EY Life Sciences
Report: Asia
Asia-Pacific | Japan | India
March 2017
Contents
2
Market insights
10
16
Taxupdates:significant
developments
Featured articles
16 Better with age
22 Australia’sdivertedprofitstaxandthe
life sciences industry
26 Building a better customer experience:
what life sciences companies in APAC
should consider
32
Mergers and acquisitions (M&A)
36
Financing and IPOs
38
Appendix
38 EY thought leadership
40 Contacts
EY Life Sciences Report: Asia
To our clients and friends:
Welcome to the third edition of our EY Life Sciences Report for Asia, providing coverage
forthekeymarketsinAsia-Pacific,JapanandIndia.
Wecontinuetoreceiveveryusefulsuggestionsfromreadersonhowtofurtherrefinethe
reportformatandcontent.Anumberofyouhaverequestedthatweincludeadditional,
regulartaxcontenthighlightingdevelopmentsapplicabletothesector.Inresponse,we
have added a new section to the report, a pdate
i nificant de elopment .
Weareexcitedalsotoincludethreefeaturedarticlesinthisedition,allwrittenspecifically
forthispublication.
Thefirstarticle,“ B etter with age,” exploreshowtheagingpopulationinJapan,and
the resulting “silver economy,” provides a unique opportunity for pharmaceutical
companies.Japan’sagingpopulationiscreatingmajorhealthcarechallengesforboth
thegovernmentandsociety.Atthesametime,thepotentialforinnovativesolutionsfrom
pharmaceuticalcompaniestohelpmeetthesechallengesisrobust.Butplanningforand
seizing opportunities for innovation will require fresh thinking, not only in terms of technical
possibilities but also in relation to expanding offerings into new areas, seeking unorthodox
partnershipsanddevelopinguniquebusinessmodels.
The second article,
tralia di erted profit ta and t e li e cience ind tr
exploresAustralia’srecentlyproposeddivertedprofitstax(DPT)andconsidersthepotential
implications for multinational life sciences companies operating in Australia with centralized
intellectualpropertyhubs.Centralization,whiledeliveringcommercial,legalandsupply
efficiencybenefits,hasalsocreatedsignificantconcernswithintheAustralianGovernment
andtheAustralianTaxationOffice(ATO)inparticularaboutwhetherthetaxoutcomes
ofsucharrangementsreflecttheireconomicsubstanceor,instead,arebeingused
inappropriatelytodivertprofitsoutsideofAustralia.Giventhecomplexityandpotential
implications of this new proposed regime, it is vitally important that multinationals quickly
understandthepotentialscopeoftheDPTand,whererelevant,developastrategyfor
proactivelysupportinganddefendingtheirlegalstructuresandsupplychains.
The third article, B ildin a etter c tomer e perience
at li e cience companie
in
C o ld con ider explores how many life sciences companies are increasing their
focus on the customer experience and engagement across multiple channels, and what
companiesneedtoconsiderwhenembarkingonajourneytoenhancesuchexperience.
While “multichannel” is still relatively new territory for many life sciences companies in
Asia-Pacific,customers’expectationsintermsofhowtheywanttobeengagedarehighand
quitediverseacrossthedifferentmarkets.
In addition to our featured articles, our M arket insights section highlights a number
of sector trends and provides brief yet informative updates on various regulatory
andlegislativedevelopmentsforanumberofkeymarketsinAsia.OurM ergers and
acq uisitions and F inancing and IPO s sections provide helpful summaries of recent global
andlocaltrendsviachartsandshortcaptions,withanincreasedfocusonAsianmarkets.
Wehopeyouenjoythisissue.You’llfindthisreport—andmuchmore—atourdigitalhome,
VitalSigns(ey.com/vitalsigns),andyoucanengagewithusviaTwitter(@EY_LifeSciences)
oremail.
Rick F onte
EYAsia-PacificLifeSciences
TaxLeader
atric loc el
EYLifeSciencesGlobal
LeadershipTeam,Japan
riram rini a an
EYGlobalLifeSciences
EmergingMarketsLeader
andEYGlobalGeneric
PharmaceuticalLeader
March 2017 |
1
Market insights
In this edition, we highlight
key sector, regulatory and
legislative trends for the
following markets:
AS E AN
Australia
• Indonesia
China (mainland)
• Malaysia
• Philippines
• Vietnam
India
J apan
S outh K orea
Taiwan
2
| EY Life Sciences Report: Asia
K ey highlights
• Markets across Asia are continually acting to increase the
competitiveness and attractiveness of the life sciences
industryforforeignmultinationals.Forinstance,Indiahas
undertaken several initiatives, including encouraging publicprivatepartnerships(PPPs)inR&Dprojectsandincreasing
focus on infrastructure to establish India as one of the world’s
majorpharmaceuticalinnovationhubs.AustraliaandChina
have implemented sector-focused innovation plans to boost
investments,alongwithreformstoexpeditedrugapprovals.
South Korea is working toward becoming a global biotech
and medical industry hub with focus on biosimilars, stem cell
therapiesand3Dprintingofmedicaldevices.Meanwhile,Taiwan
hasdedicatedaninitiativetoenhanceitspositionasamajor
biomedical market in Asia, and Vietnam has lifted the cap on
foreigninvestmentsinthepharmasector.
• Malaysia, Australia, India and South Korea are also adopting
adequate measures to bring their sector regulations for
biosimilars and medical devices to par with international
practices.
• Concurrently, many Asian countries are grappling with the
problem of counterfeiting and patients’ inadequate trust of the
industry.IndonesiaandthePhilippinesareadoptingstringent
measures to contain the spread of counterfeit medicines, while
Australia and South Korea are increasing transparency between
pharma-physician-patient relationship through mandatory
physicianpaymentdisclosuresandheftypenalties.Similarly,India
is strengthening its pharmacovigilance program by making the
pharmacompaniestakeonmoreaccountabilityfordrugsafety.
• The life sciences industry in the region is also inching toward
digitization, with both industry and government playing an
importantrole.TheGovernmentofChinaisdevelopinganational
digital platform that will enable data sharing and is introducing
digitalmedicalidentificationandsignatures.Atthesametime,
pharma companies in India and the Philippines are developing
mobile applications to enhance patient experience and to educate
differentstakeholders.
• Increasinglifeexpectancyiscreatingamajorhealthcareburden
formanycountries,includingJapanandAustralia.Japanis
revisiting its prescription drug pricing system and continuing
itspushtowardgenerics.Similarly,Malaysiaisconsidering
increasing generics usage, while Australia is trying to expand the
listofdrugsanddeviceseligibleforpricecuts.
China refers to mainland China in this publication.
AS E AN
Indonesia: tightening regulatory pathways to improve
affordability and q uality of drugs
Malaysia: controlling health care expenditure and
strengthening sector regulations
TheIndonesianGovernmentiscontinuallytryingtostrengthenthe
country’spharmaceuticalmarket.However,recentamendment
to ndone ia intellect al propert ri t regime have brought
aboutsignificantchangesfortheindustryplayers.Prohibiting
patent claims for second medical use and allowing import of
lower-priced copies of patented products during the exclusivity
period have made the regulatory environment more challenging for
innovativedrugmanufacturers.1
TheMalaysianGovernmentisconsideringoradoptingseveral
mea re to control ri in ealt care co t .TheConsumers
Association of Penang has requested the introduction of a national
drugpricingcontrolsystem.5 Meanwhile, the government is trying
toincreasetheuseofgenericsandbiosimilarsinthecountry.
Currently, both generic and branded medicines are being used
inequalproportion(byvalue)inMalaysia.6 Further, the country
recentlysawthelaunchofitsfirstbiosimilarinsulin,whichwill
increasetheavailabilityofthetherapyatanaffordablerate.7
Meanwhile,amajorco nter eitin accine candal was exposed
inthecountry,afterwhichIndonesianauthoritiesorderedamajor
overhaulofthecountry’sNationalDrugandFoodControlAgency
(NA-DFC).2 The nationwide scandal has unveiled striking gaps in
the distribution chain of the vaccine system and the quality control
mechanismadoptedbytheregulatorinthecountry.3 The Ministry
ofHealthisprovidingre-immunizationforchildrenexposedtofake
vaccines.4TheNA-DFCoverhaulmayaddfurtherregulatoryhurdles
formanufacturers.
Concurrently, under the raditional and Complementar
edicine
( TCM ) Act 2016 , Malaysia is set to have a council for TCM that
will regulate the traditional medicine industry and will mandate the
registrationofTCMpractitionersinthecountry.Thisshouldhelp
the government enhance the safety and quality of TCM services
providedathospitals.8
On the medical de ice front,theMalaysianMedicalDevice
Authority(MDA)hasproposedatwo-yeartransitionperiodfor
medical device manufacturers for complying with new labeling rules
detailedintheSixthScheduleoftheMedicalDeviceRegulation
2012.Also,MDAhaslaiddownnewguidelinesonhowmedical
devices meant for clinical research can qualify for exemption from
theregistrationrequirementsofthecountry.Furthermore,MDA
has allowed advertisement only for those medical devices that are
registeredinMalaysiaforsale.9
March 2017 |
3
Market insights
Philippines: curbing illegal drug manufacturing via better
control and awareness
TheFoodandDrugAdministration(FDA)ofthePhilippines
is ti tenin it noo e or entitie in ol ed in t e ale o
counterfeit drugsinthecountry.Ithascautionedthepublic
andhasalsoadvisedittopurchasemedicinesfromFDA-licensed
establishmentsonly.10 Also, the provincial government has formed
aProvincialBuildingInspectionTeamtoconfirmthatnoillegal
drugsarebeingmanufacturedintheterritory.11 Further, the
government has been successful in its initial efforts to combat fake
drugs, with more than 600,000 drug users and manufacturers
surrenderingtoofficials.12
In addition, the Philippines is witnessing the launch of several
mo ile app to impro e a arene among the people and industry
players.Examplesinclude:
• AppforHIVpatients—Johnson&Johnson(J&J),incollaboration
withSustainedHealthInitiativesofthePhilippines,developedan
apptohelpreducetheburdenofHIVinthecountry.13
4
• Pharmacyapp—InassociationwiththeDrugstoresAssociation
ofthePhilippines(DSAP),J&JintroducedtheDSAPMobile
DrugstoreappfortrainingandhelpingDSAPmember
pharmacists.14
| EY Life Sciences Report: Asia
V ietnam: improving the funding support for the sector
Vietnam’s pharmaceutical market is undergoing liberalization,
withtheGovernmentli tin t e
cap on orei n o ner ip in
pharmacompanies.Theongoingreformhasincreasedtheappealof
the domestic pharmaceutical sector and has recently led to a boom
in inbound M&A deals with foreign pharma giants:15
• CFRInternational(Chile),apartofUS-basedAbbottLaboratories,
increaseditsequityshareinDomescoto51.7%.
• AbbottacquiredGlomedPharmaceutical,aleadingVietnamese
drugmaker, and propelled itself into the top 10 local pharma
companiesinthecountry.
• TaishoPharmaceuticalpurchaseda24.5%stakeinDHG
Pharmaceutical.
Further,aspartofits2020strategy,theVietnameseGovernment
intendstomeet80%ofitsdomesticpharmaceuticaldemand
throughlocaldrugmanufacturers.Thepolicyishavingamajor
impact on the vaccine market, with the country now able to
produce 11 of the 12 vaccines included in the national expanded
immunizationprogram.TheGovernmentisfurthergearingup
to el finance it accine pro ram by reducing its reliance
oninternationalfunding.Theaimistoachievemassvaccine
production in the country through government-supported
investmentsinmanufacturinginfrastructureandtechnology.16
Market insights
Australia
Reforms toward an environment conducive to sector innovation
Australia, currently ranked the second-most attractive
pharmaceuticalmarketinAsia-Pacific,isundertakingmea re to
rt er oo t t e ector competiti ene through enhanced
innovationandbetterproductivity.A10-yearsectorrevitalization
plan introduced by the Medical Technologies and Pharmaceuticals
IndustryGrowthCentre(MTP)isoneofthecriticalstepsinthis
direction.17 As part of this program, MTPConnect, an organization
formedunderthefederalgovernment’sIndustryGrowthCentres
initiatives,hasidentifiedsevengrowthprioritieswithfocuson
specificaspectsofthesectorvaluechain.Ithasalreadymade
anannouncementtoinjectUS$5.6million(AU$7.4million)a in
14sector-specificprojectsandisfurtherawaitingUS$24million
(AU$32million)fromvariousindustrypartners.18
Additionally, the industry is working to rid e t e ap et een
re earc and cce
l commerciali ation.Aconsortiumof
pharmaceutical companies that includes AbbVie, Boehringer
Ingelheim, Celgene and Novartis has teamed up with Medicines
AustraliatolaunchaUS$0.76million(AU$1million)educational
program,TheBridgeInitiative,scheduledtostartin1Q17.The
program is expected to run for two years with a target of training
100people.19 Further, to encourage real-world application of
innovation, the Victorian state government plans to expend
US$3million(AU$4million)tobuildaworld-classinnovation
center, the Medicines Manufacturing Innovation Centre, led by
MonashUniversity.20ThenationhasalreadyestablishedaUS$380
million(AU$500million)BiomedicalTranslationFundtoaidthe
developmentandcommercializationofbiomedicaldiscoveries.21
To further promote innovation, the country is simultaneously
e peditin t e dr appro al proce .TheAustraliandrug
regulator,theTherapeuticGoodsAdministration,iscurrentlyin
theprocessofrollingoutreformsoverthenext18to24months.
Oneofthemajorchangesincludespotentialintroductionoftwo
expedited pathways for the registration of novel medicines, focusing
on drugs that are already approved in countries with comparable
regulatoryprocesses.22
e ali ation o medical canna i is offering new opportunities
toAustralianlifesciencescompanies.TheTherapeuticGoods
Administration has now allowed cultivation of cannabis for medical
purposesbutunderstrictgovernmentlicensingandguidelines.23
Australia continues to c rtail ri in ealt care co t through
tighterregulationsandpricecuts.Inits2017pricedisclosurecycle,
thegovernment’sPharmaceuticalBenefitsSchemedisclosedthe
addition of several drugs, particularly biologics, and a deepening of
pricecuts.Thegovernmenthasalsoannouncedreformstolower
the costs of medical devices and prostheses, including a reduction in
listcostofcardiacdevicesandintraocularlensesby10%andinhip
andkneereplacementsby7.5%.24
Pharma companies in Australia have begun disclosing physician
payments under the new code laid by the regulator thus inching
towardamoretransparentpharma-physician-patientrelationship.25
a
Convertedusingspotrateasof31July2016(AU$1equalsUS$0.7595),
accessed3January2017.
March 2017 |
5
Market insights
China
E asing the regulatory environment, building digital resource sharing capabilities
TheChineseGovernmentisactivelyinvolvedinboostinginnovation
andinjectingfreshinvestmentinthesector.Announcementofthe
13th Five Year Plan (2015–20) has provided further momentum
to inno ation and re orm in the country, with biomedicine being
identifiedasakeypriority.Innovationformsthecorestrategyof
thecurrentfive-yearplan,alongsideahugefocusonimprovingthe
qualityofinnovativedrugs.26Aspartofthis,theChinaFDA(CFDA)
and the State Council have approved a three-year pilot called
“MarketingAuthorizationHolder”towidentheeligibilitycriteriafor
companiesapplyingfordrugmarketingauthorization.Theprogram
allows domestic researchers and smaller operations to apply for
drug approvals, even without having in-house manufacturing
capabilities.Theaimofthepilotistohelpcompaniesbringdrugs
to market at a lower cost by leveraging contract manufacturing
arrangements.27
Simultaneously, China has pledged to create an ind trial cale o
medical er ice
on a national di ital plat orm.28 The
planisexpectedtocreateadigitalhealthtrailforcitizens.Theplan
involves establishing:
• National and provincial population health platforms
• Interconnected application platforms for national medicine
bidding and purchasing
• 100 regional clinical medicine data demonstration centers
• Digitalmedicalidentificationandsignatures
6
| EY Life Sciences Report: Asia
Sharing of health and medical data resources is likely to accelerate
the use of big data applications in health and medical industry
management, clinical research and development, and digital health
andmedicalequipment.29
In addition, the country is enco ra in t e e o lo co t
met od o ellin dr
and medical prod ct to increase
competitionandslashprices.TheCFDAhadbeenattemptingto
introducepilotprogramsforonlinedrugsales.However,duetoa
deficienttrackingsystemandincreaseddrugcounterfeiting,the
initiative has been put to a halt and the sale of online prescription
drugshasbeenbannedinChina.30
Inthepastfiveyears,Chinahasinvestedapproximately
US$359billion(RMB2.2trillion)toimpro e medical de ice
re lation andharmonizethemwithinternationalpractices.
Recently,theCFDAannouncedthatitspriorityreviewandapproval
procedureformedicaldeviceswillbeenforcedstarting1January
2017.Moreover,theCFDAhasalsoreleasedanexpandedlistof
devicesthatstandexemptedfromclinicaltrials.31 In addition, the
country has decided to remove tariffs on 201 technology products,
includingsomemedicaldevices.32 These moves are expected to
strengthen the approval systems for drugs and devices and help in
meetingclinicaldemandformedicaldevices.33
Market insights
India
Continued efforts to elevate India’ s reputation and to make strides in digital pharma
InlinewiththePharmaVision2020documentoftheDepartment
ofPharmaceuticals(DOP),Indiahasembarkedonitsjourneyto
become a leadin co ntr or end to end dr man act rin
and inno ation.TheGovernmentaimstoaugmentinfrastructure
through a “Make in India” initiative, improve the quality of the
workforceandincreasefundsforinnovation.Specifically,the
GovernmentaimstopositionIndiaasoneofthetopfive
pharmaceutical innovation hubs by 2020 and establish the nation
asoneofthemostpreferreddestinationsforclinicaltrials.34 Toward
thiseffort,theDrugControllerGeneralofIndiahasremovedthe
maximum limit of three clinical trials and eliminated the restriction
on the number of beds to enable smoother entry of pharma
companiesintoresearchanddiscovery.TheGovernmentisfurther
contemplatinginvestments(ofupto50%)inpublic-private
partnership(PPP)modelsforundertakingR&Dprojects,inaddition
totheexistingweightedtaxdeductionrateof150%onR&Dspend.
