Country Report: Ireland

This sponsored supplement was produced by Focus Reports.

Project Director: Andrey Muntyan

Project Coordinator: Isabella Romeo Gomez

Project Assistant: Alina Manac

Project Publisher: Julie Avena

Cover Photo: Andrey Muntyan

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ANDREY MUNTYAN

The elements that have made Ireland attractive for decades are still here. The big difference since 2007, however, is the cost base. If you are building a pharma plant in Ireland today, it will cost 35 to 40 percent less than it did six years ago. — Barry O'Leary, CEO, Industrial Development Agency (IDA) Ireland

Barry O’Leary, CEO, IDA Ireland

Barry O'Leary, head of the IDA, Ireland's inward investment agency, reels off a long list of investments into the country.

Lilly, he says, committed $420 million (€320 MM) to its second Irish biotech facility. Allergan announced a $250 million (€190 MM) investment in biologics in the west of Ireland. Amgen initiated a $200 million (€150 MM) expansion in Dublin. Mylan declared plans to split $500 million (€385 MM) between production sites in Dublin and Galway. Abbott is making a $110 million (€85 MM) investment in small molecule, high potency production. Lilly, Merck, and Gilead established financial shared services centers.

The 3 T’s: Positioning Ireland for FDI

O'Leary notes that these announcements came in the first six months of the 2012 fiscal year alone.

According to a report by the Irish Times, 2012 was Ireland's best year for foreign direct investment in more than a decade. It seems that Ireland—the country that Prime Minister Enda Kenny promises will be the best small country to do business in by 2016—has become more attractive for foreign direct investment (FDI) in the wake of an economic crisis that has ravaged its domestic economy.

Not only has the cost of doing business been reduced by 10-15 percent since the onset of the recession (Ernst & Young), but Ireland has also adopted what Matt Smith, VP and head of the global pharma business for engineering giant CH2M Hill, calls a "laser-clear" focus on the customer.

Richard Bruton TD, Minister for Jobs, Enterprise and Innovation

From what he has seen along his globetrotting route, Smith believes, "Ireland has never been more competitive around the world. The Irish have a clear vision of who they are: their brand, their identity, and their fit in the value chain. I am confident that any manager in the country will have roughly the same impression of what Ireland can offer their business; in other markets, you will find that opinions differ on the country's positioning in the chain. Some of the emerging markets, in particular, don't really know who they are yet—and if you are competing without a clear vision of your value, you will get beat by a country like Ireland any day of the week."

Ireland has been a pharma industry darling since the 1960s, when a then-newly established IDA targeted the sector as a strategic area for development. Today, the numbers are eye-catching. As reported by the IDA, nine out of the top ten—and 13 out of the top 15—pharma companies in the world have substantial manufacturing operations in Ireland. The industry has invested over $7 billion (€5.4 BN) in the market over the last decade. Ireland has become the largest net exporter of medicines in the world and the eighth-largest producer in absolute terms, with pharmachem shipments worth €55.1 billion ($71.63 BN) (2011) accounting for nearly half of Irish exports.

Paul Duffy, VP External Supply Operating Unit, Pfizer

As Colin Kavanagh, Partner and Head of Life Sciences at local law firm Arthur Cox, puts it, if a company is a player of scale in this industry, then they have likely already invested in Ireland—"and if they haven't, they're thinking about it, or they have a good reason not to." Many of those that have already invested are now diversifying their operations away from what has classically been a pure manufacturing base to include more complex value-added activities like product and process development.

The concentration of FDI has also had a strong hand in the rise of a growing indigenous life science sector, often led by Irish entrepreneurs who have either learned the ropes by working for a multinational, or built their businesses upon a foundation of collaborating with multinationals from Ireland.

Matt Moran, Director, Pharmachemical Ireland

Yet as multinational investment in infrastructure reaches new heights and indigenous players ramp up overseas expansion, some industry actors face a more uncertain scenario. On the local market, innovator sales operations have been challenged by recession-driven austerity. A new price-cutting agreement has sent a clear message that the government will increasingly delink its approach between courting investment from the industry and supporting an unsustainable drugs bill. For generics marketers, long-expected regulations should open up new possibilities—but the full ramifications of prospective legislation are as yet unclear. According to Anne Nolan, head of the local innovator group Irish Pharmaceutical Healthcare Association (IPHA), companies looking to reach the 4.5 million-patient Irish market must contend with a health system that has changed as much in the last four-five years as the UK's National Health Service (NHS) has changed in the last 40.

