Pharma patent cliff impedes production

Industrial production fell by nearly 14% in September as the effect of the so-called pharma patent cliff began to bite in to Ireland’s industrial output.

The largest contributor to the fall in industrial output was the collapse of the basic pharmaceutical products and preparations which slumped 35.2%, dragging the whole index into negative territory.

PharmaChemical Ireland director Matt Moran said the sector is traditionally volatile but admitted that unless new products were found to replace the drugs that have come off patent, the sector will face problems.

“A number of products currently manufactured in Ireland have come off patent and more patents are due to end over the next two to three years,” Mr Moran said.

“Unless these are replaced with new products, over time this could have a significant impact on the level of production in Ireland. Current worries around global and EU growth prospects are also creating a more uncertain outlook. Growth in many of our main trading partners remains anaemic and export markets remain challenging.”

Analysts in Merrion Stockbrokers were gloomy on the prospects of the sector bouncing back in the near future. Alan McQuaid said that unless global factors improved there was unlikely to be any pick-up.

“Manufacturing growth over the remainder of this year is expected to be primarily driven by industries under the ‘modern’ umbrella,” he said.

“Given the unfavourable global economic backdrop, especially in the eurozone and UK, the worry is that overall production will continue to weaken sharply, which doesn’t augur well for the prospects of Irish exports, an integral part of Ireland’s economic recovery hopes, in the short-term.”

David McNamara of Davy forecast the fall in the future output from the pharma sector could be as high as 52%, but noted that the knock-on effects in the form of job losses would be small,

“This is a worrying development, but the sector is highly productive — employing 43,800 compared to 129,200 in traditional industries. So the knock-on effects on employment from a decline in output would be minimal,” he said.

Mr McQuaid said Ireland is still well-positioned to benefit from any global recovery. “Based on the Purchasing Manager’s Index data, we still think the Irish manufacturing sector will post an overall increase in output for the third year running in 2012, albeit another modest rise of less than 1%,” he said.

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