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Ireland: effects of pharma patent cliff "wildly overstated"

World News | November 30, 2012


Lynne Taylor

Ireland: effects of pharma patent cliff "wildly overstated"

In 2011, pharmaceutical products accounted for 54% of all exports from Ireland, but concerns at the massive 35% decline in Irish pharmaceutical production reported for September, in terms of affecting growth of the nation's export trade and Gross Domestic Product (GDP), are largely misplaced, according to a new analysis.

Pharmaceutical exports from Ireland were worth 50 billion euros last year, representing 31% of the country's nominal GDP, says the report, from Davy Stockbrokers. But this September, the country's output of basic pharmaceuticals fell 35%, new orders declined 26% and the value of exports of organic chemicals fell 32%. Similar falls in pharma output and productivity have occurred in the past, but it could be that the impact of the pharmaceutical sector patent cliff on Irish output is now being felt, the study suggests.

With nine of the top 10 global drugmakers operating in Ireland, and seven of the top 10 blockbuster drugs whose patents are set to expire shortly or have already done so being produced in the country, September’s output and export declines have fuelled speculation that the patent cliff could have a dramatic effect on the Irish economy, especially with further patents set to expire in 2013, it says.

However, according to the report, focusing purely on the sector's export shares "dramatically overstates the importance of the import-intensive pharmaceutical sector."

Last year, the value-added of the pharmaceutical sector in Ireland was 13.8 billion euros, or just 8.7% of GDP. This means that only around one-third of its export revenues actually count towards the nation's GDP, with the remaining two-thirds largely counted as imports of services, comprising licence and royalty fees by multinationals relating to intellectual property, says Davy.

"So any sharp decline in the value of Irish pharmaceutical exports will immediately lead to commensurate falls in services imports, limiting the impact on Irish GDP," it adds.

Moreover, the levels of employment by the pharmaceutical industry in Ireland and its tax contribution are low. The sector employed 22,500 people in 2010, representing just 1.2% of total Irish employment, well below the industry's 8.7% share of GDP. 

And foreign direct investments in the sector have remained strong in 2012, with job announcements of 1,000 so far this year, so employment has not been adversely affected by the patent cliff, says Davy.

Also, in 2010, the pharmaceutical sector accounted for 20%, or 800 million euros, of Ireland's corporation tax revenues. If these tax receipts halved, government revenues would fall by 0.25% of GDP and, while significant, this is small compared with the planned budgetary adjustments of 2.1% in 2013,1.8% in 2014 and 1.1% in 2015, the report adds.

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