Why EU Pharmaceutical Companies are Being Forced to Relocate

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Pharmaceutical Technology Europe

Pharmaceutical Technology Europe, Pharmaceutical Technology Europe-08-01-2003, Volume 15, Issue 8

During the last few years, it has become increasingly apparent that many large pharmaceutical companies are moving their research and development operations to the US, leaving Europe with increasing numbers of smaller companies. This article briefly examines the possible motives for relocation, including the impact of regulation differences between the US and Europe.

In the Brussels Report of the April issue of Pharmaceutical Technology Europe,1 Albedo stated that despite of the European Union's (EU's) wish to keep pharmaceutical and biotechnology development moving in the right direction, things are not going according to plan. This is hardly surprising given that the EU's answer to most problems in the industry is to write another piece of legislation. However, this only achieves the opposite effect and forces EU companies to relocate - mainly to the US.

Indications during the last 5 years suggest that many of the big pharmaceutical companies have moved their research and development (R&D) units to the US, leaving Europe with mainly small-sized companies.2 No reasons have been provided for the moves, but the US must offer something that Europe does not. This article briefly considers the possible reasons why large pharmaceutical companies are relocating from Europe to the US.

Europe is not short of highly qualified scientists and salaries are not significantly different compared with the US.3 The market size of both is similar, although Europe will perhaps has a slight advantage after enlagement in 2004. Prices paid by health servers and insurance companies in Europe are lower than in the US, making Europe less profitable to big pharmaceutical companies. Perhaps relocation is being caused by regulations.

Legislation and regulatory bodies

Every year, European pharmaceutical companies are burdened with as many as 3000 pieces of non-pharmaceutical legislation in addition to hidden and overt tax increases such as business rates; national insurance and/or health insurance increases; environmental levies; inheritance law changes; and compliance with national fiscal policies. Over-rigorous application of EU laws by some countries, such as the UK, has resulted in large additional costs including compliance with health and safety regulations and environmental pollution laws. This means that the authorities spend a significant amount of time inspecting compliance in addition to normal good manufacturing practice (GMP) inspections.

In many EU countries, corporation and personal taxes are much higher compared with the US and in some EU countries, unions are so strong that management can no longer run the business profitably. Although pharmaceutical regulations such as GMP are similar in both the US and the EU, they do differ in the way regulations are implemented. In addition to the EU regulatory body, the European Agency for the Evaluation of Medicinal Products (EMEA), each member state has its own regulatory body. If a company wants to market a product outside its home country, up to 14 other regulatory bodies must be consulted because a centralized EU registration system has not yet been widely adopted.


This means that companies have to employ an army of regulatory professionals and each product registration means multiple fees. In comparison, the US has only one body, the US Food and Drug Administration (FDA), and so companies only pay one fee. Translation fees can also be very expensive when they are required for registration in a member state that requires a different language.


In the UK, another regulatory body, the National Institute for Clinical Excellence (NICE), deters product marketing because it evaluates if a drug is good value for money. NICE was established to end 'postcode prescribing' in the UK, where treatments are available from one health authority but not another. This, however, discourages pharmaceutical companies to bring new drugs to market in case they fail NICE's evaluation. Many other EU countries are now looking with interest at this new barrier to registration, which could save them money.

Frequency of change

Another reason why big pharmaceutical companies move their R&D operations to the US is because in the EU, there are too many changes too often, many of which are often unnecessary. For example, each country has its own laws regarding the registration, manufacture and marketing of dietary supplements and herbal medicines, which work very well for each country; the EU, however, has decided that these processes must be harmonized. This will mean additional costs and more uncertainty to an industry already overburdened by legislation and worried about its future, and some small manufacturers will go out of business.

Clinical practice

Every country in the EU has a well proven system of clinical practice to evaluate new products, but this will no longer be allowed when GCP is harmonized across the EU by directive EU.2001/10/EC, which will require further inspections and additional staff. As a result, many small companies and biotech start ups will no longer be able to afford to undertake clinical research.

Harmonization will bring with it criminal offences for breeching any of its regulations and directors of pharmaceutical companies could face prison sentences. These new penalties could also increase insurance premiums to the point where companies will be forced to stop R&D.


A further barrier to research are patent fees. It has taken the EU more than 30 years to agree provisions for an EU-wide patent, although this is not yet in force. Therefore, individual country patents are required, which can cost up to e50000 to file in just eight member states; in the US and Japan, the cost is approximately e10000. This is extremely expensive for smaller companies, particularly biotech start-ups that need the patents.

Subsidies and funding

It is said that Europe subsidizes pharmaceutical R&D with grants. However, with the exception of the UK Department of Trade and Industry SMART Awards, this is not strictly true. The EU's Framework Programme Six grants are so limited and difficult to obtain they are only suitable for academia.

The application process is very complicated, and UK small and medium-sized enterprises (SMEs) are advised to apply for a preparatory research award (PRA) of E14000, which is paid to a consultant to examine the application on a company's behalf. The grant itself is structured in such a way that any resulting intellectual property rights (IPR) must be shared with other companies in other member states.

In comparison, the US offers funding for research via its National Institute for Health for cancer research and other diseases and the various states can provide funding to keep jobs in the state.2 Lenders in Europe generally do not take risks until a project is reaching maturity and even then rarely lend to small manufacturers.


If the EU pharmaceutical industry does not want to fall too far behind its US counterpart, it must quickly understand that the decrease in pharmaceutic companies in Europe is directly proportional to the rise in European regulation. The additional legislation is causing increasing costs, which detrimentally affect SMEs.

The EU must realize that large pharmaceutical companies grow from smaller companies. During the last 10 years, there have been large numbers of redundancies in the industry caused by pharmaceutical mergers and acquisitions, but a reduction in the number of start-ups has meant that people have had to relocate to the US to find work. This vicious circle is causing the EU pharmaceutical industry to shrink.


1. Albedo, "More Trouble at the EU Pharmaceutical Mill," Pharm. Technol. Eur. 15(4), 13-16 (2003).

2. Scrip Magazine No. 2840 11 April, 18 (2003).

3. M. Rios "Fifth International Employment Survey," Pharm. Technol. Eur. 15(1), 23-29 (2003).