Simultaneously,theMinistryofHealth&FamilyWelfare(MoHFW)
has established eligibility criteria for all personnel employed in any
pharma manufacturing to bring the sector up to par with
internationalstandards.35
Bol terin dr
a et
mean o p armaco i ilance is another
focusareafortheindustry.WiththePharmacovigilanceProgramof
Indiaalreadyreceiving0.23millioninstancesofadversedrug
reactions,theHealthMinistryiscontinuingtoaddnewadversedrug
reaction monitoring centers and is also integrating information
receivedfromthepharmacompanies.Theministryhasmandated
thatmarketauthorizationholders(MHAs)establish
pharmacovigilancecellsintheircompanies.36 These cells can either
becaptiveoroutsourcedbutmustenabletheMHAstocollect,
process and forward adverse drug reports to the licensing
authorities.37
introduceabillforcreationofanationale-healthauthority.38
Additionally,theGovernmentisworkingonguidelinesforregulating
e-pharmaciestoreducetheirmisuse.
In the area of medical de ice ,theMoHFWhasreleasedadraftof
MedicalDevicesRulesforfurtherdiscussion,withanaimtoalign
theindustrywithglobalpracticesonaprioritybasis.39 Certain
measuresofthedraft,suchasafive-yearcapontheshelflifeof
medicaldevices,compliancewithuniqueidentificationnormsand
allowance for contract manufacturing, are expected to be
implementedbyearly2017.Additionally,tocontrolthepriceof
stents, the government has added coronary stents to the national
listofessentialmedicinesfor2015.40
Onthebiotechfront,theCentralDrugsStandardControl
OrganizationandtheDepartmentofBiotechnologyannounceda
re i ed io imilar polic providing a detailed regulatory pathway
formanufacturingprocessesthataimstodeliversafety,efficacy
andquality.Thedocumentalsoaddressesissuesconcerning
pre-andpost-marketregulatoryrequirementsforsimilarbiologics.
The policy is expected to accelerate the Indian biosimilars market
sizetoUS$40billionby2030.41
b
AadharisauniqueidentificationnumberissuedbytheGovernmentofIndiato
all residents of the country to eliminate duplicate and fake identities and to make
verificationandauthenticationeasyandeffective.
The i ital ndia initiati e is also making a big push in the industry
—rangingfrome-detailingtoolstosmartphoneappsfor
understandingpatientbehavior.Someoftherecentannouncements
in this direction include:
• SunPharma’sRespiTrackappforeducatingasthmapatientsand
enhancing their adherence to therapies
• GlaxoSmithKlineIndia’suseofwebinars,videochats,information
portals and platforms, such as Viva, for doctors
• AbbottHealthcareIndia’seducationalapp,KnowledgeGenie,for
patients with heart or liver diseases
Inadditiontotheseindustryefforts,theGovernmentisattempting
to digitize medical health records on an Aadhar-linked electronic
healthrecordsystem.b To aid this development, it is planning to
March 2017 |
7
Market insights
J apan
Revamping drug pricing system to reduce the cost burden on government
JapaniscurrentlyexperiencinglowGDPgrowthalongwithahuge
burdenfromanagingpopulation.Withthesituationunlikelyto
improvesoon,theGovernmentofJapanisadoptingseverecost
containmentmeasures.TheMinistryofFinanceisproposing a
complete o er a l o t e pre cription dr pricin
tem
through the following changes:42
• Annual revision of drug prices to replace the current system of
biennial price changes
• Lowergovernment-sanctionedpricesforgenericdrugstoboost
their penetration
• Disclosureofmanufacturingcostsbydrugmakersatthetimeof
filing43
Regulatorshavealreadytakenastepinthisdirectionbyslashing
thepriceofOnoPharmaceuticalCo.’scancerdrug,Opdivo,by
50%,muchmorethanitsscheduledpricerevision.However,these
8
c
Convertedusingspotrateasof3January2017(1¥equalsUS$0.0085),
accessed3January2017.
| EY Life Sciences Report: Asia
proposed changes are facing strong resistance from doctors and
drugmakers, who fear a loss of revenue and increased complexity
inpricing.44 Adding to these pressures, the Pharmaceuticals and
MedicalDevicesAgencyiscontemplatinganincreaseinreviewfees
fordrugsandmedicaldevices.45
Concurrently, the health ministry is targeting March 2017 to
issue a “blue book” to help p
alit eneric in t e mar et.
The blue book will include information on generic drugs by active
pharmaceutical ingredients and can be used by hospitals and
pharmaciestodecidewhichgenericstostockanddispense.46
In addition, to ta ili e t e ppl o accine inJapan,anew
earthquake-resistant warehouse is being set up in southwestern
Japan.TheMinistryofHealth,LabourandWelfarehasprovided
fundingofUS$18.26million(¥2,157million)cfortheproject,which
will help in stocking the vaccinations included in the Preventive
VaccinationLaw.47
Market insights
S outh K orea
Taiwan
Promoting indigenous and novel product development and
manufacturing
G aining technological experience to improve its
competitiveness in Asia
The pharmaceutical industry in South Korea is transforming from
generic drug manufacturing to new drug development, mainly
centeredonbiosimilarsandstemcelltreatments.TheGovernment
has rolled out several measures to de elop t e nation a a lo al
iotec and medical ind tr
by2020.Thecomprehensive
plan encompasses the following:
To tran orm ai an into a iotec nolo and medical
in
Asia,theGovernmenthasapprovedabudgetofUS$346.32million
(NT$10.94million)for2017.Further,afive-plus-twoinnovative
industries initiative has been started to enhance human resources,
financesandintellectualpropertyinthesector.Thisinitiative
includes the following measures:
• Highertaxbenefitsandincentivesforclinicaltrialsofindigenous
drugsandinvestmentinR&Dfacilities
• Establish a north-south biomedical corridor to enrich the research
capabilities of the three main science parks of Taiwan
• Support for local pharma
• Expand into the international health care market, particularly
in ASEAN countries, by enhancing exports and expanding
cooperation on health care education
• ExpansionoftheGovernment’sR&Dbudgetformedicaldevices
• Enhancement of exports by improving distribution channels
• Streamlining policies for commercialization of stem cell and
precisionmedicinesprojects48
TheGovernmentisalsosettingupabioclusterthatwillserveas
a center for pharma companies and universities to collaborate
onR&D.Tomaketheinvestmentlucrative,theKoreanResearchbased Pharmaceutical Industry Association has offered a 15-year
corporatetaxexemptionora5%to15%relaxationforpharma
MNCs.49 In addition, the government is planning to set up hightech medical industrial clusters by 2018 and foster a culture of
innovation.
• Developprecisionmedicine,specializedclinicsandhealth-related
peripheral industries
• Launch80nichemedicaldevices,20newdrugsandatleast10
biotechandhealth-relatedflagshipbrandsby2025
• Advance technological capabilities through arrangements with
majorbiomedicalR&DhubsintheUSandEurope55
On the medical de ice front, the state has been making strides
in3Dprinting.SouthKoreaiscontemplatingtheintroductionof
fast-trackapprovaloptionsfor3Dprintingofmedicaldevices,along
withtaxexemptions.50 Proposed changes include a maximum
taxexemptionof30%ofR&Dforsmallandmedium3Dprinting
companiesand20%forlargecompanies.51
However, man re o rce a aila ilit remain a c allen e for the
growthoftheindustry.Industryplayers,incollaborationwithlocal
educationalinstitutes,areworkingtoaddressthischallenge.52 For
example,GEHealthcareKoreaisbuildingthefirstAPACFastTrak
CentreinSongdowithaninvestmentofUS$20millionby2020to
providetrainingandmanufacturingsupport.53
Concurrently, the Korean government has drafted a ne anti ra t
la to try to stop pharma companies from offering hefty rebates to
doctors for prescribing the companies’ medicines, and as a way to
presscompaniestorevisetheirinternalcodesofconduct.Violators
faceapenaltyofuptoUS$24,800(KRW30million)d or a maximum
threeyears’imprisonment.54
d
Convertedusingspotrateasof2January2017(KRW1equalsUS$0.00083),
accessed2January2017.
March 2017 |
9
Taxupdates:significant
developments
In this edition, we highlight
significant tax developments
and trends that are directly
impacting or are likely to
impact the sector in the
following markets:
Australia
S outh K orea
China (mainland)
Indonesia
J apan
10 | EY Life Sciences Report: Asia
Australia
Thepharmaceuticalindustryhasseenasignificantincreasein
governmentandAustralianTaxationOffice(ATO)scrutinyinthe
pasttwoyears.Inmid-2015,representativesofsomeofthelargest
pharmaceutical MNEs operating in Australia were summoned to give
evidencebeforetheSenateInquiryintoCorporateTaxAvoidance.
Since that time, the ATO has increased the intensity of tax audits
and has challenged a number of positions held by pharmaceutical
MNEs.
We recently met with members of the ATO’s pharmaceutical
working group to discuss their views on and approach regarding
thesector.
ATO comments on pharmaceutical sector
The ATO is heavily involved in the pharmaceutical sector and
consultsbroadlywithindustryplayers,government,NGOsand
professionalservicesfirmstoincreaseitsunderstanding.TheATO
currently has 19 “active taxpayer cases” in the pharmaceutical
industry (which includes audits, risk reviews and the advance pricing
agreementprocesses).
The ATO’s review activity of the pharmaceutical industry is primarily
focused on transfer pricing, and it has the following concerns:
Our observations
The ATO’s time frame to release guidance by 1Q 2017 (before
completion of the active taxpayer cases) appears to be driven by the
government’s desire to be seen as taking more aggressive action on
multinationaltaxavoidance.Inthisregard,inourdiscussionswith
the ATO on the time frame for guidance, the Senate inquiry was
referencedanumberoftimes.
TheATO’sviewsregardingincorrectclassificationasLRDsandthe
inappropriate use of the TNMM are likely part of an overall attempt
toincreasetheprofitabilitylevelofthesector,havingregardto
thepharmaceuticalMNE’soverallsystemprofits.Inthisregard,
taxpayers should be prepared to see the ATO developing guidance
and arguments to support margins at the high end of the current
industryrange,ifnotslightlyhigher.Equally,weexpecttoseethe
ATO continuing to develop its thinking on value-added activities and
whethersuchactivitiesshouldattractadifferentialreturn.
ic ael nder on,OceaniaLifeSciencesTaxLeader,EY;Partner,
Ernst & Young (Australia) [email protected]
Craig Jackson, Partner, Tax Controversy,
Ernst & Young (Australia) [email protected]
• A number of MNEs in the industry may be incorrectly classifying
theirAustralianoperationsaslimitedriskdistributors(LRDs)and,
thus, have adopted inappropriate comparables for benchmarking
purposes.TheATOconsidersthat“value-adds,”suchas
regulatory approval skills and the Australia direct distribution
system,meanthattheAustralianoperationsaremoresignificant.
TheATOisseekingtochallengetaxpayers’“LRDclassifications”
on the basis that these operations are more appropriately
classifiedasfullriskdistributorsandareentitledtogreater
returns.
• Duetothedifficultyoffindingqualitybenchmarkcomparables,a
number of MNEs are using the Transactional Net Margin Method
(TNMM) as a default methodology to establish appropriate
transfer prices without considering whether it is the most
appropriatemethodology.MostAustralianpharmaceuticalsusing
theTNMMreportmarginsofbetween2%and10%.
• The transfer of intellectual property from Australia to a foreign
entity within the MNE group is a concern from a transfer pricing
perspective.TheATOmayseektoexaminetheissuefromanantiavoidanceorbaseerosionandprofitshifting(BEPS)perspective.
The ATO economist practice is reviewing the above matters in detail
to determine whether risk and value are appropriately allocated
toAustralianoperations.TheATOintendstoreleaseguidanceon
the pharmaceutical industry in 1Q 2017 as either a Taxation Alert
(which sets out types of transactions the ATO wishes to investigate
furtherorchallenge)orasPracticalComplianceGuidelines(which
set out a practical administration approach to assist taxpayers in
complyingwithrelevanttaxlaws).
March 2017 | 11
Taxupdates:significantdevelopments
China
N ew req uirements for invoicing of medicine and potential
V AT impacts
TheChineseGovernmentcontinuesitseffortstocontrolpricesfor
pharmaceutical products and reduce the complexity of the previous
system.Accordingly,theChinaMinistryofHealthandotherrelevant
governmental organizations have issued a new requirement related
to the issuing of invoices for medicine sold to state-owned medical
institutions,namedthe“DualInvoiceSystem.”Therequirement
was released with immediate effect at the end of 2016 and will be
implementedacrossallofmainlandChinaby2018.
Underthissystem,onlyoneinvoiceshouldbeissuedbythe
manufacturer to the distributor and only one invoice from the
distributortothemedicalinstitution.Whiletherewouldbean
exemption from the rule for intragroup invoicing, the multiplelayer distribution channels that were common in the past need
tobeconsolidatedgoingforward.Thisrequirespharmaceutical
companies to strengthen control with respect to VAT management
sothatinvoicesareissuedonlytoqualifieddistributors.The
Governmenthasannouncedstrictsupervisionofcompliancewith
theDualInvoiceSystem,andnon-compliancecanleadtoexclusion
offuturebiddingprocesses.
B ig data management
For several years, the Chinese tax administration has undertaken
effortstoincreaseitslevelofefficiencyindealingwith(large)
corporate taxpayers in terms of information gathering, processing
andanalysis.Increasingly,thetaxadministrationisrelyingon
technology-basedtoolstoachieveitsgoals.Forexample,the
recentlylaunchedGoldenTaxSystemisaninformationsystem
connecting the various tax information streams online, including
information from the annual income tax return, VAT return, transfer
pricingdocumentationandbeyond.Importanttaxpayerinformation
will be available in one system and eventually will be accessible
acrossthecountrybytaxauthorities.
Our observation is that tax digitalization will become more
prevalent,particularlywiththeimplementationoftheOECD’s
BEPSActionsinChina.Therewillbegreateraccesstoinformation
asaresultofmoredisclosureunderBEPS.TheChinesetax
administration is evaluating how to capture all the information in
oneplaceandusetheinformationtoidentifyhigh-risktaxpayers.
In 2016, the State Administration of Taxation introduced the
Thousand Enterprise initiative targeted at large groups in China,
requiringthemtoprovideasignificantamountoftax,financial
andnon-financialinformation.Therequirementwasfortaxpayers
to submit the information in an electronic format or for the tax
administration to extract the information directly from the entities’
ERPsystems.Theinformationrequiredwasmassiveandcreated
significantchallengesforcompaniesintermsofdatacollection,
screeningandconcernsregardingdatasecurity.
12 | EY Life Sciences Report: Asia
The selected companies of the Thousand Enterprise initiative
were from wide-ranging industries, with a small number from
thepharmaceuticalindustry.AninitiativesimilartoThousand
EnterprisewassubsequentlylaunchedinJiangsuprovincetargeting
thepharmaceuticalindustry.Manycompaniesfromwithinthe
industry received similar requests to those from the Thousand
Enterpriseinitiative.Therequestshaveresultedinfurthertaxand
transferpricinginquiriesforanumberoftaxpayers.
Very recently, the SAT issued an internal Circular outlining their
2017actionplanwithrespecttotheThousandEnterpriseinitiative.
For 2017, the SAT is planning on performing detailed tax risk
analysis on 268 of the 1000 large enterprises for which data was
previouslyrequestedfortaxyears2011-2015.Underthisplan,
the5thbranchofBeijingSTB(SAT’scenterfortaxriskanalysis)will
be utilizing tax data analytic tool(s) they have developed to analyse
three years of data (tax years 2013-2015) previously received
fromthe268selectedcompanies.Suchdatawillbeanalysedfor
purposesofidentifyingpotentialissuesandareasofconcern.For
mostindustries,itisexpectedthatthe5thbranchoftheBeijingSTB
willprepareananalyticsorinitialfindingsreportbaseduponthe
results of their data analytics review, which they will then submit to
provincialleveltaxauthoritiesforfurtherdetailedriskanalysis.We
understand, however, that for the pharmaceutical industry, given
the increased level of focus on the sector, that the 5th branch of
theBeijingSTBwillitselfbecentrallyperformingthedetailedlevel
review.Weexpectthattheinitialtaxdataanalyticsexercisegiving
risetotheanalyticsorinitialfindingsreportwillbecompletedinthe
nexttwotothreemonths.
In addition, the circular expands the scope of the Thousand
Enterprise initiative with respect to 2017 and forward to include
companieswithtaxpaymentamountsoverRMB100millionas
comparedtothepreviousthresholdofRMB300million.Meaning,
inthefuture,morecompanieswillbesubjecttothistypeofdata
gathering exercise and review process, with the total number of
companies for which data is to be requested exceeding the initial
1000.
Giventhesedevelopments,webelievetheSATwillcontinuetoapply
a heightened level of audit scrutiny to the pharmaceutical industry
goingforward.ItisalsoclearthattheSATintendstoutilizetax
data analytics as a key component of its audit strategy and that
itwillbeexpandingthescopeandnumberofcompaniessubject
tothislevelofreview.Westronglyencouragethatallcompanies,
including pharmaceuticals and life sciences more broadly, quickly
begindevelopingarobustChinadigital/taxdataanalyticsandrisk
managementstrategyifnotalreadyinplace.
it
on dem Bon art,Partner,ChinaLifeSciencesTaxCo-Leader,
Ernst & Young (China)
[email protected]
Joanne Su,TransferPricingPartner,ChinaLifeSciencesTaxCo-Leader,
Ernst & Young (China)
[email protected]
Taxupdates:significantdevelopments
J apan
2017 J apan tax reform
TheJapaneseGovernmenthasannounceditsproposalsforthe
2017TaxReform,whichareexpectedtobeenactedby31March
2017andingeneraltotakeeffectfrom1April2017.Theproposals
includechangestoR&Dtaxcredits,withhighercreditsavailable
whereR&Dspendingisonanupwardtrend.Therewillalsobe
greater scope for deductibility of directors’ compensation in the
formofstock,expandeddefinitionsoftax-freereorganizationsand
a welcome exemption from inheritance tax applicable to foreigners
livinginJapanforlessthan10years.
