ey life sciences report: asia · • the first article, “reinventing pharma sales and marketing...

EY Life Sciences Report: AsiaAsia-Pacific | Japan | India

May 2018

EY Life Sciences Report: Asia

Contents2 Market insights

10 Taxupdates:significantdevelopments

22 Featuredarticles 22 Reinventing pharma sales and marketing

through digital in India

26 Intelligent automation — will IA provide relief to asicklypharmaceuticalindustry?

30 MegatrendsinASEANmarketshavehealthcareindustrychartingnewwaters

36 Mergersandacquisitions(M&A)

40 FinancingandIPOs

44 Appendix 44 EY thought leadership 46 Contacts

1May 2018 |

To our clients and friends:WelcometothefiftheditionofourEY Life Sciences ReportforAsia,providingcoverageforthekeymarketsinAsia-Pacific,JapanandIndia.

Oneoftheprimarythemesforthiseditionofthereportisinnovationandtechnology.Asanindustry,we’rewitnessinganunparalleledperiodofinnovativeandtechnologicaladvancement,whichisdisruptingexistingbusinessmodelsandforcingcompaniestoquicklyadapt.OurMarket insightssectiondiscussestheimpactofsuchadvancementsonAsianmarkets,including:

• ►Howdevelopedmarketsareincreasingindustryregulationstostayaheadof innovativetechnologiesinthefieldofmedicaldevices—Australia,forexample,isincorporatingregulatorychangestoimprovemarketaccesstopersonalizedand3Dprintedmedicaldevices

• ►HowindustryinvestmentinR&Dandmanufacturingis,andwillcontinue,drivinginnovationacrossAsiaassuchmarketsfocusondevelopingworld-classR&Dcapabilities

• ►Howartificialintelligence(AI)isbeingadoptedtostreamlinedrugdiscoveryandimproveprocessefficiencyasanexampleofindustryplayersstrikingthebalancebetweenavailabilityofinnovativetherapiesandcost-savingstomakethehealthcaresystemmoreefficientandaffordable

• ►Howcountriesareinvestingtobecomeindustryspecialists;forexample,SouthKorea’sfocusonestablishingitselfasabiotechhubbyinvestinginnoveltechnologies,suchasgene editing

Wearealsoexcitedtoincludethreefeaturedarticles,eachwrittenspecificallyforthispublication.

• ►Thefirstarticle,“Reinventing pharma sales and marketing through digital in India,” exploressixcommercialtrendsthatwillshapethefutureofpharmaceuticalsalesandmarketinginIndia,andhowintegratedcommercialmodelswillbethenewnormal.

• ►Thepharmaceuticalindustryhasbeenfacingimmensepressuretobringdowncostsyetincreaseinnovationtofindthenextblockbusterdrug.Thesecondarticle,“Intelligent automation — will IA provide relief to a sickly pharmaceutical industry?” examines howintelligentautomation(IA)cancreategreaterefficiency,improveuserexperience,andincreaseinsightintothecommercialvaluechain.

• ►“Megatrends in Asian markets have health care industry charting new waters,” thethirdarticle,exploreshowhealthcarereformsinAsianmarketsarereshapingthepharmalandscape,bringingbothchallengesandopportunitiesformultinationalcompaniesintheregion.

Inadditiontoourfeaturedarticles,ourTax developmentssectionprovidesbriefyetinformativeupdatesonvarioustaxandlegislativedevelopmentsforthekeymarketsinAsia.OurMergers and acquisitions and Financing and IPOssectionsprovidehelpfulsummariesofrecentglobalandlocaltrendsviachartsandshortcaptions,withanincreasedfocusonAsianmarkets.

Wehopeyouenjoythisissue.You’llfindthisreport—andmuchmore—atourdigitalhome,VitalSigns,andyoucanengagewithusviaTwitter(@EY_LifeSciences)oremail.

