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Commentary PFA A Potential Paradigm Shift in Atrial Fibrillation Ablation Landscape by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Commentary: PFA – A Potential Paradigm Shift in Atrial Fibrillation Ablation Landscape

Pulsed Field Ablation (PFA) is an emerging technology for treating atrial fibrillation (AFib), a form of irregular heartbeat affecting 40 million heart patients worldwide as of 2023. As the prevalence of AFib is increasing, all eyes are on this novel, minimally invasive technology that offers improved effectiveness, safety, and shorter procedure and recovery time compared to the existing thermal ablation procedures.

PFA applies short, high-voltage pulses of energy to cardiac tissue and is proven to be more precise and safe than the thermal ablation methods, which come with the risk of damaging collateral tissues.

A clinical trial conducted by Medtronic across North America, Europe, Australia, and Japan during 2022-2023 revealed that the efficacy performance of its PFA system PulseSelect stood at 66% in paroxysmal and 55% in persistent AFib patients against the pre-specified performance goals of >50% (paroxysmal) and >40% (persistent). Performance goals were set based on multiple studies conducted on thermal ablation procedures that evaluated efficacy based on the freedom from acute procedural failure and arrhythmia recurrence in one year.

Despite promising results, the first-generation PFA technology still needs improvement in targeting the tissue of interest, and players in the field are developing supportive systems such as mapping systems to improve performance.

PFA emerges as a better alternative to conventional ablation methods

PFA is viewed as the best evolution within the electrophysiology (EP) space (comprises ablation catheters, diagnostic catheters, laboratory devices, and access systems used to treat arrhythmia). The tissue-targeting approach of PFA overcomes the drawbacks of thermal ablation methods, such as extensive scarring and the risks of injuring nearby organs. Along with improving clinical outcomes, this transformative technology will significantly improve patient experience and reduce the cost of care by lowering procedure and recovery time.

Being safer than other ablation methods, PFA is set to become the preferred modality

Only about 2% of the eligible patients with AFib globally and 15% of the eligible patients in the USA were treated with ablation as of February 2023, according to a MedTech analyst at Bank of America. This is because thermal ablation comes with the risk of damaging nearby issues, which can lead to damage to the esophagus, phrenic nerve, and pulmonary veins.

A study published by the European Heart Rhythm Association in January 2024 comparing the outcomes of PFA and thermal ablations stated that the risk of injury from PFA was 3.4% compared to 5.5% in thermal ablation. PFA, being safer than thermal ablation, can be expected to reach many more eligible patients. After the launch of Boston Scientific’s Farapulse in Europe in January 2021, 38,000 AFib patients were treated there with the Farapulse PFA system during 2022-2023, compared to 2,000 patients Farapulse treated in 2021. Moreover, Boston Scientific predicts the global AFib ablation market will grow from US$5 billion in 2023 to US$11 billion in 2028, driven by the increase in the number of PFA procedures.

The growing adoption indicates that PFA has the potential to become the preferred method for treating AFib over the existing treatments, such as thermal catheter ablation and surgical ablation procedures.

Initial clinical trials indicate PFA results in better patient outcomes

With this new technology, patients will experience an improved quality of life with a significantly lower risk of complications and post-procedural discomfort.

This finds evidence in some of the studies performed by the industry. In January 2024, the European Heart Rhythm Association published a study comparing the performance of Boston Scientific’s Farapulse PFA system against thermal ablation systems in 1,572 patients across Europe. The study showed that 85% of patients who underwent PFA experienced overall freedom from AFib after one year, compared to 77% of patients who underwent thermal ablation procedures.

Reduced time of post-procedure care is PFA’s major advantage

With a duration of about 2 hours, the PFA procedure is shorter than thermal ablation, which takes 3-4 hours. More importantly, PFA requires a few hours of hospitalization post the procedure, while thermal ablation is typically associated with one day of hospitalization after the procedure.

Shorter hospital stays improve patient experience by minimizing stress and discomfort from longer hospitalization hours. They also enable faster scheduling, as hospitals can perform more procedures and minimize scheduling delays.

As PFA does not require in-patient admissions, PFA procedures will not be disrupted by hospital bed shortages. This is a considerable advantage, as many developed countries such as the USA and the UK lack adequate hospital bed capacity. As of 2021, there were 2.8 hospital beds per 1,000 population in the USA and 2.4 in the UK, below the WHO’s recommendation of 3.4 beds per 1,000 population.

Moreover, reducing the length of hospital stays yields significant cost savings for patients as well as the payers. Reducing a hospital stay by a day or several hours translates to savings that cannot be ignored. For instance, in the USA, the average cost of per-hour hospital observation is US$600 in 2024, as per the healthcare pricing transparency platform Turquoise Health. The average cost of per-day hospitalization was US$2,883 in 2021, as per a study by the Kaiser Family Foundation (Medicare patients are eligible for $1,632 reimbursement). In the UK, the average cost of per-hour hospital observation is US$100, and the cost of per-day hospitalization is US$442 as of 2022, according to the National Health Service.

Short learning curve and procedure time facilitate performing more procedures

A short learning curve equips more cardiologists and trainees with the skills required to perform and support the procedure faster. Cardiologists typically get comfortable with PFA procedures after 5-10 cases, which allows to expand the pool of specialists performing this treatment relatively quickly and easily. This, in turn, can significantly improve PFA accessibility.

As the shortage of physicians continues to worsen globally, particularly in the USA, which represented 50% of the ablation market in 2023, PFA can play a crucial role in facilitating an increase in the number of procedures performed at a hospital within the same timeframe. With an expected shortage of 120,000 cardiologists in the USA by 2030, according to a 2021 report by the Association of American Medical Colleges, performing quicker procedures can help to partially offset the lack of specialists. Since PFA takes 30-50% less time than conventional ablation methods, it has the potential to significantly increase the number of procedures performed.

MedTech companies grow their ablation market share by offering PFA devices

With increased health screening efforts that detect more patients with arrhythmias, the number of cardiac ablation procedures performed globally doubled between 2013 and 2023 to reach about 650,000 procedures in 2023.

Boston Scientific expects the global AFib ablation market to more than double to US$11 billion during 2023-2028, with PFA predicted to grow to more than 80% of procedures (from under 5% in 2023). PFA technology is expected to be adopted quickly. As seen in Europe, PFA devices were launched in 2021, and already about 12% of the ablation procedures in the region in 2023 were done using PFA technology.

J&J, Medtronic, and Boston Scientific take the lead in the PFA field

Eyeing the potential of this emerging market, MedTech giants such as Johnson&Johnson (J&J), Medtronic, and Boston Scientific (accounting for 55%, 10%, and 5% share of the global thermal ablation market in 2023, respectively) have entered the market with their newly developed PFA devices. Being early entrants, these companies have the potential to expand their market shares in the cardiac ablation market by grabbing shares from thermal ablation procedures.

Boston Scientific was the first company to commercialize PFA devices with the launch of the Farapulse PFA system in Europe in January 2021. Boston Scientific enjoyed a two-year monopoly in the European market until Medtronic launched an integrated mapping and PFA system called Affera in March 2023. Later, the company launched another PFA system, PulseSelect, in December 2023. In February 2024, J&J’s Varipulse PFA system also received approval in Europe.

In the USA, Medtronic was the first company to receive FDA approval for its PFA system PulseSelect in December 2023, followed by Boston Scientific in January 2024. Medtronic also received FDA approval for Affera in March 2024.

J&J is the only company with a presence in Asia, as the company received approval for its PFA system in Japan in January 2024. Abbott is currently conducting clinical trials for its PFA system Volt in Australia and expects to start clinical trials in the USA this year.

The companies work to enhance and improve their systems. For instance, Medtronic’s integrated mapping and PFA system Affera offers enhanced procedure performance supported by real-time mapping. The integrated system includes an ablation catheter Sphere-9 and mapping software to facilitate real-time mapping. Sphere-9 catheter can perform high-density mapping and ablation simultaneously to allow cardiologists to deliver wide-area focal ablation lesions quickly. Affera can also work with the PulseSelect PFA system to provide real-time mapping. Similarly, J&J has a 3D mapping system called Carto 3 (in the market since 2009), which integrates well with its PFA system and generates real-time 3D mapping that aids in better cell targeting. Boston Scientific has not developed an exclusive mapping system for its PFA system, however, the company claims that any catheter mapping system will work well with Farapulse.

Comparing the PFA systems’ performance in the clinical trials, all systems, including Boston Scientific’s Farapulse, Medtronic’s PulseSelect, Medtronic’s Affera, and J&J’s Varipulse proved to be effective in over 70% of patients in terms of freedom from arrhythmia recurrence in one year.

Currently, PFA devices are only available in the USA, Europe, and Japan, with Boston Scientific dominating in Europe. Boston Scientific has witnessed high adoption rates in Europe so far, and the company has been able to serve 40,000 patients in three years since its entry into the European market in 2021. The company expects an overall organic sales growth of 8-10% during 2024-2026, driven by its PFA devices. Medtronic and J&J have just launched their PFA systems in the USA and Europe, and how these companies perform has yet to be seen. Analysts from BTIG financial services firm predict that Medtronic’s PulseSelect will secure 9% and Boston Scientific’s Farapulse will secure 14% of the cardiac ablation market (which comprises PFA and two other forms of thermal ablation procedures – radiofrequency and cryoablation) in the USA by 2025.

