Ireland has a very successful pharmaceutical industry that is of considerable economic importance, employing about 70,000 people in high-paid jobs.
In 2023 its exports, which account for the bulk of its output, amounted to about €130 billion, 10 per cent of world trade in pharmaceuticals. It also netted the State about €4 billion in corporation tax. Because about €50 billion of the exports goes to the US, and those exports are particularly profitable, this sector is in the firing line for Donald Trump’s administration.
Irish jobs in this sector, as well as the public finances, are very vulnerable to US trade and tariff policy. However, the world will still need Irish production skills and Irish output for the foreseeable future.
It’s not just our economy that’s at risk. The current chaotic development of US policy is threatening three separate shocks to the international pharmaceuticals sector.
The most immediate challenge comes from the threat to tax imports of drugs to the US. These have been exempted for the moment from the tariffs on EU members, but this is expected to only be temporary – the Trump administration has signalled clearly that drug imports are in its sights.
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Yet trade in pharmaceuticals is complex, with intermediate ingredients going back and forth between countries along the supply chain, which may have delayed an announcement. Tariffs, if and when introduced, are likely to lead to shortages of drugs in US pharmacies.
In the long term the decision by the US administration to drastically cut scientific research, especially in the health area, and to fire a large number of expert scientists, will affect future progress in developing new drugs and new treatments. While the most immediate impact will be felt in the US itself, ultimately a slowdown in medical research will negatively affect global health.
Trump’s decision this week to try to cut the price of pharmaceuticals to US consumers is also likely to curb development of new treatments. It will impact the willingness and capacity of private companies to undertake expensive research to develop innovative drugs.
The current model for the development and production of vital new drugs has evolved over the past 80 years, but it is not necessarily the best model for the future.
US government-led medical research during the second World War, involving universities and firms across the US, supported the mass production of penicillin, malaria treatments, a range of vaccines and other treatments that were crucial for the war effort.
After the war, while the US continued to fund basic scientific research, it was left to private sector pharmaceutical companies, in the US and elsewhere, to build on that research to develop new drug treatments.
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Today the big global drug companies invest more than a quarter of their global revenue, and an even higher share of their profits, in R&D, amounting to more than €250 billion a year on such research. Much of this takes place in the US, leveraging off the basic academic research conducted by US universities and government bodies. While their patents last – on average 14 years – the companies then recoup their own huge investment by charging high prices, especially in the US.
While on patent, such drug brands typically cost three to four times higher in the US than in the EU. Once out of patent, however, generic medicines in the US cost about half the EU price.
So Trump’s complaints about high US drug prices are not unfounded. But if drug prices and profits in the US fall, alternative funding will be needed to continue the pipeline of research on new medicines.
That could come from higher prices in EU or other markets, or more likely, from state investment in the EU in medical research to replace the shutdown in the US. The EU is probably best placed to respond with a new model for funding R&D in this sector, though it won’t be easy.
The EU as a bloc is better placed than individual governments to foster a step change in pharmaceutical research. No one government has the resources to undertake this task on its own, across a spectrum of potential new treatments. While the cost would be substantial, it would be small relative to what’s planned for new defence spending.
A state funding model is more likely to invest in treatments for rare diseases – these are less profitable for private companies than mass market drugs, because the number of potential customers is small.
But states are likely to be less nimble than private companies in rapid development and deployment of new products.