UP THE LADDER

"An important aspect in the development of the sector—which has helped to significantly boost its contribution to the Irish economy—has been the success of the industry in diversifying the nature of its investment in Ireland, from the original bulk active plants to higher-value activities." – Richard Bruton, Minister for Jobs, Enterprise, and Innovation

Edward Canary, General Manager, Lilly Kinsale Site

Lilly set up in Ireland three decades ago by purchasing a farm. In its early days, the operation produced intermediaries for small-molecule drugs. Nearby, Pfizer was manufacturing citric acid for soft drinks. The country was a fledgling industrial economy that was still mostly reliant on sectors like agriculture and fishing.

No more. Thanks to a strategic revamping of its educational system and the development of a highly attractive package of business incentives, Ireland has diversified its investment base and continually moved up the value chain. The pharma sector advanced from bulk manufacture of chemicals and intermediates to formulation and finished products. In the early 2000s, in addition to small molecules, Ireland became a key location for complex biopharmaceutical production. Pfizer's biotech site at Grange Castle in Dublin, inherited from Wyeth, was the largest in the world when it went into operation in 2005.

Cut costs, or add value?

Pfizer VP of External Supply Paul Duffy summarizes a story that is emblematic of the market at large: "In Ireland, we have moved from making sweetener for soft drinks, to manufacturing some of the most innovative medicines Pfizer distributes around the world."

And today, as reported by Matt Moran, director of local industry association Pharmachemical Ireland (PCI), "the aim is to move the sector from manufacturing, to 'manufacturing plus.'" What is manufacturing plus? Moran explains, "Not very much basic research is done in Ireland. However, the industry is now investing in product and process development—in other words, competencies that are close to manufacturing. This makes sense, given the size of the production base here."

Joe Costello TD, Minister for Trade & Development

Ireland is today a place to not only manufacture, but also to address challenges like manufacturability. At Lilly's operation in Kinsale, Cork, General Manager Edward Canary reports, "As the site's mission has evolved, the complexity associated with our operation has increased. Through ongoing investment in our people and facilities, we have become a center of excellence for chemical synthesis and the commercialization of new molecules. Several new medicines are currently undergoing development work in Kinsale, and new manufacturing technologies such as process analytics and continuous processing are being deployed at the site in collaboration with our colleagues in drug development. We now have the opportunity to advance our late stage pipeline, while continuing to leverage our long history of performance in the supply side of the business."

Indeed, in a rapidly evolving environment, many stakeholders have said that if Ireland did not itself continue to evolve, the industry would look elsewhere—and in the words of Deloitte Ireland Managing Partner Brandon Jennings, it would look elsewhere "very quickly."

Frank Ryan, CEO, Enterprise Ireland

But what of cost—one of the greatest drivers of change for the pharma business today? Great science alone may not hold the industry's attention. As Bristol Myers Squibb's VP of external manufacturing John Nason says, "To be very clear, we operate in a cold business environment. You either make a profit, or you fail—it's that simple. We are up against Switzerland, and we are up against Singapore and the Far East. China has invested billions to attract the industry."

Ireland has an answer: leading in the implementation of manufacturing excellence and continuous improvement. Rottapharm's managing director for its Dublin site, Patrick Garrahy—whose team recently won multiple awards for continuous improvement from the World Trade Group—believes that the country "can mitigate whatever cost differentiators may exist between ourselves and the low-cost producers by evolving into world-class manufacturing operations. The efficiencies we gain from these efforts allow us to continue to compete."

White elephant syndrome

In fact, Rottapharm's neighbor in Clonmel, Pinewood Healthcare—the Irish affiliate of Indian giant Wockhardt—reports manufacturing on a cost-competitive basis with one of Wockhardt's plants in low-cost India. All across Ireland, production and development sites are applying technology and innovative ideas borrowed from industries as varied as aerospace and fast-moving consumer goods (FMCG) to realize some of the most efficient pharma operations in the world.

The result, as Pfizer's Duffy points out, is this: "Globally, the pharmaceutical industry has seen a significant reduction in capital investiture in the past few years. And yet, when we have chosen to invest, we often chose to invest in Ireland."

