As one drives from Cork to Dublin along Ireland’s new M7 highway, the dashboard global positioning system becomes confused, its little car icon spinning in a field of green and its robot voice chanting, “Recalculating, recalculating” as it tries to find the road. This also happens between Limerick and Dublin, between Cork and Galway, between any of the country’s large cities that have been connected by highways during Ireland’s rapid development in recent years.
Called the Celtic Tiger, Ireland’s economy has catapulted forward since the late 1980s with a business development program, based largely on tax incentives, that has spurred major industrial and infrastructure investments. It seems that even satellite technology is struggling to keep up with development in Ireland.
Ireland’s economic boom began to slow down two years ago, however, just as the global recession set in. In a reversal of fortune, the country and its major industries are now doing some recalculating of their own.
The pharmaceutical industry finds itself at a particular crossroads in Ireland. By far the country’s largest exporter, representing about 46% of all shipments in 2009, the sector has grown rapidly. Thirteen of the top 15 drug companies built plants that supply active pharmaceutical ingredients (APIs) for many of the blockbuster drugs that have emerged since the 1980s. Even in the midst of a recession in which Ireland’s unemployment rate topped 13% and overall exports dropped, shipment of drugs and related chemicals grew 9% last year.
What has the industry worried, however, is next year, when patents start expiring on a raft of blockbuster drugs. Big shifts in the drug industry mean that a business model of supplying tons of APIs to a captive market is no longer tenable.
Visits to pharmaceutical companies around Dublin, Cork, and Limerick indicate that an evolution is under way. Pharma chemical makers are increasing the emphasis on R&D. The Irish government is investing in collaborations between industry and academia in areas such as drug formulation, and a round of biopharmaceutical investment includes new plants built by Pfizer, Eli Lilly & Co., and Merck & Co.
“Workhorse manufacturing was typical of Ireland over the last 10 to 20 years, but let’s not forget that manufacturing has changed hugely,” says Dave Shanahan, who is head of the life sciences wing of the Industrial Development Agency Ireland, a government organization that works to attract foreign investment. Research requirements for drug companies have been increasing as the firms grow their biotech portfolios, consolidate production, and outsource process development, he points out.
“Any facility dedicated to a single platform for bulk manufacturing is coming under severe scrutiny,” Shanahan says. “The sites that will survive in a global network will be those that can produce either a very simple formulation at the lowest price or a more complex formulation at the best quality while still achieving an affordable cost of goods. Companies must engage in more complex chemistry, particularly in linking API production with final drug product.”
Matt Moran, director of PharmaChemical Ireland, a trade association representing drug companies and the chemical firms that supply them, agrees. The future of the pharmaceutical industry in Ireland can be secured, he says, only with a “development and manufacturing” model that encompasses clinical-stage development as well as secondary manufacturing.
Shanahan and Moran claim, however, that much of the work ahead is a matter of changing the perception that Ireland is just about basic manufacturing, because the country has been advancing beyond that for years. It has a growing base in biotechnology, including Pfizer’s Grange Castle facility near Dublin, which it recently acquired from Wyeth. Genzyme and Centocor have established major footholds in recent years. Meanwhile, merchant API producers such as SAFC and Clarochem have developed expertise in areas such as final formulation, simulated moving-bed separations, and crystallization.
“Ireland is more than low taxes and bulk manufacturing,” Moran says, referring to Ireland’s flat 12.5% tax rate. “We have the brainpower on the ground to make processes work,” Moran says, “and we want to be a launchpad for new products.”
Recent events at Pfizer illustrate the impact of global drug industry trends on the Irish sector. The company had been manufacturing the API for its cholesterol drug Lipitor at a plant in Cork. The plant was also set to produce torcetrapib, Pfizer’s ill-fated successor to Lipitor. Last year, the company sold the Cork API plant to Hovione, a Portuguese contract manufacturing firm (C&EN, June 8, 2009, page 30).
Pfizer moved API production for Lipitor, which comes off patent next year, to a plant at nearby Little Island. The company now plans to sell a tableting plant in Cork in a round of consolidation that will result in the sale or closure of three Pfizer plants in Ireland. One of these is a two-year-old, $230 million biopharmaceutical facility in Ringaskiddy that was made redundant by Pfizer’s acquisition of Wyeth.
