BMI View: Continued manufacturing investment in Ireland's pharmaceutical sector will continue to be promoted by government support and operational advantages such as high level of manufacturing and compliance, skilled workforce and easy access to key export markets. While Ireland's pharmaceutical positive trade balance is expected to expand through our forecast period, reflecting the country's reputation as a global major manufacturer and exporter of pharmaceuticals, the domestic drug market will remain in negative growth territory, albeit gradually moderating, before resuming expansion by 2018 and picking up in the years ahead. This is mainly explained by the government's sustained focus on controlling pharmaceuticals spending, which will keep a lid on market growth .
Headline Expenditure Projections
Pharmaceuticals: EUR2.39bn (USD3.20bn) in 2014 to EUR2.35bn (USD2.58bn) in 2015; -1.7% in local currency terms and -19.3% in US dollar terms. Forecast in line with last quarter.
Healthcare: EUR14.74bn (USD19.76bn) in 2014 to EUR14.88bn (USD16.36bn) in 2015; 0.9% in local currency terms and -17.2% in US dollar terms. Forecast in line with last quarter.
In Q415, we have revised upwards Ireland's Risk Reward Index score to 61.9 from 58.7 in the prior quarter (out of 100). The score revision was due to higher industry rewards and spending per capita on medicine indices. Against this backdrop, Ireland has now shifted up one ranking position to 13 out of 15 countries in Western Europe in terms of attractiveness to pharmaceutical investors. Ireland's score is driven by high spending per capita on medicine (spending per capita score 9.6 out of 12) and low industry and country risks (patent respect score 6.3 out of 7 and business transparency score 1.9 out of 2), but dragged down by a small market size (market expenditure score 12 out of 20) and weak dynamism (sector value growth score 0.0 out of 20).
Key Trends And Developments
Perrigo's net sales for calendar Q215, ended June 27, showed an increase of 33.9% over the prior year quarter. The sharp increase in sales reported by Perrigo highlights the firm's successful acquisition and integration of Omega Pharma. Sales in the coming quarters will continue to be boosted by this acquisition, which is achieving the aims Perrigo outlined for it. The results also strengthen Perrigo's position in the ongoing acquisition attempts from Mylan and will add weight to Perrigo's view that Mylan's offer is undervalued.
Ireland's Health Service Executive (HSE) is facing a budget deficit of EUR164.6mn (USD189.03mn) as its expenditure stood at EUR5.166bn (USD5.93bn) in the first five months of 2015, compared to a budget of EUR5.001bn (USD5.74bn), reports Irish Medical Times. Around EUR69mn (USD79.22mn) of the deficit is related to primary care reimbursement services, local schemes, state claims, overseas treatment and pensions. Additionally, about EUR95mn (USD109.07mn) of the overrun was in the acute hospitals and social care areas. The HSE noted that the early signs confirm the key financial risks are in acute hospitals and demand-led areas, which need very close management using the measures stated in the HSE National Service Plan's Accountability Framework.
US-based Amneal Pharmaceuticals purchased a 200,000sq ft facility in Cashel, County Tipperary, Ireland. The plant had formerly been owned by Johnson & Johnson and was sold by owner Solidus Private Equity, a Singapore-based investment firm. The deal is supported by the Irish Department of Jobs, Enterprise and Innovation through IDA Ireland. The Cashel site will be dedicated to R&D and production of metered-dose and dry powder inhalers as well as biosimilars. We highlight that Amneal is on track to become a rising force in the global generic business, improving the company's profile as an acquisition target.
Teva Pharmaceutical Industries withdrew its proposal to acquire Mylan, and will instead acquire Allergan's subsidiary, Allergan Generics, in a deal worth USD40.5bn. With this bid, Teva is continuing a long tradition of large-scale acquisitions to keep it firmly ahead of its generic competitors. Teva is also leaving Mylan free to continue to pursue an acquisition of Perrigo; both combinations will separately and together change the shape of the generic industry. Teva's new bid will also effectively end Actavis' traditional generic business. Notably, Allergan will retain its biosimilars programme, highlighting its confidence in this developing market.
US pharmaceutical company Pozen plans to relocate its headquarters to Ireland after acquiring Canadian pharmaceutical company Tribute Pharmaceuticals Canada for USD146mn. Pozen does not sell any products in itself, instead receiving all of its revenue from product royalties and licence payments. The two firms will combine to form a new parent company named Aralez Pharmaceuticals. The relocation will allow the company to benefit from lower corporate taxes. Pozen expects the deal to close in Q415 and the new company is expected to trade on NASDAQ and the Toronto Stock Exchange.
BMI Economic View
Ireland will remain a eurozone real GDP growth outperformer in 2015 and 2016. This strong growth outlook reflects an increasingly positive consumer spending story, although the recovery will be relatively broad based.
BMI Political View
The ruling Fine Gael/Labour coalition will benefit from Ireland's improving economy and declining support for Sinn Fein in the run up to the 2016 parliamentary election. While this suggests an increased chance of the status quo being upheld in the vote, the increasingly fragmented political system means the outlook of the election remains relatively uncertain.