Rick FonteEYAsia-PacificLifeSciences TaxLeader

Patrick FlochelEYJapanLifeSciencesGlobalLeadershipTeam

Sriram ShrinivasanEYGlobalLifeSciencesEmergingMarketsLeaderandEYGlobalGenericPharmaceuticalLeader

2 | EY Life Sciences Report: Asia

In this edition, we highlight key sector, regulatory and legislative trends for the following markets:

ASEAN• Indonesia

• Philippines

• Thailand

• Singapore

Australia

China (mainland)

India

Japan

South Korea

Taiwan

Market insights

3May 2018 |

ASEAN Indonesia: industry staring at mandatory halal certification

Indonesia’spharmaceuticalmarkethasemergedasoneofthemostattractivedestinationsformultinationalinvestorsintheASEANregion,becauseitissupportedbygrowingurbanizationandimplementationofauniversalhealthcoveragescheme.Inaddition,theGovernment’seffortstowardtrimmingdownthenumberofsectorsincludedinthecountry’sNegativeInvestmentList,whichlaysdownforeignownershiprestrictionsincertainareas,bodeswellfromMNCsperspective.1However,theattractivenessofthemarketistemperedbytheHalal Product Assurance Law,which,by2019,willapplytoallmedicines,chemicalsandbiologicalproducts.Pharmaceuticalcompanieswillberequiredtocomplywithallhalalstandards,especiallythosethatpertaintoingredientsormedicinesimportedintoIndonesia.Thiswillpresentachallengetomultinationaldrugmakerswithportfoliosthatdonotincludehalalproductsandthat,asaresult,mayseetheirproductstakenofftheIndonesianmarket.Furthermore,obtaininghalalcertificationcouldbeacumbersomeprocess,requiringadjustmentsspanningacrosstheentiresupplychain.However,atthesametime,themandatewillprovidenewbusinessopportunitiestosuppliersthatcatertohalalpharmaceuticalingredients.2

Philippines: continuing efforts to expand access to affordable health care

ThehealthcaremarketisgarneringsignificantattentionfromthePhilippinesGovernmentasithasproposedtoincreasefundinginthesectorby12.4%inFY18.3Inparticular,theGovernmentis exploring mechanisms to control drug prices and increase availability of low-cost generic medicines.Recently,thePhilippines’HouseCommitteeonTradeandIndustryapprovedabilltoexpeditetheestablishmentofaDrugPriceRegulatoryBoardwiththeobjectiveofreducingcostsandincreasingpatientaccesstooverpricedmedicines.4Inaddition,aspartofthePhilippinesMedicinesPolicy(2017-2022),theGovernmenthasannounceditsaimtostrengthenthegenericdrugindustrythroughtheestablishmentofpharmaceuticaleconomiczones,aswellastofacilitatetheimportofrawmaterialsforthemanufactureoflow-valuedrugs.5

“China”referstomainlandChinainthispublication.

Key highlightsThedevelopedmarketsofAustraliaandSouthKoreaareincreasingindustryregulationstostayaheadofinnovativetechnologiesinthefieldofmedicaldevices,whileotherAsianmarketsarefocusingonthebasics.Australiaisincorporatingrequiredregulatorychangestoimprovemarketaccesstopersonalizedand3Dprintedmedicaldevices.SouthKoreaismakingstridestowardadoptingavalue-basedevaluationsystemformedicaldevicesthatinvolvesfast-trackapprovalofnext-genmedicaldevicesalongwithfetchingthemhigherreimbursementrates.Ontheotherhand,IndiaandTaiwanarestillintheprocessofbuildingabasicregulatoryframeworkformedicaldevices.IndiaisinchingclosertofinalizingitsMedicalDevicesRules,andTaiwan,too,hasinitiatedaseparatebillformedicaldeviceregulation.

