Bloomberg News

Ireland Faces $26 Billion Export Headache as Drugs Stop Working

November 30, 2011

Nov. 22 (Bloomberg) -- The strength of Ireland’s drugs industry may turn into a weakness as the country drags itself out of the worst economic slump in its modern history.

Five of the world’s top-selling dozen medicines are produced in Ireland, and their sales will fall 52 percent to $13 billion by 2013 from $27 billion in 2010 as their patents expire, according to data compiled by Bloomberg based on analysts’ estimates. They start with Pfizer Inc.’s cholesterol treatment Lipitor, which loses its patent protection this month.

“From the moment they come off patent, it will be immediately reflected in export figures,” said Chris Van Egeraat, a lecturer in economic geography at the National University of Ireland Maynooth, who has studied the issue.

Van Egeraat estimates about 19 billion euros ($26 billion) worth of Irish exports may be at risk as a range of drugs including so-called blockbuster medicines fall off patent. That may hinder Ireland’s prospects of exporting its way out of crisis, a year after the nation followed Greece in seeking an international bailout. Ireland is the largest net exporter of pharmaceuticals and medical products in the world, according to Dublin-based industry group PharmaChemical Ireland.

“Loss of exclusivity is a natural if challenging part of the pharmaceutical business model,” the Enterprise Ministry in Dublin said in an e-mailed response to questions. “Our rapidly improving cost competitiveness allied with skills availability and ease of doing business ensure we remain a very attractive location for investment.”

Tax Allure

Ireland began luring drug companies in the 1970s, later using its 12.5 percent corporate tax rate to attract Pfizer, the world’s largest drugmaker, Merck & Co. Inc., the second-biggest U.S. drugmaker, and Indianapolis-based Eli Lilly Inc.

Eight of the 10 biggest drug companies in the world have Irish facilities, PharmaChemical Ireland said. Products made in the country include erectile dysfunction drug Viagra and wrinkle-smoother Botox.

The country exported 49 billion euros of organic chemicals and pharmaceutical products in 2010, accounting for 55 percent of merchandise exports. In the first half of 2011, this grew to 58 percent, according to the Irish Central Statistics Office. Gross domestic product will grow 1.1 percent this year compared with a decline of 5.5 percent in Greece, according to a European Commission forecast on Nov. 10.

Risk to Growth

“The recovery this year has been built on the strength of the export sector, which is now jeopardized by the global slowdown,” Kevin Daly, an economist at Goldman Sachs Group Inc., said in a note dated Nov. 3. “While Ireland has made significant progress, it is far from being home and dry.”

The government on Nov. 4 cut its 2012 growth forecast to 1.6 percent from 2.5 percent. It predicted that exports would grow by 3.8 percent next year, compared with an April forecast of 5.7 percent. In 2013, the government estimated exports will rise by 4.5 percent, compared with 5 percent previously.

Drugs companies in Ireland paid just over 1 billion euros of tax in 2010, according to PharmaChemical Ireland, or about a quarter of total company tax receipts.

Lipitor, which had $10.7 billion of sales in 2010 and is produced in Little Ireland in Cork, comes off patent this year, as does Eli Lilly’s schizophrenia drug Zyprexa, followed by Merck’s Singulair asthma treatment in 2012.

Pfizer Review

Last year, Pfizer put up for sale a dosage site in Loughbeg, Cork, dedicated to Lipitor formulation. Pfizer said it has planned for Lipitor’s loss of exclusivity and will continue to manufacture the drug’s active ingredient in Ireland.

“We continually review our organization in Ireland to deal with challenges like Lipitor patent expiration,” Geraldine O’Connor, spokeswoman for Pfizer, said in an e-mail on Oct. 26. “Ireland remains a key strategic location for Pfizer.”

To be sure, Ireland retains some big draws for drugs companies. Labor costs will fall 14 percent relative to the European Union average in the period 2008 to 2012, according to the European Commission. The country has also managed to keep its tax rate amid pressure from its European partners, while the government offers tax breaks for research and development.

The rate is “our oil, we’re not giving it away,” Finance Minister Michael Noonan said in a speech last month.

Van Egeraat, the academic, believes the manufacture of patented drugs will be taken over by specialized generics companies, many located in India, when patents end. He said it “makes for stark reading.”

“Will the pharma companies keep producing the drugs in Ireland as they come off patent?” said Matt Moran, director of PharmaChemical Ireland, which last year set up an industry group to examine how Ireland could deal with the impending fall off in blockbuster drugs. “This is the big issue.”

--Editors: Dara Doyle, Rodney Jefferson

To contact the reporter on this story: Cormac Mullen in Dublin at cmullen9@bloomberg.net

To contact the editor responsible for this story: Dara Doyle at ddoyle1@bloomberg.net


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