How Dublin Keeps Big Pharma Happy

It's moving from basic manufacturing to sophisticated R&D to fend off rivals

Ireland is not known as the land of a thousand welcomes for nothing. Just ask Novartis (NVS ) Chairman and CEO Daniel L. Vasella. Within minutes of touching down at Cork International Airport on a recent September morning, none other than Prime Minister Bertie Ahern was on hand to greet him. The Swiss drugmaker, which has poured $1 billion into a plant in Cork over the last decade, is considering setting up a new biotech facility. "The pharmaceutical industry is enormously important to us as a small country," says Ahern, before dispatching a police motorcade to whisk Vasella to Novartis' facility in rural Ringaskiddy.

Why is Ireland trying so hard? After all, it seems to have succeeded already. Dublin targeted two key knowledge industries, software and pharmaceuticals, when it launched its ambitious drive to transform its economy four decades ago. By providing cheap yet educated workers and giving tax breaks to big investors, the Irish turned their country into a major drug manufacturing center.

Multinational drug companies already account for nearly 20,000 jobs -- slightly over 1% of the workforce -- and one-third of all exports, with more than $32 billion a year in shipments. Investments by pharmaceuticals total $6 billion in the past six years alone, according to IDA Ireland, the state foreign investment agency.

But Ireland is a victim of its own success. After a decade of blistering economic growth, wages are on a par with Switzerland, Germany, and France. With 13 of the top 15 drugmakers now in Ireland, competition for talent is heating up. "Ten years ago we had more than 1,000 applications for every job," Vasella recalls. "Now we're more concerned our people will be hired away."

Meanwhile, many lower-cost countries in Asia and Eastern Europe have copied Ireland's fiscal recipe. While the corporate tax rate in Ireland is a low 12.5%, Singapore's is zero. Foreign companies in Hungary are able to deduct up to 200% of research and development expenses from taxable income. "Ireland is winning less of the low-cost business," says Ian Brodie, an executive consultant with Cap Gemini Ernst & Young's life sciences group.


To stay in the game, Ireland has no choice but to upgrade from basic manufacturing to more sophisticated R&D. The government hopes to persuade drugmakers to choose Ireland for everything from basic research to high-end manufacturing of biotech products. The past three years have brought new tax credits for R&D and capital grants to support investment in infrastructure. And Ireland is pumping money into science and research: more than $3.4 billion between 2000 and 2006, a fivefold increase over the previous five years. The percentage of university students studying science and engineering is now 35% -- higher than the European Union average of 30%.

Dublin is also intent on wooing the world's top scientists by awarding grants averaging $1 million to promising projects. Officials set up an agency, Science Foundation Ireland, in 2001 and hired William C. Harris, an American and 19-year veteran of the U.S. National Science Foundation, to head it.

It's early, but the strategy seems to be working. On Sept. 14, Pfizer Inc. announced a $294 million upgrade of one of its nine Irish plants. Johnson & Johnson (JNJ ) subsidiary Centocor Inc. plans to build a $700 million biotech facility in Cork to develop drugs for diseases such as arthritis and cancer. GlaxoSmithKline PLC invested $42 million in R&D in Ireland in 2003 alone. Wyeth Pharmaceutical (WYE ) says Dublin's initiatives helped it choose Ireland for a $2 billion biotech facility due to open next year. "In other countries, there are huge bureaucratic obstacles," says Wyeth's head of Irish operations, Reg Shaw. In the bout of nations, Ireland still leads.

By Kerry Capell in Cork

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