Drug makers find winning formula

 20 AUG 2012 00:32:00 | UPDATED: 20 AUG 2012 04:51:16 There has been a lot of bad news from the manufacturing sector in recent years, with the economics of entire industries from aluminium to oil refining looking shaky.But while some of the large-scale factories set up under the protection of post-war industrialisation policies are reaching the end of their economic life and are not being replaced, there is one sector that just won’t die.Australia’s pharmaceutical sector has the odds stacked against it with the federal Health Department waging a constant war to clamp down on the prices it pays for drugs under the Pharmaceutical Benefits Scheme.It also suffers from the same high- wage, high-dollar environment that bedevils other manufacturers.But somehow our competitive advantages in skills and science are helping it buck the trend, and exports are rising.In 2011-12 exports of pharmaceutical and medicinal products totalled $4.1 billion, up from $3.7 billion the year before.Pharmaceuticals are now firmly established as the No. 1 “substantially transformed” manufacturing export, beating the car industry in 2011-12 with $2.8 billion in exports and the wine sector with $2 billion.As the Prime Minister’s manufacturing taskforce suggested last week, it is exactly the sort of high-value, high intellectual property-intensive industry we need more of now that we have become a high-cost rather than low-cost place to do business.Pharmaceuticals has been propelled by the Asian, and especially the Chinese, miracle, with rapid urbanisation and rising incomes driving demand for advanced health-care products.Old factories slated for closure in Australia are now being left open or even expanded to supply Asia’s voracious appetite for drugs, and also to provide examples of manufacturing best practice to fledgling operations of the multi-nationals.Asia takes half of Australia’s exports and the industry believes there are opportunities to multiply exports fivefold by 2020.GlaxoSmithKline, for example, makes the Relenza anti-influenza drug in Melbourne and it will expand its blow-fill-seal manufacturing operations, which pack medicines in innovative plastic containers.Both Relenza and blow-fill-seal are Australian innovations.Blood products and vaccine group CSL is building a $250 million biotechnology products research and manufacturing facility at its Melbourne blood fraction plant.The plant will be the second CSL site globally to manufacture Privigen, an intravenous immunoglobulin treatment for immune system failure.While the federal government provided some assistance for the research and development component of the facility, the main driver for CSL was to reinforce the economics of its local factory and give itself the insurance of a second source for the drug.At the smaller end of the scale, Sydney biotechnology company Pharmaxis is expanding production of its Bronchitol treatment for chronic respiratory conditions at its new 7000 square metre factory in Sydney.Bronchitol is particularly important as most of Australia’s 100-plus biotechnology companies either licence their drugs to others for commercialisation or manufacture under contract offshore.It is true there have been a number of closures and down- sizings in the sector, with job losses at iNova and Hamilton Laboratories, for example.The most damaging was the closure of Merck’s big Sydney drug manufacturing site, although it is understood to be still packaging some products locally.Pharmaceuticals have received almost no policy attention in Australia since the 1990s and the Rudd-Gillard government is the first in two decades to not even bother pretending to plan for the sector.In the absence of any sort of plan, companies find themselves arguing against a government whose main interest is in saving money for the PBS.It is hardly a loved industry in Australia.Yet the sector’s resilience shows that it should be a priority for a nation looking to replace its dying low-value manufacturing operations with higher-value ones.