IndustryinvestmentinR&DandmanufacturingwilldriveinnovationacrossAsiaasAsianmarketscontinuetheirendeavortoemergeasanR&Dpowerhouse.Manymarketsacrosstheregionarepushingforgreaterinvestmenttofosterinnovationinthesector.InAustralia,theGovernmentisplanningtoinvestUS$26.6milliontodevelopnewmedicalsolutionsandimprovehealthoutcomes.Japanhassetasideabudgettostimulateefficientandlow-cost

drugdiscovery.SouthKoreaisrelentlesslyfocusingonestablishingitselfasabiotechhub,withagrowingfocusonnoveltechnologiessuchasgeneediting.Inaddition,SouthKoreaisadoptingartificialintelligence(AI)tostreamlinedrugdiscoveryandimproveprocessefficiency.Atthesametime,severaloftheAsiancountriesarecontinuingeffortstobolsterlocalmanufacturingcapabilitiestogiveaboosttotheireconomies.TheIndianGovernmenthasintroducedseveralmeasurestoreduceitsimportdependenceforbothgenericsandmedicaldevices.Singapore’sGovernmenthasinvestedS$2.4billiontoimproveitsindigenousproductioncapabilities.AndChinaisdevelopingitsbiomedicalinfrastructure.

Asianmarketscontinuedtorolloutmeasuresforpricecontrolsandtoincreasepatientaccesstoaffordablehealthcare,asaddressingunmetmedicalneedsremainsapriorityintheregion.Japaniscontinuingtorevampitsexistingpricingregimeandpushforgenericspenetration.Concurrently,Australiaisenhancingitspricecontrolmechanismstoderivecostsavings,whileIndiaandthePhilippinesarealsoregulatingthepricingenvironmenttogivemorepeopleaccesstomedications.Additionally,IndiahasannouncedasocialhealthcareprogramaspartofitsUnionBudgetFY19.

Market insights


Thailand: strengthening Intellectual Property Rights (IPR) regimeThailandisattemptingtobetteritsregulatoryenvironmentwithafocusonimproving intellectual property protection.TheGovernment’seffortsinthisspacewererecognizedwithremovalofThailandfromtheUSPriorityWatchListofintellectualpropertyviolatorsinDecember2017.6 To further strengthen its endeavor, theGovernmentisextendingsupporttothemedicalsectortoincreaseR&DactivitythroughcreationofanIntellectualPropertyInnovation-DrivenEntrepreneurshipCenter(IP-IDE).ThiscenteraimstoencourageThaimedicaldevicefirmstoinnovateandserveboththedomesticandforeignmarkets.7

Simultaneously,underthenew“Thailand4.0”growthmodel,theGovernmentenvisionstransformingthecountryfromitscurrentrelianceonheavyindustriestoproducingitsownknowledgeandknow-how,withspecialemphasisonbiotechnologyandmedicaldevices.Moreover,becauseofthegrowingglobaldemandformedicaldevices,theMinistryofCommerceplanstoincreasethenation’sshipmentsofmedicalequipmentexportsby20%–25% peryear.8

Singapore: developing indigenous pharma manufacturing

Aspartofits5-yearResearch,InnovationandEnterprise2020plan,theSingaporeGovernmenthascommittedtoinvestnearlyUS$2.4billiona(SGD$3.2billion)toadvancemanufacturingandengineeringinthepharmaceuticalmarket.9Additionally,theAgencyforScience,TechnologyandResearch(A*Star),theNationalUniversityofSingapore(NUS)andkeyin-boundbigpharmaplayers,suchasGSK,PfizerandMSD,havesignedamemorandumofunderstanding(MoU)tolaunchamanufacturing initiative called the Pharma Innovation Program Singapore (PIPS).TheinitiativewouldcombineSingapore’spublicsectorresearchcapabilitieswiththedomainexpertiseofthepharmacompaniestoensurethatSingapore’spharmamanufacturingsectorremainscompetitive.ThePIPSschemeinvolvesdevelopingcontinuousmanufacturingtoimproveactivepharmaceuticalingredientsandexploringbiocatalysistechnologiestomakehigh-valuecomplexchemicalsmoresustainably.10

