|
Last Updated: Dec 19th, 2007 - 13:17:15 |
 |
| The Eli Lilly plant at Dunderrow, near the seaside town of Kinsale, 11 miles west of Cork City. About 450 people are employed there. |
In a major feature last week, The Wall Street Journal said that over the next few years, Big Pharma - the titans of the pharmaceutical business, will hit a wall.
Generic competition is expected to wipe $67 billion from top companies' annual US sales between 2007 and 2012 as more than three dozen drugs lose patent protection.
In 2006, 47% of total merchandise exports from Ireland, were from the pharmachem sector compared with 32.6% in 2000. Most of the exports were made by foreign-owned firms, overwhelmingly American.
Employment in Irish pharmachem industry in the last 10 years has increased by over 56%. The industry employs over 24,000 people within over half of them 3rd level graduates. 16 of the top 20 Pharmaceutical companies in the world have established facilities in Ireland. Foreign investment promotion agency IDA Ireland says on its website in respect of 2004, that 6 out of 10 and 12 out of 25 of the world’s top selling drugs are produced in Ireland including Lipitor and Zocor. The sector is the largest payer of Irish corporation tax.
Foreign Direct Investment for the Pharmaceutical sector in Ireland dates back to 1964 when Squibb (now Bristol-Myers Squibb) became the first pharmaceutical company to locate in Ireland. Last week BMS announced in respect of what it called its Productivity Transformation Initiative, that goals include:
- reducing the number of brands in the company's mature products portfolio by 60 percent between 2007 and 2011;
- reducing the number of manufacturing facilities by more than 50 percent by the end of 2010; and
- reducing total headcount by approximately 10 percent, or about 4,300, between 2007 and 2010.
 |
| Swords Laboratories is one of two bulk pharmaceutical plants owned and operated by US drugs firm Bristol-Myers Squibb (BMS) in Ireland. In 1964, Squibb became the first overseas-owned pharmaceutical plant to open in Ireland. Swords Laboratories manufactures bulk pharmaceuticals which are shipped to BMS finishing plants around the world where they are used as the key ingredients in the production of tablets, capsules and other healthcare treatment. |
The Journal says that AstraZeneca, GlaxoSmithKline, Europe's biggest drugs company, and Bristol-Myers Squibb have recently suggested they will outsource at least some of their manufacturing. "There are lots of people in India, China and Eastern Europe who can make products of the same quality as ours but at significantly less cost," says Bristol-Myers Squibb CEO James Cornelius.
The outsourcing is expected to extend to research. "We don't do any basic research yet in the lower-cost countries, but over the next few years, to be successful you'll have a constant emphasis on looking for that," Cornelius says.
In March 2007, Bristol-Myers Squibb confirmed that it was moving assets of up to $25 billion from an Irish holding company.
A company spokesman told Reuters the liquidation of assets in Bristol-Myers Squibb International Holdings Limited was "part of the company's ongoing review of its financial operations."
"It's a holding company. It does not have any business operations or workforce. This action will not have any impact on the day-to-day operation in Ireland," said Brian Henry, regional spokesman for Bristol-Myers Squibb, which also has two factories in Ireland.
US pharmaceutical and high-tech companies use Ireland as a base to channel patent income and profits from other overseas locations, which benefits the Irish Exchequer through payment of corporation tax. The tax haven aspect of Irish corporate tax receipts may exceed €2 billion annually.
Henry is reported to have declined to comment on a report in The Irish Times that the move was to benefit from even lower corporate tax rates elsewhere than the 12.5% rate in Ireland.
Bristol-Myers Squibb also refused to say where it was transferring the assets of the holding company, which owns subsidiaries in the United States, Europe, Latin American and Asia.
The Irish holding company had pre-tax profits of €1.66 billion ($2.2 billion) in 2005.
 |
| From a European industry report published in 2007. |
The Journal said in its feature last week that some of the top-selling drugs in industry history will soon become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67 billion from top companies' annual US sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies' combined 2007 US sales.
At the same time, the industry's science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones like Lipitor, Plavix and Zyprexa.
Drugs have 20 years of patent protection and often companies fail to get a product to market before half of that period has elapsed. Once it hits the market, however, the patent-protected drug is highly profitable: Typical gross margins are 90% to 95%. When patents expire, generic makers offer the products at a price much closer to the cost of production.
Pfizer's Lipitor, the anti-cholesterol blockbuster drug had annual sales last year of $13 billion and will lose patent protection in 2010.
Big Pharma is moving into generics. Swiss drugs firm Novartis get 20% of its annual sales revenues from generics.
Between 2011 and 2012, annual industry revenue will decline, estimates Datamonitor, a UK research and consulting firm. That would be the first fall in at least four decades.
 |
| From a European industry report published in 2007. |
During the five years from 2002 through 2006, the industry brought to market 43% fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending.
Datamonitor says to overcome the poor R&D productivity that has characterized the pharmaceutical industry over the last few years, companies are being forced to re-evaluate R&D strategies. Companies are continuing to use licensing and acquisitions along with better prioritised spending and more structured decision making in an effort to deliver improved returns.
Big Pharma companies turned to a range of inorganic growth strategies in 2006 to improve sales and profit. This has allowed branded companies to expand their geographical presence, while enhancing the strength of their pipelines, frequently with the acquisition of small Pharma and biotechs providing additional products and supplementary technologies.
Datamonitor says that the role of emerging markets in the pharmaceutical industry is changing: not only do markets such as India and China represent significant targets for growth because of their rapid economic expansion, but with the globalization of the industry, manufacturers are increasingly outsourcing and offshoring numerous functions there.
The Journal says that the industry estimates only one out of every 5,000 to 10,000 candidates makes it to human trials. And many drugs that work beautifully in animals fail miserably in people.
In Ireland in 2007, the world's top pharmaceutical manufacturer Pfizer, which first opened a plant in Cork in 1969, was reported in October, to be planning a $500 million (€353 million) expansion of a new biological facility there.
Last February, Pfizer, announced that following a review of its Irish operations the company planned to close one of its manufacturing units at Ringaskiddy, County Cork and sell its manufacturing units at Little Island and Loughbeg, with over 500 jobs affected. The company spent $800m developing a torcetrapib drug, as a replacement for Lipitor but abandoned the project following poor results from clinical trials. Last month, Merck, which had overcome the debacle following the withdrawal of the VIoxx painkiller from the market in 2005. announced plans to establish a vaccine facility at Carlow town.
Amgen, the world's top biotechnology company, which announced plans in January 2006 to build a major plant in East Cork Ireland, announced last October, that it has indefinitely shelved the project following difficulties encountered in recent times with its leading drugs on the US market.
