The EU Needs To Change Its Regulations To Boost Pharma Innovation, Argue Researchers

Better cooperation and regulatory efficiency needed to attract investment

A study by Bayes Business School, in partnership with Merck KGaA, has found that the European Union (EU) risks falling behind international peers in pharmaceutical innovation unless it reforms its regulatory environment.

The researchers argue that member states should harmonize policies, offer stronger incentives for drug development and streamline approval processes to make Europe a more attractive location for pharmaceutical companies.

The analysis, published in Drug Discovery Today, examined the reasons behind pharmaceutical firms’ preference for submitting new drug applications outside the EU, particularly to the United States. Based on interviews with 47 senior industry experts from 19 countries, the study highlights several structural challenges facing the EU’s current system.

Challenges within the European regulatory landscape

Interviewees pointed to several reasons why pharmaceutical companies prioritize regulatory submissions in other jurisdictions:

• Pricing constraints: Lower drug prices across Europe limit company revenues and margins.
• Market fragmentation: Varying national reimbursement systems complicate post-approval access.
• Higher costs: Increased taxation and R&D expenses in the EU reduce the incentive for domestic innovation.
• Access to capital and trials: Limited funding opportunities and regulatory barriers to clinical trials hinder development.
• Market size and complexity: Compared to the US, the EU market is perceived as smaller and harder to navigate.

These factors contribute to a growing perception among pharmaceutical firms that the US, China and Japan offer more favorable environments for launching new therapies.

“It is widely recognized that the European drug dispersion has fallen behind that of the US and others,” said Stefan Haefliger, a professor of strategic management and innovation at Bayes. “Indeed, the UK’s development and rapid deployment of the Oxford Astra-Zeneca vaccination during COVID was celebrated by Eurosceptics as a ‘Brexit dividend’ – following the UK regulatory framework’s aggressive strategy after departure from the trading bloc.”

Recommendations to enhance Europe's competitiveness

The authors suggest several strategies to improve the EU’s attractiveness to pharmaceutical innovators. These include:

• Creating regulatory sandboxes to test new approaches in a controlled environment.
• Providing joint scientific advice for drug-device combinations.
• Introducing electronic product information to streamline documentation.
• Simplifying the licensing system and offering unlimited marketing authorizations, reducing the need for periodic renewals.

These measures could build on Europe’s existing strengths, such as its scientific expertise and diverse talent base, while reducing systemic inefficiencies that delay innovation and access.

Study reinforces wider concerns raised by policymakers

The findings are consistent with the 2024 Draghi Report, which highlighted stagnation in Europe’s pharmaceutical sector and called for reform in regulatory procedures, capital investment, and digital infrastructure. The study also referenced global developments, such as the rapid vaccine deployment in the UK during the COVID-19 pandemic, which some viewed as an outcome of more agile post-Brexit regulatory policies.

“Our study is supported by findings of the 2024 Draghi Report, that laid bare the EU’s stagnation in pharmaceutical growth and urged reform in regulatory processes, capital access, and technological adoption,” Haefliger added.

“While many individuals in our study cite the lack of synergy between EU members as a reason for their reluctance to develop drugs in Europe, there remains a highly diverse pool of expertise – and certainly the potential to become a more attractive proposition.”

“Without significant changes, however, the EU risks falling further behind its competitors in attracting pharmaceutical innovation, investment, and leading research talent.”

Although the EU retains a strong base of scientific knowledge and clinical capability, the research suggests that without coordinated action, it may struggle to remain a leading destination for pharmaceutical research and development.

Reference: Franco P, Haefliger S. Competition of regulatory ecosystems in approving medicines: Policy implications in the case of Europe. Drug Discov Today. 2025. doi: 10.1016/j.drudis.2025.104295

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