Positive prognosis for drugs industry

WEST CORK swallowed a bitter pill last week with the loss of 170 jobs at the Schering-Plough pharmaceutical plant in Brinny, Innishannon.

The news cast an unexpected shadow on an industry that has been one of Ireland’s biggest success stories over the last 30 years.

But even allowing for developments at Schering-Plough, the industry continued to show plenty of verve during 2003 and helped keep the economy in good health. Pharmaceuticals account for almost 15,000 jobs and over one-third of Irish exports, totalling an impressive €34 billion. No other European country benefits so much from the industry - or has so much to lose.

“The sector has seen tremendous growth and adds about 1,000 jobs a year,” commented Barry O’Leary, pharmaceutical divisional manager with IDA Ireland.

Ireland is home to 16 of the world’s top 20 pharmaceutical companies and 12 of the 25 biggest-selling drugs in the world are made here.

Schering-Plough is was a case of bucking an otherwise positive trend. Wyeth’s $1 billion biopharmaceutical campus in Grange Castle in Dublin will begin operations shortly and has already hired almost 800 people, two-thirds of them graduates. It will employ over 1,300 when at full capacity. It is the largest single project ever undertaken by the healthcare giant.

Bristol-Myers Squibb has spent nearly €400 million on a new facility in Mulhuddart, Co Dublin, with jobs for 250 people. Genzyme will fill nearly 500 jobs with a €480 million investment in Waterford, while Altana will create 150 jobs at Carrigtwohill, Co Cork and spend over €70 million in the process.

Companies that have roots here since the 1970s are adding to their existing operations and upgrading facilities, giving a vote of confidence to the favourable regime and supply of skilled labour here. Industry observers say attracting repeated high-profile investment sends out positive messages to other pharmaceutical companies and strengthens our status as one of the leading industry locations in the world.

The Wyeth investment is especially important and puts Ireland in pole position in the emerging biopharmaceutical sector. Biopharma involves a heavy commitment to research and aims to use naturally-occurring ingredients in the manufacture of drugs, rather than inputs with a synthetic chemical base. December’s budget answered calls from the industry to encourage research and development (R&D) with a special tax credit, allowing companies to write off R&D expenditure against their tax bill.

The sector will undoubtedly keep a close eye on developments at European level in 2004. The spectre of tax harmonisation, an idea long and loudly resisted by the Irish government, will continue to loom large. Ireland will continue to battle against countries who want our 12.5% corporation tax raised closer to the European average.

A higher tax rate would seriously undermine Ireland’s ability to attract pharmaceutical investment.

Ireland’s competitive advantage is not solely tax-based.

Work continues on keeping skill levels high, with significant government support for educational initiatives, such as the partnerships between third-level colleges and industry facilitated by Science Foundation Ireland. The development of Centres for Science, Engineering and Technology (CSET’s), which encourage collaboration in research, are positive steps.

But there is concern at the trend of falling interest in science subjects at second and third level. The number of secondary school pupils taking science subjects has plummeted by more than 50% over the last 10 years. Matt Moran, director of IBEC’s Irish Pharmaceutical and Chemical Manufacturers Association, says this could be a problem in the long term. If employers cannot source the skills they need, they will locate somewhere else.

The country’s waste problems could also affect the industry. While two-thirds of waste from pharmaceutical and chemical plants can be recycled, according to Mr Moran, the remaining waste must still be dealt with. New EU directives concerning waste treatment and disposal will require Ireland to become self-sufficient in the handling of certain waste. The absence of waste infrastructure beyond landfills will soon become a much bigger issue.

Without somewhere to put their waste, pharmaceutical and chemical companies eventually face the prospect of shutdown in the worst-case scenario. Opponents of waste management facilities will need to weigh up whether they are willing to give up jobs to pay for their objections.

Even in a successful sector, there is no immunity from company-specific problems. Schering-Plough’s cutbacks are part of worldwide plans announced in December to shed 10% of its 30,000-strong global workforce and save over $200 million. The company suffered from a slump in demand for its main products after a series of patents ran out, allowing competitors to make similar drugs at lower prices.

But problems like these must be put into context. At a time when other industries are stagnant or even declining, the prospects for Ireland’s drug companies remain strong. The IDA is confident new projects will be announced in 2004 and cite last month’s decision by GlaxoSmithKline to invest over €30m in R&D in Cork as evidence of the strength of Ireland’s position.

“The competition is increasing, but the pharmaceutical and life sciences area is still holding up well,” says the IDA’s Barry O’Leary.

“We’re getting positive feedback and we’d hope for more significant investments in 2004.”

The industry might not be feeling well after last week’s news, but the prognosis is not at all bad.