With competent technologies, the market is expected to witness stiff competition from these companies. Analysts from BTIG financial services firm predict that by 2027, PFA will grab 48% of the US cardiac ablation market, while the radiofrequency ablation market will have a 42% share and cryoablation a 10% share. The expected PFA’s 48% market share is likely to be split amongst the leading PFA systems – Boston Scientific’s Farapulse, J&J’s Varipulse, Medtronic’s PulseSelect, and Medtronic’s Affera, at 16%, 13%, 10%,7%, respectively, followed by others with 2% share.

While these companies have already entered the PFA space, Abbott’s wait-and-see approach to PFA may backfire on its performance in the EP market. The company aims to commercialize its PFA system Volt in the USA by 2027 or 2028. However, PFA’s fast adoption threatens Abbott’s US$1.9 billion EP business and its 15% global thermal ablation market share (as of 2023). Growing PFA adoption could also threaten Abbott’s diagnostic catheter and mapping systems, as healthcare providers using PFA systems would prefer buying mapping systems linked to PFA.

New entrants to drive innovation and further improve PFA technology

Apart from the large players, there are a few smaller players, such as Canada-based Kardium, US-based Adagio Medical, and US-based Pulse Biosciences, that are developing PFA systems. These companies are investing in improving the PFA using nanotechnology and supportive systems such as 3D mapping systems. For instance, Pulse Biosciences developed Nanosecond PFA (nsPFA) technology that uses superfast nanosecond pulses of electrical energy that can regulate cell death, which spares adjacent noncellular tissue. The company expects FDA approval for this system in 2024.

EOS Perspective

Over the years, MedTech companies have been actively pursuing the development of minimally invasive procedures that have shorter recovery periods, offer improved patient outcomes and reduced post-procedure discomfort. As the limitations of the existing ablation methods became apparent, PFA poses a vast growth potential, as it is a safer, more convenient, and more effective alternative.

On the other hand, the pulsed-field waveform is significantly more complex than the energy modalities that preceded it, with numerous variables determining the dose targeted at the tissues and the quality of the resulting lesion. While a variety of PFA systems have demonstrated effective ablation procedures, these systems have yet to advance in overcoming all limitations of targeting the tissue of interest and rare but potentially serious complications.

In the coming years, we can expect companies to develop multiple catheter configurations that allow cardiologists to configure the energy delivery to achieve the desired energy dose and lesions. This includes the development of multi-configurable ablation catheters that can shift shapes to create circular, linear, or focal ablation lesions without performing catheter exchanges.

As the technology advances, we can expect PFA to dominate the AFib ablation market and democratize AFib ablation procedures by improving accessibility to all eligible patients.

Europe AI Regulation Deal – Beginning of a New Technological Era by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Commentary: Europe AI Regulation Deal – Beginning of a New Technological Era?

The proliferation of artificial intelligence (AI) applications in recent years has highlighted the importance of regulatory frameworks to ensure AI’s responsible use. Recognizing this, the EU has become the first global power to pass AI-related legislation. The EU AI Act, considered a watershed moment in today’s digital era, is expected to create ripples worldwide and prompt leaders to take initiatives to control the use of AI.

The AI industry, valued at US$454.1 billion in 2022, is predicted to reach US$2.6 trillion by 2032, according to a 2023 report by Canada/India-based market research company Precedence Research. Although this impressive increase in the use of AI offers immense potential, it has raised numerous concerns about its misuse. Many industry experts have voiced concern about how significantly AI impacts important industries such as education and health, and may eventually alter human lives.

Regulatory bodies and governments worldwide are also now aware of the risks of bias, discrimination, and privacy breaches that come with the unrestricted use of AI. A 2020 study published in Sustainable Development, an interdisciplinary journal, found that unchecked AI poses a threat to the Sustainable Development Goals (SDGs) established by the UN.

The EU took its first step in addressing concerns related to AI in April 2021 when it released the first draft of EU AI regulation. However, this draft was revised after the 2022 release of ChatGPT to include the newer technological advances with a future-proof approach that will enable the law to evolve as technology does.

The EU AI rule uses a risk-based strategy to divide AI systems into categories, namely unacceptable, high, limited, and minimal risk. Systems categorized in the unacceptable risk group will be banned, and those with high risk will undergo a rigorous assessment to understand their effect on fundamental rights and be given a CE mark before their market release.

The limited risk category that fulfills specific transparency requirements should follow EU copyright laws, prepare technical documentation, and release a synopsis of the training materials so the users can make an informed decision. Companies can release minimal-risk systems, such as spam filters and AI-powered video games, without restrictions.

The AI Act has also introduced certain transparency requirements for general-purpose AI (GPAI) models such as Gemini and ChatGPT. For powerful and highly effective models, there are additional risk management requirements, such as maintaining cybersecurity standards, conducting evaluations, assessing and mitigating risks, and reporting serious events.

The EU AI Act has several implications for business across the continent

Many industry experts consider the EU AI Act a significant regulatory tool for overseeing the advancement and utilization of AI technologies throughout the continent. The enforcement of this act is expected to influence significantly the operations, approaches, and competitive environment across several sectors in the EU, as well as intercontinental business with products traded in the European market.

Achieving compliance is one of the main challenges businesses will face with the introduction of the new EU AI law. The law comes with a hefty penalty for non-compliance, with most violations costing businesses €15 million, or 3% of their annual global turnover. Non-compliance concerning banned AI systems can result in fines of up to €35 million, or 7% of the company’s annual turnover. Furthermore, providing false, deceptive, or incomplete information may result in fines of up to €7.5 million, or 1.5% of the total turnover.

Any organization aiming for compliance needs to perform a gap analysis to identify disparities and enhance company processes, policies, and metrics. They must also provide the regulators with accurate, efficient, and timely answers. All these place a substantial organizational and economic burden on the companies.

Another challenge businesses can face is implementing all the changes needed to fill the compliance gap while being consistent with their internal structure. This will require the company to identify the metrics it needs to track to achieve compliance and design new organizational procedures to fulfill this. This should also be done in such a way that it does not hinder other strategic goals, such as innovation, budgetary constraints, etc., placing additional strain on the leadership.

Companies offering multiple AI solutions can face several complicated roadblocks with the implementation of the EU AI Act. Such organizations will be subject to a different set of regulations depending on the risk category of their AI products. This can lead to internal policy confusion.

Slower product development cycles and delays in product releases are other bottlenecks that companies will need to address with the act’s implementation. New AI-powered products, especially high-risk ones, now need to undergo more rigorous evaluation to ensure compliance, which can slow the entire process.

Players can also face challenges in M&A activities with the new regulations. Businesses will now need to spend more time and resources assessing the compliance of their merging partner before proceeding.

There are several opportunities for determined businesses

While the implementation of the EU AI Act does spell several challenges for businesses, it also offers opportunities for interested players. With the new act in place, customers will be able to place more trust in AI solutions. This will enhance the adoption of new AI-based systems.

Determined players can also improve innovation and gain investment with the help of Article 53 of the Act. This section states the possibility of establishing “regulatory sandboxes” that can be set up by one or more member states. These sandboxes offer controlled environments for developing, testing, and validating new AI technologies for a short time under the guidance of a competent authority. This will also ensure that the AI solutions fulfill regulatory compliance.

The EU AI Act offers special support measures to start-ups and SMEs. The compliance requirements for high-risk AI have been modified to make them less burdensome and technically feasible. Start-ups and SMEs also get a proportional cap on compliance infringement fines. This will make it easier for budding businesses in the AI sector to make leaps in innovation and product development.

Interested EU-based players can also receive support for product development through programs such as Testing and Experimentation Facilities, Data and Robotics Hubs, Digital Innovation Hubs, etc. The AI Office, set up by the EU AI Act to oversee the rules and regulations related to GPAI models, has established forums where stakeholders can exchange best practices and contribute to rules of conduct and practice. This can improve participation across industries and enhance inclusiveness.

EOS Perspective

The EU AI Act can be considered a landmark development in the regulation of AI technologies in Europe. It has extensive implications for businesses, society, and the economy on the continent and worldwide. Many industry leaders consider this act a starting point in AI regulation. Other countries are expected to follow in the EU’s footsteps soon and make similar laws curbing the effects of unregulated AI.

The EU AI Act is expected to make AI-based solutions safe and bias-free, with better transparency into their developmental processes. It is also expected to enhance accountability and create a more responsible approach to AI development and deployment.

Businesses, especially SMEs and start-ups, can expect several benefits from this act. Experts predict that with the renewed focus on safety and ethical issues, there will be large-scale development of far more trustworthy and robust AI-based solutions in the future.

Medicine Shortage in the EU A Deep-dive into Its Causes and Cures by EOS Intelligence
by EOS Intelligence EOS Intelligence 7 Comments

Medicine Shortage in the EU: A Deep-dive into Its Causes and Cures

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With the proposal of the deeply revamped new EU pharma legislation in April 2023, the EU initiated an attempt to tackle the medicine shortfall that the union has been experiencing for over two decades now. Europe has witnessed a 20-fold rise in reported drug shortfalls from 2000 to 2018, as per research conducted by the Mediterranean Institute of Investigative Reporting (MIIR).