The proposal that has attracted the most attention is the reform
oftheJapanesecontrolledforeigncorporation(CFC)rules.This
willaffectmanyJapan-headquarteredlifesciencescompanieswith
overseassubsidiaries.Thechangesexpandthedefinitionoftaxable
“passiveincome”andintroduceanewclassificationof“paper
companies.”Examplesofstructuresthatmaybeimpactedinclude
offshore holding companies in locations such as the Netherlands,
theUK,SingaporeandHongKong;cashandtreasurymanagement
operations;andwhereintellectualpropertyhasbeentransferred
orlicensedoffshore.Thesenew,tougherruleswilltakeeffect
foraccountingperiodsbeginningonorafter1April2018.We
recommend that companies review the potential impact of the new
rulesandconsiderrestructuringoptions.
Transfer pricing and U PE req uirements
Withthe2016TaxReform,theJapaneseNationalTaxAgency
(NTA) included BEPS Action 13 requirements for country-bycountryreporting,masterfileandlocalfile.Laterin2016,the
NTA further introduced the requirement for ultimate parent entity
(UPE)notification.Themostpressingofthedeadlinesrelatesto
notificationandthelocalfile.
notification
Content and language
TheUPEnotificationisastraightforwardformrequiringbasic
information,suchasthenameandlocationofUPEandconstituent
entity(CE).ThelanguageoftheUPEisnotspecified,thoughthe
formisinJapanese.
Who needs to file?
CompaniesinJapan,orpermanentestablishmentsofforeign
companies,whichareaffiliatesofamultinationalgroupwithmore
than¥100billioninrevenueinthepreviousfiscalyearneedtofile.
IftherearemultipleentitiesinJapaninthesamegroup,onemay
bedesignatedastherepresentativetofileonbehalfoftheothers.
F irst year and deadline
TheUPEnotificationmustbefiledviae-tax(thesamesystemused
forfilingcorporatetaxreturns)bythelastdayofthefiscalyear
oftheUPEbeginningonorafter1April2016.Hence,companies
whoseUPEhasaMarchyear-endneedtofiletheUPEnotification
by31March2017.
Contemporaneo local file
Content and language
ThecontentsofalocalfileareoutlinedinArticle22-10ofthe
SpecialProvisionsforTaxationofTransactionwithForeignRelated
Parties.Therequirementsarebroaderinsomeaspectsthanthose
setoutbytheOECD,includingtherequirementforalocalmarket
analysisandcounterpartysegmentedprofitandlossaccounts.The
requiredlanguageofthelocalfileisnotspecified,butaJapanese
translation could be requested for documentation prepared in
languagesotherthanJapanese.
Who needs to prepare?
Japanesecompaniesthathavetransactionswithaforeign
relatedparty(appliedperforeignentity)exceeding¥5billionin
theprecedingfiscalyearorintangibletransactionsexceeding
¥300million(alsoappliedperforeignentity)mustpreparea
contemporaneouslocalfile.
F irst year and deadline
Therequirementforthelocalfileisforyearscommencingonor
after1April2017.Thelocalfilemustbecompletedbythetime
ofthesubmissionofthetaxreturn.Thelocalfiledoesnotneed
to be submitted itself, but it must be ready in the event of request
byataxexaminer.Thedeadlineforsubmissionwillbesetbythe
examiner at a maximum of 45 days for those companies that have
tomeetthecontemporaneousrequirement.Forothercompanies,
the deadline set by the auditor may be up to a maximum of 60
days.Thetaxauthoritieshavethelegalrighttousepresumptive
taxation or secret comparables if these deadlines are not adhered
to.Inpractice,thedeadlinemaybemuchshorterthanthe
maximums outlined above, for example, if the examiner believes the
documentationshouldalreadybeavailable.
Tatsuhide K anenari,Partner,JapanLifeSciencesTaxCo-Leader,
Ernst&Young(Japan) [email protected]
onat an t art mit ,Partner,JapanLifeSciencesTaxCo-Leader,
Ernst&Young(Japan) [email protected]
eit
oma ,ExecutiveDirector,TransferPricing,
Ernst&Young(Japan) [email protected]
March 2017 | 13
Taxupdates:significantdevelopments
S outh K orea
Controversy trends
Recent rulings and precedents
a a dit oc ed on ille al or improper ale re ate
Recently,theKoreantaxauthoritybeganperformingspecialtax
audits investigating the legitimacy of certain companies’ sales and
marketing expenditures, in particular, sales rebates, purported to be
incurred for stimulating local sales and facilitating relationships with
doctorsandhospitals.Asaresultoftheseaudits,thetaxauthority
collected a considerable tax revenue from disallowing deductions
claimed with respect to improper or illegal “sales rebates,” which is
broadlydefinedtoincludeanumberofdifferenttypesofpayments
(e.g.,excessivespeakerfeespaidtodoctors,financialassistance
for doctors in relation to golf or other entertainment offered at
seminars,orspecialcashbackarrangementsforcustomers).Some
companieswerealsocriminallycharged.
a ri nal r lin
o im
eo
TheTaxTribunalruledinfavoroftheapplicant(i.e.,pharmaceutical
company)ontheissueofthedeductibilityofmeal-relatedexpenses.
The applicant’s sales representatives visited health care institutions
toprovidepresentationsonprescriptiondrugs.Followingthe
presentation, the participants were provided meals in restaurants
located outside the health care institutions, during which Q&A on
theprescriptiondrugswasheld.Theapplicanttreatedtheentire
amount—forpresentationandmeals—asadeductiblebusiness
expense, which the tax authority later disallowed as nondeductible
entertainment.
Arecentcourtcase(ReferencetotheSupremeCourt2011do
13730,2015.01.29)concludedthattheprovisionofillegalsales
rebates shall be regarded as an expenditure for non-business
purposesandthussuchexpendituresshallnotbedeductible.In
addition, the Supreme Court recently stated that the tax authority
is authorized to charge pharmaceutical companies with criminal
responsibilityfortheprovisionofillegalrebates.
L egislative activity
dditional ta relie and pport or
in e tment
In 2016, the government legislated special tax relief to promote
the development of new drugs, including biomedical products and
innovative/smarthealthcare/medicaldevices.Currently,domestic
companies engaging in the life sciences and health care industry
canclaima20%R&Dtaxcredit(30%forsmallandmedium-sized
enterprises(SMEs))uponfilingtheirtaxreturns.Thisexceedsthe
normalR&Dtaxcreditrateof3%forcompaniesinotherindustries
(25%forSMEs).
TheKoreanGovernmentisnowconsideringagrantofadditional
taxrelieftofurthersupportR&Dinvestmentstargetingnewdrug
development.Basedonacurrentdraftproposal,thetaxcreditrate
forR&Dinvestmentindevelopingnewdrugsandinnovative/smart
healthcare/medicaldeviceswouldbeincreasedfrom20%to30%.
pecial ta credit or a ne in e tment to ac ire a ent re
ine
Based on a new tax provision effective from 2016, a domestic
pharmaceutical company can claim a special tax credit for new
investments(i.e.,10%ofthenewinvestmentlessnetbookvaluex
130%xshareholdingratio)whenacquiringsharesoftheventure
companythatisdevelopinganewdrugorinnovative/smarthealth
care/medicaldevice.
14
| EY Life Sciences Report: Asia
The Tax Tribunal ruled in favor of the applicant, as it viewed the
meals provided to medical professionals in restaurants outside
of health care institutions as not entertainment in nature, but a
necessary sales-related expense incurred in the ordinary course of
business.
ae C eol im,Partner,SouthKoreaLifeSciencesTaxLeader,
Ernst & Young (South Korea) [email protected]
Taxupdates:significantdevelopments
Indonesia
N ew transfer pricing documentation req uirements
eneral o er ie
The Indonesian Ministry of Finance has issued Minister of Finance
Regulationnumber213/PMK.03/2016(PMK-213),titled“Thetype
ofadditionaldocumentsand/orinformationmandatorytobekept
by taxpayers who conduct transactions with related parties and its
procedures.”PMK-213implementsinIndonesiatheguidanceon
transferpricingdocumentationcontainedinOECDBEPSAction
Plan13.PMK-213hasimmediateeffectfromitsstipulationdateof
30December2016.
Taxpayers are recommended to consider immediate action steps for
compliance.Recommendedimmediateactionincludescommencing
thepreparationofthemasterfileandlocalfileforthe2016fiscal
year, given the tight deadlines for preparation, and considering the
potentialneedtoprepareacountry-by-countryreport(CbCR).
ran er pricin doc mentation nder
ma ter file and
local file
Indonesiantaxpayersarenowrequiredtoprepareamasterfileand
alocalfiletotheextenttheyconductrelated-partytransactions
thatexceedoneormorerelativelylowthresholds.Theestablished
transactionalandrevenuethresholdsarebasedonthepriorfiscal
year’stransactionalandrevenueinformation.
Co ntr
co ntr report
ACbCRmayberequiredtobepreparedandfiledinIndonesiaby
bothIndonesiantaxpayersclassifiedasaParentEntityofaBusiness
GroupandIndonesiantaxpayerswhoseParentEntitiesareforeign
taxpayers.Suchrequirementwillbedependentuponcertain
conditions, including revenue thresholds, and certain taxpayers
mayneedtofileaCbCRinIndonesiadespitenotbeingtheultimate
parententityofanMNE.
TheCbCRrequiredtobefiledbytaxpayersinIndonesiaismore
detailedthanthatrequiredtobepreparedandfiledunderthe
guidancecontainedinActionPlan13.Inaddition,PMK-213
introducesathirdreport,the“CbCRworkingpaper,”whichis
requiredtobesubmittedaspartoftheCbCRandisoverandabove
the two reports required to be prepared and issued under Action
Plan13.
Likethemasterfileandlocalfile,theCbCRmustbepreparedin
BahasaIndonesia.TheCbCRmustbeavailablenolaterthan12
monthsafterfiscalyear-end.TheCbCRmustbefiledtogetherwith
thecorporateincometaxreturnofthefollowingfiscalyear.
onat on cCart , Partner, Transfer Pricing,
Ernst & Young (Indonesia) [email protected]
Thecontentsofamasterfilearelargelyconsistentwiththose
contained in BEPS Action Plan 13, and there is a detailed list of
specifieditemsthatarerequiredtobecontainedinthemasterfile
inanappendixtoPMK-213.Thecontentsofalocalfile,whilerelying
on the guidance contained within Action Plan 13, are broader than
thesuggestedcontentsofalocalfileasoutlinedinActionPlan13.
Similartothemasterfile,thereisadetailedlistofspecifieditems
thatarerequiredtobecontainedinthelocalfileinanappendixto
PMK-213.
ThemasterfileandlocalfilemustbepreparedinBahasaIndonesia,
and must be available no later than 4 months after the taxpayer’s
fiscalyear-end.Theimplicationsfornothavingthefilesavailable
bythisdatearenotentirelyclear.However,thereareclear(and
severe)implicationsfornothavingthefilesavailablebythetimethe
taxreturnisdue.TheDirectorGeneralofTaxwilltrackavailability
byboth(i)requiringthetaxpayertofileadisclosureformwith
itstaxreturnstatingthedatethemasterfileandlocalfilewere
available and (ii) requiring the taxpayer to provide a statement letter
certifyingthedatethemasterfileandlocalfilewereavailable.
In a change from the prior rules, the prior exemption for
documenting domestic related-party transactions has been
removed, and once a taxpayer has exceeded the thresholds, it will
need to document all of its related-party transactions versus simply
thosetransactionsthatexceedthepriortransactionalthresholds.
March 2017 | 15
eat red article
Better with age
By
atric
loc el
Partner,LifeSciencesAdvisory,
EY(Japan)
[email protected]
ran
mli
ExecutiveDirector,
LifeSciencesAdvisory
EY (Switzerland)
[email protected]
A silver opportunity
Globallifeexpectancyisrisingrelentlessly,andJapanisleading
theway.TheaveragelifeexpectancyatbirthinJapanis83.7years
(WHO,2015)andisnotfarbehindforhighlydevelopednations,
suchasSwitzerland,SingaporeandAustralia.Inthisenvironment,
governments are looking at addressing an array of challenges
associatedwithagingtocontainandminimizeitsfinancialburden
onboththesocialandhealthcaresystems.
Decliningbirthratesinmanydevelopedcountriesandtherisein
life expectancy will rapidly increase the percentage of citizens over
65yearsold.Asof2014,26%ofJapan’spopulationwasover65.
With a birth rate of less than 8 per 1,000 inhabitants (2015), the
over-65cohortisexpectedtoriseto31.6%in2030and39.9%in
2060.56
Chart 1:
TrendsindeathratesbymajorcauseofdeathforJapaneseaged65and
over, 1990–2013
(per 100,000 population of elderly persons aged 65 and over)
1,200
947.0
800
561.0
375.0
400
337.2
219.4
0
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Malignant neoplasms (Cancers)
Heartdiseases
Pneumonia
Cerebrovascular diseases
Senility
Source: Japanese Ministry of Health, Labour and Welfare
16 | EY Life Sciences Report: Asia
tep an
nmac t
Manager,LifeSciencesAdvisory
EY (Switzerland)
[email protected]
Healthcarebudgetsaroundtheworldareunderenormouspressure
fromrisinghealthcarecosts.Amaindriverofthiscostescalation
istheagingsociety.Thestrainonhealthcarebudgetshasledto
cost containment initiatives by many governments, targeting all
businessstakeholders,includingthepharmaceuticalindustry.The
initiatives have put pressure on drug pricing and reimbursement
andfueledeffortstoacceleratetheuptakeofgenerics.Japan
recently communicated its aim to increase the use of generic
drugsto80%by2020,withtwoJapanesemultinationals,Takeda
armace tical Compan td (in collaboration with e a
armace tical nd trie td ) and aiic i an o p a
(the generics business of aiic i an o Compan td ) already
communicating their aims of becoming front-runners in the
Japanesegenericsmarket.
TheJapanesegovernmenthasfocusedstronglyonchronic
diseases, where the anticipated cost burden associated with the
agingpopulationishighest.Diseasessuchasdementia,cancer
and diabetes, as well as cardio, respiratory and cerebrovascular
pathologiesleadthewayindrivingupcosts.Thesemorbidities(or
comorbidities) require frequent prescriptions, regular interaction
with medical staff, and, in many cases, hospitalization, part- or fulltimecarecentersupportorpalliativecare.
Over the last half century, there has been great progress in
increasinglifeexpectancy.Ofprimaryimportancenowisreducing
thenumberofyearsindividualsmustlivewithdisease.
Japanesemenonaveragelivewithatleastonediseaseforthefinal
9yearsoftheirlives,womenfor12years.Thesenumbershavenot
changedconsiderablyoverthelastdecadeorso.Achievingevena
seemingly small decrease of 6 to 10 months across the population
would have a profound impact on health care and social care
budgets.
Chart 2:
ale
90
(Age)
(Age)
Lifeexpectancyatbirthcomparedwithhealthylifeexpectancyatbirth,
Japan,2001–13
85
85
80
75
78.07
78.64
70
65
79.19
79.55
80.21
emale
90
80
84.93
85.59
85.99
86.30
86.61
72.65
72.69
73.36
73.62
74.21
2001
2004
2007
2010
2013
75
69.40
69.47
70.33
70.42
71.19
2001
2004
2007
2010
2013
70
65
Lifeexpectancyatbirth
Healthylifeexpectancyatbirth
Source: Life expectancy at birth — “Abridged life table,” MHLW, for 2001, 2004, 2007 and 2013 and “Complete life table,” MHLW, for 2010. Healthy life expectancy at birth — “Projection of the healthy life
expectancy and the study on the cost-effectiveness of the measures against lifestyle diseases,” Health and Labour Sciences Research Grant, for 2001, 2004, 2007 and 2010, and estimate derived from
“Comprehensive Survey of Living Conditions” by MHLW, for 2013.
We see the aging society, or “the silver economy,” as an opportunity
forthepharmaceuticalindustry.Webelieveinnovationforthis
economy can and will have a lasting impact by improving health and
reducing costs in a number of areas, especially the following:
1. Innovation targeting aging and age-related diseases on a
molecular level
a.Therapeuticarea-specificmolecularinnovation
b.Preventivesolutions
c.Agingbiologyinnovation
2. Innovation targeting aging and age-related diseases with
added services
a.Feedbackloops
b.Otherinnovativeapproaches
3. Exploring new territories
a.Caseexample:homecare
To capture these business opportunities, pharmaceutical companies
will need to recognize which innovations are likely to have the
biggest impact on reducing the burden of the aging society, but also
howtheywillbereimbursedfortheirefforts.
1. Innovation targeting aging and age-related diseases on a
molecular level
ContinuedR&Deffortstodiscovernovelmoleculartreatments
for age-related pathologies, such as Alzheimer’s disease, cancer,
chronic obstructive pulmonary disease, and cardiovascular and
cerebrovascular pathologies, as well as diabetes, will be the
industry’sbackboneandkeytoscientific,clinicalandcommercial
success.BeyondtraditionalR&D,furtherdedicatedeffortsindisease
prevention and regenerative medicine, which includes gene therapy
andtissueengineering,showpronouncedpromise.
a
erape tic area pecific molec lar inno ation
o mann a oc e
oc e has been active in recruiting
participants over 70 years old for selected geriatric clinical trials, such
as the Avastin®trialaimedattreatingovariancancer.Inaddition,
oc e Venclexta,® Mabthera® and Tarceva® have all been tested
specificallyinindividualsovertheageof60,showingthecompany’s
commitmenttothissideoftheagespectrum.