aConvertedatanaveragespotrateforSeptember2017;i.e.,SGD$1

equalsUS$0.74,accessedon28February2018

Market insights

5May 2018 |

AustraliaAccelerating access to innovative yet affordable treatments

Australiaisfocusedonstriking the right balance between ensuring availability of innovative therapies and the need to derive cost-savings to make the health care system more efficient.Inlinewiththisobjective,theAustralianLowerHousepassedanamendedPharmaceuticalBenefitsScheme(PBS)inFebruary2018withexpectationsofdeliveringsavingsworthUS$1.3billionb(AUD$1.8billion)overthe5-yeartermoftheagreement.Aspartofthisbill,theGovernmenthasannouncedthefollowingpricechangesofdrugsonF1formulary:

• Extensionof5%reductionforsingle-branddrugsbytwoyears,until April 2020

• Introductionoftwoanniversarypricecuts—10%reductionafterbeinglistedfor10yearsonPBS,followedbyanadditional5%reductionafter15years

• Catch-upreductionfordrugscompleting10yearsor15yearsonPBSasofJune2018;subsequentlybeingliableforannualreductionson01Aprileveryyear

• Increaseinpricecutonlistingoffirstadditionalnewbrandof amedicine

Inadditiontothecostsavings,thisbillwillenabletheGovernmenttoenlistallthenewinnovativemedicinesonPBS,therebyincreasing the access to breakthrough medicines.11 Furthermore, theGovernmentisplanningtoinvestUS$26.6millionc(AUD$35million)inR&Deffortstodevelopnewmedicalsolutionsandimprovehealthoutcomes.Tofurtherboosttheinnovation,productivityandcompetitivenessofAustralia’smedicaltechnologyandpharmaceuticalsector,theGovernmentisinjectinganotherUS$5.6milliond(AUD$7.4million)toward20industry-ledprojects.12Oncology,inparticular,hascaughtthefancyofthefederalbodies.SomeofthekeymeasuresundertakenbytheGovernmentinthistherapyareainclude:

• Launchofanationalcancerprogramtoeliminatecancer amongchildrenbyidentifyingandrecommendingnew treatment options13

• FundingofoverUS$31.2millione(AUD$40million)forworld-leadingmedicalresearchprojectstoimprovethelivesofcancerpatients,includinginareassuchasmelanomaresearch14

• InvestmentofatotalofUS$6.5millionf(AUD$8.6million)encompassingUS$4.9million(AUD$6.5million)tosupportcancerresearchthroughCancerAustralia,combinedwithUS$1.6million(AUD$2.1million)comingfromitsfundingpartners,whoincludeCureCancerAustralia,theNationalBreastCancerFoundationandCancerCouncilNSW15

• SubsidyofUS$349.6milliong(AUD$460million)through thePBStoincreasetheaccesstocancermedicines— expectedtoexponentiallyreducethepricesofleukemiaandlymphomadrugs16

Concurrently,theTherapeuticsGoodsAdministration(TGA)continuestoprioritizereformation of medical devices, an area highlightedinourpreviousedition.TheTGArecentlyannouncednewguidelinesforpriorityreviewofmedicaldevicesthatareexpectedtosignificantlyimprovethetimetomarket.17Additionally,theTGAislookingatpossibleregulatorychangesrelatedtopersonalizedand3Dprintedmedicaldevices,astheirusageisbecomingmorepopularduetotheadvantagesofimprovedquality.18 Throughtheseefforts,theregulatoryauthorityisseekingtoclosetheregulatoryloopholes,tomitigatetheriskstopatientsandtomeetrequirementsforhealthcareprovidersandmanufacturers.

