In step with international news in recent times, European pharma and biotech are leaning towards ‘nearshoring’, preferring domestic operations to outsourcing abroad, experts say. But regionally focussed sentiment is to be limited and short-lived, they state, faced with globally cooperative markets and supply chains.
“Firms are moving towards nearshoring,” says Dr. Pooja Thakur-Wernz, assistant professor of business administration at Washington and Lee University in Lexington, Virginia. However, having interviewed pharmaceutical executives, Thakur-Wernz said she finds that much of the rationale for offshoring clinical operations in regions such as India, high speed and low cost, has been overshadowed by concerns about the subpar quality of clinical work.
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Offshored generics vs nearshored innovative medicines
Later stage manufacturing also seems to be increasingly nearshored according to Dr. Michael Quirmbach, CEO of Swiss-based CDMO CordenPharma. “In particular you see a strong [nearshoring] trend when it comes to the commercialisation of new chemical entities – API (active pharmaceutical ingredient) and drug product manufacturing”.
Alexander Natz, secretary general of the European Confederation of Pharmaceutical Entrepreneurs (EUCOPE), is less sure, as EUCOPE does not have the necessary data to affirm or discount nearshoring as a trend. Rather, Natz says 20 years of contract tendering by European pharma has given lower-priced Indian and Chinese CDMOs a decisive advantage in generics manufacturing over European counterparts.
However, Natz does note that differences in the production of generics and innovative compounds could be driving nearshoring for certain drugs. He maintains the low labour cost in Asian markets is one factor encouraging European companies to offshore manufacturing in those regions, but that these same economic incentives are less prevalent for newer therapies. Seán Byrne, a senior manager at EUCOPE, points to Europe’s prolific vaccine exports during the Covid-19 pandemic; “We were able to do that because for the most innovative medicines, we do still have manufacturing capabilities in Europe, and part of the reason is the expertise needed [for that]”.
This distinction between generic and innovative drugs is also emphasised by Anne-Sophie Deman, managing director in healthcare and life sciences at FTI Consulting. “It’s these older products, many of which are also generics or critical medicines, where price competition is very intense and that’s where it’s a challenging business case to bring manufacturing back to Europe”, she says.
European policy impact
According to Deman, the Covid-19 pandemic made clear the pitfalls of Europe’s reliance on Asian manufacturers for much of its critical medicine supply. “This has led to a conversation around strategic autonomy in the EU and the health and life sciences sector under the mandate of the new European Commission (EC) following the elections last year.”
Since the pandemic, the EC has set its sights on ‘competitiveness’ on the global biopharma stage. This involves initiatives such as the Competitiveness Compass, following the recommendation of former European Central Bank head Mario Draghi to focus on innovation in biopharmaceuticals, and the proposed EU Competitiveness Fund, a scheme from EC President Ursula von der Leyen to centralise clinical research funding.
While originally motivated by drug shortages during the pandemic, Deman argues that nearshoring is now further spurred by a broader ambition for European strategic autonomy and security concerns under mounting geopolitical tensions. She cites the EUFAB initiative, as an example of initiatives reflecting nearshoring under these priorities. EUFAB is to reserve production capacities and organise prioritised manufacturing of vaccines in case of public health emergencies, thereby keeping a facility ‘ever warm’ for manufacturing.
However, as Quirmbach states, “to stay competitive, it requires a unified European way”. Growing nationalist sentiment among resurgent right-leaning parties in many EU member states, as seen with France’s Rassemblement National and Germany’s AfD, could threaten this unity if countries abandon unified manufacturing regulation, says Quirmbach, but he states that from a CDMO perspective, he is not particularly concerned by these developments.
Opportunity for Europe
With the US Trump administration signalling tariffs for several countries and curtailing international aid, European manufacturers could play a key role. Quirmbach sees opportunity for those in Europe, particularly with regards to the BIOSECURE Act, which could hamper China-US biopharma trade if passed, leaving a void Europe might fill.
Natz notes positive developments in this direction with moves made by the EC, most notably in the proposed Critical Medicines Act and EU Biotech Act. These are aimed at addressing critical medicines shortages by addressing supply chain dependencies and vulnerabilities and at fostering biotechnological innovation in Europe, respectively.
For Natz, a reform to the tendering mechanisms by which EU pharma contracts CDMOs could also be key to seeing manufacturing return from Asian countries. He points to tendering lots implemented by some German payers for antimicrobial resistance products, which stipulate a portion of contracts must go to European manufacturers. He also notes the ALBVVG law passed in Germany in 2023 allowing drug makers to increase prices, lessening manufacturing price competition for generics.
Beyond serving its own manufacturing needs, Europe may also seek to increase biopharma exports to the UK. Though home to a number of innovative biotechs, Quirmbach says, “the UK has not been a manufacturing hub”, leaving a high-demand biotech market in close proximity to the EU in need of biopharma imports. Many of these imports would concern innovative pharma products such as sensitive cell and gene therapies for which quick transport is crucial, making EU manufacturers an ideal supplier if they can prove themselves competitive.
The limits of nearshoring
For the time being, Thakur-Wernz expects some level of nearshoring in biopharma production to continue but says underlying globalisation and deglobalisation trends come in waves, and eventually, “people realise that free markets are the best way to go”.
“I think it would be rather foolish for Europe to say, ‘we’re just going to have one big European market”, she says. Manufacturers will need to look outward for populations to which they can sell their products.
Further, as Quirmbach notes, “you can’t nearshore everything. There are significant raw materials, certain parts, which maybe today are only available from the far East”. In radiopharmaceuticals, for example, certain necessary isotopes or their precursors can only be sourced at scale from regions like the South China Sea or Russia, precluding outright regionalisation.
Outside manufacturing, Deman also points out that clinical trials take place across several jurisdictions. Beyond the question of finding large populations to support trial enrolment, Thakur-Wernz says, “if you’re trying to sell a drug in Africa or Asia, you want to have it tested on the demographics of Africa and Asia.”
With cheap labour key to the competitiveness of Indian and Chinese generics manufacturing over their European counterparts, increasing automation and artificial intelligence (AI) might shift this equation. But Quirmbach says it may be challenging to integrate new technologies with existing manufacturing infrastructures and practices. He says many pharmaceutical plants in Europe still rely on older pen-and-paper methods rather than purely electronical ones for batch records and other functions.
To introduce AI systems would require a massive overhaul to much of European manufacturing at large. The same is true for clinical trials, says Thakur-Wernz. “You still need people to administer [the treatments] – you still need technicians and doctors to take readings afterwards, so I’m not sure how much technology and AI will help reduce cost”, she states. Moreover, Quirmbach notes that Europe's own innovation trails that of Asia, exemplified in the recent breakout success of China's AI developer DeepSeek, leaving little hope for AI as the route to European competitiveness.