From local supplier to global partner

FROM FOREIGN INVESTMENT, IRISH COMPANIES

"The government's vision has always been for indigenous companies to develop from the expertise brought in by FDI—and we are seeing that happening now." —Joe Costello, Minister for Trade & Development

FDI into Ireland has created a feedstock for the indigenous ecosystem: raising the bar for standards and technology, contributing to the experience of the workforce, and providing a strong customer and partner base for Irish enterprises. Over the years, the indigenous sector has matured, and today, its companies are making a name for themselves all over the world.

Irish Retail Market

Frank Ryan, CEO of Enterprise Ireland, the state agency responsible for fostering the growth of Irish companies, describes a marked shift: "Once upon a time," Ryan says, "we had mainly sub-supply companies, who serviced the needs of the multinationals that had invested in the country. While we still have a number of such companies, many of our players have evolved to offer design and development activities, and many now act as strategic partners to multinationals outside of Irish borders. We find that, today, many of our companies engage with major life science companies all over the world—even before they engage with them in Ireland."

PM Group, Ireland's leading indigenous engineering and project management company, has worked on many of the country's landmark pharma projects. Dave Murphy, CEO, says that PM's early growth was fueled by servicing multinationals that had invested in Ireland—but that its later growth came from following those same multinationals abroad.

Punching above its weight: how a small affiliate can make a difference

Murphy tells Focus Reports, "over the years, as we developed relationships with companies like Johnson & Johnson and Pfizer, we followed them to foreign markets. We developed a much deeper understanding of their business, to the point where we became seen as a preferred partner."

PM Group reported €400 million ($520 MM) in new projects in China last year. Just as the local market is only a small pool for the multinationals, Ireland became too small for PM.

Made in Ireland: Finding synergies between sales and production

Meanwhile, local law firm Byrne Wallace's Catherine Guy, Colin Sainsbury, and Tom Maher—the managing partner and life science leads of the firm—believe in promoting Ireland first, and promoting their own services second. Lately, they have been selling Ireland to the next expected wave of investors—so-called "micro-multinationals," smaller international companies that are very selective about expansion. What is most exciting about that wave? According to Maher, just as the influx of larger foreign investors did, "the influx of micro-multinationals is spawning new, indigenous companies, which will in turn spawn new companies of their own—and so on into the future!"

Perhaps the benefit is mutual. Enterprise Ireland's life science manager Brian O'Neill stresses that the indigenous sector has evolved so much, it is no longer just an effect of the foreign investment: it is a draw for it. "I would cite indigenous companies," O'Neill says, "as one of the most important magnets for FDI into this country."

Dave Murphy, Chief Executive, PM Group

PAIN AND GAIN: INSIDE THE LOCAL MARKET

"I am confident that the health services and pharmaceutical industry will continue to work together in a spirit of partnership, to ensure that the needs of the patient are to the fore when decisions are being made regarding the pricing and supply of drugs." – James Reilly, Minister for Health

"Over the last five years," says Fergal Egan, commercial director for IMS Health Ireland, "the Irish market has gone through an absolutely phenomenal flux. With the arrival of the recession in 2008, change has been dramatic. The health bill is the government's largest expenditure and an obvious area to target for austerity.

James Reilly TD, Minister for Health

"Pharmaceutical exports are the biggest driver of Ireland's GDP—but nonetheless, officials have begun to increasingly decouple their policies toward pharmaceutical manufacturing, from their policies toward the local drugs spend."

Welcome to the post-Celtic Tiger Irish market.

Fergal Egan, Commercial Director, IMS Ireland

The innovator side

For innovators, perhaps the most impactful outcome of the recession has been a recent drug supply agreement with the state that, according to Servier Ireland General Manager Yann Mazeman, is the single largest cost-cutting deal, per-capita, the industry has ever concluded in Europe. In November of 2012, in an agreement that Mazeman says would be worth three or four billion euros on an Italian or French scale, IPHA member companies consented to deliver in excess of €400 million ($520 MM) in savings to the state over the next three years—on top of the approximately €300 million ($390 MM) IPHA reports delivering between 2006-2010, and the €200 million ($260 MM) delivered in 2011.

