Why Ireland's generic drug makers are the big winners in the Tariff War
Generic drugs are now a major part of the pharmaceutical industry in Ireland, with the two largest global manufacturers, Teva Pharmaceutical and Sandoz Group, well established in Ireland.
On Thursday, the Trump Administration clarified the original deal on EU drugs exported to the US. The big news was not so much that the maximum tariff would be 15% on branded drugs when imported into the US from Europe, but the communication that generic drugs would be exempt from the 15% duty.
Generic drugs are now a major part of the pharmaceutical industry in Ireland, with the two largest global manufacturers, Teva Pharmaceutical and Sandoz Group, well established in Ireland. The exemption will enable these companies to expand their Irish operations and continue their exports to the US.
Generic drugs make up the vast majority of prescriptions in the US, which the Food and Drug Administration (FDA) estimate account for 91% of total drugs sold. Hence, the Trump administration's decision. But the implications for the industry of zero tariffs on generics versus the 15% on branded will be significant for Irish-based manufacturing plants. Many of the branded pharma manufacturers, such as Johnson & Johnson and Pfizer, have already established facilities to manufacture a non-branded or generic version of their drugs once they come off patent protection. The tariff-free EU-US arrangement will inevitably accelerate this trend.
The European Federation of Pharmaceutical Industries and Associations (EFPIA) came out rapidly with a statement decrying the US tariff imposition, stating that the 15% tariff rate on branded drugs "breaks a 30-year commitment between governments to protect patients by eliminating tariffs on innovative medicines and their components". Going on to state: "Tariffs on medicines are a blunt instrument that will disrupt supply chains, impact on investment in research and development, and ultimately harm patient access to medicines on both sides of the Atlantic."
For the Irish Government, they are faced with a razor’s edge; on the one hand there is a silver lining in the Trump deal that exempts generic drugs, as this will support the HSE to reduce its medicines spend which last year was an estimated €2.6bn, the largest item in the healthcare budget, while only €665bn was spent on generics. But the widespread gain in employment and tax income derived from the large branded manufacturers here obliges the Government to show maximum support to these companies.
As most drugs prescribed by doctors in Ireland are branded, the US tariff exemption should help progress in Ireland in the use of generics, which is well behind countries such as the UK, who have almost 90% generics usage.
Israeli multinational pharmaceutical company TEVA, the world's leading provider of generic medicines, stated that it manufactures one in eight prescription packs supplied to Irish pharmacies. TEVA’s main facility in Waterford is focused on respiratory medicines, and with its commercial and support office in Swords, employs 650 staff. They also have extensive manufacturing facilities in the US.
Sandoz, the second largest global leader in generic medicines, operates in Ireland through its wholly-owned subsidiary, Rowex, located in Bantry, manufacturing a wide range of generics such as the Brupro /ibuprofen brand, for the Irish market.
Generic companies can offer their products to the public at considerably lower costs than brand-name medicines because generic manufacturers do not develop a medicine from scratch, but copy those developed by the original manufacturer once they have come off patent protection, which in Ireland and the EU is 20 years.
However, once off patent, the regulatory authorities in the US and the EU offer approvals to manufacture generic equivalents to many companies globally, which increases the competition in the market and drives the retail price down.
Generic manufacturers in Ireland are also looking at the potential bonanza from the Trump administration’s current plans to impose a 50% tariff on supplies from India into the US. The current situation appears to apply to generic drugs as well as branded, but as Indian generic drug manufacturers currently supply 35% of the US's pharmaceutical requirements, there could be a U-turn.
It is important to understand that while generic drugs account for 90% of prescriptions dispensed in the US, they only account for 26% of total drug spending.
Many branded drugmakers will have the resources to weather the latest tariff storm. But generics makers, who already operate on razor-thin margins, will be breathing a sigh of relief.
