PharmExec Blog

Ireland's Economic Bailout to Sting Pharma

Ireland’s favorable level of corporation tax remains untouched by the country’s economic rescue package, but drugmakers will still feel the pinch of the healthcare cuts.

Despite pressure from France and Germany, Ireland has managed to secure its Euro 85 billion ($111 billion) rescue package from Europe and the International Monetary Fund without raising corporation tax, one of its key investment attractions.

Doubts about the long-term implications of the bail-out package and the accompanying four-year austerity plan persist, but news of the corporation tax freeze meant pharma companies with Irish operations were able at least to breath a brief sigh of relief. As Chemistry World has pointed out, 13 of the largest 15 drugmakers — including Bayer, Pfizer, GlaxoSmithKline, AstraZeneca and Roche — have at least one manufacturing site in Ireland, and as a result the country has become the world’s second largest net exporter of medicines.

Pharma is the biggest contributor to corporation tax in Ireland, contributing some Euro 3 billion ($4 billion) a year. Suggestions that the tax level should be raised above 12.5% were strongly resisted by the Irish Pharmaceutical Healthcare Association (IPHA). Naturally, IPHA has welcomed the news of the freeze, with spokesman Ronan Collins telling in-Pharma “The international research-based pharmaceutical industry in Ireland welcomes any measures that will help to stabilise the Irish economy and get it back toward sustainable growth.”

But if pharma has avoided the squeeze with corporation tax, it is likely to feel the impact of the other cuts. Healthcare will be one of the areas hardest hit by the Irish austerity measures; grouped with education and agriculture, it is to yield Euro 3 billion over four years from a total expenditure saving of Euro 15 billion ($20 billion).

Annex Eight of the National Recovery Plan report issued by the Finance Department notes that while essential health services will be protected, there will be changes to promote “efficiencies” to save on drug costs. The government has no choice but to tackle soft targets like medicines:  health spending overall scored the highest growth rate of any public service department, rising 186 per cent during the boom years from 2000 to 2008. The targets are largely unspecified but are likely to include the following:  elimination of the zero VAT policy on certain prescriptions drugs, expanded reliance on reference pricing and generic substitution, and the adoption of new clinical guidelines to manage access to higher cost therapies.

Balancing the expenditure package is, in addition to preservation of the corporate tax rate, a commitment to new tax incentives for adoption of green technologies to lower drug manufacturing energy costs.

Hence the result will be — as has been seen in Greece, that other European country that went into financial meltdown earlier this year — an enforced slashing of drug prices, the effect of which will bring down the reference price for drugs in other EU countries. The implications if Spain or Italy is forced to go in this direction are even worse, not only because their economies are much bigger but because local drug prices are already so low.

Once again, what pharma is given with one hand, it seems, is taken with the other.

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