Alzheimer’sdiseaseisanareaofgreatinterest.Leadingplayers
include Bio en nc , li ill and Co , Roche and a eda in andel
armace tical nc , the latter recently completing recruitment
foritsTOMMORROWPhase3trial57 with its investigative agent
Actos®.Thistrialisanexcellentexampleofhowtherapiesoriginally
aimedatonespecificchronicmorbidity(diabetes)maybeextended
and “repurposed” to address another chronic disease, in this case
Alzheimer’s.AdditionallyintheAlzheimer’sspace, i ai Co td
( Eisai) has signed and commenced a collaboration with B iogen aimed
atdiscoveringnewchemicalentities.
la o mit line plc
, ilead cience nc , Ba er
and
aiic i an o have all conducted, or are currently conducting,
trialsonnoveltreatmentsforpatientsover60—forawiderangeof
morbidities,includingHIV,hypertension,androgendeficiencyand
hypogonadism.
We will likely see many more such examples as drug manufacturers
identify new chemical or biological entities, or revive and retest their
currentdrugrepositories,tofocusonchronicandage-relateddiseases.
re enti e ol tion
On the preventive side, o n on
o n on
hasbeenactive.
createdtheJanssenPreventionCenter,58 where dedicated teams
work to identify prevention markers, which direct
search for
preventive solutions, such as vaccines, oral drugs and interventions
influencingthehumanmicrobiome.Measuring,maintainingand
extending healthy lives is the stated focus and aim of
visionary
program.
March 2017 | 17
Featured article
DO-HEALTH59,afive-yearclinicaltrialonpreventivemeasures,
sponsoredbytheUniversityofZurich(withsupportfrom o al
DSM , Roche and e tl
) aims to establish whether vitamin
D,omega-3fattyacidsandhomeexercisewillhelpprevent
diseaseatanolderage.Further,Takeda60 and aiic i an o,61
together with the C emo ero erape tic e earc n tit te
( K aketsuken) ,haveinitiatedanexpandedJapanesedistribution
networkofseasonalflushotsfortheelderly(regularvaccinations
arerequiredundertheJapanesePreventiveVaccinationLaw).
Othergloballeadersintheimmunologyfieldinclude
anofi
Pasteur M SD and tella
arma rope td All have created
initiativesonhealthyaging.
c
in iolo inno ation
Intheregenerativemedicinearea,Japan-based tella
arma
nc recently formed a dedicated research unit62 with the goal of
deliveringcelltherapy/transplantinnovationsaimedatrecovering
and restoring organ and tissue function lost as a result of aging,
amongotherfactors.Thecompanyalsoseesitsresearchinthe
urology space as crucial, given that treatments for overactive
bladderwilllikelybeinincreaseddemand.
o arti nternational
, a leading industry voice and innovator
inthefieldofaging,boastsawiderangeofprogramsfocusingon
thebiologyofagingandage-relateddiseases.Examplesinclude
itsAfinitor®/everolimus(arapamycinanalogue)anti-agingwork
Chart 3 :
Nine-box innovation model highlighting business model opportunities and
potential strategies
Innovative
molecular
portfolio
targeted at
aging
1
olec lar
inno ation
2
Add
er ice
ne
plore ne
territories
Traditional
molecular
portfolio
adapted to
aging
Traditional
molecular
portfolio
N ow
products
18
N ew
services
| EY Life Sciences Report: Asia
N ex t
outcomes
on mice and the company’s progress toward addressing various
geriatricmedicalchallenges,suchashearingandvisionloss.
Additionally, o arti actively researches ways to address the
challengesofosteoporosisandmuscleloss/wastinginaged
individuals,bothmajorcausesoflossofindependenceinthe
elderly.
Calico, a company founded by oo le nc in 2013, also focuses
heavily on research into the biology of aging, as well as age-related
diseases.StrategiccollaborationisakeyelementofCalico
businessplan,andseveralagreementshavebeensignedtodate—
namely with
ie nc , the ni er it o e a o t e tern
edical Center, the B road Institute and the B uck Institute for
Research on Aging.Calico collaboration with the Cali ornia
n tit te or
antitati e Bio cience 63 recently made headlines
whenanimalstudieshighlightedthatadjustingcertainproteinlevels
inagedrodentsresultedinthemicelivingsignificantlylonger.Firstin-humantrialsareexpectedinthefuture.
In another collaboration, centa e arma and nit
Biotec nolo
nc have teamed up to develop new and innovative
senolytic drugs based on their experience in age-related diseases
andcutting-edgetechnologies,respectively.InJapan, aiic i
an o recently established a dedicated research unit named
VentureScienceLaboratories,focusingandcollaboratingsolelyon
researchtargetsthoughttoberelatedtoaging.
2. Innovation targeting aging and age-related diseases with
added services
While continued advances to molecular therapies are of paramount
importance, some recent examples of inventive strategies have
openedupalternativepathwaystoinnovation.Inmanycases,these
paths include, or are based on, creating feedback loops through
datacollectionandanalysis—arguablythesinglemostcritical
requirement for health outcomes monitoring and reimbursement
inthedecadestocome.Otherinnovativeapproachesinclude
gamification,bioelectronicsandartificialintelligence.
a eed ac loop
A number of business models highlight how preventive medicine
and wellness can be taken directly to individuals who have not yet,
ormightneverbecome,patients. ri ale nc 64 offers customers
fourhealth“paths,”onetitledAgeOptimally.Genetic,blood,
saliva, gut microbiome and lifestyle data are collected, analyzed
and evaluated, helping individuals make lifestyle and health
decisionsbasedontheirpersonalinformationandscientificdata.
Personal coaches who interact with physicians in the background
are available and support Arivale’s customers to address health
risksrelatedtotheirwellness. neo C, a start-up company,
has specialized in storing vital-sign data of healthy individuals for
extensive periods of time, allowing physicians to use the data in the
future,ifeverneeded.
Better with age
Co n l,65 another start-up, helps individuals make decisions about
their own and their children’s futures, via pre- or post-conception
genetic testing, enabling a potentially healthier future by
identifyingrisksfordisease.Establishedtestingforthewell-known
breastcancergene(BRCA1)isalsoavailable. in i ion66 and
e rotrac ec nolo ie 67 also focus on early disease detection
—formelanomaandAlzheimer’s,respectively.Further, ealt
cle , a venture formed by
man on e it nc ,68 aims to
provide self-paying individuals, as well as up to 200 million South
AfricansandUKresidentsinsuredbyhealthinsurer i co er ,
withwholeexome,wholegenomeandcancergenomesequencing.
The company intends to create the world’s most comprehensive
databaseofwholegenome,phenotypeandclinicaldata.
InJapan, aiic i an o announced it is looking to obtain real
world data on, and therewith insights into, non-valvular atrial
fibrillationintheJapaneseelderlypopulation(75andover).69 The
company’s ANAFIE (All Nippon Atrial Fibrillation In Elderly) study
is collecting data to investigate the use of anticoagulants and their
impact on outcomes, and thus identify issues that are barriers to
idealtreatmentinthispopulation.Thestudyfurtheraimstoidentify
risk factors for thrombotic and bleeding events to determine the
populationinwhichdirectoralanticoagulantsmayprovidebenefits.
t er inno ati e approac e
fi er nc has recently shared updates on its double-blind
Alzheimer’s study run in collaboration with ili nteracti e a ,
anexpertingamification. fi er efforts are aimed at early noninvasive detection of Alzheimer’s via interpretation of a combination
ofdigitalandchemicalbiomarkers.Ba er has initiated digital
healthcareactivitiesintheAsia-Pacificregionaimedattheelderly
populationwithitsGrants4Apps®Singaporeproject,70 looking for
innovative solutions to improve medication adherence in elderly
peoplewithchronicmedicalconditions.
Otherinnovativeapproachestotreatdiseaseincludethefieldof
bioelectronics, where G SK recently signed a partnership with eril
Life Sciences ( lp a et nc life sciences unit) to codevelop
products for chronic diseases such as arthritis, asthma and diabetes
basedonbioelectronicmedicines.
Artificialintelligence(AI)anddeeplearninghavebeenusedfor
product development by some life sciences businesses, namely
Life Ex tension,71 a Florida-based foundation providing nutritional
andhormonalsupplements.Thecompanyrecentlysigneda
collaborationwithAIanddeeplearningfirm n ilico edicine nc
todevelopanti-agingtechnologies.
3 . E xploring new territories
In addition to novel molecular treatments, repurposing of drugs,
identificationofbiomarkersandgeroprotectors,furtherinnovation
in the areas of medical devices, in vitro diagnostics and telehealth
willlikelyhaveapronouncedimpactontheagingsociety—
especiallyastheyimpacthomecare.
a Ca e e ample ome care
TheJapanesegovernmenthasidentifiedhomecareasakeyarea
withanimmediateneedforimprovement.Researchconducted
fortheGovernmentillustratesthatmanyelderlycanmaintain
theirindependentlifestyleswithonlyminimalsupport.Leading
Japanesepharmaceuticalmanufacturershaveforyearsdonated
dozensofambulancesandwheelchair-friendlyvehiclestoJapanese
communities.Whilethisisanimmenselyvaluablecontributionto
the health and social care ecosystem and will certainly contribute
todecreasingtheincidenceoflong-termdisabilities(e.g.,fast
transport/treatmentonboardanambulancegreatlyreducesthe
March 2017 | 19
Featured article
risk of long-term disability after a stroke or fall), other more radical
innovations will be needed to tackle the aging challenge.
IBM Corp., Apple Inc. and Japan Post Holdings (JP)72 have
begun an initiative customized for the senior population, connecting
the elderly and their families directly with health care providers via
computer tablets and cloud services. The aim is to improve patient
quality of life by bringing app-based experiences and services,
such as reminders, medication alerts, exercise and diet updates,
and local community activity opportunities, to up to 5 million
households by 2020. While Apple and IBM provide IT solutions,
JP’s contribution comes from its nationwide infrastructure. This
infrastructure is able to reach many citizens, as illustrated by the
company’s current service offering to “check in“ on the elderly as
part of daily mail deliveries. JP has more than 24,000 post offices
and financial relationships with millions of customers, largely
through providing life insurance services.
Japan’s Eisai73 has identified a similar opportunity and partnered
with NTT IT/NTT East (Nippon Telegraph and Telephone) to
roll out an interprofessional program for medical treatment and
care, allowing the elderly to continue to live in their communities.
The collaboration, named “Hikari One Team SP” (“SP” for Solve
Problem), aims to use the experience of all parties to deliver a
comprehensive solution and give peace of mind and safety to the
elderly and their families at home.
Remote monitoring and telehealth provide further opportunities
20 | EY Life Sciences Report: Asia
for pharmaceutical businesses to collaborate with non-traditional
players to get closer to their customers. Academic institutions such
as the University of California, Irvine have conducted pilot studies
in remote monitoring of elderly patients using tools such as the
university’s CardioMEMS sensor, capable of remotely monitoring
patient pulmonary artery pressure and heart rate.
Japan, a global leader in robotics and AI, has also seen a vast
increase in investments into robotics aimed at the home care and
nursing home markets. Numerous robots targeting these markets
already exist, two examples being Pepper and Paro, which will
be part of a US$6 million real-world study by Japan’s Agency for
Medical Research and Development investigating the therapeutic
effects of such devices in nursing homes.
While the pharmaceutical industry will likely remain hesitant
to get involved in robotics, these examples show that potential
opportunities for portfolio expansions and innovation may come
from new and even radical collaborations that at first seem
unlikely. In fact, collaborations with robotics and digital assistant
manufacturers could become critical, as they may provide
pharmaceutical businesses with much-needed outcomes data
that will be required for reimbursement of their therapies and
services. Further, not only outcomes data are valuable, but the
improved understanding of end customers’ routines, daily struggles,
challenges and concerns are as well.
Better with age
B usiness models
S tarting with q uestions
The examples and discussion above highlight that the
pharmaceutical and life sciences industry has already embraced
someofthechallengesandopportunitiestheagingsocietybrings.
Businesses often try to identify opportunities within reach of their
current therapeutic areas and strategies, but in many cases do not
gobeyondthat.Whileprovenbusinessmodelsareindispensable,
collaborating with digital, IT and cutting-edge technology
businesses experienced in data collection and interpretation will
becomenotonlyvaluablebutessential.Accesstodatastillremains
the biggest challenge for pharmaceutical companies attempting to
gatherhealthoutcomesinformation.Businessmodelswillneedto
(be allowed to) evolve to include alternative paths to prevention or
anticipationofdisease.Therapeuticeffectsandthevectorsdefining
ormeasuringthesewillneedtobebroadened.Thiscanonlybe
done via a collective push and comprehensive alignment of all
stakeholders.
It is clear there is no single solution to effectively address the
growinghealthneedsoftheagingsociety.Pharmaceutical
professionals will need to address a multitude of questions to
be competitive and to adapt to the ever-changing commercial
andregulatoryenvironment.Theimpactoftheagingsocietywill
need to be evaluated on a regular basis with dedicated teams
closely aligned with regulators, governments, academics, payers
andevendisruptiveplayers.Torisetothechallengeandtomake
the appropriate strategic decisions, the industry may consider
questions such as:
The current model of separation between health care and social
carewillneedtobechallenged.Inaworldwherehealthoutcomes
dataiskeytophysicianand(elderly)patientconfidenceand
will trigger reimbursement by payers, health care and social
carebudgetsneedtobemanagedinparallel.Governmentsand
legislators will need to urge and request innovative organizations
to show their contributions to both of these systems, and align with
businesses as early as during the ideation and design phases of a
newproductorservice.Onlyoncethisintegrationandtrulycrossfunctional approach have been achieved will health outcomes data
finditstruepower.
1. What are the current needs of the elderly and what will
these be in 10 to 15 years?
2. How can these needs be addressed through molecular
innovation, services or new approaches?
3. How can new solutions be delivered best, and with which
partners?
4. How can we make the case for the value these solutions
will provide and to whom? How will they be reimbursed
and paid for?
5. Which data can and needs to be collected, and how?
6. What is the optimal portfolio of molecular innovation,
services and new approaches to capture the current
opportunity while getting ready for the future?
7. What are the innovative technologies or potential partners
that are emerging and how can they be used to deliver
disruptive services?
In this patient-centric world, likely one of the best places to start
is by asking the affected population itself: what are elderly people
worried about, what are their struggles and what is it t e need?
March 2017 | 21
Featured article
Australia’s diverted profits tax
and the life sciences industry
By
Michael Anderson
Oceania Life Sciences
Tax Leader, Partner,
Ernst & Young, Australia
[email protected]
Christian Chan
Manager, International
Tax Services,
Ernst & Young, Australia
[email protected]
The centralization of intellectual
property (such as patents, licenses
and trademarks) and functions
(such as procurement, marketing,
manufacturing and distribution)
into regional or global hubs is one
of the main drivers of efficiency and
risk management for life sciences
multinational enterprises (MNEs).
Maria Ivanova
Manager, International
Tax Services,
Ernst & Young, Australia
[email protected]
The centralization of intellectual property (such as patents, licenses
and trademarks) and functions (such as procurement, marketing,
manufacturing and distribution) into regional or global hubs is
one of the main drivers of efficiency and risk management for life
sciences multinational enterprises (MNEs).
Such centralization can, however, also give rise to questions of
whether the tax outcome of such an arrangement reflects the
economic substance of the arrangement and whether the legal form
of the arrangement is used to inappropriately divert profits from
a higher tax jurisdiction. This has been one of the key themes the
base erosion and profit shifting (BEPS) initiative of the Organisation
for Economic Co-operation and Development (OECD) has sought to
address.
In light of these concerns, Australia has recently announced its
intent to introduce, from 1 July 2017, the Diverted Profits Tax
(DPT) regime to facilitate increased scrutiny, more efficient dispute
resolution and a tighter focus on economic substance over legal
form in relation to MNEs with Australian operations. The DPT
broadly aims to achieve these objectives by:
• Further strengthening Australia’s anti-avoidance provisions
• Imposing tax at a higher rate than the corporate income tax rate
where it applies
• Applying where the profits recognized by each entity in the
supply chain are not reflective of the economic substance of the
arrangement
• Compressing the fact-gathering stage in a DPT tax dispute to 12
months
• Imposing evidentiary restrictions on any information or
documents not volunteered to the Australian Taxation Office
(ATO) within the 12-month fact-gathering period
With the increased focus by the ATO on transactions within the
life sciences sector, it is important to consider how to manage the
technical and procedural issues arising from the DPT.
22 | EY Life Sciences Report: Asia
DPT rules
Broadlystated,theDPTwillapplywhereanMNEentersintoa
schemeinvolvingalowtaxjurisdictionforaprincipalpurposeof
obtainingataxbenefit(i.e.,reducingitsAustraliantaxliability)and
achievesthisoutcome.Theremustalsobeamismatchbetweenthe
outcomeoftheschemeandtheeconomicsubstanceofthescheme.
Morespecifically,allofthefollowingrequirementsmustbemetfor
theDPTtoapply:
• The MNE has a global turnover equal to or greater than
AU$1billionandAustralianturnoverofgreaterthan
AU$25million.
• Thereisascheme(whichcanincludeseveralstepsorjustasingle
step)involvingforeignassociatedentitieslocatedinjurisdictions
withacorporatetaxratelessthan24%(lessthan80%of
Australia’scorporateincometaxrate).
• TheAustralianentityintheMNEreceivesataxbenefitin
connectionwiththescheme.Thetaxbenefitisdeterminedby
comparisontoahypotheticalalternativetaxcalculation(i.e.,
what might reasonably be expected to have happened absent the
scheme).
• The principal purpose of the MNE in entering into the scheme
wastoobtainataxbenefit.Thisisanobjectivetestandcanapply
eventhoughtheoverallpurposeofthetransactioniscommercial.
• Theresultoftheschemedoesnotreflecttheeconomicsubstance
ofthescheme’sparticipants.
