66 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 44 | 2026 date (JGL, 2026). This incentive represents the most concrete example of the Croatian state directly supporting domestic pharmaceutical production capacity through fiscal instruments, and it demonstrates that the general investment promotion framework can direct capital toward manufacturing expansion when firms choose to pursue it. Regarding market governance, Croatia has implemented a series of regulatory reforms that incrementally address the operational constraints faced by domestic manufacturers and market entrants. From January 2025, Croatia participates in the EU Health Technology Assessment Regulation framework, reducing duplication across countries and speeding evaluation of new treatments (European Commission, 2026; European Medicines Agency, 2025). HALMED has streamlined approvals and accepts English-language submissions, reducing administrative friction for international applicants (HALMED, 2026b). And, the EU pharmaceutical reform package provisionally agreed to in December 2025 would require companies to make EU-authorized medicines available in all member states within three years, directly addressing Croatia’s launch delay problem (European Parliament, 2025; Meulenbelt et al., 2025). On fiscal sustainability, the government has acknowledged the pressure on the Croatian Health Insurance Fund through two measures. The Fund raised supplementary health insurance premiums by 62% in February 2026, the first adjustment since 2013 (HZZO Raising…, 2025). The IMF’s 2025 consultation independently flagged pharmaceutical distribution and access as priority reform area (International Monetary Fund, 2025). What remains missing is a policy framework that systematically converts these foundations into sustained pharmaceutical innovation and upgrading. Croatia has no dedicated pharmaceutical innovation strategy. It has no targeted incentive framework for attracting contract development and manufacturing organizations. It has no orphan drug or rare disease discovery program beyond EU baseline requirements. It has no public–private partnership mechanism for pharmaceutical R&D at scale. It has no coherent strategy for retaining the scientific workforce whose departure has steadily eroded the human capital base that any innovation-driven sector requires. The Investment Promotion Act can incentivize manufacturing expansion when a firm decides to pursue one, but it cannot direct the type or therapeutic orientation of that investment, and it offers no mechanism to connect manufacturing capability to innovation activity. The reforms achieved to date have largely addressed the symptoms of Croatia’s structural position in terms of access delays, pricing distortions, reimbursement inefficiencies, and supply chain fragility; however, they have not confronted its underlying cause: a pharmaceutical sector whose capabilities are concentrated in generic manufacturing and contract production, while the therapeutic areas generating the most value and the most import dependence remain entirely outside domestic production. Understanding how other small European economies have navigated this transition is therefore the necessary next step. Croatia lacks most of the policy infrastructure its comparators have, a gap the following section examines. Policy recommendations: A production upgrading pathway The recommendations below describe a sequential upgrading pathway rather than parallel interventions, recognizing that production capability is built in stages and that each step creates a foundation for the next. Each recommendation directly addresses a structural weakness identified above: API dependency, low-margin generic concentration, import reliance on biologics, underutilized manufacturing credibility, and the absence of proprietary product capability. Step one: API integration for stability. Croatia currently sources the overwhelming majority of its active pharmaceutical ingredients from China and India, exposing its manufacturers to the same supply chain vulnerabilities that the EU Critical Medicines Alliance identified as one of the bloc’s structural problems (European Commission, 2025; Toshev et al., 2025). A targeted investment program supporting domestic or regional API production for Croatia’s highest-volume generic medicines would reduce dependency on other countries, lower exposure to global supply disruptions, and improve the profit margins of domestic manufacturing. Slovenia’s Krka pursued a version of this logic, developing in-house API capability for its core product lines, and it saw success (Krka, 2015; Rudge, 2026). Step two: moving up the complexity ladder. Once the generic base is stabilized, the next production upgrade is to move from simpler solid dosage forms, such as tablets and capsules, to more complex, higher-margin forms, such as modified-release formulations, sterile injectables, and inhaled products. These categories require more sophisticated manufacturing in-
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