The changes at Pfizer extend beyond the Cork area. According to Paul Duffy, Pfizer’s vice president of operations for primary care and oncology in Ireland, the plant closures after the Wyeth acquisition address a general need to reduce costs and improve management of supply chains. Having consolidated chemical API manufacturing at Little Island and Ringaskiddy, where it makes the active ingredients for the erectile dysfunction drug Viagra and the cancer drug Sutent, Pfizer will now center its tablet production in Newbridge and biologics manufacturing at Grange Castle. In all, the shutdowns are expected to bring Pfizer’s workforce in Ireland from 5,000 to 4,200 by 2014.
“Business is changing,” Duffy says. “You cannot just manufacture. You need to pursue agile, lean manufacturing.” Whereas other industries, such as textiles and computers, have moved most of their manufacturing bases to Asia, he says Irish drugmakers are moving toward complex, research-based operations centered on biologics production, process design, clinical research, and final-formulation chemistry—endeavors that leverage the skills of an educated workforce.
“In Ringaskiddy, we have a number of new research and development capabilities,” Duffy says, pointing to a new $11 million kilo lab. Chemists at the lab have been working with colleagues in Sandwich, England, on process efficiency improvements and scale-up. “We have high-containment capability here to work on cancer drugs. It is not just big reactors turning out thousands of kilos,” he says.
Nor is biologic drug production comparable to workhorse API manufacturing, according to Duffy. “It is closely linked to research groups in the U.S. and U.K., manufacturing clinical-trial and small-scale commercial quantities. It is not routine.”
Other companies are also planning to sell Irish manufacturing assets. Because of a recent decision to emphasize biopharmaceutical production at its headquarters in Belgium, for example, UCB is selling an API plant in Shannon that it acquired when it bought Schwarz Pharma in 2006. The Shannon plant, which just completed a $182 million upgrade to handle new drugs in UCB’s pipeline, will continue to supply the Belgian firm under contract once it is sold, according to Werner Kunz, managing director of the plant.
“The site needs little capital investment going forward and can be started for APIs and formulation quickly with an R&D group on-site,” Kunz says. UCB has gone through two rounds of staff reductions, and the current workforce of 230 is likely to be reduced to 120 by the end of the year, primarily due to the end of a contract with Pfizer, which moved production of the API involved to Ringaskiddy, Kunz says.
The smaller contract API makers that operate in the shadows of the majors in Ireland are experiencing their own share of changes. North of Dublin, for example, Helsinn, a specialty drug firm based in Switzerland, recently sold Helsinn Chemicals Ireland, an API facility that it built in 1992, to Italy’s Medinco. Medinco established the site as a company called Clarochem, a contract API producer with expertise in powder technology and crystallization.
Helsinn, meanwhile, will focus on Helsinn Birex, a finished-dose drug plant adjacent to the API facility. Padraig Somers, general manager of Helsinn Birex, says finished-dose manufacturing has grown in importance over the years as the company advanced its pipeline of cancer, inflammation, and gastroenterology drugs.
Recently, the company invested $16 million in solid-dosage development capabilities. “I suppose this is the path that companies in Ireland really have to move down if we are to deal with the challenges of the future,” Somers says.
As for Clarochem, it plans to go into production on four new products this year. Medinco landed contracts for two of the products because of Clarochem’s crystallization expertise, says Brian Keaveny, plant director. Clarochem currently employs 31 people, and Keaveny expects a 10 to 20% increase in staff over the next two years, including new positions in R&D.
SAFC Pharma, the pharmaceutical chemical division of St. Louis-based Sigma-Aldrich, has operated in Arklow, an hour-and-a-half drive from Dublin, since acquiring a site there from Honeywell in 2006. Today, more than 80% of the plant’s output is generic APIs, according to James Ennis, site director.
In addition to API production, packaging, and distribution, the Arklow site offers multicolumn chromatography separations and purifications using a Novasep simulated moving-bed system installed by Honeywell. Ennis insists, however, that the selling point in Ireland goes beyond technology.
“The Irish sector prides itself on its compliance record,” he says. “We have a history of delivering product approvals in a timely manner and at low risk. Intellectual property is very safe, which is important for virtual companies developing new ways to produce drugs. There is a move toward paying a little bit extra for that.”
Ennis’ peers across Ireland vehemently emphasize a signature level of quality in manufacturing as the country’s most salient competitive advantage. Nobody doubts that the days of churning out bulk APIs for a captive market are over. But the consensus is that Ireland is still primarily a place for manufacturing.
