Europe’s increased focus on the environment and corporate sustainability: an expensive game changer for the pharma industry

The pharma industry, with its intensive R&D activities, complex supply chains as well as pharmaceutical waste and issues around disposal of medicinal products, has become a priority sector for the European regulator. More corporate sustainability in the pharma industry promises not just to be a costly compliance exercise for pharmaceutical companies, but the almost simultaneous adoption of different legal instruments also makes it challenging to keep track of the newly imposed requirements. This article provides an overview of the key new environmental requirements (adopted or under negotiation) imposed on pharmaceutical companies and introduced in sector-specific legislation, i.e., the UWD and the review of the general pharmaceutical legislation.

Draft General Pharmaceutical Legislation and marketing authorization applications

First, the draft review of Directive 2001/83 and Regulation 726/2004 (the Draft General Pharmaceutical Legislation) introduces increased requirements for the environmental risk assessment (the ERA), which needs to be added to every marketing authorization application. The goal of an ERA is to evaluate the risks to the environment arising from the use and disposal of medicinal products and, in the case of potential risks, to propose adequate mitigation measures to minimize the impact of such risks to the environment. This may, for example, include measures to minimize the quantity of medicinal products released into the environment, specific risk-minimization activities for patients or appropriate labelling to facilitate the correct disposal of the product by patients and healthcare professionals.

The European Commission (the Commission) considers the current ERA requirements as insufficient to address environmental concerns because there are currently no real consequences associated with a defective ERA or (non-)compliance with the identified risk mitigation measures. However, the proposed new rules contain several far-reaching measures that will be available to the competent authorities to address these shortcomings.

A marketing authorization could, for example, be refused, revoked, suspended or modified and medicinal products may be prohibited or withdrawn from the market if the ERA is incomplete or insufficiently substantiated, or if there are serious environmental or public health risks that are insufficiently addressed by the applicant. In addition to the ERA becoming a substantive part of the marketing application process, national penalties could also be imposed for lack of compliance with the legislation if the ERA is not updated or required post-authorization ERA studies are not performed.  

While the ERA has been considered a voluntary measure with no stringent consequences attached for non-compliance, the European regulator now appears ready to address this shortcoming. Substantial criticism has already been expressed over the proposed new rules, including chiefly that, while significant consequences are proposed for non-compliance, there are no clear criteria introduced for regulators to assess the ERA.

The new system seems to leave substantial room for discretionary assessments by the authorities on what is considered “insufficient,” leading to uncertainty for companies over the fate of their marketing authorization and product launch. To counter such criticisms, the European Medicines Agency has announced that it intends to develop additional scientific guidelines to support companies in conducting their ERAs. Still, more action is needed to ensure that the system meets legal certainty requirements.  

Trilogue discussions are ongoing on the draft General Pharmaceutical Legislation, and it remains to be seen in what form the ERA will be adopted. However, with the European Parliament taking even a stricter stance on the ERA than the Commission, stricter requirements are likely. 

Urban Wastewater Treatment Directive 

Second, the UWD is expected to significantly impact pharma companies operating in the EU. The UWD replaces the existing Directive 91/271/EEC and introduces stricter rules on micropollutants to address the growing concerns over the impact of micropollutants in urban wastewater on the environment. 

Front and centre in the UWD is the extension of the primary (to reduce suspended solids in wastewater) and secondary treatments (additional treatment, generally through a biological process expressly targeting biodegradables) to tertiary (to reduce phosphorus and nitrogen in urban wastewater) and quaternary treatments (to reduce residual micropollutants in urban wastewater) (compared to Directive 91/271 which was limited to primary and secondary treatments).

Interestingly, the UWD now requires any manufacturer, distributor, or importer of medicinal or cosmetic products (Producer) in the European market to cover parts of the costs related to the quaternary wastewater treatment. This extended producer responsibility for quaternary urban wastewater treatment is expected to lead to substantial costs for such Producers. 

Producers also will have to join and financially contribute to an extended producer responsibility organization (EPRO) to collectively exercise this extended producer responsibility. This includes also providing at least annually a certain amount of information to the EPRO, including on the quantities of organic substances contained in their products, hazardousness and biodegradability of their products and exempted products. This also includes setting up internal systems to monitor and gather the required data. Obtaining the relevant sustainability data linked to organic substances and the biodegradability and hazardousness of Producer’s products may be challenging and costly for Producers due to their lack of experience over where, how and when to source meaningful data. 

While the UWD states that each member state may determine how much of the above costs may be passed on to the Producers, they should bear at least 80% of such costs. 

Limited exceptions apply, including if companies place products on the EU market (i) with a quantity of substance of less than one tonne per year or (ii) with substances that are rapidly biodegradable in wastewater or do not generate micropollutants in wastewater at the end of life. This means that the majority of pharma and cosmetics companies are expected to be covered by the UWD. 

It should not come as a surprise that the pharma industry has voiced concerns that the Commission’s impact assessment, consisting of estimated one-off and annually recurring costs for the industry and EPRO, substantially underestimates the actual costs that will have to be borne by the industry.

While the UWD is a first substantial step in addressing pollution in wastewater, and the aim of the UWD is to be applauded, it is questionable to what extent the pharma and cosmetics industries alone should be held accountable for quaternary wastewater treatment. The innovative pharmaceutical industry organization, the European Federation of Pharmaceutical Industries Association (EFPIA), has therefore challenged the UWD under various principles of European law such as the polluter-pays, proportionality, legal certainty and most importantly, non-discrimination.

This action for annulment is currently pending before the European General Court. As a mere annulment action does not have suspensive effects, companies should prepare to comply with the requirements under the UWD as from December 31, 2028.

Outlook 

The evolving nature of European environmental and sustainability legislation marks a significant shift for all sectors in Europe, with the pharma industry facing additional and expressly targeted obligations. New and future requirements arising under the ERA for marketing authorization applicants and holders and the UWD, impose far-reaching responsibilities on pharma companies, from comprehensive product lifecycle assessments to extended producer responsibility for urban wastewater management. 

Additional layers of requirements stemming from (non-pharma specific) legislation on corporate sustainability due diligence and corporate sustainability reporting directives, which aim to foster sustainable and responsible corporate behaviour across companies’ entire global value chains, are also expected after the Omnibus I Simplification Review.  

As these regulatory changes continue to unfold, it is important to closely monitor all pharma-specific developments and prepare to meet these complex compliance challenges.