TheDPThasasimilaroperationtothesecondlimboftheUK’sDPT
regime(thefirstlimbcoveredbyAustralia’sMultinationalAntiAvoidanceLaw,whichappliedfrom1January2016)inthatboth
sets of rules target arrangements with related foreign entities in
low-taxjurisdictionswherethereisinsufficienteconomicsubstance.
However,theAustralianDPTdoesnotcurrentlyincorporateblanket
carve-outsforcertaincommontransactions(suchasfinancing
arrangements).
The ATO has seven years after an income tax assessment is issued
toapplytheDPTtothatincomeyear.TheDPTwilloverridethe
operation of Australia’s double tax agreements to the extent that
it applies to the MNE’s circumstances, and Mutual Agreement
Procedures under the relevant double tax agreement will not be
availabletoproviderelieftotaximposedundertheDPT.
IftheDPTappliestoanMNE,theCommissionermayimposea
penaltytaxat40%ofprofitsdivertedfromAustralia(comparedto
the30%Australiancorporatetaxrate).Challengingtheapplication
oftheDPTiscomplicatedbyadministrativeandproceduralrules
thathavetheeffectofrequiringpaymentoftheDPTliabilityup
front and imposes a period of 12 months in which no appeal can be
lodgedtochallengetheapplicationoftheDPT.
Duringthis12-monthperiod,theMNEwillberequiredtoprovide
information on its position to the ATO, and any information not
providedwillbeinadmissibleinanappeal.Thebaronadmissibility
applies regardless of whether the ATO had requested the
information.Specifically:
• From the time the ATO informs the MNE of its intention to apply
theDPT,theMNEhas60daystomakesubmissionsbeforethe
finalDPTassessmentisissued.
• PaymentoftheDPTamountisduewithin21daysoftheATO
issuingaDPTassessment.
• There is a 12-month review period in which an MNE may provide
the ATO with further information (this period may be shortened
insomecircumstances).
• Duringthereviewperiod,theMNEcannotappealtheDPT
assessmenttoobtainarefundoftheDPTamountpaid.After
the review period, the MNE can only appeal to the Federal Court
(instead of either the Federal Court or the Administrative Appeals
Tribunal)andhasashortenedwindowinwhichtofileanappeal.
• Any evidence not provided to the ATO in the 12-month period
isinadmissibleincourtproceedingstochallengetheDPT
assessment.
March 2017 | 23
Featured article
Considerations for the life sciences sector
LifesciencesMNEstypicallyhaveanumberofcascadinglicenseand
serviceagreementsthroughoutvariousjurisdictions,withtheeffect
of centralizing the ownership of intellectual property (IP) in one
ormorejurisdictionsfromwhichthedevelopment,enhancement,
maintenance,protectionandexploitation(DEMPE)ofthoseIPrights
aremanaged.Considerthefollowingexample.
Following a third-party acquisition of an entity with valuable IP, the
legacy IP is transferred (at market value) by the newly acquired
entity to an MNE’s IP hub, which then charges the transferor for
accesstoorbenefitsinrespectofthelegacyIP.Whilelegaland
financialriskinrespectofthelegacyIPistransferredtotheIP
hub, this entity may not have the full capacity to manage, make
decisionsoroverseealloftherisksassociatedwiththeDEMPE
activities (or its corresponding impact on the IP), instead relying on
the originating entity (or other related parties) to support it in this
regard.Insuchacase,aquestionarisesastowhethertheIPhub
shouldbeentitledtoallresidualofprofitsorshouldinfactonlybe
entitled to a lesser return and, consequently, whether any of the
charges paid or payable by the legacy transferor for access to or the
benefitsofthelegacyIPcouldbeconsideredexcessiveandsubject
totheDPT.
ForthepurposeoftheDPT,lifesciencesMNEswillneedto
considertheprofitsgeneratedateachstageoftheirsupplychain
andconsiderwhetherthatreflectstheeconomicsubstanceof
thearrangementasawhole(similartoapplyingtheprofit-split
methodologyintransferpricing).Inmanyinstances,therealso
may not be a simple chain of bilateral agreements but rather a
multilateral web of various contractual relationships between
membersoftheMNE.Thiswouldfurthercomplicatetheanalysis
thatneedstobecarriedout.
Further evidence will also need to be gathered on which reasonable
hypothetical counterfactual may apply (which goes to whether there
isarequisitetaxbenefit)andwhethertheprincipalpurposeofthe
arrangementwastoobtainthattaxbenefitortoobtainataxbenefit
and a reduction in a foreign tax liability (whether of the payer or
anotherentityrelatedtoorconnectedwiththearrangement).
Challenging a DPT assessment
The ATO has been aggressively investigating and challenging
MNEsontheirtaxaffairsinAustralia.Armedwithanincreased
budget and a government mandate to crack down on perceived
multinational tax avoidance, the ATO will likely not shy away from
prosecutingDPTmatters,albeitweanticipatethattriggeringthe
DPTwillbereservedformoreextremecases.Thepharmaceutical
industryhasbeenaparticularfocusoftheATO,withsignificantly
increasedauditactivityinthesector.MNEsinthepharmaceutical
sectorshouldexpectATOinquiriesinthisregardoncetheDPT
legislationispassedbythegovernment.
24
| EY Life Sciences Report: Asia
BeforechallengingaDPTassessment,taxpayerswillneedto
consider:
• CashflowconsiderationsinrelationtopayingtheDPTamountup
front
• Legalformvs.economicsubstanceonawhole-of-supply-chain
basis
• Whether the hub entity can operationally manage the totality of
commercialrisksfacedinthebusiness(asopposedtojusttaking
onfinancingrisk)
• Which evidence to provide the ATO during the review period in
order to preserve admissibility on appeal
• The short time frame for gathering the necessary evidence and
seeking legal advice
• Thecost/benefitofsettlingonatransferpricingbasisor
obtaininganadvancepricingagreementvs.theriskofpayingtax
at40%
• Potential reputational risk arising from tax avoidance litigation
Conclusion and recommendations
TheAustralianGovernmentintroducedtheDPTlegislationinto
Parliamenton9February2017,withtheintentionoftheDPT
applyingtoincomeyearscommencingonorafter1July2017.We
recommend that taxpayers begin to consider their organizational
structures and supply chains from the perspective of economic
substanceasfarastheymayberelevanttotheDPT.IftheATO
doesimposeaDPTassessment,therewillbeanextremely
compressed time frame in which to consider one’s position and
gatherthenecessaryevidencetosupportanappeal.
In the interim and if not already under review, consideration
should be given to either the feasibility of obtaining an advance
pricing agreement (a choice, we acknowledge, that will require
considerationanddiscussionwiththeATOofoverallsystemprofits)
or reviewing and refreshing current transfer pricing arrangements
anddocumentationfordefenseagainsttheDPTandforthechanges
introducedmorebroadlywithBEPSActionItems8through10.
Australia’s diverted profits tax and the life sciences industry
March 2017 | 25
eat red article
Building a better customer experience:
what life sciences companies in APAC
should consider
By
a ine ett iler
ExecutiveDirector
Asia-PacificLifeSciences
Ernst&YoungAdvisoryPte.Ltd.,Singapore
[email protected]
ita
amani
Senior Manager
Asia-PacificLifeSciences
Ernst&YoungAdvisoryPte.Ltd.,Singapore
[email protected]
In every industry, customers are more informed and empowered
thanever.Theycompareprices,checkonlinereviewsandare
increasinglyselectiveaboutthebrandstheychoose.Theyform
impressions from every interaction with a company and share their
opinionswithintheirnetworksandcommunities.Theycompare
customerexperienceacrossbrands,companiesandindustries.
Today, a product’s features are rarely enough to drive a sale, as
the customer will choose a product based on the overall total
experiencederivedfrominteractingwiththebrandorcompany.
Thisshiftinbuyingbehaviorandexpectationspresentssignificant
challenges,aswellasopportunities,forcompaniesinallindustries.
Inresponse,companiesareredefiningthecustomerexperience,
threateningdisruptionofmainlinebusinesses.
Thepotentialfordisruptionisjustashighinthelifesciencessector:
customerexperiencehasbecomethenewbattleground.Tosurvive
and thrive today, life sciences companies must engage the right
customers with the right messages through the right channels at
therighttime.Andsincehealthcaredeliveryissohighlyregulated,
theymustalsoengageintherightway.
Whatdoesthismeanspecificallyforlifesciencescompanies
operating in APAC?
F igure 1: Customer experience is the new battleground
Different engagement channels are used to ...
Personalized
Transparent
… target the right customers …
… with the right message/content …
Relevant
Transparent
Customer
experience is
the new
battleground
Trustworthy
Engaging
… in the right format …
Convenient
Easy to deal with
26 | EY Life Sciences Report: Asia
… through the right channels …
… at the right time …
… in the right way (compliant).
E xternal market conditions
DatasuchasinFigure2mayprovideinsightsintowhatneedstobe
consideredineachmarketintermsofcustomerengagement.For
example: are customers more likely to use their mobile phones than
theirpersonalcomputersforshopping?Dotheyliketobeengaged
via social networks, or do they prefer a phone call?
Lifesciencescompanieshavethreeprimarycustomerstowards
whom they direct their marketing efforts: health care practitioners,
payers(bothpublicandprivate)andpatients.IntheUSandEurope,
companies have started to engage with these different customers
indifferentways,emphasizingenhancedexperiences.Thesituation
inAPAC,however,isstillevolving.PartofthereasonisAPAC’s
complexity: every country has different laws and regulations,
cultures and languages, as well as economies and government
structures.Thesedynamicsneedtobeconsideredonamarketby-market basis when life sciences companies seek to establish
integrated cross-channel customer engagement opportunities in
APAC, so as to limit risk exposure, including capital, reputational
andoperationalrisks.
Dependingonacountry’sdigitalmaturityandcustomers’
preferences, there may be limited alternatives to the traditional
face-to-face customer engagement approach, at least for the time
being.Butcompaniesneedtobereadytorevisetheirpractices
quickly given the potential for rapid technological and customer
change.Afterall,SouthKorea,SingaporeandHongKongnowhave
someofthefastestinternetconnectionsintheworld(seeFigure3).
There is no question that connectivity will change how health care
providersdelivercaretopatients.Atthesametime,connectivity
means that customers have better access to information, which will
heightentheirexpectationsforbetterdiseasetreatmentoutcomes.
In addition, different markets show different levels of digital
maturity, and the extent to which they provide favorable
environmentsfordigitaltransformationvaries.Singaporetopsthe
EconomistIntelligenceUnit’sAsianDigitalTransformationIndex
due to its well-developed digital infrastructure, but the country lags
behindwhenitcomestoprovidingtherightskillsandcapabilities.
Change is happening fast at the broadest level, and rising customer
expectations will be a reality in the near future, even in markets that
seemmorenascenttoday.Again,amarket-by-marketcustomer
engagement approach is required to adapt to local dynamics and
enhancethelocalcustomers’experiencewhilebenefitingthe
patient.
Furthermore, customers’ readiness for and receptiveness to
technology in these markets varies widely, which affects the
development and deployment of tactics that involve multiple
channels, including traditional and digital ones that are increasingly
integratedandsupportingoneanother.
F igure 2: Channel penetration rate by Asia-Pac market
CustomerpreferencesforchannelusevaryacrossAPACmarkets.Themajorityofthemarketshaveahighersocialmediapenetrationrate(viamobile)than
theglobalaverage.Suchdynamicsneedtobeconsideredwhendevelopingmultichannelstrategies.
90%
80%
70%
Social media penetration
via mobile
60%
50%
Active e-commerce
penetration*
40%
Active m-commerce
penetration via phone*
30%
20%
Global average for social
media penetration
10%
a
di
In
a
si
ne
do
In
et
na
m
n
Vi
pa
in
pp
Ja
es
a
d)
in
an
Ph
ili
nl
Ch
ai
(m
st
ra
lia
nd
la
ai
Th
ay
si
a
g
al
M
Au
H
on
g
ap
Ko
n
or
e
ea
ng
Si
h
ut
So
Un
i te
d
St
Ko
r
at
es
0%
Sources: We Are Social and Hootsuite: Digital in 2017; http://bit.ly/GD2017RO
March 2017 | 27
Featured article
F igure 3 : Internet penetration vs. internet speed by Asia-Pac market
MostAPACmarketshavehigherinternetpenetrationratesthantheglobalaverage.However,internetspeedvariesdrastically,whichwillaffecthowlife
sciencescompaniesdelivercontentorservicestotheircustomers.
100%
90%
80%
70%
60%
Internet penetration
50%
Internet speed
(compared to global leader)
40%
30%
20%
10%
a
di
In
a
si
ne
do
In
Vi
et
na
m
n
pa
Ja
es
in
ili
pp
(m C
ai hi
nl n
an a
d)
ra
st
Au
Ph
lia
nd
ai
si
la
a
Th
ay
al
M
Ko
n
on
g
ap
H
ng
g
e
or
ea
Si
Ko
r
ut
h
St
So
d
i te
Un
Gl
ob
al
av
er
at
ag
es
e
0%
Source: We Are Social and Hootsuite: Digital in 2017; http://bit.ly/GD2017RO
In addition to dealing with varying levels of digital maturity, life
sciences companies working in APAC must understand the disparate
andrapidlyevolvinghealthcaresystemsoftheregion.Individual
markets have undertaken reforms addressing a range of concerns,
including streamlining the drug approval process, promoting health
care accessibility, putting downward pressure on product pricing
andencouraginginnovation.Basedonagivencountry’sdigital
readinessanditsotherhealthpolicyobjectives,itmaybedifficultto
drivetheadoptionofdigitaltechnologyinameaningfulway.Finally,
as in other nations, life sciences companies operating in APAC
struggle to keep up with the multitude and diversity of stakeholders
and decision-makers that may or may not need to be considered as
customers.
Internal challenges
In many APAC countries, regulations prohibiting promotional
interactions prevent companies from interacting directly with
patients, who are not only the consumers but very often also
thedirectpayers.HenceinmanyAPACmarkets,physiciansare
considered the primary customer and the traditional sales model
stillholds;face-to-faceinteractionsbetweenthephysicianandthe
sales representative are believed to be the sole effective source of
revenuegeneration.Thisrequirescompaniestohavesalesteams
withstrongrelationshipswiththephysician.However,competition
for talent means many life sciences players struggle with high sales
forceturnover.Thisturnoverlimitstheabilityofacompanytogain
in-depth customer insights through its sales force and requires
companies to think about how they can obtain such information in
otherways.
Some life sciences companies in APAC have only recently
introduced medical affairs and market access as functions with
customer-facingpersonnel.Whilethesefunctionscontinueto
outline their roles and responsibilities as part of the customer-facing
organization,theiractivitiesareoftendefinedbytaskstobedone
ratherthancustomerneed.Coordinationinrelationtocustomers
remainsdifficult,especiallywiththeintroductionofadditional
channels.Multiplechannelsmeanscustomerscanhave“multiple
identities”andbetargetedbyvariousentitiesinconsistently.While
many companies have started to collect customer data, they still
struggletomakesenseofit.Aspectslikedataqualityandtheability
to get a holistic view of the customer across different functions
continue to pose challenges and will need to be addressed to master
multichannelmarketing.
28
| EY Life Sciences Report: Asia
Bribery scandals in China and elsewhere have also left deep scars,
fundamentally increasing the compliance risk associated with
interactingwithphysicians.Asaresult,companieshavehadto
completelyredefinehowtheyapproachphysicians.Thesenew
practicessometimesconflictwithtraditionalcultureinwhichit
might be normal to provide customers with gifts as a token of
appreciationoftherelationship.Additionally,becauseofthe
perceived risks, the compliance measures create barriers to
adopting more creative ways to engage with customers, including
“pull” that allows tailored engagement based on the needs and
preferencesofthecustomer.
Building a better customer experience
New technologies for customer engagement are typically being
evaluatedbasedontheirsuitabilityforUSandEuropeanmarkets.
As a consequence, rollout in APAC countries is sometimes done
half-heartedly, either because the new technology does not bring
any perceived value to the country or because local people have
notbeentrainedtodeployanduseit.Inaddition,ITteamsinsome
APAC markets are still primarily concerned with providing the
business with stable internet access and can’t be bothered to roll
out new tools that are not being supported by existing broadband
speed.Asaresult,someofthenewchannelsusedtoengage
customers in other parts of the world are not being used in every
APACcountry.Atthesametime,thereareuniquesolutionsbeing
offeredinselectmarketsthataddresslocalneeds—forexample,
WeChat has been widely used in China to communicate with
customers,includingphysicians.
Whileaffiliatesarebeginningtointeractwiththeircustomers
throughmultiplechannels,thesechannelsareoftennotintegrated.
This results in a fragmented landscape, where stand-alone
technologysolutionsarisethataredifficulttointegrateand
maintain.Furthermore,thesesolutionsarenotsetuptofacilitate
cross-country insights, so they are soon abandoned by marketing
teamswhoseethemashavinglimitedvalue.
F inding the right talent
Withtechnologiesevolvingrapidly,itcanbedifficulttohirepeople
capableofsupportingtheirrolloutandmaintenance.Thisis
especiallytrueinmarketswheredigitalisnascent.Withouttheright
skill sets to support the technology side of the business, customer
engagement through digital channels will be patchy and will not be
integratedacrosschannels.Unfortunately,insomeAPACmarkets,
therightskillsetsareveryhardtofind.
At the same time, it’s not always clear who in the organization
“owns” new digital technologies (and this is by no means an
APAC-specificphenomenon).InAPAC,brandteamshavelaunched
multiple technology initiatives, but it’s not always clear who can
helpdeploythenewtoolssuccessfullytogetthemostoutofthem.
Sales and marketing teams in APAC will have access to local IT
support, but the IT team frequently lacks the required knowledge or
bandwidth.Digitalasafunctionisstillnotwidelyrepresenteddue
to budget constraints in an economically challenging environment,
lack of acknowledgment by the local business leader of the
importanceofsuchcapabilitiesanddifficultiesinfindingpeoplewith
therightskills.
