The impact of the energy crisis on pharma

The rising price of energy is forcing pharmaceutical companies to take drastic cost-cutting action.

A recent open letter from lobby group Medicines for Europe, warned European ministers that pharmaceutical companies may have to stop producing cheaper generic drugs as a result of the increase in the prices of electricity and raw materials.

The group represents Sandoz, Teva, Viatris and Fresenius Kabi among others. According to the letter, the price of materials has risen between 50 and 160 percent, putting pressure on profit margins. The signees are now calling for manufacturers of generics to be exempt from requirements to reduce electricity consumption and for greater flexibility on drug prices.

Higher costs and shortages

Disruptions caused by the Covid-19 pandemic highlighted Europe’s dependence on suppliers around the world, with shortages of active pharmaceutical ingredients (APIs) and materials used for packaging. Continued lockdowns in China have exacerbated these shortages and the war in Ukraine has pushed the price of energy up.

A survey of 846 pharmaceutical businesses across 17 different countries in Europe and Asia as well as the US, found that 77 per cent of firms are having to change their business models to counter rising costs. Over a quarter of total respondents described those changes as “radical”.

Shifting to green energy

The research by consultants Ayming also found that businesses are looking for alternative energy sources and are rethinking their supply chains to make them more cost-effective. Highlights of the survey include:

• 82 percent of pharma firms have been forced to make changes to counter rising energy bills, 36 percent of which describe the changes as radical.
• 41 percent of firms are looking for energy efficiency savings
• 30 percent of firms are looking for alternative energy sources such as a new supplier or renewables.
• 25 percent are looking for alternative materials such as those not derived from fossil fuels.
• Only 58 percent of respondents said they were receiving the funding necessary to navigate the energy crisis.

Njy Rios, Director of Innovation Incentives at Ayming UK, says that the energy crisis is leading companies to consider sustainability and explore environmentally friendly alternatives. “Companies weren’t previously motivated to change at this scale due to the large upfront costs,” he says. “Reducing your energy consumption can be really expensive, but the crisis has flipped that on its head.

“Now, the cost of doing nothing outweighs the cost of investment. In that way, the energy crisis is a natural catalyst for green action and sustainable innovation.”

Quick links

• Sustainability in pharma: how do we measure up?
• Five ways pharma is reducing its carbon emissions
• Top 10 pharma execs leading sustainability efforts

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