According to the European Data Journalism Network (EDJNet), the problem of drug inadequacies is not novel, although it got under the spotlight during the 2020-2022 COVID-19 pandemic, the energy crisis that started in early 2022, and the beginning of the Russian invasion of Ukraine in early 2022. Ironically, the fundamental reasons responsible for the medicine shortages in the EU are not solely these three events but a mixture of structural, economic, and regulatory factors that the governments often refuse to agree on.

In terms of the magnitude of the shortage during the five-year period from January 2018 to March 2023, Italy experienced the highest inadequacy in absolute terms to the tune of 10,843 medicines, followed by Czechia with 2,699 medicines and Germany with 2,355 medicines. Although Greece witnessed the lowest shortage, with 389 medicines between 2018 and 2023, the median duration for which the shortfall existed was the longest for this country, with 130 days, followed by Germany with 120 days, and Belgium with 103 days. This means that, for instance, in Greece, it is likely to take about four months and eight days for a medicine to be back on the market.

According to a survey regarding medicine shortages in the EU members organized by the Pharmaceutical Group of European Union (PGEU) between mid-November and end-December 2022, all 29 EU countries surveyed recorded drug shortfalls during the past 12 months among community pharmacists (pharmacists in retail pharmacies where the general populations have access to medications). Moreover, around 76% of the respondents agreed that the situation had worsened compared to 2021, and the remaining 24% said the situation remained the same compared to 2021. Not a single country registered any improvement in the situation compared to 2021. Furthermore, the survey also revealed that 83% of the respondents concurred that cardiovascular drugs were in short supply during the last 12 months in community pharmacies, followed by medicines treating nervous system diseases and anti-infectives for systemic use, such as antibiotics (79% each). Owing to the sample size of this survey of 1 response per country covering 29 EU countries, the findings might not be accurate but are likely to illustrate the overall trends correctly.

The problem of medicine shortages is not just limited to EU countries, as the UK is also experiencing acute drug inadequacies, including HRT (hormone replacement therapy) medicines and antibiotics, among other medicines.

In December 2022, the European Medicines Agency (EMA) announced that most EU countries are confronted with drug shortages. The question that arises is what led to the medicine shortfall in the EU and how the EU members can attempt to combat the issue at hand.

Medicine Shortage in the EU A Deep-dive into Its Causes and Cures by EOS Intelligence

Medicine Shortage in the EU: A Deep-dive into Its Causes and Cures by EOS Intelligence

Factors responsible for medicine shortages in the EU

The attributing factors to drug shortages in the EU are mainly a combination of economic, regulatory, and production or supply chain-related causes.

Economic factors

Price cap regulation on generics amidst rising costs hindering production

One of the key reasons for the drug shortfall of medicines, including antibiotics (such as Amoxicillin) in the EU is the fact that generic drug makers are not paid sufficiently for increased production of the medicine to cover the associated costs such as production, logistics, and regulatory compliance costs that are rising steeply.

To add to the woes of most European generic drug makers, the prices of the generics that the respective countries had set have remained unchanged for the past two decades, making the situation much worse.

Additionally, due to regulated prices of generic drugs, numerous European drug producers have shown a lack of interest in boosting their production capacity. This has become particularly relevant during the Russian invasion of Ukraine, which has caused a rise in energy costs. This cost increase affects the smooth functioning of factories that produce everything from aluminum for medicine bottle caps to cardboard for packaging medicines, indicating a rise in drug insufficiencies in the foreseeable future.

According to a Reuters report, six European generic drug industry groups and trade associations, as well as 13 European producers, revealed that many smaller drug makers are battling to be profitable and, therefore, are contemplating if producing antibiotics would be feasible, let alone expanding production capacity.

Government tenders indirectly force generic producers to cut production

Before inviting quotations or tenders, many European governments tend to weigh the generic drug prices with prices in other regional markets or prices of similar drugs in the home market to establish a reference price point that can be used in negotiating with producers. These governments give contracts to those producers who quote the lowest price, resulting in “further downward pressure on prices in subsequent tenders,” as per generic drug producers.

According to many European generic drug producers, the price cap regulation and the tender system of generics have spurred a ‘race to the bottom’. The European generic drug makers bear the brunt of Asian generic drug producers charging less for the same products. Consequently, some European firms were compelled to either decrease production or choose offshore production (of generics and APIs required to produce them) to low-cost locations such as India and China.

Parallel exports aggravate the shortages in low-price markets

Although some European countries have started prohibiting parallel exports (cross-border sale of medicines within the EU by sellers outside of the producer’s distribution system and without the producer’s permission) to other countries, this practice of buying drugs from low-price markets and selling them in high-price markets has resulted in the exhaustion of medicine supplies in low-price markets. This has been noticed in some EU countries such as Greece, Portugal, and Central and Eastern European member states where legislations have been put into effect that make the re-export of pharmaceuticals harder. For instance, drug shortages in Greece have been attributed to the re-export of imported medicines to regions where these medicines are sold at a higher price point than in Greece, as per a news report by the Turkish news agency, Anadolu Agency.

According to a report published by the Centers for European Policy Network in May 2021, the magnitude of parallel imports of medicines occurring in the European Economic Area (EEA) was to the tune of €5.7 billion in 2019. Furthermore, the share of parallel-imported pharmaceuticals varied considerably across European countries. To cite a few examples, Denmark’s share of parallel-imported pharmaceuticals was around 26.2% in 2018, while the corresponding figure for Austria was 1.9% in the same year. Similarly, in 2018, the share of parallel-imported medicines was around 12% in Sweden and 2% in Poland.

Production and supply chain factors

The current lack of a sufficient number of production facilities in European countries can increase the chances of drug shortfalls in the region at the time of any production problem. To illustrate this, the European Medicines Agency (EMA) cited that drug shortages in the EU are caused by production factors, raw material shortages, distribution issues, and high demand due to respiratory diseases and inadequate manufacturing capacities.

Furthermore, many pharma producers utilize the just-in-time concept of inventory management, which improves efficiency, reduces storage costs, and minimizes waste, thanks to producing goods as needed. Due to this, producers often face challenges such as the inability to adapt to changing demand volumes.

Moreover, owing to the innate reliance of drug producers on APIs, variations in the “supply, quality, and regulation” of APIs have affected medicine supplies, according to a report by the Economist Intelligence Unit. To cite an example, pharmacies in Italy have attributed the decline in the making of APIs in China to the shortfall of medicines in Italy, according to a report by Anatolia Agency, the leading Turkish news agency.

Reactions from various stakeholders in the EU pharma market

Starting from proposing a revision of the EU pharma legislation to banning parallel exports of medicines in some European countries, there are many reactions to drug shortages in the EU from various pharma market stakeholders.

New Pharma legislation in the EU by the European Commission

The proposal of the new pharma legislation in the EU by the European Commission in April 2023 came as a reaction to the acute medicine shortage in the region. It proposes measures for producers to provide early warnings of drug shortfalls and necessitates producers to keep reserve supplies in sufficient quantities for times of crisis, such as acute shortages.

Read our related Perspective:
 New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

Price capping cannot facilitate sustainability

European lobby groups supporting generic medicine makers argue that price limits won’t be effective due to growing production and regulatory expenses. There was no system to review medicine prices and adjust them for inflation or when APIs became scarce in most European countries. Moreover, it is exceedingly complex to continue to keep medicines competitive after 10 years of their launch.

Ramped up production by bigger generic drug producers

The pricing framework in Europe is the primary concern of generic drug makers in the long term, not production costs. According to the global supply chain head of Sandoz, Novartis’s generic division, the current inflexible pricing framework prevents generic drug producers from adjusting prices for essential drugs according to changes in input costs.

To illustrate this, the price of 60ml of pediatric amoxicillin in 2003 in Spain was around €0.98 (US$1.05). In the following ten years, the only change that was made was to reduce the quantity of the medicine to 40ml of pediatric amoxicillin, still pricing it at €0.98 (US$1.05). However, no change has been made since 2013.

Some larger generic drug companies are ramping up the production of certain medicines, such as amoxicillin, that are in short supply. To cite a few examples, Sandoz is planning to add extra shifts in its factory in Austria to meet their increased production target of amoxicillin by a double-digit percentage in 2023 vis-à-vis 2022. Additionally, the company plans to start the operation of another expanded factory by 2024. Similarly, GSK also recruited a new workforce and increased shifts in its amoxicillin factories in the UK and France. However, for companies with smaller market shares, such as Teva, things are different as increasing production capacity is not a viable option for them as they are struggling to be profitable, and thus, there is no way they can ramp up production to bridge the market gap.

National governments and drug regulators making big changes

Some European governments are considering making legal changes to ease the current procurement system of medicines in their respective regions. Additionally, some European governments are also striving to ban the re-export of imported medicines. Germany’s government is set to contemplate making legal changes to its tender system for generic medicines in 2023, whereas the Spanish government is planning to review its pricing scheme for certain medicines, which might cause patients to pay a higher price for medicines, including amoxicillin, on a temporary basis. The Netherlands and Sweden have put in place a law that requires vendors to stock six weeks of reserve supplies to mitigate shortfalls.

