How life sciences could help Europe compete globally for investment

Europe’s policymakers can help its life sciences sector to reach full potential, boosting the region’s attractiveness as an investment destination.

Europe’s life sciences sector (comprising pharmaceutical, BioTech and MedTech) is a vibrant source of job creation and investment. The pharmaceutical industry alone employs nearly 900,000 people across Europe and creates another 2.5m jobs indirectly. Pharma businesses invest a greater proportion of their revenue in R&D than does any other industry. And in 2023 alone, pharma and medical device businesses announced 349 foreign direct investment (FDI) projects in Europe, creating almost 20,000 new jobs.    

Amid Europe’s recent sluggish economic growth and poor performance in attracting FDI, governments are looking to the life sciences sector to revive the continent’s economic fortunes.

But there’s a problem. Europe’s life sciences sector faces increasingly intense competition from other regions. In the past two decades, 25% of Europe’s share of global R&D investment has been redistributed among other regions. In 2023, China overtook Europe in terms of launching new active substances (the main ingredients in medicine). The US overtook Europe back in 2000. 

To set about reviving the sector’s fortunes, policymakers should focus on five key areas:

1.      Prevent regulation from stifling innovation: The EY European Attractiveness Survey finds that, over the next three years, an increased regulatory burden poses the greatest risk to Europe’s competitiveness. In the pharma industry, regulation such as the EU Medical Device Regulation, introduced in 2017, has caused much frustration, in part because it has lengthened product approval times. Europe has already fallen behind other markets in this respect: just 16% of sales of new medicines launched between 2018 and 2023 were in Europe, while 67% were in the US. European regulators must strike a better balance between protecting citizens and promoting innovation.  

2.      Maximize the potential of AI: AI has huge potential in the life sciences sector, whether in accelerating drug discovery or improving patient care. But regulation such as the EU AI Act could limit implementation of the technology. Regulators should be prepared to adapt the new rules as the tech evolves, so as not to miss out on clear benefits for the sector. 

3.      Support the European Health Data Space (EHDS): In April 2024 the European Parliament voted in favor of creating the EHDS. The initiative enables patients and medical professionals to access their health care data across Europe. It will also make millions of anonymized patient data records available to innovators, potentially revolutionizing research, particularly in the area of rare diseases. Policymakers should support individual countries in updating their data management systems, so that they and the rest of the region can benefit from their involvement in this new initiative.    

4.      Close the funding gap: The EY European Attractiveness Survey finds that access to capital is now the most significant factor in determining where businesses locate their operations. Europe’s life sciences sector struggles on this front. For example, European biotech companies can only access around 20% of the finance that is available to their US competitors. Pharmaceutical companies will also need more financial firepower to fund a rising number of product launches during the next decade. Developing digital tools and upskilling and reskilling human workers also require huge investment. European policymakers can help by ramping up efforts to form the Capital Markets Union, which would provide European businesses with access to additional sources of funding.    

5.      Prioritize innovation in procurement: Governments can also attract life sciences businesses to locate in Europe by ensuring there is a local market for their products. Today, for example, when evaluating medical devices, government procurement departments prioritize volume and keeping short-term cost down. This often results in their procuring less sophisticated products at the expense of more innovative digital solutions, jeopardizing both longer-term cost effectiveness and patient wellbeing. By changing procurement methods, governments can encourage innovative life sciences businesses to come to Europe’s shores. 

Europe’s life sciences sector faces intense competition from the US and Asia. If policymakers can enhance the region’s attractiveness, they will be rewarded with greater investment, an economic boost, and, most importantly, better outcomes for patients. 

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.