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Europe’s last manufacturer of ingredients for some vital antibiotics is closing its biggest domestic factory and shifting some production to China, dealing a blow to Brussels’ efforts to reduce drug dependence on Asia.
Lossmaking Xellia Pharmaceuticals said it could only survive against Chinese competition by moving some of its production to its plant there.
Half of Xellia’s active pharmaceutical ingredients (APIs) feature on the recent EU list of critical medicines and the World Health Organization’s list of essential medicines.
The Danish company told staff on Tuesday that it would shut its Copenhagen plant, resulting in a loss of 500 jobs. For now, it will retain a more cost-efficient European operation in Budapest.
Its chief executive Michael Kocher said that unless government-funded health systems were prepared to pay more for generic medicines, more companies based in the EU would move factories.
“We are discussing so much about reshoring. I think it’s just as important to make sure that what we have in Europe stays in Europe,” he told the Financial Times in an interview.
The medicine ingredients Xellia makes includes vancomycin hydrochloride, which is needed to produce antibiotics that can treat severe infections such as sepsis, which are resistant to other drugs.
About 80 per of APIs used in the EU already come from China. With strained health systems unwilling to increase medicine prices, Kocher suggested that subsidies were the only way to ensure the EU retained some control over such important ingredients.
“Otherwise, not just 80 per cent of the APIs will come from China. It will be close to 100 per cent very soon,” he said.
Western demand for vancomycin hydrochloride could still be met from Budapest if market conditions improved, Kocher stressed.
The European Commission in March unveiled proposals that could be included in a Critical Medicines Act to try to address dependencies exposed by the Covid-19 pandemic, when countries ran short of medicines, protective clothing and equipment such as ventilators.
These proposals aim to increase EU production of more than 200 medicines, from antibiotics such as penicillin and erythromycin, to painkillers such as lidocaine and morphine.
The measures discussed include allowing countries to join up to make bulk purchases, and favouring EU-made products in procurement processes. But Kocher said the policies were too timid and taking too long to implement.
“Costs are increasing, you try to transfer these costs to your customer and then your customers decide the costs are too high and increase the share coming from China,” he said. “We are seeking . . . a commitment to support ongoing operations.”
Research-intensive pharmaceutical companies have also warned that low prices paid by European health systems are driving new drug discovery efforts to the US and China.
The chief executives of Novartis and Sanofi wrote to the commission last month to call for higher prices. They also pointed out that US tariffs were prompting companies to invest in North America. However, Xellia said it had no plans to do the same.
Xellia, which is owned by Novo Holdings, the controlling shareholder of Danish pharmaceutical powerhouse Novo Nordisk*, sells to more than 500 businesses in 80 countries. It will take a decade to slowly transfer production from its Copenhagen factory elsewhere.
Kocher said the EU should put more value on its “life-saving” products that treat meningitis and other lethal conditions. “Without our product portfolio, we would be faced with a huge challenge. Covid would be a small issue in comparison,” he said.
*This article has been updated to clarify the ownership of Xellia Pharmaceuticals.
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