Takeda Ireland's GM Kieran Leahy calls the deal "short-term pain, long-term gain." Mazeman explains the pain: "The ramifications of this agreement are huge. Looking at our product portfolio at Servier Laboratories, the agreement means that 12 of our 18 products will suffer a price decrease between minus one and minus 52 percent. This will have direct consequences on our activities—including a very strong impact on our turnover in 2013.

Yann Mazeman, General Manager, Servier Ireland

"Furthermore, it is worth noting that the price cuts in Ireland will have a direct or indirect impact on markets worldwide. In fact, several countries use the 'country of manufacture' as a reference price for their own market. The Irish authorities need to bear this global domino effect in mind when taking decisions regarding the drug market locally."

Many Irish innovator operations have taken a significant loss in recent years, with the latest price reductions delivering yet another blow. Coupled with the genericization of a number of key products, the climate has led to redundancies, restructuring, and consolidation with other regional affiliates. Personnel recruitment in Ireland is stagnant; for some, investment in local initiatives such as patient support and public outreach has taken a more conservative turn. Meanwhile, the ripple effects of price changes in the Irish market are set to impact the operations of far larger affiliates overseas.

Zimmermann, Managing Director, Bayer Ireland

The longer-term consequences of the agreement,however, are more encouraging. The deal was, in part, a solution to a straightforward but critical problem: the state lacked funds to pay for new medicines. A number of companies reported a recent freeze on reimbursement for new products that lasted 6-9 months—even for products with EMEA approval that had proven cost-effective at the Health Technology Assessment (HTA) stage in Ireland.

That freeze has seemingly been lifted. With the savings accrued from the markdown on existing products, the Department of Health expects to allocate €210 million ($273 MM) to fund new drugs—ensuring that, at least for now, there is a clear mechanism for innovative medicines to reach reimbursement in Ireland. Managers report that the market has gained a healthy measure of stability.

Francis Lynch, General Manager, A. Menarini Ireland

Bayer Ireland MD Ralf Zimmermann points to an understanding between industry and state: "The government has acknowledged the critical importance of better access to new, cutting-edge drugs for patients, while the industry is acutely aware of the financial situation facing the government. I think both sides, throughout our negotiations, acknowledged each other's perspective, while striving to make a deal that could benefit patients and the health system."

The level of constructive dialogue between the private and public sectors continues to demonstrate that Ireland is decidedly pro-business. Menarini's GM in Ireland and current president of IPHA Francis Lynch says that, ever since the first structured drug supply agreement was concluded in 1968, state and industry have preferred to "collaborate, rather than go to war."

Kieran Leahy, General Manager, Takeda Ireland

And of course, in the end, companies with a great offer will endure even the most challenging external conditions. Zimmermann expects Bayer's strong pipeline to buffer his business from the vagaries of a market that IMS expects to decline by six percent this year. In fact, Zimmermann expects his affiliate to grow at six percent in 2013. He comments, "The Irish environment is difficult—but it is not uniquely difficult. Portugal, Greece, Spain, and Italy all face problems that are perhaps greater. Moreover, even in difficult times, if you have the right strategy, with the right products, there is a way forward!"

The generic side

Just as Ireland has taken a hard line with innovators, the market has increasingly opened up to generics. For a state strapped for cash, the shift is not surprising. By European standards, it's perhaps rather late.

Tony Hynds, Managing Director, Actavis Ireland

Tony Hynds, who convinced Actavis to invest in a greenfield sales and marketing operation in Ireland and serves as managing director for the market, says, "prior to 2008, the Irish pharmaceutical market was primarily dominated by innovators. Although in most of Western Europe, generic companies had fairly robust market share, in Ireland their role was minimal. Even after a patent expired for a given product and equivalents were allowed onto the market, originator companies still held 85-90 percent market share. The reason for this was the fact that, traditionally, there had been no government initiatives to support generic sales—no mandated generic prescribing, no legislation to support generic substitution, etc. Largely, generic companies had to make a go of it themselves."

But when the recession hit the market, Hynds saw the state's budget dwindle "seemingly overnight." Seeing a major opportunity for generics, he approached Actavis. Hynds' business has been growing at over 100 percent per annum since then. More broadly, the generics group Association for Pharmaceutical Manufacturers in Ireland (APMI) reports that Ireland's off-patent segment has grown 35-40 percent in value in the last 18 months—even as the overall market has slid considerably, and even as the APMI's own structured agreement with government led to an interim pan-market price reduction of 15 percent. Thank pro-generics policies.

