Buy European: Incentivising EU Based Pharmaceutical Manufacturing

The EU Critical Medicines Act (the “Act”) represents an ambitious effort to strengthen the resilience, security and sustainability of the European Union’s supply of critical medicines in the face of persistent shortages of some medicines. 

First proposed by the European Commission in March 2025, provisional political agreement was reached between the Council and European Parliament in May 2026, with the provisional text published the following month. The next steps are finalising the text and formal approval by the European Parliament and the Council before formal adoption by both institutions.  All being well, one might anticipate that this will occur by the end of 2026 or early 2027.

The Act must be read alongside the draft Regulation 2023/0131 (COD) which is part of the Pharma Package (the “Regulation”).  The Regulation is further ahead in the legislative process, having been approved by the Parliament and member states.  It remains in draft form while the text is finalised ahead of formal adoption. 

Pharmaceutical manufacturers and their investors will want to consider the incentive structures that the Act offers to secure sales in the EU in the longer term.  Those structures include sticks and carrots:  manufacturers will need to consider how they react to both.

What is a critical medicine?

In accordance with the Regulation, a “critical medicine” is one for which insufficient supply would result in serious harm, or the risk of serious harm, to patients. All such medicines will be included on the Union List of Critical Medicines. Examples include medicines such as antibiotics, vaccines and medicines for chronic and acute diseases.  The list is continuously evolving, updated by the EMA’s Medicines Shortages Steering Group following consultation with member states on the medicines they consider to be critical in their countries.

There is a separate category of “medicinal products of common interest”.  These medicines are not critical medicines but are medicines for which three or more member states consider the market is not acting to ensure availability and accessibility in necessary quantities and presentations.  This is more likely to occur in smaller countries in the EU, of which there are many given that of the 27 member states, five countries include 52.8% of the total EU population and the rest only 4.2% or less, with some 12 countries having less than 1.5% of the total EU population. 

Stick and carrot approach

The Stick

Critical Medicines

The Act distinguishes critical medicines for which there is “vulnerability in the supply chains’ from those which there is not the same vulnerability (being a level of dependency on a single or limited number of third countries). For critical medicines with a vulnerable supply chain, the Act introduces measures to incentivise resilience in public procurement procedures involving critical medicines. For these critical medicines with supply chain vulnerabilities, contracting authorities must implement resilience-related requirements that establish a preference for EU manufactured critical medicines. Rather than imposing a percentage threshold for EU based manufacturing (as the original draft proposed), the provisional text allows contracting authorities to tailor procurement criteria to their specific needs. For example, they could relate to stockholding obligations, timeliness of the delivery, or management of the supply chains, all of which could increase working-capital requirements. By placing emphasis on resilience criteria, it is hoped that public health contracts will focus less on lowest-price models and more on the sustainability of supplies. Where there is divergence in how member states tailor their procurement criteria, this may increase competition between contracting authorities and member states as they compete to attract bids from the same critical medicines manufacturers. 

As emphasis shifts towards resilience criteria, this could dilute the appeal of cheaper generic versions of critical medicines that are not manufactured in the EU. To mitigate this impact, non-EU based manufacturers may need to consider establishing EU production, entering a manufacturing partnership or engaging in dual sourcing through an EU based supplier.  

Medicinal products of common interest

For medicinal products of common interest, contracting authorities will have the discretion (not the requirement) in procurements to favour suppliers manufacturing the products or a significant proportion of them in the EU, but such a decision must be supported by market analysis and public health considerations. 

We might expect to see manufacturers based outside the EU who lose bids to supply medicinal products of common interest against local manufacturers challenging the procurement decision if they consider that the market analysis or public health arguments might be weak. 

Manufacturers might also want to keep in view whether there is any likelihood of specific products being declared “medicinal products of common interest”.  There might be some potential for them to control whether such a declaration might occur by fully supplying potential demand, although this is not always possible where there are other suppliers in a particular product market who supply a larger proportion of the market. 

The Carrot

To further reinforce EU based manufacturing, the Act permits Member States and the EU to support to “strategic projects”, subject to state aid rules. According to the Act, entities will be able to apply for “strategic designation” where a project is located in the Union, and seeks to:

• create or increase manufacturing capacity, including through new technologies and innovative manufacturing processes, for critical medicines or their active substances;

• modernise an existing manufacturing site used for critical medicines of their active substances to ensure greater sustainability or increased efficiency;

• create or increase manufacturing capacity for key inputs necessary for the manufacture of critical medicines or their active substances; or

• contribute to the roll-out in the Union of a technology that plays a key role in enabling the manufacture of critical medicines, their active substances or key inputs.

This demonstrates that strategic projects need not concern finished dose production only. They may also involve, for example, sterile fill-finish, API production, and enabling manufacturing technologies for critical medicines. Once designated, strategic projects can access fast-track permits, streamlined administrative processes, and financial support from the Member State or the EU itself. This could make EU-based manufacturing facilities more strategically valuable to investors and life sciences companies.

These measures work together to make EU based pharmaceutical manufacturing more attractive: a) financial support lowers the risk of building or upgrading manufacturing plants, and b) the preference for EU-manufactured critical medicines in procurement procedures provides some assurance of sufficient demand. With the potential impact on projected revenues, capital expenditure and financing, investors may need to reassess valuations for businesses with relevant EU capacity or technology. This could involve expanding due diligence to include questions designed to understand if and how the Act may benefit, or hinder, a target. 

Next steps for companies

For manufacturers with manufacturing facilities outside the EU for medicines not on the critical medicines list (the majority), if they fail to maintain adequate supplies across all EU member states, they could find the products included in the list of “medicinal products of common interest”. Once on that list, and particularly if there are competing alternative manufacturers, they could find themselves losing a battle to win procurements for that product if they lack manufacturing facilities in the EU where there are competitors who do manufacture in the EU.  The goal for such manufacturers, will be, if they have sufficient control over supplies to the market, to prevent such medicines ending up on the list of “medicinal products of common interest” to avoid the risk altogether.

Overall, the Act signals a structural shift from a market that historically prioritised lowest cost, and towards one that rewards supply chain resilience and EU-based manufacturing. Companies and their investors should map products and supply chains, review potential tender exposure, assess existing or planned EU manufacturing capacity, identify projects that could be designated as “strategic”, and monitor the Union List of Critical Medicines and the medicinal products that are or might in future be considered to be “of common interest”.

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