Draghi Competitiveness Report: Insights for the Life Sciences Sector
At a Glance
The much-anticipated report by former European Central Bank President and former Italian Prime Minister Mario Draghi on ”The Future of European Competitiveness” and the challenges standing in the way of economic growth was finally unveiled at a press conference in Brussels on September 9, alongside Commission President Ursula von der Leyen.
Mr. Draghi hammered home the overarching conclusion—the emergence of a growing productivity gap between the European Union and its competitors (the United States and China)—explaining that this stagnation, now in its second decade, will mean that “our share of this cake [sic] becomes smaller and smaller.” Failure to implement the recommendations outlined within the document will result in the continuation of the “slow agony” suffered by the EU’s markets.
The chapter of the report dedicated to the EU’s pharma sector is extensive. Draghi reemphasizes mounting regulatory burden and fragmented investment into R&D, laments the persistent regulatory fragmentation across national borders, singles out intellectual property rights as a “key driver of medical innovation,” and advocates for predictability in Regulatory Data Protection (RDP) and incentives.
The nearly 400-page-long text is divided into two sections. Part I provides a diagnostic and high-level overview of several of the key factors dragging down economic growth. These include low levels of “productive investment,” misalignment/uncertainty across regulatory environments, fragmented capital markets, high energy costs, and underutilization of advanced technologies, among others.
Part II delves deeper into 10 concrete policy clusters, identifying concrete contributors to the respective sector’s decline or stagnation, and providing targeted recommendations as to how these issues might be addressed.
The report estimates that a minimum annual additional EUR 750-800 billion (representing nearly 5% of EU GDP in 2023) will need to be invested into research and innovation for the EU to once again become competitive on the global stage.
Draghi’s report provides useful insights as to the Commission’s “wish list” for competitiveness in the EU as we move closer to formation of a new College of Commissioners and the ramping up of the next institutional cycle.
Conclusions and recommendations vis-à-vis life sciences
Echoing all the other thematic, sector-specific chapters, Draghi draws parallels between the EU market and those of its leading competitors to point to the conclusion that pharmaceutical research and development within the EU has failed to keep pace, and in fact has stagnated, in recent years. His report places much of the blame on overburdensome regulation, fragmentation along national borders, and a prevailing uncertainty, which has driven investment away from the continent. In illustrating these factors, Draghi cites several data points and arguments which have long been evident to stakeholders in the pharmaceutical industry—and it’s a positive development to see these messages reflected in the report and presented at a high level.
By the numbers:
- The approval of a new drug takes on average 322 days in Japan and 334 days in the United States, compared with 430 days within the European Union.
- US private sector investment into pharmaceutical R&D amounts to 0.45% of GDP compared to only 0.11% in the EU.
- In 2022, none of the top ten best-selling orphan medicinal products within the EU/EEA were marketed by companies based in Europe (seven were from US-based firms).
- The EU pharmaceutical market accounts for a total of 5% of all value added to the economy from manufacturing in the EU and directly employs approximately 937,000 people.
- AI-driven efficiency gains in the US are estimated at between USD 60 and 110 billion per year.
The pharma section of the report concludes with nine sector-specific recommendations, designated, respectively, as short-, medium-, or long-term objectives. They are aimed at growing the sector, and expanding the EU’s research and development capacities, and integrating cutting edge technologies, including generative AI.
These recommendations include:
- Maximizing the impact of the European Health Data Space (EHDS) by ensuring effective implementation, facilitating and encouraging the sharing of electronic health records, and leveraging the DARWIN EU network. (Short/medium-term)
- Streamlining the set-up and management of multi-country trials within Europe and bolstering the EU’s R&D appeal in order to recapture investment lost to competing markets, and attracting clinical trials. (Medium-term)
- Expediting access to markets via coordinated action between payers, HTAs, and medicines agencies, and formulating guidance on procurement, pricing, and reimbursement. (Medium-term)
- Formulating clear guidelines on the use of generative AI in the life cycle of medicines. (Medium-term)
- Following through on the implementation of the HTA-R to guarantee that the necessary resources to ensure delivery of Joint Clinical Assessments (JCAs) in 2025 are made available, and making efforts to eventually establish an EU-level agency. (Short-term/long-term)
- Improving predictability for drug developers by formulating clear and well-defined mechanisms for the protection of novel medicines via continuous dialogue with stakeholders. (Medium/long-term)
- Mobilizing public R&D investment, and incentivizing private sector R&D investment to bolster innovation, especially in life sciences and advanced therapy medicinal products (ATMPs). (Medium-term). This would ultimately result in the creation of “world-class innovation hubs” to rival those in the US and elsewhere.