Several European countries are taking initiatives to prohibit parallel exports or re-exports of imported medicines to preserve domestic medicine supplies. To cite an example, in November 2022, the medicines regulatory body in Greece expanded the list of drugs whose re-export to other countries is prohibited. Another example is Romania, which halted exports of certain antibiotics and pediatric analgesics for three months in January 2023. Also, in January 2023, Belgium issued an official order allowing the respective authorities to stop the export of medicines to other countries during crises such as shortages.

EOS Perspective

Tender or procurement and pricing strategies of medicines in the EU and the UK must be improved after in-depth analysis. This is the only way to improve production in the European region so that future shortages of drugs can be avoided, in addition to curbing heavy dependence on Asia for essential drugs.

Secondly, there needs to be a centralized EU system in place that is designed to track the supply of essential medicines in all member countries, allowing for the identification of early signs of upcoming risks or shortfalls.

The new pharma legislation in the EU is expected to help improve the availability of drugs in situations of health crises, including drug shortages. The EU could reduce medicine shortages across the region over time as it has awarded the EMA more responsibilities and established a new body called HERA that can purchase medicines for the entire union.

EU Push the Maritime Operators to Boost Cybersecurity by EOS Intelligence
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Commentary: EU Push the Maritime Operators to Boost Cybersecurity

Cybersecurity in the maritime sector is of critical importance as sea routes accounted for about three-fourths of the EU’s imports and exports in 2022. The new Network and Information Systems Security Directive (“NIS2 Directive”) aiming to strengthen cybersecurity is expected to enter into force from October 2024 and will impact maritime companies with more than 50 employees or an annual revenue of over €10 million. The NIS2 directive, which will replace and repeal the NIS directive, expands the scope to cover a larger number of companies in the sector as it includes both medium and large-size companies.

Companies may feel burdened by strict NIS2 requirements

To comply with the new requirements, the companies would need to make cyber risk management a focal point for every business strategy and make cybersecurity measures a part of day-to-day operations. NIS2 adoption will not only demand additional investment but also change the way the business is done.

  • Increase in cybersecurity investments

A total of 156 entities in the water transport sector were subject to the NIS directive in July 2016, as it focused mainly on large enterprises. Under NIS2, this number is likely to increase to 380. In particular, the number of port and terminal operators covered in NIS2 will increase significantly. A senior IT executive from Port of Rotterdam indicated that while NIS covered only a few port stakeholders (~5 companies), more than a hundred companies would need to comply with NIS2.

European Commission indicated that the companies already covered under the NIS directive would need to increase their IT security spending by 12%, while for the companies that were not covered previously but would be covered under the NIS2 framework, the IT security spending would need to be increased by up to 22%.

Frontier Economics, a consultancy firm based in Europe, estimated that the costs of implementing the NIS2 regulation in medium and large enterprises across the water transport sector would be about 0.5% of the total annual revenue across the medium and large water transport companies, which amounts to more than €225 million per year.

  • Enhancement of OT security

The advent of digitization has resulted in rapid convergence of operational technology (OT) with IT systems, leaving critical OT infrastructure vulnerable to cyberattacks. OT helps monitor and control mechanical processes, making them particularly important for the safe operation of ports and other aspects of the maritime sector.

ENISA, the European Union Agency for Cybersecurity, indicated that from January 2021 to October 2022, ransomware attacks on IT systems were the most prominent cyber threat facing the transport sector and warned that ransomware groups are likely to target OT systems in the near future. NIS2 imposes stringent requirements for critical infrastructure entities, including maritime companies, to beef up cybersecurity from the perspective of both IT and OT.

Traditionally, maritime companies have considered cyber security primarily in the context of IT systems, but now there is a higher focus on OT cybersecurity, and the NIS2 is going to ensure investment momentum in this space. For instance, the Maritime Cyber Priority 2023 report indicated that over three-fourths of the respondents suggested that OT cyber security is a significantly higher priority compared to two years ago.

While NIS2 adoption may seem taxing, benefits are likely to follow

Like any new regulation, the adoption of NIS2 comes with additional costs and implementation hurdles, however, the consequent benefits are likely to outweigh the challenges.

  • Harmonization of cybersecurity requirements

In August 2023, a senior executive from Mission Secure, an OT cyber security solutions provider, indicated that maritime operators would welcome stringent cybersecurity standards. The maritime industry operates on thin profit margins, making it difficult for companies to invest more in cybersecurity than competitors. Implementation of NIS2 would set cybersecurity standards harmonized across the EU and thus level the playing field in terms of spending on cybersecurity while reducing the risks and losses associated with cyberattacks.

  • Improved competitiveness

A 2020 study by ENISA suggested that the EU organizations’ cybersecurity spending is, on average, 41% lower than of their US counterparts. NIS2 is expected to drive the necessary investments in cybersecurity.

Moreover, given the international nature of the maritime industry, the adoption of the NIS2 directive will help the operators keep up with similar cybersecurity regulations around the world. For instance, Australia reformed the Critical Infrastructure Protection Act in 2022 to address the evolving cyber threat landscape. The UK, while no longer part of the EU, is in the process of revising the cybersecurity regulation for critical infrastructure operators in line with NIS2.

EOS Perspective

Upon implementation of NIS2, maritime operators will need to invest in more effective cybersecurity requirements, potentially increasing costs in the short term. Despite this, the increased investment will result in a more secure and resilient industry in the long run, and companies that are able to invest heavily in security are going to gain a competitive advantage over those that are not able to do so.

Digitization and connected technology in the maritime sector are evolving faster than its ability to regulate it. Hence, the maritime sector should view NIS2 as just another measure to elevate the cybersecurity framework. Companies need to be agile and flexible to adapt to the evolving cyber threat landscape.

New EU Pharma Legislation Is It a Win-win for All Stakeholders by EOS Intelligence
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New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

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The revision of the EU pharmaceutical legislation represents a major achievement for the pharmaceutical sector within the European Health Union. The European Health Union, established in 2020 as a collaboration among EU member states, aims to effectively respond to health crises and improve healthcare systems across Europe. This revision provides an opportunity for the pharmaceutical sector to adapt to the demands of the 21st century, enabling greater flexibility and agility within the industry. The updated EU pharmaceutical legislation places a strong emphasis on patient-centered care, fostering innovation, and enhancing the competitiveness of the industry.

Limited market exclusivity to offer indirect opportunities to generic drug manufacturers

The COVID-19 crisis in 2020 raised a significant concern related to the accessibility and availability of life-saving medicines. The pandemic highlighted the significance of establishing effective incentives for the production of medicines to address medical needs during health emergencies.

Therefore, revised EU pharmaceutical legislation includes several rules and regulations to incentivize pharmaceutical companies to create a single market for medicines to ensure equal access to affordable and effective medicines across the EU. This is to be achieved through reducing the administrative burden by shortening authorization time, the duration required to review and grant approval for a new medicine, ensuring efficacy, safety, quality, and regulatory requirements. For example, the EU Commission will have 46 days instead of 67 days for authorization of medicine, whereas EMA (European Medicine Agency) will have 180 days instead of 240 days for the assessment of new medicine.

The new directive incentives are expected to help in improving access to medicines in all member states, in developing medicines for unmet medical needs, and in conducting comparative clinical trials (CCT). Comparative Clinical Trials are clinical research studies aimed at comparing the efficacy and safety of distinct medical treatments. Such trials usually entail two or more groups of participants, each receiving a different treatment in order to ascertain the more effective, safer treatment that offers better outcomes for a specific condition.

The legislation also focuses on maintaining the availability of generic drugs and biosimilars to help countries with more affordable and accessible medicines across the EU. It also aims to provide enhanced rules for the protection of the environment, such as mandatory ERA (environmental risk assessment) of medicines which focuses on discarding medicines properly by ensuring the minimization of environmental risks that are associated with the manufacturing, use, and disposal of medicine on the EU market, promoting innovation, and tackling antimicrobial resistance (AMR).

The revised pharmaceutical legislation introduces a shortened period of regulatory protection, reducing it from 10 to 8 years, in order to establish a unified market for new medicines. This protection encompasses 6 years of regulatory data protection and 2 years of market protection. Companies can also benefit from an additional 2 years of data protection if they launch their medicine in all 27 EU member states and an extra 6 months of protection if their medicine addresses unmet medical needs or undergoes comparative clinical trials.

The revised EU pharma legislation also includes provisions for 2 years of market exclusivity for pediatric medicines and 10 years of market exclusivity for orphan drugs. The limited market exclusivity for branded drug manufacturers is expected to give the generic medicine makers more opportunities for production, hence improving the affordability and accessibility of medicines across the EU.

New EU Pharma Legislation Is It a Win-win for All Stakeholders by EOS Intelligence

New EU Pharma Legislation: Is It a Win-win for All Stakeholders by EOS Intelligence

Assessing changes for the European Medicines Agency

The EMA is responsible for the evaluation and approval of new medicines while monitoring the safety and efficacy of the medicine. The revised EU pharmaceutical legislation has bestowed significant responsibilities upon the EMA. These responsibilities encompass expediting data assessments and providing enhanced scientific advice to pharmaceutical companies. The legislation has both positive and negative impact on the EMA.