Developments in the biopharmaceutical sector bear this out. Genzyme got started in Ireland in 2001, according to Dominic Carolan, managing director of Genzyme Ireland. The company sought to take tablet formulation in-house and viewed Ireland as the ideal place to do it, given the tax advantages and the success of other drug firms in establishing manufacturing in the country.
The company spent about $12 million to acquire a former Bausch & Lomb ocular drug factory in Waterford. Genzyme has since invested more than $550 million in various expansions, including a second tableting line, a $160 million fill-and-finish plant, and associated offices and laboratories. Waterford is now Genzyme’s largest finished-dose plant.
Carolan, the current chairman of PharmaChemical Ireland, says Genzyme’s facility might be viewed as an example of a next-generation workhorse plant. “A high-tech workhorse,” he emphasizes. Waterford is a process development center for Genzyme, focusing on oral-dose formulation. The firm employs about 470 people there, and Carolan wants to keep employment at that level even as the site increases production by a planned 20% next year.
Other biopharmaceutical companies followed Genzyme to Ireland. In 2004, for example, Centocor, the biopharmaceutical division of Johnson & Johnson, decided on Ringaskiddy for a new production facility. The firm’s plants in continental Europe and the U.S. “had maxed out,” says Kyran Johnson, director of manufacturing at the plant. “And new products were coming on the market.”
The company invested about $625 million, developing 30 acres on a 100-acre site. The plant, including three large bioreactors, is currently running at 35% capacity with a staff of about 200 people. Cenotocor plans to boost utilization in the years ahead with monoclonal antibody therapies such as the rheumatoid arthritis drug Simponi and the psoriasis treatment Stelara. In May, the Food & Drug Administration approved production of Simponi in Ringaskiddy.
Lilly established a foothold in Ireland much earlier than Genzyme did, but it is evolving similarly. In 1976, it broke ground on a plant in Kinsale, not far from Ringaskiddy. The plant opened in 1981, making pharmaceutical ingredients for markets outside the U.S. By 1985, its role had expanded considerably as it began producing APIs for major Lilly products such as the antidepressant Prozac. By 2000, it was the primary source site for several products including the osteoporosis treatment Evista and the attention deficit hyperactivity disorder drug Strattera.
Product launch became a core competence in Kinsale, says Donal Johnson, business leader for engineering at the site. And with the sale of Lilly’s Tippecanoe Laboratories site in Lafayette, Ind., to the German chemical maker Evonik Industries, Kinsale has become the front line for commercializing new molecules at Lilly.
Lilly’s newest project, a $367 million biologics plant, is expected to produce its first clinical-scale batch next year.
Divakar Ramakrishnan, general manager of the plant, attributes the growing importance of Kinsale to Lilly largely to the workforce. “Lilly is increasingly using the talent here to provide early-stage manufacturing support for clinical trials,” he says. This is happening at other drug companies as well, he notes. “Irish talent has established a brand.”
Merck is also raising its stake in Ireland with a $245 million sterile-filling and R&D facility for human vaccines due to open later this year in Carlow. It will be Ireland’s first freestanding human vaccines venture, says Brendan O’Callaghan, a manufacturing vice president at Merck. The company also recently invested $126 million in its original Irish site, an API plant that it built in the 1970s in Ballydine.
Merck’s biggest investment in Ireland, however, may be its acquisition of Schering-Plough. After the closure of an animal health facility in Wicklow in 2011, Merck will operate five sites in Ireland, including the new Carlow plant. They were all spared recently when Merck announced a manufacturing downsizing that will eliminate eight plants across the globe. “Every site in Ireland is looking for efficiencies in order to achieve the savings target,” O’Callaghan says.
Cost control is currently the dominant theme in pharmaceuticals worldwide. But it has a special resonance in Ireland, the country that has led Europe in implementing economic austerity measures. Despite the high-skill jobs created by companies such as Genzyme, unemployment is a major concern in Ireland, Carolan says. The perception this summer after Pfizer’s plant closure announcement is that the drug industry in Ireland is entering a cycle of employment downturn, he says.
“There are big challenges,” he acknowledges. “But even during the economic downturn, quarter on quarter, we have increased exports. We are bucking the trend—the general economic trend and the industry trend,” Carolan says. “We are trying to make this sustainable, to reposition companies to meet new challenges.”