Europe optimized its supply chains for cost. Now it must pay for resilience  

When we talk to governments and figures in the industry, everyone gets it. No one will dispute it. The challenge is how we translate that into action. Right now, I’m encouraged, but not relieved.  

We estimate that roughly 70% of the drugs used across Europe are generic and biosimilar, and they cost between 10% and 20% of the total drug bill. Without generic companies there is no healthcare in Europe.   

Very few of those drugs, certainly the non-biologic complex drugs, are made in Europe. Almost all of the key starting materials are imported either from China or India. Almost none are manufactured in Europe because the payers have chased margin pricing down to the bottom.  

If 70% of the drugs are costing 20% of the money, you can see where the market is heading. While people have pursued lower costs, they’ve forgotten the value of sustainability and security.  

COVID exposed the weakness–but also showed what’s possible

After the COVID pandemic, the sovereignty of supply became a top priority—supply chain vulnerabilities often only become apparent when they are tested. 

Ironically, we often have more problems moving products from Italy to Austria than we do from India into Europe, because each government wants to be seen to be protecting its patents and international interests, rather than acting collectively in the interests of a European supply framework. However, during COVID, I saw national interests being put ahead of regional interests.   

In a crisis, we found a way, so there are clearly mechanisms that can be applied. During COVID, we manufactured a product called hydroxychloroquine and, for about three weeks, it was thought to be a cure for COVID [it is no longer recommended to prevent COVID-19 by the World Health Organization].  

We manufactured around 50-100 million packs and ended up getting it into 35-40 markets within a very short period of time, because all the regulators waived a lot of their usual requirements. When we want to, we can find solutions to problems.  

Hopefully now with the EU Critical Medicines Act the regulatory environment has changed once more. The state of geopolitics in the U.S., Middle East, and our relationships with Central Eastern Europe, particularly Russia, has forced Europe to reassess its role, which I think is positive.  

The challenge facing Europe 

Reshoring all of Europe’s supply chains is a great aspiration, but is also completely unrealistic.  

It’s a question of economics. People will build infrastructure and manufacture raw materials in Europe if there’s an economic environment that rewards it. If there isn’t, why would anyone? My board wouldn’t let me deploy that kind of capital if I can’t show a sensible return, and I wouldn’t be in my job for very long.  

A lot of industries are set to face an inflationary shock over the next six months to a year. The costs of materials, fuel, and interest rates are all rising. This means the cost of business is going up.  

The reality is those costs will have to get passed on to customers. That means medicines across the board will get more expensive.   

Europe is fantastic at legislating, but it doesn’t always consider all the implications. We have a responsibility to work with governments to find solutions to protect and support our supply chains.  

We risk entering a world where security of supply of critical medicines can’t be guaranteed, because the economic incentives to make long-term capital investments aren’t there.  

Europe is getting older, it’s getting sicker and, like it or not, it’s getting poorer. Without a healthy society, everything else crumbles. Penicillin is estimated to have saved more lives than any other drug. It made infections that would have been fatal 80 years ago treatable. This means that most operations can now be conducted safely, with a much lower risk of infection. 

All of that we take for granted, and yet we sell the product more cheaply today than a Mars bar or a packet of chewing gum. While we understand the cost of producing medicines, we often forget their value. Hopefully, that’s starting to change.  

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.