The great and the good of Europe's pharmaceutical industry gathered in Dublin this week for the annual meeting of the European Federation of Pharmaceutical Industries Association (EFPIA), but the people who run the business are already focused on another meeting next week - with representatives of the EU Commission on June 3rd.

On that day, pharmaceutical industry leaders and the commission will discuss what are now called the G10 proposals, a set of recommendations designed to deal with structural problems the industry says are costing it at least €2 billion per year in lost profits.

It also says that they have left the European pharmaceutical sector trailing the US in terms of both research and development (R&D) and bringing new products to market.

The industry has been lobbying the commission, and just about anybody else in Brussels that will listen, about these problems for the best part of the last decade.

According to Sir Tom McKillop, chief executive of Astra Zeneca and outgoing president of the EFPIA, they clearly illustrate the way in which the EU can sometimes work against itself.

The industry's main customers within the EU are the national health authorities of the individual member states. These bodies, all state-run, set the prices for drugs in each country. Obviously, as they all operate within budgets, they try to keep prices as low as possible.

In the current weak European economic climate, this also means that the guardians of already stretched state coffers are trying to reduce prices. For example, Germany recently imposed a 16 per cent across-the-board cut on drug prices.

Alongside this system stands the single market, which allows anyone to sell products for whatever prices they want within the EU.

This has thrown up another problem - parallel trading.

Thus, for example, it is possible to buy a particular drug at one price in France, and sell it in the UK at a higher price. There is a whole industry dedicated to this, and the EFPIA maintains that they are mopping up the €2 billion in lost profits.

Parallel trading has the ultimate effect of forcing down prices.

"Prices are spiralling down all the time," Sir Tom says.

The European system, or systems, also means that even though drugs have regulatory approval for use on patients in the EU, they cannot get to market in each member state until the authorities there have agreed prices.

Effectively, even though a new drug has EU-wide technical approval, it then has to get over the price hurdle in each of the 25 members before it gets to market. Sir Tom argues that European patients have to wait up to two years longer than their US counterparts to get access to new treatments.

"It takes ages often to get through all the regulatory processes, not so much the technical approval, but the adoption of the product for pricing in Europe can be appalling," he says.

"It can be more than two years after technical approval before you get a price agreed by a government."

This means that the US gets new drugs first. Industry figures show that 70 per cent of sales of new medicines marketed since 1998 were generated in the US, while just 18 per cent came from Europe.

The reason is that the US operates a free market for drugs. Once a new treatment gets Food and Drug Administration (FDA) approval, it can go on sale and the buyers can negotiate their own price. As a result, Sir Tom says that the European market has stood still while the US has overtaken it, reversing the historic position, where Europe led the US in this field.

The overall health of the medicines business in Europe is not good.

For example, Sir Tom points out that the market capitalisation of Merck in the US is probably bigger than the overall market capitalisation of the whole industry in Germany, the birthplace of both Merck and the pharmaceuticals business itself.

As a further consequence, new investment is going to the US and staying away from Europe. For example, Astra Zeneca, a European company, recently opened a new R&D facility in Boston.

"You have seen more and more of the R&D investment going into North America relative to Europe," Sir Tom says.

In 1990, R&D investment in Europe was 50 per cent ahead of the US, now it invests 40 per cent more in the US.

Research is central to what the pharmaceutical industry does, because that is how it develops new drugs. On average, the industry invests 18 per cent of annual sales revenue in this activity, and it can cost between $700 million and $1 billion to develop a successful new treatment.

From an Irish perspective, this does not mean that our existing pharmaceutical industry, made up of European and US multinationals, is going to exit.

But it does mean that the European-wide problems could stymie the Government's efforts to attract more R&D activity here, despite the fact that industry leaders, including Sir Tom, have made encouraging noises about its policies in this area.

The solution supposedly lies with G10, one of the architects of which is outgoing Irish EU Commissioner Mr David Byrne.

Under a key recommendation, once a drug receives technical approval, it will then get one EU-wide price at which anyone who wants can buy it.

After that individual state health authorities can negotiate whatever discounts they can, or want, to this price.

One price translating into 25 looks very much like an EU solution to an EU problem, but it's one that the industry believes will work.

The next problem, however, is how long it will take this process to reach a conclusion.

The answer is that nobody knows.

Sir Tom's successor, Dr Franz Humer, chairman and chief executive of Hoffman La Roche, does not know.

But he says that it does provide a framework for the industry in which it can try and resolve the difficulties it is encountering in Europe. In the meantime, the industry's eyes are focused on that meeting next week.