NCPA - National Center for Policy Analysis


October 26, 2004

More drug firms are shifting manufacturing out of the country in search of lower costs and government sweeteners. South Korea, Singapore and Taiwan have joined Ireland and other nations courting drug giants and the new generation of biotechs.

VaxGen, a biotech near San Francisco, is building a $120 million factory in South Korea. Pfizer opened a $410 million epilepsy drug factory in Singapore last summer. Nearly 38 percent of Johnson & Johnson's factory space is now in Europe, up from 23 percent a decade ago.

What lures these companies overseas?

Foreign governments slashed business taxes to attract the industry's higher-paying jobs and clean factories:

  • Ireland targeted the U.S. drug industry in the 1980s, when its jobless rate soared to 20 percent.
  • It cut corporate income taxes for manufacturing and service companies to 12.5 percent vs. 35 percent in the United States.

Drugmakers, like electronics and other manufacturers, are tempted by lower-cost workers overseas:

  • Wages in Singapore are about 60 percent of those in the United States, observers say.
  • The island, with 4 million residents, has 7,500 biomedical workers; it aims to double that by 2014.

More Asian public officials, trying to muscle aside the United States and Europe, are throwing deals at U.S. drugmakers and biotechs. In South Korea, the city of Incheon sold VaxGen and its partners 23 acres at a discount to attract their factory. VaxGen's South Korean partners raised $84 million of the $120 million for construction -- money VaxGen couldn't get in the United States.

Governments are making direct financial investments, too. Taiwan owns 25 percent of ScinoPharm.

Source: Jim Hopkins, "Drugmakers Shift More Production Outside USA." USA Today, October 19, 2004.

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