On the positive side, it aims to harmonize regulatory processes across member states, leading to a more streamlined and efficient system. This is expected to improve the agency’s ability to assess medicines promptly, facilitating faster access to innovative treatments. Additionally, the legislation encourages collaboration among regulatory authorities and promotes international partnerships, which strengthen the EMA’s regulatory capacity and scientific expertise. Further, the new regime is likely to foster EMA to prepare a list of critical medicines and ensure their availability during shortages.

The challenges that EMA might face if the new pharma legislation is passed include increased workload and resource requirements, which may necessitate additional staff, expertise, and funding. Complex areas such as pricing, pharmacovigilance, data transparency, and reimbursement could pose difficulties, potentially leading to delays and discrepancies.

Balancing affordability and access to medicines while incentivizing pharmaceutical companies’ investment in R&D under strict regulations, health technology assessments, and data transparency could be a challenge. EMA might face obstacles in training, resource allocation, and maintaining regulatory consistency. Both positive and negative impact should be considered while implementing the revised legislation.

Overriding drug patents could ensure supply, albeit with challenges

Overriding a drug patent is a legal mechanism allowing governments to bypass the patent protection of medicines and medical technology during emergency situations.

Although it poses challenges to the original patent holder company, including implications on revenue streams, investments, and profitability, it enables the granting of compulsory licenses to generic drug manufacturers, which increases production and reduces prices, particularly during health emergencies, while still considering the rights and interest of patent holders (through compensation for the use of their invention during the emergency period). It also encourages voluntary licensing that allows generic manufacturers to produce and sell products with the patent holder’s permission while respecting patent rights, instead of overriding the patent as it is in compulsory licensing.

Amidst concerns pertaining to intellectual property (IP) rights and the fact that this move might potentially discourage pharma companies from investing in R&D initiatives, the revised EU pharmaceutical legislation proposes overriding drug patents, as it would enhance the availability of affordable and cost-effective medicines throughout the EU. The production of generic drugs and biosimilars is likely to help increase market competition, drive innovation, and introduce improved treatments across the EU, maintaining a competitive edge.

Overriding drug patents might also have ramifications on international trade and relationships, leading to disputes and strained ties between countries. While considering these laws, policymakers need to exercise caution to ensure both accessibility of medicines and adequate investments in R&D.

New EU pharma legislation to benefit Eastern European countries

The difference in access to medicines between Eastern and Western European countries is evident from the fact that from 2015 to 2017, EMA approved 104, 102, and 101 medicines for Germany, Austria, and Denmark, respectively, compared to only 24 in Poland, 16 in Lithuania, and 11 in Latvia. These distinct differences in the availability of medicines between Eastern and Western European countries could be attributed to factors such as stronger healthcare systems in the Western region, higher healthcare budgets, and a greater ability to negotiate pricing and reimbursement agreements with pharmaceutical companies.

Western European countries have relatively better funded and more advanced healthcare infrastructure, including clinics, hospitals, and specialized healthcare services compared to Eastern European countries. Western European countries have a larger capacity to invest in research and development and contribute to the development of new medicines.

Moreover, differences in national healthcare policies contribute to the variation in pharmaceutical benefits and outcomes. The presence of a robust and extensive pharmaceutical manufacturing industry in Western European countries allows for faster production and distribution of medical supplies. Consequently, Western European countries generally have better access to medicines and medical supplies compared to Eastern European countries.

The new EU pharmaceutical legislation helps Eastern European countries by reducing the exclusivity period of newly introduced drugs. This measure can prevent branded drug manufacturers from selling drugs exclusively to more affluent countries.

Moreover, according to experts, branded drug manufacturers are likely to only theoretically benefit from a competition-free market for 12 years because the majority of medicines launched by them are unlikely to meet all the new criteria in order to be granted this extended competition-free market access. This might compel branded medicine manufacturers to expand their sales base and sell in Eastern European countries as well to maximize their revenues.

New EU pharma legislation to spur a changing investment landscape

With the approval of new EU pharmaceutical legislation, it is expected that investment plans within the pharmaceutical sector will undergo significant changes. The regulatory changes, which aim to reduce the time and administration burden, could help in attracting lucrative investments by offering faster returns for pharmaceutical companies.

The new legislation can be expected to bring more investments in the R&D and manufacturing sectors by addressing critical healthcare challenges. Furthermore, the availability of generic and biosimilars would also help by creating opportunities for investment in the production/manufacturing of cost-effective medicines.

Moreover, enhancement in transparency and data sharing can also lead to increased collaboration and partnerships in R&D, attracting investments from the public and private sectors in the medical space.

However, investment plans could vary depending upon various factors such as intellectual property rights, market dynamics, competitive landscape, etc. Pharmaceutical companies need to assess new legislation in order to adjust their investment strategies to navigate potential challenges.

EOS Perspective

Analyzing the winning stakeholders of the revised EU pharma legislation could be challenging at this point in time owing to the fact that the new regime focuses on addressing issues of affordability and innovation across the EU which tend to be contradicting. These aims are to be achieved by incentivizing R&D and manufacturing sectors, enhancing market competition, and promoting collaboration.

It cannot be denied that there will be several challenges while enforcing these changes. A few of these challenges include maintaining intellectual property rights, marrying affordability with innovation, and addressing the specific needs of various patients in different countries. Specific resources and coordination will be required to overcome these hurdles. As a result, the success or failure of the EU pharmaceutical legislation for stakeholders will depend on the legislation’s actual implementation, adaptation to changing market dynamics, stakeholder engagement, as well as whether the balance between accessibility, affordability, and innovation while maintaining competitiveness is achieved and maintained in the long term.

Nuclear Fusion – Reality or a Fairy Tale by EOS Intelligence
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Commercial Nuclear Fusion – Reality or a Fairy Tale?

Nuclear fusion has recently gained attention as a potential source of clean energy. It was a result of the US National Ignition Facility in California achieving a major milestone in December 2022 in which researchers were able to produce more energy than was used to ignite it for the first time. Several countries are cooperating in the world’s largest fusion experiment project called ITER, focused on the construction and operation of an experimental fusion reactor located in France. Large-cap companies such as Google and the ministries regulating energy policies across the globe are also investing in fusion energy projects and start-ups to promote fusion energy generation. Despite huge investments, commercializing fusion energy still has a long way to go due to certain technological and operational challenges associated with the generation of this type of energy.

Ever-increasing carbon emissions due to the ongoing rise in energy consumption are driving the need for accelerating energy generation from renewable sources. As of October 2022, over 40% of global carbon emissions were caused by power generation. As per the International Energy Agency, carbon emissions from energy generation increased by 0.9% in 2022, in comparison with 2021, to reach 36.8GT.

Additionally, the energy crisis caused by the Russia-Ukraine war, particularly in Europe, further augmented the need for energy generation using renewable sources. The surge in energy demand from households and industries is putting pressure on the existing energy supplies, thus resulting in high energy prices.

So far, solar and wind energy sources have been prominently used across countries to meet the rapidly increasing energy demand. Nuclear fusion is another alternative renewable source as it does not emit carbon emissions or produce long-lived radioactive waste products, unlike nuclear fission.

Nuclear fusion is an energy-intensive process and requires high temperatures for fusion reaction. In the nuclear fusion process, energy is released by combining two atomic nuclei into one heavier nucleus. The released energy is then captured and converted into electricity by a fusion machine. This process is also the key source of energy in the sun and other stars.

Nuclear fusion releases around four million times more energy as compared to coal, gas, or oil, and four times more than nuclear fission technology. Nuclear fusion can provide energy to an extent that can power up homes, cities, and whole countries.

Current state of the nuclear fusion energy

The potential of generating nuclear fusion energy has been recognized since the 1950s. Countries across geographies have been involved in nuclear fusion research, led by the EU, USA, Russia, and Japan, along with vigorous programs underway in China, Brazil, Korea, and Canada. Various experimental fusion devices have been designed and constructed to advance and transform the way fusion energy is generated. These include tokamaks, stellarators, and laser-based technology devices. Tokamaks and stellarators have been used more commonly for fusion energy research experiments.

Some of the tokamaks and stellarators built across countries for generating fusion energy include the Joint European Torus (JET), started in the UK in 1978, the Wendelstein 7-X stellarator, started in Germany in 1994, Korea Superconducting Tokamak Advanced Research (KSTAR) started in South Korea in 1995, the Mega Amp Spherical Tokamak- (MAST) initially started in the UK in 1997 and further upgraded to MAST-U in 2013, and Experimental Advanced Superconducting Tokamak (EAST) started in China in 2000, among others. Six countries, including China, India, Japan, Korea, Russia, the USA, as well as the EU, are cooperating in the world’s largest fusion experiment, ITER, an experimental fusion reactor currently under construction in France through EURATOM, the European Atomic Energy Community. ITER idea was first launched in 1985 and established in 2007. Its first experiment was scheduled to start in 2025 but is delayed due to Covid-19 disruptions. It is aimed at producing 500MW of fusion power from 50MW of input heating power.

