Growing our own: a thriving indigenous pharma sector has emerged in recent years
Recent weeks have seen busy mergers and takeover activity in the global pharma sector. But while the big boys are cutting back, a thriving indigenous pharma sector has emerged in recent years
RECENT reports that Pfizer had unsuccessfully approached Astrazeneca with a €72.3bn takeover offer, Canadian company Valeant had made a €31.8bn takeover bid for Botox manufacturer Allergan and the confirmation of a €14.5bn asset swap between GSK and Novartis are merely the latest stages in the consolidation of big pharma. All of the drug majors are finding it increasingly difficult to develop the new blockbuster drugs, upon which their mega-profits depend, and which replace those coming off patent.
This is not good news for Ireland. Pharmaceuticals and the related medical devices sector have been one of the IDA's great success stories. Nine of the top 10 global pharmaceutical companies have set up shop in Ireland.
Irish-based pharmaceutical companies, both foreign-owned and indigenous, now employ more than 47,000 people directly and at least as many again indirectly. The vast bulk of those directly employed by the pharmaceutical sector, about 41,000, work for foreign-owned – mainly American – companies.
That's going to change dramatically in the years ahead. With very few new blockbuster drugs in the pipeline the drugs majors are engaged in their own version of speed-dating. Mergers and take- overs give them the opportunity to slash costs by closing plants and eliminating duplicated functions. We in Ireland have already had some experience of what this means in practice.
Last year Merck, which took over Schering Plough in 2009, announced the closure of its Swords plant with the loss of 570 jobs, while Pfizer, which took over Wyeth in 2009, revealed that it was shedding another 150 jobs at its Newbridge plant.
So is it all over for the Irish pharmaceutical sector? Not quite. The presence of most of the major multinational pharmaceutical giants in Ireland has bequeathed a legacy of technical expertise, global connections and local suppliers, which this country is now exploiting to its advantage.
"We have built up a massive network of connections which can be used to develop markets around the globe", says Patsy Carney, chief executive and co-founder of Waterford-based EirGen Pharma.
While the foreign-owned companies have been cutting back, a large number of indigenous companies have been quietly expanding. Although the numbers employed, about 6,000, are still relatively small compared to the total employed by the multinationals, they have been growing steadily. The indigenous life sciences sector recorded total exports of €780m in 2012 – a figure that is likely to be exceeded when the 2013 figures are published in a few weeks' time.
In fact these figures almost certainly understate the true extent of the indigenous pharmaceutical sector as they exclude companies operating in related fields such as healthcare software and suppliers of plant and equipment, in the expert opinion of Tom Kelly, Enterprise Ireland's divisional manager for life sciences.
Michael Donnelly is a veteran of the indigenous pharmaceutical sector. He spent 25 years in the United States before returning to help found Merrion Pharmaceuticals in 2003. He firmly believes that the future of the Irish pharmaceutical sector lies with the indigenous companies and that many of the foreign-owned companies will no longer be in Ireland in five or ten years' time.
"The large companies have huge overheads, particularly regulatory costs. That doesn't need to be duplicated four or five times", says Professor Donnelly.
While the indigenous pharmaceutical sector may be growing, most of the Irish-owned companies are, with a handful of exceptions, still very small.
What this means is that as the multinationals close Irish plants, often built at enormous cost to the taxpayer, local companies aren't stepping forward to pick them up. This is because as, Mr Carney observes, onerous compliance and regulatory requirements mean that the enormous cost of operating these plants is beyond the capacity of most Irish-owned companies.
Indigenous pharmaceutical companies can also find it difficult to secure investment locally. While Enterprise Ireland has invested in some of them and a number of life science venture funds have emerged in recent years, there is little appetite for indigenous pharmaceutical companies among most Irish investors and the banks simply don't want to know.
"We don't have institutional investors in Ireland. If you have links back to the United States then you will be able to raise money," says Professor Donnelly.
However, despite, or perhaps because of, these obstacles the indigenous pharmaceutical sector continues to grow.
"It's a good time for the life sciences markets. There are still a lot of opportunities out there," says Mr Carney.
Sunday Indo Business