Pandemic proves ‘ourselves alone’ approach to pharma will not work
John FitzGerald: Integrated nature of drug sector’s supply chains cannot be unwound
Covid-19 vaccines: In recent years, policy in the US has moved against relying on foreign supply of key products such as pharmaceuticals. Photograph: Brendan Smialowski/AFP
The Irish economy suffered less from the pandemic last year than most other developed economies. A key factor behind this surprising resilience was the importance of the IT and the pharmaceutical sectors, which are huge exporters and big employers of highly educated and highly paid labour. Although the hospitality, entertainment and arts sectors faced major disruption due to lockdowns, activity in IT and pharmaceuticals helped sustain overall economic activity.
The Irish pharma sector, largely owned by foreign multinationals, has over the last 30 years developed important skills and expertise. Among these is the ability to achieve certification, not only as an EU producer of sophisticated products, but also as a producer for the US market. Thus, for some high-value drugs such as Viagra and Lipitor, the Irish manufacturing plant has provided the majority of world supply.
Overall, in 2020 our exports of medicinal and pharmaceutical products rose 24 per cent. Pharma and chemicals now account for two-thirds of our goods exports. The pandemic actually contributed to growth in these exports from Ireland.
A January 2021 study by the Department of Finance highlighted the fact that exports of Covid-19-related pharmaceutical products were a major source of growth. Over last year, these pharmaceutical exports, going to the EU and the US, rose by €9 billion. Along with products used to treat patients with Covid, they also included products for sterilisation, testing and diagnosis. Materials for testing kits were particularly significant.
The EU single market, beginning in 1993, was one of the key factors behind the development of the pharmaceuticals sector in Ireland over the last 30 years. Up until then, EU members could, and did, discriminate in their public sector purchases in favour of products manufactured in their own countries. So, prior to 1993, it made sense for pharma companies to locate in big countries like Germany to benefit from its large public sector purchases. Once the single market came into being, producers located in Ireland enjoyed equal access to the German market as German-based manufacturers.
Another indirect benefit of the single market was the increasing interdependence of supply chains across countries, cementing a common interest across EU members in keeping trade flowing freely, and strengthening inter-country relationships. The production of vaccines and other crucial pharmaceuticals and medical equipment relies on a widely dispersed supply chain, of which Ireland is an important part.
If the individual EU countries that produce the final vaccines had been able to pre-empt supply, this would have been disastrous for most EU countries who don’t produce the final product. However, blocking export of vaccines from Germany to the rest of the EU would have raised the spectre of other countries blocking exports to Germany of key ingredients. So in the current crisis, there has been a centralised EU approach to the development and acquisition of vaccines, which in spite of hiccups, has been broadly successful. It is delivering for all EU members, albeit more slowly than one might have liked.
The EU, which helped fund the worldwide development of the vaccines, probably should have emulated the US, paying more attention to the manufacturing process. However, in contrast to the US which has blocked exports of vaccines, and the UK which has also not exported vaccines, the EU has exported substantial volumes of vaccine to countries such as Canada, Mexico and the UK, despite the urgent need to vaccinate its own population.
In recent years, policy in the US has moved against relying on foreign supply of key products such as pharmaceuticals and vaccines. There had been fears that this could adversely affect Irish manufacturing, which exports large volumes to the US. However, the complex and integrated global supply chain underpinning of much of the sector’s output means that a US “ourselves alone” policy will not work. But if a future “America-first” policy were to require key pharmaceutical products to be produced on US soil, the EU would be obliged to take a similar stance to ensure the security of its own supplies.
While the initial reaction to the current crisis may be to require self-sufficiency in supplies of key drugs, this is the wrong answer. The integrated nature of world production cannot be turned back. In the longer term, while the US may seek to have more of its supplies produced domestically, the rest of the world will be more reliant on the EU and Irish production, while key ingredients and contract manufacturing will be sourced right around the globe. In terms of producing life-saving medicines, “we are all in it together”.