Further, in 2017, China launched the China Fusion Engineering Test Reactor (CFETR) project as a follow-up to the ITER. This tokamak device is aimed at producing an extremely powerful magnetic field to confine plasma and generate fusion energy. This magnetic field can contain and control hydrogen gas ten times hotter than the core of the sun. CFETR is aimed at producing a peak power output of 2GW once completed in 2035, bridging the gap between scientific experiments and commercial use.

Extensive progress has been noticed in studying laser-based technology for fusion energy generation. Some of the facilities that use laser technology to produce fusion energy include the National Ignition Facility (NIF) at the Lawrence Livermore National Laboratory (LLNL) in the USA and the Laser Mégajoule (LMJ) in France.

The International Atomic Energy Agency (IAEA) also supports its member states in research activities related to fusion energy generation. It also organizes various workshops on fusion power plant concept demonstrations, technical meetings, and coordinates research activities.

Nuclear Fusion – Reality or a Fairy Tale?by EOS Intelligence

Nuclear Fusion – Reality or a Fairy Tale? by EOS Intelligence

Some of the breakthroughs achieved in fusion energy experiments to date

There has been significant progress in the research and development activities focused on nuclear fusion energy generation. Researchers are continuously emphasizing optimizing the condition of plasma through changes in density, temperature, and confinement time to achieve the required level of performance for a power plant. Several nuclear reactors were able to sustain high temperatures during the fusion process. For instance, in January 2022, the EAST reactor in China sustained temperatures of 126 million degrees Fahrenheit, which is nearly five times hotter than the sun, for 17 minutes, and thus, broke the record for longest sustained nuclear fusion.

In February 2022, the Joint European Torus (JET) achieved a record performance for sustained fusion energy of 59MJ over five seconds.

Also, in September 2022, the Korea Superconducting Tokamak Advanced Research (KSTAR) experiment achieved plasma temperatures of 120 million kelvins for up to 20 seconds, a key demonstration of simultaneous high temperatures and plasma stability.

Recently, in December 2022, a major breakthrough was achieved at the US National Ignition Facility in California by using inertial confinement fusion, which released more energy than was pumped in by the lasers for the first time in the world. The laser shot released 3.15MJ of energy in comparison with the 2.05MJ pumped to the hydrogen isotope pellet by lasers. This breakthrough is likely to pave the way for abundant clean energy in the future.

Breakthroughs driving further investment in fusion energy R&D

Breakthroughs achieved over the past years in various projects have attracted significant investment by both the government and private sector in the research and development of fusion energy. For instance, in February 2023, Israel’s Ministry of Energy (MoE) proposed to provide US$11.5 million to establish a national nuclear fusion institute in Israel. This initiative includes major universities of Israel, namely the Hebrew University of Jerusalem, Ben-Gurion University of the Negev, the Technion and Tel Aviv University, the Weizmann Institute of Science, as well as NT-Tao, an Israel-based start-up which is engaged in the development of a compact system for nuclear fusion.

Similarly, in October 2022, the UK government announced to provide US$249.6 million of funding for the Spherical Tokamak for Energy Production (STEP) project’s first phase, which will include concept design by the UK Atomic Energy Authority by 2024. STEP is a program aimed at designing and constructing a prototype fusion energy plant by 2040.

In March 2022, the US Department of Energy (DOE) proposed to provide around US$50 million of federal funding to support US scientists involved in conducting experimental research in fusion energy science. Of this, US$20 million was to support tokamak facilities and US$30 million to support fusion research to improve the performance of fusion and increase the duration of burning plasma. In addition to this, the US government’s budget for the financial year 2023 included US$723 million for the Office of Science Fusion Energy Sciences research in enabling technologies, materials, advanced computing and simulation, and new partnerships with private fusion efforts. This amount included US$240 million for the ongoing construction of ITER tokamak. Also, the budget for the financial year 2024 includes US$16.5 billion to support climate science and clean energy innovation, including US$1 billion to advance fusion energy technology.

Private funding in fusion companies has also increased significantly in the recent past. As per the Fusion Industry Association Report 2022 published in July, private sector funding amounted to about US$4.8 billion in total, witnessing an increase of 139% since 2021. Fusion companies also received an additional US$117 million in grants and other funding from governments. Big resource groups such as Equinor, based in Norway, Google, and Chevron, based in the USA, have also invested in fusion energy research. For instance, in July 2022, Chevron, together with Google and Japan-based Sumitomo Corporation, invested in TAE Technologies, a US-based nuclear fusion start-up, in a US$250 million fundraising round to build its next-generation fusion machine.

In addition to this, entrepreneurs, including Bill Gates and Jeff Bezos, are also providing financial support. In December 2021, Commonwealth Fusion Systems (CFS) raised around US$1.8 billion in series B funding from various key investors, including Bill Gates, DFJ Growth, and Emerson Collective, among others, to commercialize fusion energy.

Companies engaged in nuclear fusion energy generation

More than 35 companies are engaged in fusion energy generation for commercial use, such as Tokamak Energy, General Fusion, Commonwealth Fusion Systems, Helion Energy, Zap Energy, and TAE Technologies, among others. These fusion companies are increasingly emphasizing collaborations and experimenting with new technologies to produce fusion energy and make it available for commercial use.

In March 2023, Eni, an energy group based in Italy, and Commonwealth Fusion Systems (CFS) based in the USA, a spin-out of the Massachusetts Institute of Technology (MIT), signed a collaboration agreement aimed at accelerating the industrialization of fusion energy.

In February 2023, TAE Technologies achieved a breakthrough in its hydrogen-boron fusion experiment in magnetically confined fusion plasma. This experiment was a collaboration between Japan’s National Institute for Fusion Science (NIFT) and TAE Technologies.

Also, in February 2023, Tokamak Energy proposed to build a new fusion energy advanced prototype at the United Kingdom Atomic Energy Authority’s (UKAEA) Culham Campus, UK, using power plant-relevant magnet technology. It also built the first set of high-temperature superconducting magnets for testing nuclear fusion power plants. This supermagnet can confine and control extremely hot plasma created during the fusion process.

Certain breakthroughs achieved over the years in the nuclear fusion energy field have encouraged the entry of various start-ups across geographies. For instance, Princeton Stellarators, a US-based start-up focused on building modular, utility-scale fusion power, was founded in 2022. Another start-up named Focused Energy, a Germany-based fusion company, was founded in 2021 to develop a fusion power plant based on laser and target technology. In September 2021, the company raised US$15 million in seed funding led by Prime Movers Lab, along with additional investment from various entrepreneurs.

Start-ups are also emphasizing raising funds to create new fusion technologies and make a significant impact on the industry. In February 2023, NT-Tao, an Israel-based nuclear fusion start-up founded in 2019, raised US$22 million in a series A funding round aimed at developing a high-density, compact fusion reactor to provide clean energy.

Additionally, in January 2023, Renaissance Fusion, a France-based start-up founded in 2020, raised US$16.4 million in a seed funding round led by Lowercarbon Capital. The company is engaged in the development of a stellarator reactor for fusion energy generation.

Challenges to nuclear fusion energy generation

Although a lot of companies and governments across geographies are investing in nuclear fusion energy generation experiments, building full-scale fusion-generating facilities requires advanced engineering, advanced vacuum systems, and superconducting magnets. One of the key challenges in the fusion process is the requirement of extremely high temperatures to produce energy. Also, it becomes difficult to control plasma at such high temperatures.

Additionally, the lack of availability of materials that can extract heat more effectively while withstanding their mechanical properties for a longer duration is another challenge affecting the fusion energy generation process.

Moreover, fusion research projects are also facing capital and financing challenges due to high upfront costs, return uncertainty, and long project duration. The capital investment involved in building and operating a fusion reactor is high due to complex technology that requires significant investment in R&D, high energy requirements, use of advanced materials, and regulatory requirements aimed at ensuring the safety and low environmental impact of the fusion reactor. The cost of building a fusion reactor ranges between tens to hundreds of billions of dollars. It can vary depending on various factors such as size, design, location, materials, and technology used.

Since fusion energy is a new technology, there is uncertainty about when nuclear fusion will become a viable and cost-effective energy source, such as other energy sources, including wind and solar. This makes it difficult for investors to invest in fusion projects and predict the return on investment.

However, ongoing research and development activities aimed at building advanced, highly efficient, and cost-effective fusion reactors and commercializing fusion energy generation at a large scale are likely to overcome these challenges in the long term.

EOS Perspective

Accelerating climate crisis is driving the investment in nuclear fusion research and development as it does not create carbon emissions and long-lasting nuclear waste products. Over the past several years, various fusion research projects, university programs, and start-ups have achieved breakthroughs in the fusion energy field. The most recent breakthrough at the US National Ignition Facility in California, which released more energy than was pumped in by the lasers, has paved the way to the nuclear fusion gold rush and sparked excitement among investors, companies, and researchers.

Many fusion companies, such as Commonwealth Fusion Systems and TAE Technologies, are claiming to exceed breakeven by 2025 and commercialize fusion energy by 2030. Billions of dollars have been invested in nuclear fusion energy generation experiments but no company or projects have been able to achieve breakeven yet.

Several new fusion projects are planning on using advanced materials and putting a new generation of supercomputers to tweak the performance of ultrahigh-temperature plasma, but commercializing fusion energy is still far from reality. Moreover, the fusion process is very complex, requires extreme temperatures for fusion reactions, and involves huge energy costs. Thus, alternative clean energy sources such as wind and solar will likely remain the near-term methods to meet sustainable energy demand. At the same time, it should be expected that the increasing government support and investment by large cap organizations and entrepreneurs are likely to help set up viable fusion power plants in the future.

