As Ireland's biosciences sector faces tough times, nurturing it should be a key economic priority.

IRELAND, EASILY the best performing European economy since the beginning of the decade, may see gross national product growth of just 1.5 per cent in 2008 - the lowest in 20 years. A slow-down in the housing market, lower spending and a gloomy economic outlook have served to put the dampers on what was, until recently, a roaring economy. The Celtic Tiger's stripes look like they may be have begun to fade.

But there is still one bright light in the firmament: our biosciences sector. We will always need drugs, making this sector pretty recession-proof. But that is not to say that it is not feeling the squeeze.

"Industry-specific issues like drugs coming off patent and restructuring have all served to put extra pressure on the sector," according to Enda Connolly, IDA Ireland's divisional manager - research, skill and innovation. "And, although Ireland is an established international manufacturing base, we recognise that times are getting more difficult."

With so many drugs coming off patent, pharmaceutical companies are increasingly looking to out-source, to move operations to low-cost destinations in expanding Asian economies.

But in Ireland, a push towards gaining more R&D investment to enhance the manufacturing base and a move towards more sophisticated, high-value products should make the industry less vulnerable to global economic shifts or relocation, says Matt Moran, director of PharmaChem Ireland, which represents the chemicals and pharmaceuticals industry.

"Certainly in the medium term, we will maintain our position and will see growth," he says. "And investments made now will help cement the success of this sector in the future."

The current economic crisis has arisen from excessive subprime mortgage lending in the US.

Banks faced with millions defaulting on their mortgages have clamped down on loans, creating a credit shortage that has reduced the ability of businesses to grow through finance-backed investment.

A recession appears underway. Consumers are getting poorer, and have had to cut back on their enthusiastic spending - an enthusiasm once based on easy credit and low interest rates. A growing number of economists believe that the US economy has already toppled into recession. And if US consumers lose their desire to buy, the dominos will soon start to fall in markets dependent on exports to the US.

Indeed, the dominos are already falling in some sectors. Chemical subsectors exposed to the construction markets - which have been hit particularly hard - have seen clear downward trends in production and expectations.

Every new build accounts for €10,555 worth of chemicals. Sales of PVC resin, used in windows and doors, and styrene-based latexes, used in carpet backing, for example, are down on a year ago.

And although the pharmaceutical sector in the US is expected to see gains in the coming year, these will be more than offset by declines in the chemical subsectors, according to Kevin Swift, chief economist at the American Chemistry Council.

Fortunately, in Ireland, the business of chemistry is focused mainly on biopharmaceuticals and drugs produced by chemical synthesis, which is more or less disconnected from any potential downturn.

Since the arrival in Ireland of the first pharmaceutical company, in the 1960s, we have put considerable time and effort into establishing a reputation as a high-quality destination for pharmaceuticals manufacture. The sector has expanded exponentially and now accounts for €29.7 billion in exports, 40 per cent of the country's total manufacturing exports, and is the largest payer of corporation tax.

Currently, 14 of the top 15 bioscience companies in the world have operations in Ireland. And many of the companies with a presence in Ireland have established multiple activities and made repeat investments. "We are the number one location outside the US for the development and manufacture of biopharmaceuticals," says Connolly.

"Companies like Wyeth have invested billions, and they are not going to just up and leave. Key decisions are made on the basis of the cycle of drug development, rather than economics."

But the industry is coming under pressure and, in Ireland, as in the rest of the world, some older sectors of the industry are seeing retrenchment. Pfizer recently announced the sale of two plants, and in January, Allergan Pharmaceuticals said that 360 jobs would go when they relocated their medical devices operations to Costa Rica.

But, according to Moran, losses in older sectors like medical devices are balanced by increases in newer sectors like bio-manufacturing, the most high-value end of biosciences. Merck Sharpe and Dohme, for example, recently announced a €200 million investment in new operations in Carlow.

"Investments like this are extremely important," says Connolly. "Once a new plant like Merck's is in place, it will be there for 25 years."

That this is a trend is backed by the figures. PharmaChem's Responsible Care Report last month revealed that, although production volume was down 9 per cent over the previous three years, pharma exports in 2006 were €41.6 billion, up 3.2 per cent on the previous year, indicating a move towards more high-value, low-volume manufacturing. Employee numbers decreased just 0.4 per cent at a time when some of the pharma majors cut their workforces by 10 per cent.

This move towards more high-end, high-value products should also serve to make us less vulnerable to relocation to developing economies, which may struggle to reach the manufacturing standards required.

The standard of ingredients from developing economies is already an issue, and the European Commission is considering tougher laws to deal with this. In March, several deaths were linked to blood thinners manufactured by Baxter, using heparin from a Chinese plant.

"Something like this is extremely damaging. Products are recalled. The regulators are called in. We don't ever want to be in that place," says Moran. "We have an extraordinarily good reputation here, and all we can do is keep working at that."

Another pressure on the industry is the increasing numbers of drugs that are coming off patent, meaning the companies that developed them no longer have exclusivity. GSK, for example, cited generic competition for falling sales in 2007 and job losses in several locations, including Ireland. But even as one door closes, another opens.

The rise in generics has also seen a rise in companies that specialise in generics such as India's Teva Pharmaceuticals.

"We have had to ask ourselves how we can capture some of that investment, and we are successfully fighting that corner," says Connolly. In March, Teva announced a €65 million investment in their Waterford facility, to create 65 new positions.

Investment in R&D is part of a sustained effort to attract more R&D to support the existing manufacturing base and to move from being a purely manufacturing location. Drugs are not just manufactured, they are being developed here, as well.

Wyeth has announced a new pharmaceutical development centre in Newbridge and Baxter is investing an additional €75 million in its two Mayo facilities.

The third-level sector is already continually refined to meet the needs of the biosciences industry - there have been several collaborations between local universities and companies, such as Wyeth and DCU. These collaborations will be further strengthened by the establishment of the €70 million National Institute for Bioprocessing Research and Training (NIBRT). Basically a mini version of a pharmaceutical plant, it will be unique in the world.

It will come complete with bioreactors and purifiers and will combine lecture-based training programmes with realistic GMP-simulated practical experiences. Construction of the facility is expected to start in the next few months. Maurice Treacy, currently of Science Foundation Ireland, is widely tipped to be its first CEO.

"We have established an environment that provides companies with everything they need to optimise their business," Connolly says.

"We have a highly educated workforce with the skills required to build and manage sophisticated plants, a strong infrastructure, government financial incentives and academic institutions that are very much geared towards the needs of this industry," he says. "We have created a cluster of capability across the whole life science sector, from manufacturing to R&D, and across patented and generic products."

And the investments keep coming. Most recently, on April 1st, Genzyme announced a €130 million investment and the creation of 170 new jobs. The Irish sector is understandably upbeat, but the industry globally is increasingly having to defend its reputation amid accusations of corruption and withholding information about potentially dangerous side effects.

As a result, sales of some drugs like GSK's diabetes drug Avandia are dropping - down 38 per cent in 2007 - after it was found to increase the risk of heart attacks. And several drugs, including Merck's arthritis drug Vioxx, Bayer's cholesterol drug Baycol and Pfizer's painkiller Bextra have been withdrawn because of serious side effects.

"There are issues that are outside our control," says Moran. But that is not to say that there is not more that could be done to nurture the industry here.

Enhancing R&D tax credits, increasing utilisation of the patenting process and stemming the growing tide of anti-biotech feeling are just some of the issues that industry insiders say need to be dealt with.