Report From: Ireland

Ireland's pharmaceutical industry, dominated by affiliates and subsidiaries of US drug companies, is striving to broaden its scope of activities amidst the biggest economic crisis to hit the country for decades. The island kingdom also could now be hit by proposals from US President Barack Obama to restrict tax benefits on foreign earnings of US multinationals, which could curb investment.

Ireland's corporate tax rate of 12.5%, one of the lowest in the European Union, has helped the country attract investment over the past two decades from 17 of the top 20 global pharmaceutical companies. The majority of these investors are based in the United States, including Pfizer (New York), Merck & Co (Whitehouse Station, NJ), and Eli Lilly (Indianapolis). Many use Ireland as a global base for the production of active pharmaceutical ingredients (APIs), biopharmaceuticals, and finished drug products. In 2007, exports of pharmaceuticals and pharmaceutical-related chemicals amounted to approximately EUR 42 billion ($57 billion), equivalent to nearly 48% of the country's total overseas sales and almost double the level of export sales 10 years ago.

Ireland's government is now endeavoring to make its pharmaceutical industry an even stronger force in the global market, despite the ongoing recession.

Beefing up R&D and biologics

In response to plummeting tax receipts and forecasts of a 9%-decrease in gross domestic product (GDP) this year, the biggest drop in Europe, Ireland's government has raised taxes and slashed public expenditures. However, to protect its pharmaceutical businesses and its electronics sector, the country's other major source of export revenue, the government has kept the 12.5% corporate tax rate intact. In addition, legislators are pushing forward a policy aimed at giving pharmaceutical companies a broader footprint by strengthening research and development (R&D) activities. The government has raised tax credits on R&D operations from 20% to 25% and made the credit available to all R&D expenditures, not just for spending increases in research. In January 2009, the government also extended R&D tax allowances to cover manufacturing processes as well as product development.

The biopharmaceutical arena is another area of potential growth for Ireland. A government investment program aimed at building R&D infrastructure in Irish universities has recently been expanded to cover biopharmaceutical processes. In addition, IDA Ireland, the country's development agency, has been instrumental in persuading research teams outside Ireland that specialize in glycosylation, a key process in biopharmaceuticals production, particularly of biosimilars, to set up shop in the country. Already, a 10-person team from Oxford University headed by Professor Pauline Rudd, comprises the core of a glycobiology group at the newly established National Institute for Bioprocessing Research and Training within University College Dublin.

"Companies in biologicals in particular have been combining product with process development," explains Barry O'Dowd, head of the life sciences division at IDA Ireland. "Our objective has been to make Ireland more attractive for biologics investment by having a strong academic structure to support it."

More than half of the EUR 1 billion ($1.3 billion) being invested in pharmaceutical projects that are under design or construction in Ireland is in biologics. The biggest investment is a EUR 350 million ($477 million) monoclonal antibody (mAb) facility owned by Eli Lilly, which with the support of local academia, is expected to be a global mAb center of excellence.

Steering clear of global tax changes

Ireland's plans to secure the long-term future of its pharmaceutical industry by giving it more range and depth, however, could be undermined by the US government's proposed cuts in tax benefits for US corporations investing abroad. When giving details of his proposals to restrict tax benefits for US-based companies' foreign earnings, President Obama indicated the objective was to shut down tax havens used to avoid paying taxes in America.

"We don't think the US government sees Ireland as a tax haven," says O'Dowd. "The pharma industry in Ireland is not only important to our country but also to America. We have made significant investments in academic support for areas like glycosylation and are collaborating with US companies in sharing that technology."

Pharma officials in Ireland, therefore, hope that the Obama administration will appreciate the contribution being made by its R&D initiative to new advances in process development. "Major multinationals are dedicating efforts and resources to innovating at the level of the factory [by] bringing the lab into the workplace," says Matt Moran, executive director of PharmaChemical Ireland, the pharmaceuticals sector of the Irish Business and Employers' Confederation (IBEC). "Here lies a huge opportunity for this country to move to center-stage," he concludes.