The history of penicillin, one of the most common forms of antibiotics worldwide, is inextricably linked to Europe. Discovered in London in the 1920s, it was refined and tested in Oxford before being mass produced in the US during the 1940s to treat bacterial infections unleashed during the second world war.

Fast forward to today, and a town of less than 5000 people in Austria’s alpine state of Tyrol has become the lynchpin of efforts to maintain supply security for the continent. Over the past year, Swiss-headquartered pharmaceuticals group Sandoz’s penicillin manufacturing facility in the town of Kundl has undergone a €200m upgrade to expand the two key stages of penicillin production: producing active pharmaceutical ingredients (API) and finished dosage forms. 

“Kundl is the largest and only major, fully integrated penicillin production network in Europe,” says Peter Stenico, Sandoz’s country president for Austria. “We are basically the only remaining one.”

The Kundl campus, which spans 28 hectares, has become a bastion of European production of the life-saving drug, after decades of price pressure from China and India has made them key suppliers of APIs — the key ingredient that delivers the intended therapeutic effect — and the pharmaceuticals they go into. 

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Complexity matters

Offshoring has impacted some APIs more than others. “For high-quality, low-volume APIs, we still have strong production in Europe,” says Verena Knoll, a health expert at the Austrian National Public Health Institute who has studied the region’s API market. “The problem is with high-volume, low-complexity APIs. They have become mainly produced in Asia.” Penicillin falls into this latter category, making Sandoz’s plant an outlier in the eastward shift of manufacturing capacity. 

Its €200m upgrade has occurred in two stages. Last November, Sandoz unveiled €150m worth of technological upgrades to improve API efficiencies. Then in March 2024, it inaugurated a €50m production facility which increases its annual finished form dosage capacity by 20%. If these expansions hadn't happened, “it would have been really hard to maintain that site’s [competitiveness] in a global context,” says Mr Stenico.

Europe’s medicine shortages have increased over the past decade and accelerated during the pandemic’s supply chain breakdowns. In January, the European Medicines Agency highlighted the EU’s shortage of antibiotics such as amoxicillin, which in some cases can be an alternative to penicillin. 

Against this backdrop, Sandoz’s claim that the Kundl plant can cover roughly all of European demand for penicillin APIs makes it part of the continent’s critical pharmaceutical infrastructure — even though its output is sold globally to avoid monopolising the local market.

EU willpower

There is a strong willingness among EU-level policymakers and industry stakeholders to strengthen local API production, including as a backstop to avoid future medicine shortages, explains Ms Knoll. “There are some differences between countries, though, as it depends on the financial resources available and what production is already there,” she adds. Indeed, the Austrian government, which has the EU’s fifth-highest gross domestic product per capita, provided a €50m subsidy to fund one-third of Sandoz’s recent API expansion. 

Unlike other important industrialisation projects across Europe, Sandoz’s expansion is not in a region needing an economic turnaround. Tyrol’s 3.1% unemployment rate is almost half the latest EU average, official statistics show. 

However, it follows 78 years of the facility working to maximise its surrounding industrial activity. It was established in 1946 using fermentation equipment from an abandoned brewery. In place of the sugar typically used in penicillin production, Sandoz uses lactose from surrounding dairy farms. And its 2700 workers make it among Tyrol’s three biggest employers. After becoming a pillar of Tyrol’s economic soundness, the Kundl plant has set its sights on shoring up its industry across Europe as a whole. 

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This article first appeared in the August/September 2024 print edition of fDi Intelligence.