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China’s BRI Hits a Road Bump as Global Economies Partner to Challenge It

In 2013, China launched its infamous Belt and Road Initiative (BRI), which has gone about developing several infrastructure projects across developing and underdeveloped countries across the globe. However, BRI has faced significant criticism as it brought heavy debt for several countries that are unable to pay the loans. Moreover, it is believed that China exercises significant political influence on these countries, thereby building a sort of dominance across the globe. To counter this, several developed economies have come together to launch alternative projects and partnerships that facilitate the development of infrastructure across developing/underdeveloped countries without exerting significant financial and political bindings on them. However, the main aim of these deals seems to be to keep a check on China’s growing might across the Asian and African continent.

Read our previous related Perspectives: OBOR – What’s in Store for Multinational Companies? and China’s Investments in Africa Pave Way for Its Dominance

China’s BRI program has signed and undertaken several projects since its inception in 2013. As per a 2020 database by Refinitiv (a global provider of market data and infrastructure), the BRI has signed agreements with about 100 countries on projects ranging from railways, ports, highways, to other infrastructure projects and has about 2,600 projects under its belt with an estimated value of US$3.7 billion. This highlights the vast reach and influence of China under this project and its growing financial and political power across the globe.

China’s BRI – looked as a debt trap

Over the years, BRI initiative has been criticized for being a debt-trap for developing and underdeveloped nations, by imposing heavy debt through expansive projects over the host countries, the non-payment of which may lead to significant economic and political burden on them. While the USA, the EU, India, and Japan have been some of the most vocal critics of the BRI program, several participating countries now voice a similar message as they have enveloped in high debt under these projects.

In one such example, the Sri Lankan Hambantota Port was built under the BRI scheme by China Harbor Engineering Company on a loan of nearly US$1.26 billion taken by Sri Lanka from China. The project was questioned for its commercial viability from the very beginning, however, given China’s close relationship with the Sri Lankan government, the project pushed through. As expected, the project was commercially unsuccessful, which along with unfavorable re-payment plan resulted in default by Sri Lanka. Thus, in 2017, the Chinese government eventually took charge of the port and its neighboring 15,000 acres region under a 99-year lease. This transfer has given China an intelligence, commercial, and strategic foothold in a critical water route.

In a similar case, Montenegro is also facing a difficult time repaying its debt to China for a highway project under BRI. In 2014, Montenegro contracted with China Road and Bridge Corporation (CRBC) for the construction of a highway to offer a better connection between Montenegro and Serbia. However, the feasibility of the project was questionable. The Montenegro government took a loan of US$1.59 billion (85% of the first phase of the project) from China Exim Bank at a 2% interest rate over the next 20 years. However, the project, which is being undertaken by Chinese companies and workers using Chinese materials, has faced unplanned difficulties in completion, has put significant financial pressure on the Montenegro government. This is likely to further degrade the country’s economy, delay its integration with the EU, and leave it vulnerable to Chinese political influence. While the EU has refused to finance the loan altogether, it is offering special grants and preferential loans to the country from the European Investment Bank to facilitate the completion of the highway.

Moreover, as per a 2018 report by Center for Global Development, eight BRI recipient countries – Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan – were at a high risk of debt distress due to BRI loans. These countries are likely to face rising debt-to-GDP ratios of more than 50%, of which at least 40% of external debt owed to China in association to BRI related projects.

Owing to the growing concern over increasing Chinese investment debt, several countries are now looking to reduce their exposure to Chinese investments and financing. In 2018, the Myanmar government, in an attempt to avoid falling deep into China’s debt-trap and becoming over-reliant on the country, scaled down China-Myanmar Kyaukpyu port project size from US$7.5 billion to US$1.3 billion.

Similarly, in 2018, the Malaysian government cancelled three BRI projects – the East Coast Rail Link (ECRL) and two gas pipelines, the Multi-Product Pipeline (MPP), and Trans-Sabah Gas Pipeline (TSGP) as these projects significantly inclined towards increasing the Malaysian debt to China to complete these projects.

China’s long-term ally, Pakistan, also opted out from China’s BRI in 2019, exposing some serious flaws with the project. In 2015, the two countries unveiled a US$62 billion flagship project under BRI, called the China-Pakistan Economic Corridor (CPEC). While it was started with an ambition to improve Pakistan’s infrastructure (especially with regards to energy), this deal resulted in severe debt woes for Pakistan as the nation started to face a balance-of-payment crisis. This in turn resulted in Pakistan turning to International Monetary Fund (IMF) for a three-year US$6.3 billion bailout package. Pakistani officials have even claimed that the CPEC project is equally (if not more) beneficial for China in terms of gaining a strategic advantage over India and by extension the USA. Thus, given its partial failure and increasing financial pressure on Pakistan, many ongoing projects under CPEC have been stalled or being rebooted in a slimmed-down manner.

Similarly, more recently, in April 2021, Australia scrapped off its deal it had with China under BRI, stating the deal to be over ambitious and inconsistent with Australia’s foreign policy.

Developed nations come together to offer alternatives

Given the push against BRI, several developed nations have come out with alternative infrastructure plans, either individually or in partnership with each other. The key purpose of this is to not only offer more viable options to developing and underdeveloped nations but also to keep a check on China’s growing global influence.

In one such move, in May 2015, Japan launched a ‘Partnership for Quality Infrastructure’ (PQI) plan, which came out as a direct competitor to China’s BRI. The PQI Japan (in collaboration with Asian Development Bank (ADB) and other organizations and countries) aimed at providing nearly US$110 billion for ‘quality infrastructure investment in Asia from 2016 to 2020. Although, on one side, this initiative is intended to secure new markets for Japanese businesses and strength export competitiveness to further bolster its economic growth, on the other side, politically PQI is a keen measure to counter China’s influence over its neighboring countries.

Just like Japan, India has also been a staunch critic of China’s BRI as it feels that the latter uses the BRI to expand its unilateral power in the Indo-Pacific region. Thus, to counter it, India, formed an alliance with Japan in November 2016, called ‘Asia-Africa Growth Corridor’ (AAGC).

The alliance aims at improving infrastructure and digital connectivity in Africa and connecting the continent with India and other Oceanic and South-East Asian countries through a sea passageway. This is expected to boost economic collaborations of India and Japan with African countries by enhancing the growth and interconnectedness between Asia and Africa.

The alliance claims to focus on providing a more affordable alternative to China’s BRI with a smaller carbon footprint, which has been another major concern in BRI project execution across Indo-Pacific region. The emphasis has been put on providing quality infrastructure while taking into account economic efficiency and durability, inclusiveness, safety and disaster-resilience, and sustainability. The countries do not have an obligation of hiring only Japanese/Indian companies for the infrastructure development projects and are open to the bids from the global infrastructure companies.

In more recent times, in May 2021, the EU and India have joined hands for a comprehensive infrastructure deal, called the ‘Connectivity Partnership’. This deal aims at strengthening cooperation on transport, energy, digital, and people-to-people contacts between India and the EU and developing countries in regions across Africa, Central Asia, and the Indo-Pacific region. Moreover, it aims at improving connectivity between the EU and India by undertaking infrastructure development projects across Europe, Asia, and Africa. It also focuses on providing a more reliable platform to the already ongoing projects between the EU and India’s private and public sectors.

While the two partners claim otherwise, the deal seems to be their collective answer to China’s BRI and its growing influence in the Asian, African, and European belt. Unlike BRI, the EU-India Connectivity Partnership aims to follow a clear rule-based approach to have greater involvement from the private sector with backend support from the public sector of both sides. This protects the host country against heavy debt and in turn restricts the level of political influence that both sides may have on the host country. This advantage over China’s infrastructure deal makes this project a serious competitor to the BRI in this region as host countries are most vary of falling into a debt-trap with China.

Another recent initiative to dethrone the BRI has been the ‘Build Back Better World’ (B3W), which has been undertaken by the Group of Seven (G7) countries in June 2021. This project, led by the USA, is focused on infrastructure development in low- and medium-income countries, and aims to accomplish infrastructure projects worth US$40 trillion in these countries by 2035. Further, the project is intended to mobilize private-sector capital in areas such as climate, health, digital technology along with gender equity and equality involving investments from financial institutions of the countries involved.

This project claims to be based on the principles of ‘transparency and inclusion’ and intends to cease China’s rising global influence (through BRI) as it aims to make B3W comparatively more value-driven, market-led, and a higher-standard infrastructure partnership for the host country. To ensure inclusivity and success of the project, the USA invited other countries such as India, Australia, South Korea, and South Africa to join the project. However, considering the nascent stage of the B3W development, the proceedings and details of the project are not explicitly clear, however, given that its intention is to help the USA compete with the BRI, it is expected to be well-funded, robust, and inclusive.