Fergal Murphy, Company Director, Pinewood Healthcare

Fergal Murphy, APMI Chairman and company director of the leading generics business in Ireland—Wockhardt affiliate Pinewood Healthcare—explains that while off-patent prices are set to be reduced by an additional 15 percent soon, first, two new elements will be defined: generic substitution and generic reference pricing. The two will have a highly impactful, if not revolutionary, effect on the local market landscape in Ireland.

Julie Murphy, Commercial Manager, Gerard Laboratories (Mylan) Ireland

Murphy comments, "In five years' time, I believe generics will take up to 90 percent of the public market in the off-patent space—up from about 50 percent today—with the originator brands retaining the remainder. In the overall market, I believe generics will constitute 35 percent share—up from about 18 percent today. I would like to reach the level of generic penetration in Ireland that we see in the UK."

Supporting a pipeline, and driving productivity, from Ireland

How to be prepared for a new paradigm? Mylan UK/Ireland MD John Munson and colleague Gerard Laboratories (Mylan) Ireland Commercial Director Julie Murphy believe that in an environment that was once controlled by indigenous generics companies, the time has arrived for global entities. Competition will be defined by the breadth of one's pipeline, the quality of one's offering, and the reliability of one's supply chain. Mylan, the country's largest manufacturer of generics, will produce 2.7 billion doses in Ireland this year—but Mylan's commercial team remains hard at work bolstering its sales operation.

The difficulty is cultural: will a market where doctors, pharmacists, and patients are used to the innovator brand, accept the International Nonproprietary Name (INN)? Munson says of Murphy's challenge today: "Julie is in an interesting position in the market. When generic substitution is introduced, we have little idea whether the volume effects will hit on day one, or a year down the line. In this sense, we have a lot of planning challenges. However, we have a highly flexible supply chain, which is a fantastic advantage. I believe we are well positioned to capitalize on emerging opportunities here in Ireland—as long as generic medicines become more widely accepted in the market."

Sanofi: one multinational’s investment in Ireland

WHAT'S NEXT FOR IRELAND?

"If you look at the cuts in the public sector, the science budget has been relatively lightly touched. This sends a signal at a very high level that science, the knowledge economy, and the smart training of people are very important for our economic recovery." – Mark Ferguson, Director General, Science Foundation Ireland

There are murmurs in the industry that earlier stages of research could find a home in Ireland—and some indigenous players are already innovating, if one believes in the promise of the pipeline of an Irish biotech like Alkermes. Multinationals may follow suit, if their Irish operations can continue to demonstrate value and if indigenous companies continue to offer opportunities for valuable collaboration.

John Munson, Managing Director UK/Ireland, Mylan

But whether the science is in drug discovery or in process development, Mark Ferguson, director general of Science Foundation Ireland (SFI), Ireland's support agency for the sciences, believes his job is to work with the private sector to create an economic impact. As evidenced by the fact that its science agency falls under the Department of Jobs and Enterprise rather than the Department of Education, Ireland is betting on the innovation economy to bring it out of the recession. It is betting on continued investment from foreign players, it is incubating its own companies for the world stage, and it is increasingly creating links between the two on its course to climb even higher in the value chain.

Forward-thinking sales operations are also dreaming of a day when Ireland can capitalize on its critical mass of stakeholders across nearly every facet of the industry, and build new global roles for Ireland: manufacturing hub, development hub—and why not center for global commercialization activities?

Mark Ferguson, Director General, Science Foundation Ireland

In commenting on the effects of the recession, Alan Looney, managing director of the internationalizing Irish chemicals supplier National Chemical Company, says: "Perhaps the best thing that happened to us was the economic crisis. I believe that the Irish people genuinely have shown their resolve in how they have responded to hardship. We have not demonstrated in the streets; instead, we stood up to the challenge by working harder, often offering more for less. This is true of the public system, and it is true of industry. We have become more competitive relative to our European neighbors.

"We also have come to a firmer realization that we must compete. In Ireland, we are operating from an open economy—one of the most open in the world. We have to compete globally. I think the pharmaceutical industry has responded, and we are the better for it."

Alan Looney, Managing Director, National Chemical Company

To borrow an old boxing metaphor often used by the Irish, Ireland continues to 'punch above its weight,' for and within the industry.