As companies integrate more kinds of data, using multiple channels
to precisely target and interact with different customers is the
ultimategoal.Atthemoment,datamanagementanduseinmany
APACmarketsisstillemerging—insomeinstances,employees
still prefer to use their own spreadsheets to collect data instead of
enteringthemintoanintegratedsystem.Inmanymarkets,sales
teamsarenotusingexistingCRMsystemsconsistentlytotrack
customer data, thereby missing out on insights that might change
businesspracticesandperformance.Also,forcompliancereasons,
different functions sometimes lack access to the same data within
theCRMsystem,limitingitsuseasatruerelationshipmanagement
tool.
F igure 4 : Internal and external challenges slowing the adoption of multichannel in APAC markets
Manychallengesare“homegrown”andcanbeovercomewiththerightmeasures.
Internal
External
• Understandingandaddressingcustomerneedsandexpectationsasopposedtodelivering
product-focused messages
• Complexity of APAC as a market with a
wide range of digital maturity levels
• Uncertaintyaboutcorrectcustomerengagementpracticesafterbriberyscandals
• Evolving health care and regulatory
systems
• Siloed thinking and lack of collaboration across different functions
• Difficultytranslatingbusinessneedsintotechnologyfeatures
• Lackofthenecessaryskillsetsandcapabilities
• Belief in traditional face-to-face selling approach
• Vast diversity of customers with
different behaviors and needs
• Consumerism setting new expectations
for pharma
• Poor data quality and management limit the use of data to generate customer insights
• Highturnoverofsalesforcelimitingdata/knowledgetransfer
March 2017 | 29
Featured article
What is next?
Despitechallengingmarketconditions,lifesciencescompaniesin
APACneedtofirsttackletheirinternalchallenges—theyneedto
drivethecustomerengagementtransformationjourneybymoving
awayfrombeingproduct-focusedandbecomingcustomer-centric.
In traditional sales lingo, that means moving from a push model to a
pullmodel.
Considering the different maturity levels of customer engagement
capabilitiesincountriesacrossAPAC,teamswillneedtodefine
their own ambitions in terms of where they want to be within a
particular time frame so that they can develop and deploy the right
initiatives.NoteveryaffiliateinAPACneedstobecomeamaster
atmultichannelmarketing—somemayneedtofocusonfixingthe
base(seeFigure5).Thatalonewillbesufficienttohelpthemdeliver
theircustomerpromiseandachievetheirvisionintheshortterm.
Companies will need to think through which markets to prioritize for
investments.
Once a vision has been set, it is imperative to put strong governance
inplace.Differentcompanieswillhavedifferentwaystodrive
multichanneleffortswithintheirAPACmarketregions—itwill
help to have a dedicated, central “customer lead” for each region,
sponsored at the regional or global level, to at least initiate the
transformationanddrivechangeacrossaffiliates.Thisleadcan
promoteleadingpracticesandmakesuresolutionsacrossaffiliates
are deployed in ways that comply with legal and regulatory
requirements.Atthesametime,thisprojectmanagershould
work with counterparts in other regions to learn what is working,
and what is not, and avoid reinventing processes or investing in
approachesthataresuboptimal.
In each market, teams must move away from simply targeting
historically high-prescribing physicians to understanding their
customersacrossallpossibledimensions.Insightsoncustomers
should be collected and analyzed across the entire organization,
andeachcustomerrelationshipmustbeviewedindividually.To
create an optimal experience, multiple business functions must
drivethecustomerencounter;inadditiontocommercialteams,
thefieldforceandback-officefunctions,includingITandfinance,
haveimportantrolestoplay.Forexample,thinkabouttheimpact
aterribleinvoicingexperiencebetweenyourfinanceteamand
your largest hospital customer’s procurement team may have on
yourrevenues.Affiliatesneedtodefinenewareasthatcanlead
tocustomerinsights.Forexample,whiledifferentteamsmaybe
sending multiple emails to their respective customers, not many
marketswillbetrackingwhethertheseemailsareopenedandread.
Technologies and systems need to be integrated to support
multichannelactivities.Datawillneedtobecollectedandanalyzed
across multiple dimensions to support fast learning and generate
F igure 5 : S etting your ambitions
Channel performance improvement
Todesignaroadmapforyourjourney,affiliatesshouldfirstverifytheircurrentlevelofdigitalcapability.
5
4
3
22
1
Omnichannel customer experience
Customer needs (not brands) are driving innovative campaigns to satisfy customer outcomes.
Integrated cross-channel customer experience
Customer experience is integrated into brand plans, driving differentiated cross-channel campaigns.
Integrated cross-channel digital campaigns
The brand plan tactics are organized in campaigns,using traditional and digital channels in an integrated way.
Ad hoc digital initiatives
The brand plan tactics are supported by sporadic, ad hoc digital initiatives.
Isolated digital channels
The brand plan tactics are mainly focused on traditional channels with some support of digital technologies.
Digital process improvement
3 0 | EY Life Sciences Report: Asia
Building a better customer experience
insights that can enhance customer experience. As part of these
efforts, companies must also continue to understand how their
customers now define value, and how they will do so in the future,
so that they can develop products and services that meet the
changing expectations.
It’s becoming more important to identify trends early, while at the
same time understanding which ones will last. Local customer
insights should also be used to inform drug development to appeal
to an APAC patient base. For example, with approximately
1.3 billion people in China using traditional Chinese medicine
as their primary approach to treat and manage diseases,
further insights on patients’ preferences may help improve the
development of “Western” medicine in such a way as to appeal to a
Chinese audience. Considering local practices, cultures and tastes in
their product portfolios has made multinationals in many industries
extremely successful in APAC.
At the same time, life sciences affiliates need to change the mindset
of all their employees to become more customer-centric and embed
“what they want to stand for” in every interaction they have with
customers (again, this also holds true for the finance team that is
issuing an invoice to your largest customer). This transformation
needs to be driven both top-down and bottom-up. It may even
require reorganizing the commercial organization, hiring new
talent and adjusting KPIs to measure customer engagement and
experience, not just product sales.
Finally, a culture of failing fast and learning by doing needs to be
infused into the organization. In today’s fast-paced and dynamic
environment, it’s sometimes very hard to predict successful
initiatives or estimate ROI. Companies need to create an
environment that allows teams to experiment, piloting different
initiatives and moving quickly. This includes venturing into new
partnerships with local companies to further drive the ambition of
providing customers with a great experience.
Search engines
90%
of doctors in APAC
use search engines
(including Google)
as a clinical decision
support tool1
of Australian
physicians regularly
use search engines
for professional
purposes4
Emails
one in two
In India,
prefer emails
for engaging with pharma companies2
HCPs in China and India prefer
>4 emails a month
2
Smartphones
~50%
of HCPs in China access
medical information through their mobile
phones, which is double the usage trend
among the HCPs in the US2
Networking apps/social media
80%
of physicians use WeChat
on a daily basis in China4
More than 50%
While multichannel is still new territory for many life sciences
companies in some APAC markets, customers’ expectations are
increasing directly with digital use.
Digital health is today’s reality. Life sciences companies must stay
abreast of new innovations or lose market share. To rise above
the competition, life sciences companies in APAC need to focus
on what matters most to their customers and deliver a best-inclass experience to them despite some of the complex and unique
challenges that arise because of regulatory demands and market
variabilities in APAC.
~90%
of Chinese physicians use social
media regularly3
E-detailing
two times
In China, HCPs are
more inclined toward online detailing over
face-to-face detailing using tablets2
Sources:
1. Clinical Search — AI1 understanding of healthcare professionals’ attitudes,
needs and challenges, GGM
2. lndegene survey on The Digital Sawy HCP 2015
3. 2012 DXY survey of Chinese physicians
4. Taking the Pulse Global 2016
March 2017 | 31
Mergers and acquisitions (M&A)
2016 saw the cancellation of what was
potentially the largest-ever life sciences
transaction,thePfizer-Allergandeal,
duetoregulatorychangesbytheU.S.
TreasuryDepartmentaimed atreducingthe
attractivenessoftax-inversiondeals.The
changes have led to a decline in deal value
over the last two years, with 2014 now the
peakyearforM&Aoverthelastfiveyears,
thanks to two mega-ticket tax inversion deals
involvingCovidienandAllergan.
Mergers and acq uisitions — global
Global M&A activity in life sciences, 2012–16
Asia M&A activity in life sciences
Deal volume
400
2,400
300
1,800
200
1,200
100
600
0
2012
2013
Source: Thomson ONE
2014
2015
2016
0
Number of deals
US$b
Deal value (US$b)
Total global deal value in life sciences was
approximatelyUS$265billionin2016,down
nearly6%yearoveryear(YOY),despitea
moreactive1Hcomparedto1H2015.The
declinewasdueprimarilytoasignificant
dropinUSM&Aactivityresultingfrom
uncertainty surrounding the outcome of
theUSpresidentialelection.Monthsafter
theelection,UScompaniesstillappear
to be waiting for clarity on regulations of
drugpricingandthefateofObamacare.In
addition, the pool of suitable targets has
shrunk due to the high pace of M&A activity
in the last two years, thus forcing multiple
potential acquirers to target the same
company.Thishas,inturn,ledtoadeclinein
deal count for all but small deals, as well as a
slowingofthedealprocess.
Dealvolumewitnessedaslightincreaseof
4%from2015,thankstoahighernumber
ofsmall-valuetransactions.Therewere39
dealsvaluedatUS$1billionormorein2016,
downfrom50suchtransactionsin2015.
Compared to other sectors, life sciences was
fifthintotaldealvalue,followingtechnology,
diversifiedindustrialproducts,oilandgas,
andconsumerproductsandretail.
3 2 | EY Life Sciences Report: Asia
Life sciences M&A value share by subsector, 2012–16
Life Sciences M&A value share by sub-sector, 2012-16
Pharmaceuticals
Health research and testing
Medical devices
The medical devices subsector appears
to be going through another phase of
consolidation, owing partially to healthy
revenue growth in 2015 following the high
levelofM&Ainthesubsectorin2014.
TheacquisitionsofSt.JudeMedicaland
ToshibaMedicalSystemsCorp.byAbbott
LaboratoriesandCanon,respectively,
illustratethistrend.Thetwodealsmade
the medical devices subsector the biggest
gainer in terms of total deal value in 2016:
the subsector registered a staggering
123%YOYrise,whileallothersubsectors
recordeddeclines.Amongallsubsectors,
pharmaceuticals accounted for the largest
share of life sciences deal value in 2016,
at54%(downfrom69%in2015).Medical
devicescontributed29%(upfrom12%
in2015).
Biotechnology
100%
80%
60%
40%
20%
0%
2012
2013
2014
2015
2016
Source: Thomson ONE
Top 10 global life sciences M&A, 2016
ar et compan
ector
Co ntr
c
irin compan
Co ntr
eal al e
eal tat
Baxalta
Specialty
US
ShirePLC
Ireland
35.2
Completed
St.JudeMedical
Medical devices
US
AbbottLaboratories
US
30.5
Pending
Medivation
Big pharma
US
Pfizer
US
13.8
Completed
Sanofi SA –
AnimalHealth
Business
Big pharma
France
Boehringer
Ingelheim
Germany
12.6
Completed
Meda
Generics
Sweden
Mylan
US
9.9
Completed
Alere
Big pharma
US
AbbottLaboratories
US
8.3
Pending
Stemcentrx
Big pharma
US
AbbVie
US
6.4
Completed
Toshiba Medical
Systems
Medical devices
Japan
Canon
Japan
5.9
Completed
Capsugel
Pharmaceutical
US
Lonza
Switzerland
5.5
Pending
Anacor
Pharmaceuticals
Big pharma
US
Pfizer
US
5.5
Completed
Source: Thomson ONE, Capital IQ
The Shire-Baxalta deal was completed in
2016, after the initial offer in August 2015
wasdeclined.Baxaltahadearlierspunoff
fromitsparent,BaxterInternational,inJuly
2015, and it was soon targeted by Shire
withanofferofUS$35billion.Shireexpects
the completed deal to catapult the company
to global leader status in rare disease
drugswithaportfolioworthUS$20billion
in2020.Thedealisoneofthe10biggest
takeoversbyaUK-listedcompany.
2016alsosawthesecondmajorassetswap
deal involving big pharma, in the form of
theyet-to-closetransactionbetweenSanofi
andBoehringerIngelheim.Sanofiistrading
itsill-fittinganimalhealthbusiness,Merial,
for Boehringer Ingelheim’s consumer
brands,creatingawin-winforbothfirms.
Big pharma was also engaged in bolt-on
acquisitions,includingPfizer’sacquisitionof
Medivation and Anacor Pharmaceuticals to
bolsterspecificportfoliosofoncology,and
inflammationandimmunology,respectively.
March 2017 | 3 3
Mergers and acquisitions
Mergers and acq uisitions — Asia
Asia M&A activity in life sciences, 2012–16
Deal volume
60
900
50
750
40
600
30
450
20
300
10
150
0
2012
2013
2014
2015
2016
Number of deals
US$b
Deal value (US$b)
In line with the global picture, Asia deal
valueslowedin2016,declining14%YOY
toUS$49.4billion.However,thenumberof
dealsincreasedto801from786in2015.
Asiaaccountedfor36%ofglobalindustry
dealmakingbycount.Byvalue,however,the
region’scontributionstoodat19%,implying
asignificantdifferenceinaveragedealsize
betweenAsiaandtherestoftheworld.
RegionalM&Avaluegrewata32%CAGR
during 2012–16, with volume growing at a
10%rate.Thesestrongfigureshighlightthe
importance of the region in the global life
sciencesindustry.
0
Source: Thomson ONE
Asia life sciences M& A value by subsector, 2012– 16
Pharmaceuticals
Health research and testing
Medical devices
Biotechnology
60
50
Still,dealvalueCAGRsince2012was
positiveforallsubsectors.Medicaldevices
postedthehighestrate,40%,followedby
pharmaceuticalsat33%.
US$b
40
30
20
10
0
2012
2013
Source: Thomson ONE
3 4
By subsector, dealmaking in Asia witnessed
asimilartrendtotheglobalpicturein2016.
Medical devices recorded the highest YOY
growthindealvalue,39%,duelargelyto
Canon’s acquisition of Toshiba Medical
Systems.Bycontrast,theremainingthree
subsectorsreporteddeclinesindealvalue.
| EY Life Sciences Report: Asia
2014
2015
2016
Mergers and acquisitions
Asia life sciences M& A by target market, 2016
Deal value (US$b)
Deal volume
440
30
330
20
220
10
110
0
Number of deals
US$b
40
*
ina
Ch
an
Jap
rea
Ko
h
t
u
So
ia
Ind
a
rali
st
Au
e
por
ga
Sin
n
wa
Tai
ers
Oth
0
*China includes Hong Kong; “Others” includes target companies based out of Thailand, Malaysia, Vietnam, Indonesia and
New Zealand.
Source: Thomson ONE
China(includingHongKong)alone
accountedforasmuchas64%ofthetotal
regionallifesciencesdealvaluein2016.
This was driven by four deals worth more
thanUS$1billioneachoutofthetotal
eightsuchdealsrecordedinAsiain2016.
This64%figurerepresentsasignificant
decline from 2015, when China accounted
formorethan80%oftheregion’sM&A
value—asignofthegrowingimportance
ofothermarketsinAsia.Japanwasa
bright spot, with total deal value roughly
quadrupling and its total contribution to
theregionrisingfrom5%in2015to20%
in2016.SouthKoreawasadistantthird,
accountingfor8%ofAsiandealvalue.All
the remaining regions combined accounted
foronly8%oftotalAsiaM&Adealvalue.By
volume, China again accounted for more
than50%ofAsiantransactionsin2016;
JapanandSouthKoreamadeup29%.
As in 2015, China M&A deals in 2016 were
largely domestic consolidation and included
manysub-billion-dollardeals.Amajority
ofthedealswerewithinAsia.Continuing
consolidation signals the maturation of
domesticplayers.Competitionforassets
will only increase, limiting the M&A window
formultinationals.
Top 10 Asia life sciences M&As, 2016
Co ntr
Year
Target
Acq uirer
1Q
Toshiba Medical
Systems Corp
CanonInc.
4Q
Yunnan Baiyao
HoldingCo.
3,648 • YunnanBaiyaoHoldingagreedtosella50%stakeinYunnan
BaiyaoGrouptofunditsrepurchaseprogram.
4Q
Wako Pure
Chemical
Industries
Chongqing
Pharmaceutical
Group
GlandPharma
NewHuadu
Industrial
GroupCo.
Fujifilm
Chongqing
Jianfeng
ChemicalCo.
Shanghai Fosun
Pharmaceutical
GroupCo.
LGChem
1,260 • ChongqingJianFengChemicalagreedtoacquirea96.6%interest
inChongqingPharmaceuticalfrommultipleentities.
2Q
3Q
3Q
LGLifeSciences
2Q
Shandong Weigao ZhuhaiWinbase
Orthopaedic
International
DeviceCo.
Chemical Tank
TerminalCo.
Wako Pure
Wako Pure
Chemical
Chemical
Industries
Industries
ZiboQixiang
KingvisionGroup
Tengda
ChemicalCo.
BeijingBerry
Chengdu
GenomicsCo.
Tianxing
Instrument &
MeterCo.
4Q
4Q
4Q
al e
eal de cription rationale
m
5,902 • Canon agreed to acquire the entire share capital of Toshiba
MedicalSystemsCorp.
1,322 • Fujifilmagreedtoacquirea70%stake,includingthe35%stake
soldbyTakeda,inWakoPureChemical.
1,260 • ShanghaiFosunPharmaceuticaldefinitivelyagreedtoacquirean
86%interestinIndia-basedGlandPharma.
1,246 • LGChemagreedtomergewithLGLifeSciencesinastockswap
transaction.
1,109 • ZhuhaiWinbaseInternationalChemicalTankagreedtoacquirethe
entiresharecapitalofShandongWeigaoOrthopaedicDevicefrom
itsjointventurepartners.
829 • Takedaagreedtodivestits35%stakeinWakoPureChemical.
