Pharmaceuticals mask true health of Irish exports

Anyone taking a cursory glance at current pharmaceutical industry revenues and forecasts could be forgiven for thinking that all is well, writes John Whelan.

However, behind these numbers there are some major shifts that are disturbing the industry status quo and could impact severely on Ireland’s biggest export sector.

The pharma industry powered ahead last year and was the main driver of Ireland’s export growth. However, the sheer size of the industry is dwarfing all other exports and — in many cases — shielding market contraction in many other sectors.

Excluding pharmaceuticals, exports of all other products to the US markets fell across last year, similarly in China, whereas exports were stagnant across the Eurozone.

Any sneeze by the pharmaceutical producers has the potential to give a bad flu to the Irish export industry, as a whole, and put a major hole in Ireland’s balance of trade, which has been a mainstay in our economic recovery.

And in 2019, the pharmaceutical industry is facing a storm of challenges. Perhaps the biggest challenge will be handling the full impact of the UK’s exit from the EU.

Many Irish-based companies are scrambling to adjust operations to avoid disruptions to their supply lines and regulatory arrangements in the event of a hard Brexit. The indications, so far, are that plans are going smoothly, but the real test will come on March 29 when the break-up is due to take place.

However, the pharmaceutical industry is global and has been on a continuous growth path for the past few decades, with current global sales of €970bn. By 2020, this figure is set to rise to €1.25 trillion, according to industry sources.

But there are other challenges that may derail the industry in the coming year. Leading the charge is the rising demand for healthcare and the increasing cost of drugs. With healthcare budgets cutting deeper and deeper into national budgets, governments and patients and their insurers are exerting pressure to drive down prices.

One bold example involves The Netherlands. Not content with striking volume deals with the major pharmaceutical players, it is looking to utilise the power of the EU to create even greater economies of scale. At the moment, several member states are pooling together into a single procurement machine with massive bargaining power.

This initiative, in its early stages, is also being looked at by other states including Ireland who are seeking to cut their drug expenditure.

The Department of Health here has targeted GPs; pushing them to prescribe generic drugs in their drive to cut costs to the exchequer.

The major drug companies were pushed into freezing drug prices in the US while discussions with regulators were underway. However, the freeze appears to be over and increases in drug prices were reported to have started again in January. The Trump administration’s efforts to introduce European socialised drug pricing to the US market does not seem to be getting support.

But, with the ongoing demand for more affordable healthcare, the issue is not going to go away, either in the US or internationally. Price pressure, and the associated costs of researching and developing new drugs, is having the effect of prompting more companies into mergers and acquisitions.

In recent years, decisions on major merger investments by drug manufacturers have usually been positive for Irish-based sites. However, the attack by the US on so-called “inversion” deals, whereby pharmaceutical corporations shift their tax base through acquisition of an Irish-registered company, is likely to have long-term impacts on the attractiveness of Ireland as a manufacturing base.

- John Whelan is managing partner of international trade consultancy The Linkage-Partnership