bConvertedatanaveragespotrateforFebruary2018;i.e.,AUD$1equalsUS$0.78,accessedon27February2018

cConvertedatanaveragespotrateforNovember2017;i.e.,AUD$1equalsUS$0.76,accessedon27February2018

dConvertedatanaveragespotrateforNovember2017;i.e.,AUD$1equalsUS$0.76,accessedon27February2018

eConvertedatanaveragespotrateforOctober2017;i.e.,AUD$1equalsUS$0.78,accessedon27February2018

fConvertedatanaveragespotrateforDecember2017;i.e.,AUD$1equalsUS$0.76,accessedon27February2018

gConvertedatanaveragespotrateforNovember2017;i.e.,AUD$1equalsUS$0.76,accessedon27February2018

Market insights


ChinaAiming to create an innovation-fostering regulatory environment while addressing the shortage of essential drugs

AsmainlandChina’spharmaceuticalmarketcontinuestobeplaguedbyatoughpricingregimeanddrugcounterfeiting,theGovernmentiscommittedtoimprovingthesector’sattractivenessaroundtheworld.Ongoingregulatorychangesaimtocatalyzethepaceofpharmaceuticaldevelopmentintheworld’ssecond-largestpharmaceuticalmarket.19Inarecentmove,theCFDA(ChinaFoodandDrugAdministration)adoptedguidelinesfromtheInternationalCouncilforHarmonizationofTechnicalRequirementsforPharmaceuticalsforHumanUsetofurtheritsgoalofreformingthereviewandapprovalsystem.20

Simultaneously,theCFDAislookingintoseveralreformstopromote restructuring and drug innovationbyimprovingthedataprotectionpolicyforclinicaltrialdataandrevisingpatentregulations.ChinaisalsorevampingitsdrugregulatorysystemtofacilitatetheintroductionofnewtreatmentsthatareincreasinglyindemandduetoChina’sagingpopulationandtherisingincidenceofchronicdisease.ThismoveislikelytocreateagrowthopportunityforMNCsandleadinglocalinnovativedrugmakers,andisexpectedtoclosetheinnovationgapwithdevelopedinternationalmarkets.

Positivemovesontheregulatorysidearealsoreflectedintheblooming biotechnology industryinChina.Asoneofthemostdynamicandimpactfulindustries,biotechhasbecomeChina’smajorsectorofstrategicimportance.Itsrelevancehasbeenoutlinedintherecent13thFive-YearPlan,whichprojectsChina’s

biotechnologysectorwillaccountforover4%ofthecountry’sgrossdomesticproductby2020.Further,theplanenvisionscreatingupto20lifescienceparksforbiomedicinewithanoutputsurpassingUS$1.5billionh(CNY10billion).21

Toguardagainstfakeprescriptionmedicinesandthecirculationofcounterfeitdrugs,theCFDAhasreleasedadraftforbidding the online sale of prescription drugs.ThedraftlistsfinesbetweenUS$750(CNY5,000)andUS$3,000(CNY20,000)foronlineplatformsusedforanysuchsale.Additionally,itimposesstringentscrutinyofnonprescriptiondrugssoldonline.22

Despiteongoingeffortstoreformitshealthcaresectoranddrugapprovalprocess,Chinahasrecentlyexperiencedashortage of essential drugs.Asasolution,theCFDAandseveralotherGovernmentagencieshaveinitiatedconsultationswithpharmaceuticalmanufacturerstoaddresstheundersupplyof27medicinesonanationalshortagelist.AdditionallyChineseauthorities plan to expand an online monitoring network that wouldcommunicateearly-warningsignalsforshortages.Althoughmostofthelistedmedicinesaretypicallylow-pricedandlow-margined,China’srecurringdrugshortagespresentopportunitiesforinternationaldrugmakers.SomeoftheMNCshavealreadyimplementedlocalpartnershipswithChineseassociationstopromotethedevelopmentofurgentlyneededdrugs.23

hConvertedatanaveragespotrateforOctober2017;i.e.,CNY1equalsUS$0.15,accessedason05March2018

Market insights

7May 2018 |

IndiaStriving to increase access to affordable treatments and to bolster its medical devices sector

