GLAXOSMITHKLINE investigated 12 countries when it was deciding where to research gastrointestinal diseases. It chose Ireland.

University College Cork's Alimentary Pharmabiotic Centre beat the US and France to attract Europe's biggest drug maker. The project has helped transform Cork, the city where Pfizer makes Viagra, into a hub for pharmaceutical research. A recent advertisement for six scientists to work at the lab attracted 170 applications from around the world.

"There's a lot of good science in Ireland, " says Jackie Hunter, Glaxo's head of gastrointestinal and neurological research. "They have decided to place their bets on science."

Tax breaks, state financing and an educated workforce have also attracted Amgen and Wyeth, as Ireland woos scientific research to counter the loss of drug manufacturing to lowercost countries such as Puerto Rico. The number of Irish manufacturing jobs fell 9% to 288,500 in the five years through last May as total employment rose 17%.

"The Irish government regards research and development as the heart of future success, " says enterprise minister Miche�l Martin. "If we are to remain competitive, we have to move quickly up the value chain and ramp up much more quickly our investment in research."

Taoiseach Bertie Ahern's government made attracting research a priority in 1999. The country's 12.5% corporate tax rate, which had lured drug makers in the 1970s, was no longer enough to retain low-skilled jobs as wages climbed in the euro region's fastest-growing economy.

"We are losing some jobs, particularly in the assembly end, to eastern Europe, where the cost base is far lower, " Ahern said in an interview in New York last week.

Yesterday, Paris-based Sanofi-Aventis said it would close a factory in Waterford. New York-based Pfizer has announced plans to sell two plants and close part of a third in the country, where drug makers account for 40% of exports.

"To retain the manufacturing, we need to get R&D in to generate new products and the next generation of investments, " says Eamonn Sheehy, research project manager for the Industrial Development Agency.

In 2003, the government created Science Foundation Ireland with a Euro3.2bn grant. The country's first programme to fund scientific research is also designed to encourage an entrepreneurial science culture. At the same time, the IDA began to build links between industry and scientists at Irish universities.

The collaboration's biggest success is Wyeth's Euro1.6bn centre outside Dublin, the world's largest integrated biopharmaceutical plant. The New Jersey-based company plans to double the number of scientists at the site to 80, says Reg Shaw, managing director of Wyeth Medica Ireland.

Wyeth has also signed three academic alliances, one of which funds 30 scientists working on diseases such as Alzheimer's and schizophrenia at University College Dublin, and is seeking more deals with Irish universities, Shaw says.

The combination of education, government support and a low tax rate attracted Wyeth, Shaw says. The government this year extended a tax break that gives companies a credit for as much as 20% of their research and development spending.

"The financial element was not insignificant, but if you can't find the right people, that tax bracket won't matter, " Shaw says.

Twenty-six percent of Irish adults have third-level educations, compared to an average of 24% among the 30-member Organisation for Economic Cooperation and Development (OECD).

While efforts to win research projects are gaining momentum, the transition isn't easy. IDA-backed companies created a net 3,795 jobs last year in an economy that added almost 90,000 positions, many in construction and services, the agency says.

"There's not much evidence of any acceleration in these types of jobs, " says Robbie Kelleher, chief economist at Davy Stockbrokers in Dublin. "The total number of jobs created in the area was probably surpassed by, say, hairdressers."

Still, the time may be right. Big pharmaceutical companies are increasingly building alliances with small labs as they struggle to produce new medicines as quickly as patents expire.

Mergers have created companies that employ thousands of scientists whose work can be hampered by bureaucracy.

AstraZeneca last year spent almost $2bn to buy smaller companies after the failure of three experimental products.

University College Galway established the Regenerative Medicine Institute in 2004 to conduct research into gene therapy and stem cells. The institute receives 20% of its funding from industry, including US firm Medtronic, which employs almost 2,000 people at a plant in Galway, says Frank Barry, the centre's scientific director.

"This is a change for a company like Medtronic, " Barry says.

"In Ireland, it's the first and certainly the biggest interaction they've had" with research.

Once a visiting lecturer at Johns Hopkins University, Barry returned to Ireland after 15 years in the US. He is working on the use of stem cells to repair knees and treat osteoarthritis.

Within two years, Barry expects experimental treatments for heart disease and orthopaedic injuries to be tested nearby in clinical trials, spinning off more jobs. Glaxo, which invested Euro13.7m in Cork, also says it plans to discover, develop and test medicines in Ireland.

As part of its bid to reinvent Ireland, the IDA is using a portrait of Bono to front a Euro4m campaign to win US investment.

Louis le Brocquy's portrait, which shows the U2 singer emerging from a speckled background, symbolises the creativity seeping through Ireland, says IDA chief executive Se�n Dorgan.

But beyond the glossy advertisements, challenges remain.

Ireland spent about 1.3% of gross domestic product on research in 2005, about half as much as the US, Sweden and Finland. Moreover, the number of Irish third-level students choosing science is dropping, reflecting a global pattern.

"The weak link in Ireland is domestic industry, " says Michael O'Sullivan, author of Ireland and the Global Question and a strategist at State Street Global Markets in London.

"Revenue growth of most domestic companies in Ireland is flat compared to foreign companies, and they invest very little in research and development."

Prying research out of places like the US isn't easy, Wyeth's Shaw says. Many companies have never conducted research outside their headquarters, and they're nervous about setting up expensive initiatives.

"It's a confidence issue. There will come a time when there's very much a critical mass here in Ireland, " says Shaw.

"At a conference a couple of years ago, I predicted that Ireland would be to biotech what watches are to Switzerland."