- Developing strategic international partnerships to solidify and bolster the EU’s international trade position in pharmaceuticals and guarantee the resilience of supply chains. (Medium/long-term)
While acknowledging the inherent trade-offs at play between fiscal sustainability, stimulating innovation, and guaranteeing affordable access for patients, Draghi has stated that it would be advantageous for the EU to expand joint-procurement efforts beyond treatments for cross-border threats. Draghi recommended that “Member States should adhere more closely to pricing principles established under the EURIPID collaboration and step up cross-country initiatives for joint pricing (and reimbursement) negotiations for specific medicines.”
Furthermore, the report calls for the strengthening of supply chain resilience, particularly for critical medicines, by diversifying supply chains and forging strategic international partnerships, to bolster pharmaceutical trade and establish strategic production sites outside of the EU.
The concluding section of the report includes cross-sectoral recommendations to both the EU and Member States, which tie back into Draghi’s calls for eliminating red tape and increasing spending. They further stress the need for additional R&D funding, closing skill gaps and attracting talent, and streamlining capital markets to facilitate investment. On the institutional/regulatory side, these recommendations endeavour to strengthen governance by eliminating redundancies, streamlining processes, encouraging subsidiarity whenever possible to reduce the policy burden at EU level, and expediting decision-making.
What developments should the life sciences industry anticipate?
Stakeholders within the healthcare and pharma space have voiced predominantly positive reactions to Draghi’s recommendations. Further feedback is anticipated in the coming days and weeks as the report is dissected and EU-level institutional decisions and priorities for the 2024-2029 mandate are announced.
Political reactions, at the EU level and from a number of Member States, have likewise begun trickling in. Though most national leaders and policy makers acknowledge the gravity of the situation and the need to take action to jump-start the EU economy, there is not yet any clear indication which of Draghi’s recommendations will even reach the negotiating table, let alone the implementation stage.
The lack of sufficient funding is a factor that cuts across all thematic areas. As former head of the ECB, Draghi knows better than anyone the complexities of financing major initiatives and presumably would have anticipated the inevitable pushback from leaders of the Union’s “frugal” Member States.
The very suggestion that the EU introduce common debt instruments to raise the necessary funding appears to be a hard line for several countries—the suggestion was “vetoed” by German Finance Minister Christian Lindner mere hours after Draghi’s presentation. Other countries will certainly also voice their objections.
Though the report was only made public in early September, Commission President von der Leyen has been aware of its contents for weeks, if not months. In her letter to Oliver Varhelyi, the Commissioner-designate for Health and Animal Welfare, Von der Leyen instructs Varhelyi to draw on the lessons of this report to bolster efficiency and competitiveness. Von der Leyen included specific instructions for many of the pharma recommendations, including the introduction of a Critical Medicines Act, the introduction of a European Biotech Act, and the formulation of guidance on the use of AI in the lifecycle of medicines.
Whether any of the recommendations in this report are ultimately implemented is a moot point. The key takeaway from this report is that it provides a peek at the Commission’s “shopping list” for competitiveness in the next mandate—beyond what we’ve seen in the President’s Political Guidelines and the Council’s Strategic Agenda—some of which will make it to the next Commission Work Plan towards the end of this year, or early 2025. For more on this or an in-depth analysis of all portfolios and priorities of the incoming European Commission, please contact the EGA Brussels office.
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Materials presented by EGA Brussels. For more information, please contact Jamie Wilkinson, Managing Director, Health: Elections@edelmanEGA.com.
