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Foreign Direct Investment to Ireland’s Pharmaceutical Industry: Sustaining The Success May Be Challenging

Ireland is undoubtedly becoming the premier world-class pharmaceutical production hub. In spite of relatively small Ireland’s pharmaceutical market, Ireland’s drug manufacturers are receiving  very high levels of foreign investment. For instance, the level of foreign direct investment inward stocks per capita were among the top five highest in Europe over 2014. After the recent announcement about mega merger talks between Pfizer and Allergan, it appears that the country is doing something right to attract foreign multinationals. However, due to potential labour shortages, and the slowdown of pharmaceutical market growth in Europe, the foreign investors may face many challenges.

Ireland is becoming a world-class pharmaceutical production hub

Ireland is among the top 10 pharmaceuticals producers in the world, with turnover of US$41.2 billion in 2014. Exports of pharmaceutical products exceeded US$ 33.2 billion in 2014, making Ireland the fifth largest pharmaceutical exporter in the world and the number one medicines exporter in the EU. Although growth in the pharmaceutical industry has slowed significantly in Western Europe over the last couple of years, the output of Ireland’s medicines manufacturers soared, rising at a CAGR of 15% over 2008-2014. At the same time, the pharmaceutical industry’s turnover in the whole Western Europe region grew only marginally, by less than 1%, over 2008-2014.

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The reason for the industry‘s performance, was Ireland’s success at becoming the number one European location for international pharmaceutical investment. Ireland’s pharmaceutical industry hosts eight out of the top 10 global pharmaceutical companies, such as Pfizer and Amgen, and manufactures five of the world’s 20 bestselling drugs.

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Foreign drug makers are incentivised to choose Ireland due to its transparent tax system, educated labour force, pro-business environment, experience in working with international investors, strong government support for research and development, and its highly developed infrastructure. According to IDA (Irelands’ inward investment promotion agency), Ireland’s pharmaceutical industry saw 197 new investment projects in 2014, which is a 20% increase from 2013. More importantly, although most global drug makers cut research and development spending in the aftermath of recent patent-cliff losses, the number of research and development investment projects in Ireland has been growing.

Ireland may face many challenges while dealing with high levels of potential investment

Strong merger and acquisition activity is expected to continue, as greater confidence in Ireland’s improving economic environment, alongside better access to financing, will facilitate foreign direct investment inflows. Foreign direct investment to the pharmaceutical industry will be driven by an on-going trend of disposal by companies of non-core assets; a willingness to support core innovative business and reduce pharmaceutical production costs, taking advantage of Ireland’s superiority in manufacturing process development. For instance, in 2015, Mallinckrodt plc, announced a €45 million investment plan to expand its operations with a new manufacturing facility in Dublin, and Alexion Pharmaceuticals announced a €450 million four-year investment project to expand its operations in Ireland by constructing the first biologics manufacturing facility outside the US. One of the most recent and by far most controversial examples is the Pfizer/Allergan merger talks. A deal with Allergan (its current market value being US$113 billion) would allow Pfizer to take advantage of the far lower 12.5% corporate tax rate in Ireland. The merger would also be the biggest in Pfizer’s history and reinstate it as the world’s largest pharmaceutical producer.

A different question is, whether Ireland is capable of dealing with such high levels of potential investment in light of expected skilled labour market shortages. Many pharmaceutical producers have already reported that they are experiencing trouble in finding employees with sufficient skills and knowledge. In addition, one of the Irish pharmaceutical industry’s advantages is its proximity to the European market, however, as the European drug market is stagnating, in relation to dropping drug prices and constrained budgets of the public sector, the future of Ireland’s pharmaceutical exports to Europe is also uncertain. Further uncertainty has also emerged due to tighter regulation in the US on tax inversion, which could have a knock-on effect on inward investment to Ireland from US multinationals.

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