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