Innovation is the key to pharma sector future The collapse of the property market has left the economy with a huge hole that will be difficult to fill. One of the few sectors that offers hope of growth is the pharmaceutical industry, with senior executives convinced that genuine opportunities remain for Ireland Inc.

Innovation is the key to pharma sector future But, while opportunities are presented by the changing international pharmaceutical environment, there are also great risks. Industry body PharmaChemical Ireland has put together a strategy document to hammer home the urgency of meeting the needs of this valuable sector.

Ireland is recognised as an international hub for the pharmaceutical and chemical industries. However, rival locations – such as Singapore, Puerto Rico and Switzerland – are continuing to up their game. New locations such as China and India are catching up fast.

At the same time, many of the world’s blockbuster drugs are coming ‘off patent’. This means that generic versions of the drugs can be made by rival companies, and the income of the creator of the drug is slashed. Among the drugs coming off patent in the near future is Lipitor, Pfizer’s cholesterol-lowering medication.

PharmaChemical Ireland believes that the industry needs to become more competitive, and that the government must strongly support the sector. The key requests are an improvement in research and development (R&D) tax breaks and a serious effort to keep costs down in Ireland.

In last week’s finance bill, the government announced changes to the R&D tax credit system and to the existing tax treatment of dividends received by companies here, to increase Ireland’s attractiveness for economic activity.

Ibec said that, while the Finance Bill included some useful details, its measures to stimulate enterprise and employment were disappointing.

It added that a number of measures would support investment and would make the country more attractive for foreign direct investment, but the biggest disappointment was that not enough support was given to R&D.

‘‘It is a missed opportunity that the Commission of Taxation recommendations around enhancing the flexibility of the R&D tax credit scheme have not been delivered on. This is surprising, given that the changes would have been cost-neutral for the exchequer, but would have yielded substantive employment and economic benefits," said Fergal O’Brien, a senior economist at Ibec.

Gerry Collins, general manager of Johnson & Johnson-owned Janssen Pharmaceutical, which employs 170 people in Cork, said that it was time to ‘‘take note of the long term, rather than the special interests in the short term’’.

‘‘We absolutely have to act. There are massive risks here, particularly when you look at the amount of capacity that’s available in the world," he said. ‘‘Multinationals have huge choice. The emerging markets as a marketplace to sell products are tremendous, but they are also a source of lower-cost goods. People will argue that the quality isn’t as good, or comparable."

But other countries are making progress. ‘‘Ireland learned the business and other countries can do the same. We have to translate our advantage, which is 20plus years of experience, into a competitive advantage," Collins said.

Cheaper locations can result in a reduction in manufacturing costs of 40-50 per cent. This is compelling for any business. ‘‘That is hard to walk away from," said Collins.

The J&J group has been affected by drugs coming off patent, although much of that shift has already happened. Among its drugs to come off patent is Risperdal, which treats schizophrenia. The impact of a drug coming off patent can mean a fall of 60 per cent in revenues for that medicine.

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Dan Hoey, general manager of Merck Sharpe & Dohme in Ballydine in Co Tipperary, believes that support is needed for the sector.

Merck has been in Ireland since 1976, and employs 450 people onsite. It recently merged with Schering Plough, which brings the total workforce to 2,300.

‘‘There’s a big role for the government in keeping costs down and helping us keep competitive. They’ve made a lot of good steps with public sector pay. That sets the general tone for restraint," said Hoey.

‘‘If you pointed to one thing in the past that allowed the pharmaceutical industry to grow here, it was the education system.

That, in the long term, is what we need to ensure we don’t lose focus on," said Hoey.

Matt Moran, of Ibec’s Pharma Chemical Ireland, said one of the key points of its strategy document was Ireland’s chance of building a reputation for the swift development of products. Shortening the time it took from moving from clinical trials to the market would save big pharma companies millions of euro.

‘‘The patent is quite limited," said Moran.

‘‘It has a 20-year lifespan, and that’s it. It takes about 11-12 years to develop the drug, and there are only eight years left to reclaim their investment in the patent."

‘‘If you get it quickly to the market, it really saves the companies an awful lot of money. We see that as an area that Ireland can focus on in the future. The country can market itself as a cluster for both development and manufacturing."

The body has established a standing committee, whose job is to implement the recommendations in a report. Members of the IDA and Enterprise Ireland are among those on the board.

One of the more controversial points in the strategy document is a call for the government to continue to spend on patented drugs. There is pressure on Ireland’s healthcare bill, and a drive to back cheaper generic drugs is one way of cutting this bill.

‘‘Most of the companies at a corporate level will take a broad view, and they would expect that healthcare policy is as supportive as it can be, so any overt move towards forcing the use of generics would not be helpful to an innovator-based industry," said Moran.

‘‘Having said all that, the industry operates in the marketplace, which accepts the use of generics. Where appropriate, they should be used."

The industry does believe that Ireland has many positives, despite the challenges ahead. Genzyme’s general manager, Dominic Carolan, said: ‘‘Ireland has a lot of very strong positives, more so than perhaps most other centres. Some of the strengths of the sector include the deep embedded skills base. This sector has been growing since the 1960s.

‘‘We also have a reputation for delivering products reliably with high compliance and quality. That differentiates us from a lot of our competitors."

But he said that there was no room for complacency. ‘‘This is a moving area, so we need to continue to be ahead of the game and ahead of the opposition." Carolan added that it was ‘‘critical’’ the government understood where the scarce resources should be spent.

Eli Lilly is among the companies moving its Irish operations ‘‘up the value chain’’. Eamon Judge, director of Eli Lilly in Ireland, said that the company was branching into biological synthesis, which is a new technology platform for the company.

For him, the cost base continues to be a problem. ‘‘What Ireland brings to Fortune 500 companies, in particular, is a stable environment and a strong base of knowledge and capabilities. Unfortunately, over the past ten years, that has been counterbalanced by our changing cost profile," he said.

‘‘The world is changing fast in the pharmaceutical industry, and the expiration of patents coming up is putting pressure on the bottom line."

While Ireland’s good reputation is still winning investment, executives in the sector point out that relocation is always a possibility. Collins of Janssen Pharmaceuticals said: ‘‘Other industries have moved in the past. The whole reason we have put this strategic document together is because we can see that this could happen to us too. We have no right to think our future is secure."

‘‘We have to take action to secure it in the current climate. That means taking a long-term view, and getting extremely competitive very quickly."