Pfizer: should we worry?

Yesterday 785 workers were told they may lose their job at Pfizer. This time the job losses are occurring in a sector that was generally believed to be relatively insulated from the effects of the global recession. Should we worry? I would say yes, if it was only for the fact that yesterday’s announcement is just the first step in a larger Pfizer restructuring programme. Last year, at the time of the mega-merger with Wyeth, the company announced that this restructuring programme will involve 19,000 job cuts. Yesterday’s announcement dealt with 6,000 of these. So far, the company has evaluated the sites that manufacture injectables, solid dose, biotechnology medicines and consumer health care. The evaluation of the active ingredient sites, of which Cork also has a few, is still to come. These are the sites that employ the most highly skilled workers.

But there are other reasons to worry, not only for Pfizer workers but for Pharma workers in general. Tánaiste Mary Coughlan has told the Dáil that the job losses at Pfizer have nothing to do with the Irish economy, but were caused by the overcapacity generated by the company’s merger with Wyeth. On the face of it, the Pfizer job losses could be interpreted as a one-off global restructuring of a company that faces over-capacity due to recent merger activity.  However, I believe we are dealing with a more structural issue here. The Pfizer global restructuring is partly driven by a lack of new products to replace a number of blockbuster drugs that are coming off patent. The first one, in 2011, is Lipitor but the next one, Viagra, is not far behind.  Think about it: Loughbeg, one of the plants to be closed, was the global manufacturing site of  Lipitor. Loughbeg  manufactures all of the active pharmaceutical ingredients (the few micrograms of substance with the actual pharmacological effect) and eighty per cent of the formulation (the actual tablet) in Ireland.

Mr. Ricciardi, Pfizer’s global manufacturing president, is quoted saying that “we are not announcing closures, we’re announcing exits”, citing hopes that Pfizer will be able to sell some of the plants to other pharma companies. But what if other companies are starting to develop similar plans for “exits”? Pfizer is not alone. Many other companies are facing the drying up of their drug pipelines with little to replace the blockbuster drugs. Companies are frantically looking for replacement drugs. However, chemical synthesis, the core capability of the traditional big pharma companies is reaching its limits for new drug development. Many diseases will require large molecule drugs that are too complex to produce via chemical synthesis. The hope is that the biopharmaceutical subsector will be able to fill the gap. The IDA has acted with their usual great foresight and has very successfully attracted a number of large biopharmaceutical plants to Ireland. The problem is that this may not create enough jobs to offset the losses in the chemical synthesis subsector and the skills requirements of the two subsectors are different.

From 2011 a lot of drugs come off patent and this will have a big impact on the industry in Ireland. The current value of export is 44 bn. 26% of that is patent protected. It is improbable that this will continue to be manufactured in Ireland. This market will be taken over by specialized generics companies, many of which are located in India. Research undetaken by Frank Barry (TCD) and I shows that local subsidiaries in Ireland and their parent companies have started planning for this over the years. The local plants have changed their role in the global production networks, developing into strategic launch plants and flexible multi-product plants, capable of producing niche-products and the downstream, higher value added elements of the synthesis cycle. An increasing number of companies are beginning to outsource the early, less skill intensive, steps of the active ingredient synthesis cycle to fine chemical companies. Very few processes are outsourced to companies in Ireland. Pharma companies are increasingly using low-cost suppliers in India and China. Until now Pharma companies remain hesitant to outsource the later stage synthesis to companies in India and China, doubting whether these companies have the requisite technical knowledge and can meet the health and safety standards required to supply the highly regulated EU, Japanese and North American markets. This perception is changing, however.

Ireland`s rapidly rising wage levels of the Celtic Tiger era provided an extra incentive to use the Irish facilities for the higher value added elements in the manufacturing chain, notably for new product introductions and late stage synthesis. In principle, such upgrading activity is a healthy development. But this will be of little comfort to the Pfizer and pharma workers affected. I would worry.