765 • KingVisionGrouplaunchedamandatorytenderofferfora45.3%
stakeinZiboQixiangTengdaChemical.
654 • Chengdu Tianxing agreed to acquire the entire share capital of
BeijingBerryGenomicsBiotechnology.
In 2016, there were eight M&A deals worth
m
􀁥 ore than US$1 billion􀁥 and 1
􀁥 4worth more
thanUS$500million.Thiswasabigdecline
from 2015, when there were 12 deals
valuedaboveUS$1billionand29deals
valuedaboveUS$500million.Ofthe14
dealsworthmorethanUS$500millionin
2016, 12 involved both target and acquirer
domiciledinthesamenation.Chinawas
responsible for 5 of the 10 largest deals in
theyear.
In the largest deal of 2016, Canon acquired
Toshiba Medical Systems as part of Canon’s
strategic transformation program aimed at
expanding new businesses and growing its
health care business alongside safety and
securitysegments.AcquisitionofToshiba
will help Canon reinforce this strategy and
will give a boost to its medical equipment
businessbothinJapanandglobally.
Source: Thomson ONE, Capital IQ
March 2017 | 3 5
Financing and IPOs
Asia IPOs
Asia IPO activity in life sciences
Deal value (US$b)
Deal volume
6
60
US$b
30
2
15
0
2012
2013
Source: Capital IQ
3 6 | EY Life Sciences Report: Asia
2014
2015
2016
0
Number of deals
45
4
IPO activity in Asia continued to gain
momentum in 2016, particularly in terms
ofcapitalraised.2016aloneaccounted
for38%ofthecapitalraisedsince2012.
Thirty-nine Asia-headquartered companies
raisedatotalofUS$5.5billioninIPOs
in2016,a28%YOYincreaseanda51%
CAGRsince2012.However,thenumber
of IPOs dropped from 54 in 2015 to 39 in
2016, implying a greater number of bigvalueIPOs.
WhiletheIPOwindowintheUSand
Europe showed signs of closing in 2016,
itwasthrownwideopeninAsia.Despitea
significantdeclineinthenumberofIPOs
completed across all the subsectors in Asia
in 2016, total capital raised witnessed
a steep climb in pharmaceutical and life
sciences tools and services with respect to
2015.Thiswasprimarilyspurredbytwo
of the three biggest IPOs globally being
completedinAsiain2016.
Asia life sciences IPOs by subsector (US$b)
Pharmaceuticals
6
Biotechnology
Medical devices
Life sciences tools and services
5
US$b
4
3
2
In 2016, pharmaceutical companies
accountedfornearly48%ofthetotalcapital
raised.Lifesciencestoolsandservices
companiesraised40%ofthecapitalinthe
quarter, while the remaining two subsectors
contributedonly12%.
1
0
2012
2013
2014
2015
2016
Source: Capital IQ
Asia life sciences IPOs by headquartered market, 2016
US$m
IPO volume
12
2,500
10
2,000
8
1,500
6
1,000
4
500
2
0
ina
Ch
sia
esh
rea
alia
lad
one
Ko
str
Ind
Au
ang
th
B
u
So
m
tna
Vie
an
Jap
sia
lay
Ma
ia
Ind
Number of deals
IPO value (US$m)
3,000
Of the total 39 IPOs, 10 each were raised
by Chinese and South Korean companies
in2016.EightAustraliancompanies
also completed public offerings during
theperiod;however,noneoftheseIPOs
generatedmorethanUS$10millionin
capital.ThreeIndiancompaniesandtwo
firmseachbasedinVietnam,Japanand
MalaysiaclosedIPOs.Theremainingtwo
IPOs were by Indonesian and Bangladeshi
companies.Averagecapitalraisedper
IPO was highest among companies
headquartered in China, followed closely by
SouthKorea.
0
Source: Capital IQ
Top 10 Asia life sciences IPOs, 2016
e compan
ead arter
co ntr
ector
mo nt rai ed
m
Ex change
SamsungBiologicsCo.
South Korea
Lifesciencestoolsand
services
1,950.5
KOSE
ChinaResources
PharmaceuticalGroup
HongKong
(China)
Pharmaceutical
1,810.9
HongKong
Shandong Buchang
PharmaceuticalCo.
China
Pharmaceutical
575.6
Shanghai
SillaJen
South Korea
Biotech
128.4
KOSDAQ
STPharmCo.
South Korea
Lifesciencestoolsand
services
117.5
KOSDAQ
PT Prodia Widyahusada
Indonesia
Lifesciencestoolsand
services
114.5
Jakarta
AutobioDiagnosticsCo.
China
Medical devices
92.1
Shanghai
Rayence
South Korea
Medical devices
86.3
KOSDAQ
JacobsonPharmaCorp.
HongKong
(China)
Pharmaceutical
84.6
HongKong
Shanghai Kindly Enterprise
DevelopmentGroup
China
Medical devices
73.5
Shanghai
A total of six IPOs raised more than
US$100millioneachin2016.South
Korea-based life sciences tools and
servicesfirmSamsungBiologics,listing
on the Korean Stock Exchange, was the
largest Asian IPO and the largest global
IPOoftheyear.Thecompanygarnered
totalcapitalofnearlyUS$2billion.This
wasfollowedcloselybyaHong-Kongbased pharmaceutical company, China
ResourcesPharmaceutical,whichraised
morethanUS$1.8billion.
Source: Capital IQ
March 2017 | 3 7
Appendix
E Y thought leadership
EY perspective on life sciences
The following is a sample of recent life sciences-related
thoughtleadershipproducedbyEY.Pleasevisitey.com/
vitalsignsforEY’sfulllibraryofindustryinsightsandreports.
EY M&A Outlook
and Firepower
Report 2017
Will payer leverage and
post-election optimism
shift dealmaking into a
higher gear?
Payer pressure is growing across a wide spectrum
of the health care sector. Price increases have been
blunted by election-year rhetoric and competition in
key global pharmaceutical markets. Continued portfolio
rationalization, a professed preference for bolt-on deals,
and lower target company valuations continue to sharpen
global appetites for acquisitions into 2017. A distinct
repower advantage combined with suddenly friendly
political and tax climates in the US should allow big pharma
to seize the M&A agenda.
Medical technology report 2016
Pulse of the
industry
3 8
EY M&A Outlook and Firepower Report 2017
Payerpressureisgrowingacrossawidespectrumofthehealthcaresector.Priceincreases
have been blunted by election-year rhetoric and competition in key global pharmaceutical
markets.Continuedportfoliorationalization,aprofessedpreferenceforbolt-ondealsand
lower target company valuations continue to sharpen global appetites for acquisitions into
2017.Adistinctfirepoweradvantagecombinedwithsuddenlyfriendlypoliticalandtax
climatesintheUSshouldallowbigpharmatoseizetheM&Aagenda.
Pulse of the industry: EY medical technology report 2016
Despiteabuoyantmergersandacquisitions(M&A)marketandasolidperformancein
venturecapitalfinancing,otherfinancialmetricssuggesttheglobalmedtechindustryis
strugglingtogrowassignificantchangesintechnologyandreimbursementcombinewith
thegreaterempowermentofconsumerstoreshapehealthcare.
| EY Life Sciences Report: Asia
The new innovation imperative: reshaping biopharma business models
Newtechnologies,customersandcompetitionareforcing—andenabling—
biopharmaceuticalcompaniestofindnovelwaystocreateandcapturevalue.
Technological, economic, competitive and consumer-driven pressures are forcing
fundamentalchangesinhowpharmaceuticalandbiotechnology(biopharma)firmsdo
business.
The new
innovation
imperative
Reshaping biopharma
business models
January 2017
The new innovation imperative: reshaping biopharma business models
1
Life Sciences
Capital Confidence Barometer
November 2016 | ey.com/ccb | 15th edition
Does seizing
competitive advantage
mean deals take
center stage?
Capital Confidence Barometer – Life Sciences
t edition
InEY’s15thCapitalConfidenceBarometersurveyoflifesciencesexecutives,wefoundthat
M&A expectations, although not quite back to the penultimate high of October 2015, have
continuedatnear-recordlevels.Infact,despitetheeconomicandpoliticaluncertaintiesat
thetimeofthissurvey,54%oflifesciencesexecutivesexpecttopursuedealsinthenext
12months,upfrom45%sixmonthsago.
Transactions of all types are in the spotlight
as companies seek innovation to accelerate
strategic growth
Volume 8 │ Issue 4
Providing insight and analysis for business professionals
Improve performance
apid profit transformation
Sale or fail
en dimensions of excellence
Cloud ERP
Myth or future?
This article is an extract from Performance, Volume 8, Issue 4, November 2016. The full journal is available at
ey.com/performance
If you could
outperform the
competition, what
would you aim for?
Multichannel is about
customer experience.
We've got that! Now what?
Life sciences is finally
catching up with other sectors
regarding the importance
it is placing on delivering a
leading and differentiated
customer experience as a
means of creating a sustainable
competitive advantage.
However, the emphasis and
approach for doing this is
rapidly evolving. Life sciences
companies are now preparing
for a new era of competing
on experience, and those that
don’t keep up will quickly find
themselves becoming outdated.
46
Multichannel is about customer experience. We’ve got that! Now what?
For years, there has been talk about how best to evolve the commercial model to move
frompush-basedtopull-basedmodels.Whatittakestowininmarketshasfundamentally
changed.Customerleaders(suchasUber,AlphabetandApple)havefundamentally
redefinedwhatcustomersexpectacrossallindustries.Morethanever,customersare
shapedbytheirexperiencesindealingwithcompaniesinallwalksoflife.
Volume 8 │ Issue 4
Cash on
prescription
Cash on prescription 2016
Cash on prescription is part of our annual series of industry reports, based on EY
researchonworkingcapital(WC)management.AmongthefindingsinourlatestCashon
prescription,wereportthatpharmacompanieshavebetweenUS$22billionandUS$47
billionofcashunnecessarilytiedupinWCprocesses.
Pharmaceutical companies and
working capital management
2016
March 2017 | 3 9
Contacts
EY Life Sciences sector leaders
Pamela Spence
Global Life Sciences Industry Leader
London
[email protected]
+44 207 951 3523
Andrew Chen
Asia-Pacific Life Sciences
Transactions Co-Leader
Shanghai
[email protected]
+86 21 2228 3939
Patrick Flochel
EY Life Sciences Global Leadership
Team, Japan
Tokyo
[email protected]
+81 3 3503 1542
Abhay Bangi
Asia-Pacific Life Sciences
Transactions Co-Leader
Singapore
[email protected]
+65 6309 6151
Rick Fonte
Asia-Pacific Life Sciences Tax Leader
Singapore
[email protected]
+65 6309 8105
Hugo Walkinshaw
Asia-Pacific Life Sciences
Advisory Leader
Singapore
[email protected]
+65 6309 8098
Sriram Shrinivasan
Global Emerging Markets Leader and
Global Generic Pharmaceutical Leader
Mumbai
[email protected]
+91 22 6192 0380
40 | EY Life Sciences Report: Asia
Greater China
ASEAN
South Korea
India
Titus von dem Bongart
Greater China Life Sciences
Co-Leader
Shanghai
[email protected]
+86 21 2228 2884
Sabine Dettwiler
ASEAN Life Sciences Leader
Singapore
[email protected]
+65 9028 5228
Sung Yeon Cho
South Korea Life Sciences Leader
Seoul
[email protected]
+82 2 3787 6844
Felix Fei
Greater China Life Sciences CoLeader
Shanghai
[email protected]
+86 21 2228 2586
Oceania
Japan
Gamini Martinus
Oceania Life Sciences Leader
Sydney
[email protected]
+61 2 9248 4702
Hironao Yazaki
Japan Life Sciences Leader
Tokyo
[email protected]
+81 3 3503 1566
Hitesh Sharma
India Life Sciences Leader & Tax
Partner, Ernst & Young LLP
Mumbai
[email protected]
+91 22 6192 0620
March 2017 | 41
Lifesciencescontacts
E Y L ife S ciences service line leaders
G reater China
China
ainland
on on
M acau
Taiwan
Felix Fei
Assurance
Shanghai
[email protected]
+86 21 2228 2586
Titus von dem Bongart
TaxCo-Leader
Shanghai
[email protected]
+86 21 2228 2884
JoanneSu
TaxCo-Leader
Beijing
[email protected]
+86 10 5815 3380
Steve Au Yeung
Advisory
Shanghai
[email protected]
+86 21 2228 8888
Andrew Chen
Transactions
Shanghai
[email protected]
+86 21 2228 3939
Cary Wu
Assurance
HongKong
[email protected]
+852 2849 9122
Karina Wong
Tax
HongKong
[email protected]
+852 2849 9175
Edward Chang
AdvisoryCo-Leader
Shanghai
[email protected]
+86 10 5815 2321
JudyTsang
Transactions
HongKong
[email protected]
+852 2846 9016
LinTu
AssuranceCo-Leader
Taipei
[email protected]
+886 2 2757 8888 ext. 88810
KyKyLin
AssuranceCo-Leader
Hsinchu
[email protected]
+886 2 2757 8888 ext. 88856
Ann Shen
Tax
Taipei
[email protected]
+886 2 2757 8888 ext. 88877
JonHuang
Advisory
Taipei
[email protected]
+886 2 2757 8888 ext. 88862
AudryHo
Transactions
Taipei
[email protected]
+886 2 2757 8888 ext. 88898
GaminiMartinus
Assurance
Sydney
[email protected]
+61 2 9248 4702
Michael Anderson
Tax
Sydney
[email protected]
+61 2 9248 5555
DeniseBrotherton
Tax
Melbourne
[email protected]
+61 3 9288 8758
Oceania
tralia
e
ealand
Milan Milosevic
Advisory
Sydney
[email protected]
+61 2 9248 5028
JasonWrigley
Transactions
Sydney
[email protected]
+61 2 9248 5303
JonHooper
Assurance
Auckland
[email protected]
+64 9 300 8124
Aaron Quintal
Tax
Auckland
[email protected]
+64 9 300 7059
S outh K orea
South K orea
Sung Yeon Cho
Assurance
Seoul
[email protected]
+82 2 3787 6844
JaeCheolKim
Tax
Seoul
[email protected]
+82 2 3770 0961
Yong Sik Kim
Advisory
Seoul
[email protected]
+82 2 3787 6600
HyoSukHan
Transactions
Seoul
[email protected]
+82 2 3770 0907
SweeHoTan
Assurance
Singapore
[email protected]
+65 6309 8238
Ching Khee Tan
Tax
Singapore
[email protected]
+65 6309 8358
SabineDettwiler
Advisory
Singapore
[email protected]
+65 9028 5228
Abhay Bangi
Transactions
Singapore
[email protected]
+65 6309 6151
AS E AN
Singapore/
B runei
4 2 | EY Life Sciences Report: Asia
Lifesciencescontacts
AS E AN (cont’ d)
Indonesia
PeterSurja
ailand
anmar
ilippine
am
ala
ia
ietnam
Cam odia
ao
Assurance
Jakarta
[email protected]
+62 21 5289 4012
Peter Ng
Tax
Jakarta
[email protected]
+62 21 5289 5228
SabineDettwiler
Advisory
Singapore
[email protected]
+65 9028 5228
Bernard Ng
Transactions
Jakarta
[email protected]
+86 21 2228 2005
Saifon Inkaew
Assurance
Bangkok
[email protected]
+66 2 264 9090
SuSanLeong
Tax
Bangkok
[email protected]
+66 2 264 9090
SabineDettwiler
Advisory
Singapore
[email protected]
+65 9028 5228
Abhay Bangi
Transactions
Singapore
[email protected]
+65 6309 6151
AnaLeaCBergado
Assurance
Makati City
[email protected]
+63 2 894 8354
FrancisRicamora
Tax
Makati City
[email protected]
+63 2 891 0307
JosephIanCanlas
Advisory
Makati City
[email protected]
+63 2 891 0307
Abhay Bangi
Transactions
Singapore
[email protected]
+65 6309 6151
YoonHoongHoh
Assurance
KualaLumpur
[email protected]
+60 3 7495 8608
JaniceWong
Tax
KualaLumpur
[email protected]
+60 3 7495 8223
SabineDettwiler
Advisory
Singapore
[email protected]
+65 9028 5228
Abhay Bangi
Transactions
Singapore
[email protected]
+65 6309 6151
Ernest Yoong
Assurance
HoChiMinhCity
[email protected]
+84 8 3824 8210
Thinh X Than
Tax
HoChiMinhCity
[email protected]
+84 8 3824 8360
SabineDettwiler
Advisory
Singapore
[email protected]
+65 9028 5228
Abhay Bangi
Transactions
Singapore
[email protected]
+65 6309 6151
HironaoYazaki
Assurance
Tokyo
[email protected]
+81 3 3503 1566
JonathanStuart-Smith
TaxCo-Leader
Tokyo
[email protected]
+81 3 3506 2426
Tatsuhide Kanenari
TaxCo-Leader
Tokyo
[email protected]
+81 3 3506 1364
Tetsuro Sano
Advisory
Tokyo
[email protected]
+81 3 3503 1490
Takayuki Ooka
Transactions
Tokyo
[email protected]
+81 3 4582 6422
RaviBansal
Assurance
Mumbai
[email protected]
+91 22 6192 0460
RahulPatni
Tax
Mumbai
[email protected]
+91 22 6192 1544
Murali Nair
Advisory
Mumbai
[email protected]
+91 22 6192 0380
Krishnakumar V
Transactions
Mumbai
[email protected]
+91 22 6192 0950
J apan
Japan
India
India
March 2017 | 4 3
Sources
1
“BMI Industry Trend Analysis,” BMI Research, accessed 4 January 2017.
25
2
“Indonesian authorities plan drug-agency reform after counterfeit vaccine scandal,”
IHS Global Insight Daily Analysis, 18 July 2016, via Factiva, © 2016 IHS Global
Insight Limited; “Indonesia orders overhaul of drug agency after fake vaccine
scandal,” Reuters Health E-Line, 15 July 2016, via Factiva, © 2016 Thomson
Reuters.
