While the closure of Abbott in Galway, announced last week, is a severe blow to the workforce, the outlook for the medical devices sector appears robust. David Labanyireports
Looking forward to 2008, when he will take over as IDA chief executive, Barry O'Leary is optimistic that "two to three medical devices projects of reasonable size" will choose Ireland as their base.
"Clearly the Abbott decision is unfortunate but there are specific issues relating to Abbott and to their stent business," he says.
"The overall medical devices sector here is highly diverse and the manufacture of stents is just one part.
"Abbott itself is a good example as it is very diversified and has interests in everything from diabetes treatments to their stent business."
For the Abbott employees facing redundancy, a chink of consolation is that 15 of the top 20 medical devices firms have operations in Ireland and in the past year employment at these firms rose by 1,400 to more than 26,000.
Abbott says it will be able to offer new jobs to 50-100 of its Galway employees.
According to Abbott, it was forced to close the Galway plant due to the combined effects of reduced demand for its primary products, stents, which are narrow tubes inserted into blood vessels to prevent them narrowing, and improved manufacturing efficiency.
Demand for stents from all companies were hit by a US Food and Drugs Administration review that dulled the phenomenal growth of the device. Parts of the review are ongoing, and although there are no definitive findings as yet, the very fact that there is a review has dampened demand.
"With the life sciences sector, whether it is the pharma, the biologics or the medical devices, you are always subject to unexpected events. You never know how a particular device or biologic can go wrong even when it is on the market," says O'Leary.
While Ireland Inc is struggling with a rising cost base and punishing dollar exchange rate, O'Leary says costs are not deterring companies considering investment here.
"Cost is only one of 15 or 20 criteria considered by life sciences companies. Clearly the exchange rate is not helpful but in this particular industry we are not finding huge noise about it as a negative," he says.
The medical devices sector in Ireland is worth about €6 billion a year in exports, and more than 95 per cent of the products are exported. Worldwide, the sector is worth in excess of €180 billion.
One area where Ireland scores well with multinational medical device firms is management skills.
"We have a concentration of firms and of expertise. That management capability means that medical devices firms don't need to bring in that expertise," says O'Leary.
Overall, he sees a positive outlook for the industry. "The medical devices, the pharma and life-sciences industries are going to grow because you are going to get new products, new devices. And at the same time the population is ageing and new markets will open up in countries which previously couldn't afford medicines opening up."
As part of its decision to close the Galway plant, Abbott is ending its vascular division research in Ireland and is concentrating R&D in this area at its plant in Temecula, California.
O'Leary says developing R&D capacity in Ireland is vital to embed multinational life sciences firms.
"The current model for most medical devices firms is that development and manufacturing happen side by side. Changes to the R&D tax credits in the Budget will help."
O'Leary identifies "convergence" - where expertise in medical devices, pharmaceuticals and biologics are joined in the development of new products - as an area of strong future growth.
The drug-eluding stents manufactured at the Abbott Galway factory are a good example of convergence. The basic stent, which has been on the market for over a decade, is a tube of bare metal used to hold open blood vessels. However, these stents can become clogged and about five years ago stents started to be coated with blood-thinning drugs to prevent clots.
An Abbott spokesman says its remaining vascular factory at Clonmel, where 1,300 people are employed, is a "key strategic long-term manufacturing site". This plant produces Abbott's next generation drug-eluding stent, Xiance V.
"Our market forecasts for drug-eluding stents are unchanged. We expect the market to reaccelerate with the next generation drug-eluding stents," the spokesman says.
Asked whether Abbott is reviewing any of its other Irish operations, the spokesman replies: "Like other companies, Abbott regularly reviews its operations on an ongoing basis."
Business representative group Ibec runs an association for the medical devices and diagnostics sector called the Irish Medical Devices Association (IMDA).
Director Sharon Higgins says the medical devices industry is characterised by rapid change.
"Products being made today won't be on the market in five to six years' time, and certainly not in a country like Ireland which is making first-to-market type products. But there is huge potential in the sector."
According to research by advisory body Forfás, about 80 per cent of medical devices firms are "innovation active", meaning that manufacturing processes are constantly changed and updated.
"The report found the changes were incremental rather than disruptive. Factories were not becoming obsolete," Higgins says.
According to the IMDA, Ireland has the highest per capita employment of medical devices and diagnostic personnel in the EU, with a concentration of firms along the western seaboard.
One benefit of such a concentration of expertise is the increased potential for indigenous spin-offs.
Joey Mason, a specialist in life sciences investments for venture capital firm Delta Partners, says this sector differs from pharmaceuticals because new ideas typically do not come from university research.
"Most ideas come from people who have worked in multinational companies who then go off and set up on their own."
Delta Partners concentrates on investing in start-ups and has seen about eight new medical device companies established this year.
"Medical devices is a very exciting area in Ireland because there is a strong cluster of companies, particularly in cardiovascular and orthopaedics," he says.
He says the decline in demand in the stent market appears to be a result of increased volume of the product and the number of companies manufacturing them.
"Clearly, as a result, the sentiment would move against companies with large exposure to the stent market, the Abbotts, the Boston Scientifics.
"But I would not say that the investor appetite for this industry is eroding, in fact it is going the other way," says Mason.