Chris van Egeraat

 

Creative Industries: “smoke and mirrors” or shining light?

If ever there was a divisive term, it’s the phrase “creative industries”.  People just seem to either love it or loathe it. Advocates of  an Irish “smart economy” economic recovery see the creative industries as a collection of innovative business sub-sectors who generate novel intellectual property and redesign/recombine existing technologies into new products that are both intermediate inputs into the economy-wide innovation process and finished products in their own right. At first glance, this doesn’t seem so objectionable. While not being a panacea to the economic travails we’re enduring at the moment, it offers the hope of enhanced productivity and (dare we say it) a “competitive edge” for Irish firms in the domestic economy and in the global marketplace. The creative industries may even generate some sustainable employment, if not directly then indirectly (though nowhere near the number of new jobs we need to absorb our ever-growing dole queues).

Critics of the “creative industries” notion, however, would beg to differ. First, there’s the term itself. Creative industries are generally defined as those industries which generate intellectual property (IP). But this implies, according to the critics, that creative ability is only harnessed for economic gain and that it can be measured in economic terms. What’s more, this established definition can be traced back to the UK’s Department for Culture, Media, and Sport in the mid-1990s – which leads some to dismiss “creative industries” as Blair-era spin aimed at rebranding the economy and producing flattering measures of both current and potential economic activity. A second (perhaps more pragmatic) critique is similar to that voiced on RTE’s recent The Front Line discussion of the Smart Economy idea (May 10^th): basing strategies for economic recovery on the creative industries would involve investing serious amounts of taxpayer’s money in R&D activities that may or may not succeed in the long term, and are unlikely to create significant employment in the short-term for the cohort of people (such as construction workers) who have been hardest hit by the recession.

No doubt, the debate regarding the merits of the “creative industries” will rumble on indefinitely. However, we would like to offer a few  suggestions: first, maybe the hostility engendered by a term such as the creative industries could be mitigated if we reframe it as something more limited, such as “those industries that generate intellectual property and other novel products/ processes from existing technologies”, and accept that fact that creative thinking itself will never be amenable to industrial classification. Second, instead of talking in terms of a sub-set of creative industries, we could think in terms of “creative” activities embedded across the entire economy. Thirdly, we think those familiar what are deemed to be creative industries would accept that the industry itself is not one to generate large-scale employment opportunities, but instead is centred on micro-firms and the self-employed. In light of this, it would be wrong to trumpet the creative industries (or smart economy, or “innovation island” etc) as the potential source of short term employment, but rather as a source of differentiation that enhances domestic products and services though novel inventions and processes.

Even if one is not overly enamoured with the idea of the creative industries, it is still informative to have an impression what exactly is meant when we speak of the Irish creative industries.  Established industrial-classification based definitions of creative industries such as those discussed above point to the following as the creative industries sub-set: advertising; architecture; the arts and antique market; crafts; design; designer fashion; film and video; interactive leisure software; music; performing arts; publishing; software and computer services; and radio and television. The Arts Council have estimated that at a national level these sectors generate approximately €5.5 billion in terms of gross value added. A recent report published by Dublin City Council (which we have authored) estimates that, in the Greater Dublin Area, that same subset of industries employ over 77,000 people (59% of Irish Creative workers; 10% of total Dublin employment) and generate approximately €3.25 billion a year for the Greater Dublin Area. [The full report is available from Dublin City Council’s International Relations and Research Office and can also be accessed as a working paper here].

While the sub-set of industries included in this type of estimation is open to debate, the key message is that there is a significant reservoir of creative abilities in place within the Irish economy. The report also indicates that this sub-set of industries appears to be relatively more concentrated in larger urban centres. However, rather than being ammunition for a “Dublin versus the rest of Ireland” argument over job creation, the question facing us is how do we mobilise these creative resources (wherever they are located) to enhance the competitiveness of the broader economy in the medium and longer term.

Declan Curran and Chris van Egeraat