“Code delivers new standard of transparency,” Medicines Australia, 31 August
2016, https://medicinesaustralia.com.au/media-release/code-delivers-newstandard-of-transparency/.
26
“Promoting a quantity-to-quality transition in China’s drug innovation,” The Pharma
Letter, 1 November 2016, http://www.thepharmaletter.com/article/promoting-aquantity-to-quality-transition-in-china-s-drug-innovation.
3
“Distribution chain blamed for fake vaccine circulation,” The Jakarta Post, 30 June
2016, via Factiva, © 2016 The Jakarta Post.
27
“China pilot eyes easier marketing authorization,” Fierce Pharma, 19 June 2016,
http://www.fiercepharma.com/node/343031.
4
“Ministry of Health Prepares Re-Immunization,” Indonesia Government News, 29
June 2016, via Factiva, © 2016 Indonesia Government News.
28
“China details on big data in healthcare include digital trail,” Fierce Pharma, 27
June 2016, http://www.fiercepharma.com/node/344161.
5
“Malaysia Pharmaceuticals and Healthcare Report,” BMI Research, December 2016.
29
6
“Health Ministry to make greater use of generic medicines to cut costs,” New Straits
Times, 11 October 2016, via Factiva, © 2016 New Straits Times Press (Malaysia)
Berhad.
“China aims for Big Data healthcare flows by 2020,” Fierce Pharma, 19 June
2016, http://www.fiercepharma.com/node/343081.
30
“Chinese regulator may put the brakes on all online drug sale pilots,” Fierce
Pharma, 3 June 2016, http://www.fiercepharma.com/node/340896.
31
“China Expands List Of Devices Exempted From Clinical Trials,” Med Device Online,
4 October 2016, http://www.meddeviceonline.com/doc/china-expands-list-ofdevices-exempted-from-clinical-trials-0001.
32
“China to Remove Tariffs on 201 Technology Products,” Caixin Online, 14
September 2016, http://english.caixin.com/2016-09-14/100988591.html.
33
“China to Begin Priority Reviews of Medical Devices in January 2017,” Regulatory
Affairs Professionals Society website, 27 October 2016, http://www.raps.org/
Regulatory-Focus/News/2016/10/27/26081/China-to-Begin-Priority-Reviews-ofMedical-Devices-in-January-2017/.
34
“India to be amongst top five global pharma innovation hubs by 2020: Assocham,”
Business Standard, 29 August 2016, http://www.business-standard.com/article/
companies/india-to-be-amongst-top-five-global-pharma-innovation-hubs-by-2020assocham-116082900730_1.html.
35
“Indian pharma industry to hire only qualified personnel now,” BioSpectrum, 9
December 2016, http://www.biospectrumasia.com/biospectrum/news/224572/
indian-pharma-industry-hire-qualified-personnel.
36
“IPC-PvPI adds 23 new AMCS under its ambit bringing total to 202,”
Pharmabiz.com, 25 June 2016, http://www.pharmabiz.com/NewsDetails.
aspx?aid=95938&sid=1.
37
“PvPI collects over 2 lakh ADRs with 25% contribution from MHAs,” Pharmabiz.
com, 15 December 2016, http://www.pharmabiz.com/NewsDetails.
aspx?aid=99245&sid=1.
38
“Healthenablr urges govt to make it mandatory for health facilities to digitize
patients’ medical record,” Pharmabiz.com, 24 June 2016, http://www.pharmabiz.
com/NewsDetails.aspx?aid=95886&sid=1.
39
“5-year cap on shelf-life of medical devices likely, rules by year-end,” Business
Standard, 15 December 2016, http://www.business-standard.com/article/
economy-policy/5-year-cap-on-shelf-life-of-medical-devices-likely-rules-by-yearend-116121401426_1.html.
40
“Government adds stents to NLEM, to come under price control,” Live Mint,
21 July 2016, http://www.livemint.com/Politics/5taSVnHx9Ojv5n3bPcRUbM/
Government-adds-stents-to-NLEM-to-come-under-price-control.html.
41
“Indian biosimilars market to reach $ 40 bn by 2030,” Business Standard, 7
October 2016, http://www.business-standard.com/content/b2b-pharma/indianbiosimilars-market-to-reach-40-bn-by-2030-study-116100700705_1.html.
7
“CCM launches country’s 1st biosimilar insulin,” The Malaysian Reserve, 14
November 2016, via Factiva, © 2016 The Malaysian Reserve.
8
“Registration of TCM Practitioners Mandatory By Year-End,” Bernama Daily
Malaysian News, 5 September 2016, via Factiva © 2016 Bernama-Malaysian
National News Agency.
9
“Malaysia Updates Labeling, Exemptions, Advertising Rules,” FDAnews Device Daily
Bulletin, 15 August 2016, via Factiva, © 2016 Washington Business Information,
Inc.
10
“Philippines : Be wary of counterfeit drug products – FDA,” Emirates News Agency
(WAM), 25 November 2016, via Factiva, © 2016 Emirates News Agency (WAM).
11
“Philippines : Provl govt forms inspection team vs illegal drugs,” Algeria Press
Service, 11 November 2016, via Factiva, © 2016 Algeria Press Service.
12
“Philippines ‘successful’ on 1st phase in war against illegal drugs: official,” Xinhua
News Agency, 1 September 2016, via Factiva, © 2016 Xinhua News Agency.
13
“Mobile app to assist HIV patients launched,” Manila Bulletin, 30 November 2016,
via Factiva, © 2016 Manila Bulletin Publishing Corp.
14
“Philippines Pharmaceuticals & Healthcare Report,” BMI Research, December
2016.
15
“Industry: Vietnam Sees M&A Boom in Pharmaceutical Industry,” Vietnam News
Brief Service, 13 December 2016, via Factiva, © 2016 Toan Viet Limited Company;
“Foreign investors make more M&A deals in Vietnam’s pharmaceutical industry,”
Vietnam News Summary, 12 December 2016, via Factiva, © 2016 Vian Company
Limited.
16
17
“Vietnam gets ready to self-finance vaccine program,” Vietnam News Summary,
30 December 2016, via Factiva, © 2016 Vian Company Limited; “Seizing the
opportunity to export vaccines,” Vietnam News Summary, 17 December 2016, via
Factiva, © 2016 Vian Company Limited; “Vietnam to mass-produce vaccines to
address national shortages,” IHS Global Insight Daily Analysis, 28 November 2016,
via Factiva, © 2016 IHS Global Insight Limited; “Vietnamese Prime Minister pushes
for mass production of vaccines,” Vietnam News Summary, 26 November 2016,
via Factiva, © 2016 Vian Company Limited.
“MTPConnect Unveils 10-Year Plan to Boost Competitiveness of Medtech,
Biotech and Pharmaceutical Sector,” Business Wire, 24 July 2016, http://www.
businesswire.com/news/home/20160724005007/en/MTPConnect-Unveils-10Year-Plan-Boost-Competitiveness-Medtech.
18
“MTPConnect Unveils 10-Year Plan to Boost Competitiveness of Medtech, Biotech
and Pharmaceutical Sector,” 24 July 2016, http://www.businesswire.com/
news/home/20160724005007/en/MTPConnect-Unveils-10-Year-Plan-BoostCompetitiveness-Medtech.
42
“BIO Statement on Recent Developments in Japan’s Pharmaceutical
Reimbursement and Pricing System,” Businesswire, 22 November 2016, http://
www.businesswire.com/news/home/20161122006065/en/BIO-StatementDevelopments-Japan%E2%80%99s-Pharmaceutical-Reimbursement-Pricing.
19
“Pharma plan to bridge gap between research and commercial success,” The
Australian, 23 November 2016, http://www.theaustralian.com.au/business/
pharma-plan-to-bridge-gap-between-research-and-commercial-success/news-story/
4a4b17f93aa5eab1aa869f47e41e7a9e.
43
“Japan drug-pricing reform to get blueprint by year-end,” Nikkei Asian Review, 26
November 2016, http://asia.nikkei.com/Politics-Economy/Policy-Politics/Japandrug-pricing-reform-to-get-blueprint-by-year-end.
20
44
“$43.4 million announced to drive innovation in pharmaceuticals and medtech
around Australia,” 24 October 2016, http://www.startupsmart.com.au/advice/
funding/43-4-million-announced-to-drive-innovation-in-pharmaceuticals-andmedtech-around-australia/.
“Japan weighs further clampdown on drug pricing, with Opdivo and Repatha in
its sights,” Fierce Pharma, 21 September 2016, http://www.fiercepharma.com/
pharma-asia/facing-soaring-medicine-costs-japan-considers-further-clampdownpricing.
21
45
“Medicines Australia Member To Play A Crucial Role In The Biomedical Translation
Fund,” Medicines Australia, 13 December 2016, https://medicinesaustralia.
com.au/media-release/medicines-australia-member-to-play-a-crucial-role-in-thebiomedical-translation-fund/.
“PMDA Mulls Fee Raise for Drug, Device Reviews,” Pharma Japan, 7 November
2016, via Factiva, © 2016 Jiho, Inc., accessed 26 December 2016.
46
“Australia to change medical regulations to allow faster access to new drugs and
devices,” The Guardian, 15 September 2016, https://www.theguardian.com/
australia-news/2016/sep/15/australia-to-change-medical-regulations-to-allowfaster-access-to-new-drugs-and-devices.
“Blue Book ‘Will Be Used as Reference When Selecting Generics’: Panel Chair,”
Pharma Japan, 19 September 2016, via Factiva, © 2016 Jiho, Inc.; “MHLW to
Issue ‘Blue Book’ on Quality of Generics by March-End,” Pharma Japan, 4 July
2016, via Factiva © 2016 Jiho, Inc., accessed 26 December 2016.
47
23
“Australia legalizes medical marijuana cultivation,” RT, 31 October 2016, https://
www.rt.com/news/364779-australia-medical-marijuana-cultivation/.
“MHLW to Set Up Quake-Resistant Warehouse to Stockpile Vaccines Using
Supplementary Budget for FY2016,” Pharma Japan, 28 November 2016, via
Factiva, © 2016 Jiho, Inc., accessed 26 December 2016.
48
24
“Cutting medical device and prostheses costs should lower health premiums,
says minister,” The Guardian, 19 October 2016, https://www.theguardian.com/
money/2016/oct/19/cutting-medical-device-and-prostheses-costs-should-lowerhealth-premiums-says-minister.
“S. Korea releases comprehensive strategy on bio industry,” Yonhap News Agency,
8 September 2016, http://english.yonhapnews.co.kr/news/2016/09/08/20/0200
000000AEN20160908004000320F.html.
49
“Pharma MNCs call for South Korea to build ‘bio cluster’ to foster bio industry,” The
Pharma Letter, 21 June 2016, http://www.thepharmaletter.com/article/pharmamncs-call-for-south-korea-to-build-bio-cluster-to-foster-bio-industry.
22
44 | EY Life Sciences Report: Asia
50
“South Korea easing regulations and taxes to encourage domestic additive
manufacturinggrowth,”3ders.org,15August2016,http://www.3ders.org/
articles/20160815-south-korea-easing-regulations-and-taxes-to-encouragedomestic-additive-manufacturing-growth.html.
mo ile riendl
or li e cience
e ec ti e
ite
51
“SouthKoreangovernmenttooffersignificanttaxexemptionsfor3Dprinting
R&D,”3ders.org,29July2016,http://www.3ders.org/articles/20160729south-korean-government-to-offer-significant-tax-exemptions-for-3d-printingrd.html.
52
“(NewsFocus)GlobalhealthcarefirmseyeS.Koreaasnewhub,”YonhapNews
Agency,5October2016,http://english.yonhapnews.co.kr/focus/2016/10/05/
30/1700000000AEN20161005011000320F.html.
53
Ibid.
54
“Foreignfirmsgrapplewithanti-graftlaw,”The Korea Herald, 28 September
2016,http://www.koreaherald.com/view.php?ud=20161009000303.
55
“Taiwan govt’s new plans to bolster the biomedical sector,” BioSpectrum,
15November2016,http://www.biospectrumasia.com/biospectrum/
news/224523/taiwan-govts-plans-bolster-biomedical-sector.
56
http://data.worldbank.org
57
“TakedaandZinfandelPharmaceuticalsCompleteEnrollmentinTOMMORROW
Trial,”takeda.com,https://www.takeda.com/news/2016/20160210_7298.
html,accessed17February2017.
58
http://www.janssen.com/janssen-prevention-center,accessed17February
2017.
59
http://do-health.eu/wordpress/,accessed17February2017.
60
“TakedaAnnouncesSeasonalInfluenzaVaccineSalesAgreement
withKaketsukeninJapan,”takeda.com,https://www.takeda.com/
news/2015/20150519_6993.html,accessed17February2017.
61
DaiichiSankyoAnnouncesCooperativeSalesAgreementfortheInfluenza
HAVaccine‘Kaketsuken’,”daiichisankyo.com,http://www.daiichisankyo.com/
media_investors/media_relations/press_releases/detail/006296.html,accessed
17 February
62
“Astellas:EstablishmentofRegenerativeMedicineUnit,”astellas.com,https://
www.astellas.com/en/corporate/news/detail/astellas-establishment-of-rege.
html,accessed17February2017.
63
“Calico and QB3 announce partnership to conduct research into the biology of
aging and to identify potential therapeutics for age-related diseases,” calicolabs.
com,https://www.calicolabs.com/news/2015/03/24/,accessed17February
2017
64 https://www.arivale.com/your-journey/,accessed17February2017.
65
https://www.counsyl.com/,accessed17February2017.
66
https://skinvision.com/,accessed17February2017.
67
https://neurotrack.com/#/?_k=434zj4,accessed17February2017.
68
“HumanLongevity,Inc.LaunchestheHealthNucleus,aComprehensiveand
PersonalizedHealthPlatformforIndividuals,”humanlongevity.com,http://
www.humanlongevity.com/human-longevity-inc-launches-the-health-nucleus-acomprehensive-and-personalized-health-platform-for-individuals/,accessed17
February2017.
69
DaiichiSankyoAnnouncesLarge-ScaleRegistryofNonvalvularAtrial
Fibrillation in the Elderly,” daiichisankyo.com,http://www.daiichisankyo.com/
media_investors/media_relations/press_releases/detail/006520.html,accessed
17February2017.
70
https://www.grants4apps.com/singapore/,accessed17February2017.
71
“LifeExtension™joinswithInsilicoMedicinetodevelopadvancedantiagingtechnologiesutilizingartificialintelligence,”prnewswire.com,http://
www.prnewswire.com/news-releases/life-extension-joins-with-insilicomedicine-to-develop-advanced-anti-aging-technologies-utilizing-artificialintelligence-300280735.html,accessed17February2017.
72
“JapanPostGroup,IBMandAppleDeliveriPadsandCustomAppstoConnect
ElderlyinJapantoServices,FamilyandCommunity,”apple.com,https://www.
apple.com/pr/library/2015/04/30Japan-Post-Group-IBM-and-Apple-DeliveriPads-and-Custom-Apps-to-Connect-Elderly-in-Japan-to-Services-Family-andCommunity.html,accessed17February2017.
73
“NTTIT,NTTEastandEisaiRolloutInterprofessionalCollaborationBusiness
for Medical Treatment and Care,” eisai.com,http://www.eisai.com/news/
news201649.html,accessed17February2017.
a e o i ited
ital i n
For one-stop access to EY’s breadth of
materials published on the life sciences
industry—report re earc article
e t
per pecti e
lo po t pre entation
in o rap ic
r e
c art and anal i —
visit Vital Signs (ey.com/vitalsigns).
Browse the easy-to-use navigation to quickly
findthelate t in i t and per pecti e
on t e topic mo t important to
p armace tical iotec medtec and
pecialt p arma companie .
While visiting Vital Signs, click on
cri e to
receive once-a-week email alerts (eAlerts) when
newpublicationsarepostedonVitalSigns.
e com ital i n
March 2017 | 4 5
E Y
| Assurance | Tax | Transactions | Advisory
About E Y
EY is a global leader in assurance, tax, transaction and advisory
services.Theinsightsandqualityserviceswedeliverhelpbuildtrustand
confidenceinthecapitalmarketsandineconomiestheworldover.We
develop outstanding leaders who team to deliver on our promises to all
ofourstakeholders.Insodoing,weplayacriticalroleinbuildingabetter
workingworldforourpeople,forourclientsandforourcommunities.
EY refers to the global organization, and may refer to one or more, of
thememberfirmsofErnst&YoungGlobalLimited,eachofwhichisa
separatelegalentity.Ernst&YoungGlobalLimited,aUKcompanylimited
byguarantee,doesnotprovideservicestoclients.Formoreinformation
aboutourorganization,pleasevisitey.com.
How EY’s Global Life Sciences Sector can help your business
As populations age and chronic diseases become commonplace, health
carewilltakeaneverlargershareofGDP.Scientificprogress,augmented
intelligence and a more empowered patient are driving changes in the
delivery of health care to a personalized experience that demands health
outcomesasthecoremetric.Thisiscausingapowershiftamongtraditional
stakeholder groups, with new entrants (often not driven by profit) disrupting
incumbents.Innovation,productivityandaccesstopatientsremainthe
industry’sbiggestchallenges.Thesetrendschallengethecapitalstrategyof
everylinkinthelifesciencesvaluechain,fromR&Dandproductsupplyto
productlaunchandpatient-centricoperatingmodels.
OurGlobalLifeSciencesSectorbringstogetheraworldwidenetworkof
11,000 sector-focused professionals to anticipate trends, identify their
implicationsandhelpourclientscreatecompetitiveadvantage.Wecanhelp
you navigate your way forward and achieve sustainable success in the new
health-outcomes-drivenecosystem.
©2017EYGMLimited.
AllRightsReserved.
EYGno.01063-174Gbl
1612-2139246
EDNone
This material has been prepared for general informational purposes only
and is not intended to be relied upon as accounting, tax or other professional
advice.Pleaserefertoyouradvisorsforspecificadvice.
e com li e cience