EOS Perspective

China’s BRI started on a very high note, garnering multi-billion-dollar infrastructure projects across a host of Asia, African, and European countries. However, over the last couple of years, increasing number of countries have become wary of its inherent problems, such as looming debt, increasing Chinese influence, and incompletion of projects. This has helped shift the momentum towards other developed countries that have for long wanted to counter China’s growing global influence. Using this opportunity, Japan, India, the EU, and the USA have come up with alternative infrastructure deals to compete with the BRI.

That being said, BRI will not be easy to shove aside as China has been in this game for several years now and has a significant time advantage. While countries such as India can try to compete, they do not have the financial might to take up projects that are strategically important and commercially viable.

Further, several of the alternative projects, such as India-EU Connectivity Partnership and G7 B3W aim to significantly involve the private sector for investments. While this is good news for the host countries where the project will be undertaken, private players will definitely be more concerned about financial viability of their investment and may not be able to match the BRI investment values, debt rates, etc. Moreover, geographic location puts China in an advantage for projects in the Asian region (when compared with the USA and the EU).

Therefore, while the attempt to dethrone China’s BRI has gained significant momentum and found proper backing, it is something that cannot happen in the short term. However, given the growing anti-China sentiment, it can be expected that with the right partnerships and project terms, BRI may start facing some serious competition from global powers across the globe.

by EOS Intelligence EOS Intelligence No Comments

Commentary: Europe’s Energy Woes – The Way Forward

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Europe is struggling to build up energy supply ahead of anticipated growth in demand due to economic rebound after pandemic outbreak and the winter months. Considering the knock-on effect of the energy crisis on industrial growth and consumer confidence, the prime focus for Europe is not only to respond to the mounting energy issues in the short term, but to also establish energy sustainability and security for the future.

In October 2021, the European Commission published an advisory for the member states to take some immediate steps to ease the effect of the energy crisis. Governments were urged to extend direct financial support to the most vulnerable households and businesses. Other recommended ways of intervention included targeted tax reductions, temporary deferral of utilities bill payments, and capping of energy prices. About 20 member states indicated that they would implement the suggestions outlined by the European Commission at a national level. While these measures may aid the most vulnerable user segment, there is not much that can be done to safeguard the wider population from the energy price shocks.

Energy security and sustainability is the key

While a magical quick-fix for Europe’s energy crisis does not seem to exist, the ongoing scenario has exposed the region’s vulnerabilities and serves as a wake-up call to move towards energy security and self-sufficiency.

Diversify energy mix

In general, petroleum products and natural gas contribute significantly to Europe’s energy mix, respectively accounting for about 35% and 22% of the total energy consumed in the EU. The remaining energy needs are fulfilled by renewable sources (~15%), nuclear (~13%), and solid fossil fuels (~12%).

The high dependence on fossil fuels is one of the main reasons behind Europe’s ongoing energy crisis. In order to mitigate this dependency, Europe has made concerted effort in the development of renewable energy production capabilities. In 2018, the European Commission set a target to achieve 32% of the energy mix from renewables by 2030, but in July 2021, the target was increased to 40%, clearly indicating the region’s inclination towards renewables.

Expediting renewable energy projects could help Europe to get closer to energy self-sufficiency, although the intermittency issue must also be accounted for. This is where nuclear energy can play a critical role.

After Fukushima disaster in 2011, many countries in Europe pledged to phase-out nuclear energy production. France, Germany, Spain, and Belgium planned to shut down 32 nuclear reactors with a cumulative production capacity of 31.9 gigawatts by 2035. However, in the wake of the current crisis, there is a renewed interest in nuclear power. In October 2021, nine EU countries (Czechia, Bulgaria, Croatia, Finland, Hungary, Poland, Romania, Slovakia, and Slovenia) released a joint statement asserting the expansion of nuclear energy production to achieve energy self-sufficiency. France, which generates about three-fourth of its electricity through nuclear plants, is further increasing investment in nuclear energy. In October 2021, the French government pledged an investment of EUR 1 billion (~US$1.2 billion) in nuclear power over the period of 10 years.

Look beyond Russia

More than 60% of EU’s energy needs were met by imports in 2019. Russia is the major partner for energy supply – in 2019, it accounted for 27% of crude oil imports, 41% of natural gas imports, and 47% of solid fossil fuels imports. While Europe is accelerating the development of renewable energy production, fossil fuels still remain an important source of energy for the region. In the face of escalating political differences with Russia, there is a need to reduce energy reliance on this country and to build long-term partnerships with other countries to ensure a steady supply.

EU has many options to explore, especially in natural gas imports. One of them is natural gas reserves in Central Asia. The supply link is already established as Azerbaijan started exporting natural gas to Europe via Trans-Adriatic Pipeline (TAP), operational since December 31, 2020. In the first nine months, Azerbaijan exported 3.9 billion cubic meters of gas to Italy, 501.7 million cubic meters to Greece, and 166 million cubic meters to Bulgaria. Trans-Caspian Pipeline (TCP) is a proposed undersea pipeline to transport gas from Turkmenistan to Azerbaijan. This pipeline can connect Europe with Turkmenistan (the country with the world’s fourth-largest natural gas reserves) via Azerbaijan. As a result, Europe has heightened its interest in the development of this pipeline.

Eastern Mediterranean gas reserve can also prove to be greatly beneficial for the EU. In January 2020, Greece, Cyprus, and Israel signed a deal to construct a 1,900 km subsea pipeline to transport natural gas from the eastern Mediterranean gas fields to Europe. This pipeline, expected to be completed by 2025, would enable the supply of 10 billion cubic meters of gas per year from Israel and Cyprus to European countries via Greece.

Africa is another continent where the EU should try to strengthen ties for the imports of natural gas. Algeria is an important trade partner for Europe, having supplied 8% of natural gas in 2019. Medgaz pipeline connects Algeria directly to Spain. This pipeline currently has the capacity to transport 8 billion cubic meters of gas per year, and the ongoing expansion work is expected to increase the capacity to 10.7 billion cubic meters per year by the end of 2021. In addition to this, Nigeria is planning the development of a Trans-Sahara pipeline which would enable the transport of natural gas through Nigeria to Algeria. This will potentially open access for Europe to gas reserves in West Africa, via Algeria. Further, as African Continental Free Trade Agreement came in to effect in January 2021, the natural gas trade within countries across Africa received a boost. Consequently, liquefied natural gas projects across Africa, including Mozambique’s 13.1 million tons per annum LNG plant, Senegal’s 10 million tons per annum Greater Tortue Ahmeyim project, and Tanzania’s 10 million tons per annum LNG project, could help Europe to enhance its gas supply.

Business to strive to achieve energy independence

While governments are taking steps to reduce the impact of the energy crisis on end consumers, this might not be enough to save businesses highly reliant on power and energy. Therefore, businesses should take the onus on themselves to achieve energy independence and to take better control of their operations and costs.

Some of the largest European companies have already taken several initiatives in this direction. Swedish retailer IKEA, for instance, has invested extensively in wind and solar power assets across the world, and in 2020, the retailer produced more energy than it consumed.

There has also been growing effort to harness energy from own business operations. In 2020, Thames Water, a UK-based water management company, generated about 150 gigawatt hours of renewable energy through biogas obtained from its own sewage management operations.

However, a lot more needs to be done to change the situation. Companies not having any means to produce energy on their own premises should consider investing in and partnering with renewable energy projects, thereby boosting overall renewable energy production capacity.

Energy crisis is likely to have repercussions on all types of businesses in every industry. Larger entities with adequate financial resources could use several hedging strategies to offset the effect of fluctuating energy prices or energy supply shortage, but small and medium enterprises might not be able to whither the storm.

Economist Daniel Lacalle Fernández indicated that energy represents about a third of operating costs for small and medium enterprises in Europe, and as a result, the ongoing energy crisis can trigger the collapse of up to 25% of small and medium enterprises in the region. Small and medium enterprises need to actively participate in government-supported community energy initiatives, which allow small companies, public establishments, and residents to invest collectively in distributed renewable energy projects. By early 2021, this initiative gained wide acceptance in Germany with 1,750 projects, followed by Denmark and the Netherlands with 700 and 500 projects, respectively.

EOS Perspective

Europe must continue to chase after its green energy goals while developing alternative low-carbon sources to address renewables’ intermittency issue. This would help the region to achieve energy independence and security in the long term. In the end, the transition towards green energy should be viable and should not come at a significant cost to the end consumers.

On the other hand, immediate measures proposed so far do not seem adequate to contain the ongoing energy meltdown. Further, energy turmoil is likely to continue through the winter, and, in the worst-case scenario, it might result in blackouts across Europe. If the issue of supply shortages remains difficult to resolve in the short term, a planned reduction in consumption could be the way forward.

In view of this, Europe would need to actively encourage energy conservation among the residential as well as industrial sectors. Bruegel, a Brussels-based policy research think tank, suggested that the European governments could either force households to turn down their thermostats by one degree during the winter to reduce energy consumption while not compromising much on comfort, or provide financial incentives to households who undertake notable energy saving initiatives.

This is perhaps a critical time to start promoting energy conservation among the masses through behavioral campaigns. Like businesses, it is necessary to enhance consumers’ participation in the energy market and they should be encouraged to generate their own electricity or join energy communities. The need of the hour is to harness as well as conserve energy in any way possible. Because, till the time Europe achieves self-sufficiency or drastically strengthens the supply chain, the energy crunch is here to stay.

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