Research from Bayes Business School and Merck KGaA identifies barriers to investment and calls for reform to attract biopharma companies back to Europe.

The European Union risks falling behind in the global race for pharmaceutical innovation unless it reforms its regulatory framework, according to new research from Bayes Business School in collaboration with Merck KGaA.

The study, based on interviews with 47 senior pharmaceutical leaders from 19 countries, found that Europe is no longer the first-choice market for drug development and approval. Companies increasingly favour the United States and other regions due to faster regulatory approval times, greater access to capital and clinical trial infrastructure, and stronger financial incentives.

Professor Stefan Haefliger, co-author of the study and expert in strategic management and innovation at Bayes, said that while the EU boasts deep scientific expertise, systemic inefficiencies are deterring investment. He added: “The EU’s fragmented regulatory landscape, coupled with rising costs and lower pricing, is limiting its appeal as a launch market for innovative medicines. There is still huge potential, but structural reform is essential.”

Key challenges identified in the report include:

• Lower drug prices in the EU, limiting potential returns for pharma companies

• Complex post-approval access due to disparate national reimbursement systems

• A smaller market size compared to the US

• Rising taxes and R&D costs across member states

• A decline in clinical trial activity linked to regulatory constraints

• Limited access to capital and innovation infrastructure

To reverse these trends, the study proposes several strategic improvements. These include introducing regulatory sandboxes for innovative therapies, offering joint scientific advice for drug-device products, enabling electronic product information (ePI), and simplifying procedures such as the current five-year marketing authorization renewal requirement.

The research echoes concerns raised in the 2024 Draghi Report, which warned of stagnation in EU pharma competitiveness. It also draws parallels with the UK’s faster vaccine rollout during the COVID-19 pandemic – cited by some as a post-Brexit regulatory advantage.

Pedro Franco, co-author and Head of Europe Global Regulatory and Scientific Policy at Merck KGaA, noted that collaboration across EU member states will be crucial. He said: “We need more harmonized, proactive engagement across borders to build an ecosystem that supports innovation while ensuring timely access to new therapies.”

The study concludes that, without urgent regulatory and policy reform, the EU risks further decline as a preferred market for pharmaceutical innovation, investment, and talent.