-day costs if they are more efficient, according to Sandoz. The Kundl site contains the latest advances in sustainable technology and received the first British Standards Institution (BSI) certification for minimized risk of antimicrobial resistance to the environment.

But modern facilities require up-front investment and the reliance on state aid to get the project off the ground indicates some of the problems that could lie ahead for reshoring.

One solution preferred by industry is to charge more for green, EU-made drugs, Kate Ahern, head of environmental, social and governance at generics firm Sandoz said.

"I don't believe there's a tension between reshoring pharmaceutical production to Europe — to European companies — and sustainability outcomes," Ahern told POLITICO. "It may be that prices need to be slightly higher for more sustainable products, it may be they need to be slightly higher for supply security."

The price of some drugs, like paracetamol, could already be about to rise dramatically thanks to Europe's environmental laws. A study for the European Commission found a scheme to pay drug manufacturers to remove micropollutants in the water could cause the price of paracetamol to increase by 12 to 45 percent.

No more 'blank checks'

Green MEP Tilly Metz argues that balancing all medicine prices — generics and branded — would be a way to handle the cost uplift.

If innovative medicines were “more affordable and generics maybe a little bit more expensive,” the result would be a more sustainable health system for Europe, she told POLITICO.

Governments could invest to help industry reshore production in Europe, but public money should come with conditions, Metz said. “We cannot continue just giving a blank check to the industry … of course, part of this obligation is the environmental risk assessment,” she said.

Social security organizations that are mostly responsible for buying drugs across Europe are also concerned reshoring will act as a pretext for higher prices.

"Enhancing supply chain resilience is vital; however, it must not serve as an excuse for deregulation or a carte blanche for price hikes," said Yannis Natsis, director of the European Social Insurance Platform. "It is essential to maintain transparency and provide comprehensive information about genuine vulnerabilities and necessary measures."

States could go even further and start producing drugs themselves, as Brazil and Cuba have done, Torreele suggested. The United Kingdom's Labour Party had similar plans under former leader Jeremy Corbyn in 2019, when it lost to Boris Johnson’s Conservatives.

A more palatable solution for policymakers might be to walk back on the goal of reshoring and instead focus on diversifying supply chains. Some policymakers might simply settle for not being so reliant on China.