India,thethird-largestpharmaceuticalmarketinAsia,isincreasinglygainingthemuch-neededGovernmentfocusonexpandingaffordablehealthcare.Thebiggeststepinthisdirectioncameintheformofanannouncementoftheworld’slargestNationalHealthProtectionSchemeaspartoftheUnionBudgetFY19(announcedinFebruary2018).Forthis,theGovernmenthassetasideaninvestmentworthUS$307.6millioni(INR20billion)toprovidecoverageofuptoUS$7,690(INR0.5million)peryearto500millionpeoplebelongingtofinanciallyvulnerablehouseholdsforthetreatmentofseriousailments.24Further,toenhancepricecontrolmechanismsinthecountry,thegoverningbodieshaveintroducedseveralmeasuresthatareexpectedtoimpactbothpharmaaswellasthemedicaldevicessector:

• InOctober2017,theDrugPriceControlOrderproposedanamendmenttobringnonscheduleddrugsjunderitsambitandmodifythemethodofpricesettingofsuchdrugs

• InanamendmenttotheDrugsandCosmeticsAct,the CentralDrugsStandardControlOrganizationproposedmandatingdisclosureofthemaximumretailpriceaswellasex-factorypriceonmedicinesbybiopharmacompanies.Theproposalalsodeliberatedonthelabelingofthelandedpriceonimporteddrugs.25

• Afterexercisingpricecontroloncoronarystents,theNationalPharmaceuticalPricingAuthorityhasextendedpricecappingtokneeimplants,slashingthepricesby69%,therebyexpectingtoyieldsavingsofUS$240millionk(INR15billion)peryear.26

Thesechangesarecreatingapprehensionsamongtheindustryplayers.Inresponsetotherecentpricecutsandfearingtheinclusionofmoremedicaldevicesunderpricecontrol,medicaldevicecompanieshavepre-emptivelyproposedvoluntarypricecutsintrademarginsonmedicaldevices.27

Inparallel,theGovernmentremainscommittedtoestablishing India as a global manufacturing hub for medical devices with this sectorexpectedtoincreasesignificantly,reachingUS$14billionby2022.28TheGovernmenthasalreadylaidthefoundationforsuchgrowth,withtheMinistryofHealthandFamilyWelfaremovingclosertofinalizingtheMedicalDeviceRegulationBillthatentailscomprehensiveregulationoftheseproducts.29 To spearhead indigenousdevelopmentofmedicaldevices,theAssociationofIndianMedicalDeviceIndustry,inassociationwiththeGovernment,haslaunchedIndia’sfirstmedicaltechnologyinstitute,theKalamInstituteofHealthTechnology,inAndhraPradesh.TheinstituteseekstoidentifythegapsinthefieldandtostreamlineGovernmentspendingtofosterinnovationinthemedicaldevicessector.30 Additionally,toencourageforeigninvestmentinmedicaldevices,theIndianGovernmenthasbroadenedthescopeofmedicaldevicestoincludeawiderangeofitems,includingsoftwaretools,instruments,apparatus,appliances,implantsandmaterialusedaloneorincombination.31Asthenationalreadyallows100%foreigndirectinvestmentviaautomaticroute,thismoveisexpectedtofuellocalmanufacturingofmedicaldevices,therebyhelpingtoreducethecountry’sover-relianceonimports(currently,Indiaimports70%-90%ofitsmedicaldevices).

Similarly,theincreasingdemandforgenericshasresultedingrowingdependenceonChinaforactivepharmaceuticalingredients(APIs)withIndiasourcing66%ofitsAPIsfromChinainFY17.Inabidtolimit its import dependence on China for APIs, the DepartmentofPharmaceuticals,incollaborationwithpharmaplayers,hasproposedtoextendfinancialassistancetolocaldrugmakers.Theinitiativeseekstoenablepharmacompaniestoprocurethelatesttechnology,revampoldmanufacturingfacilities,refurbishplantsandmachineryandgainaccesstootherinfrastructurefacilities,suchassubsidizedelectricitytohelpcompaniesproduceAPIsatinternationallycompetitiveprices.32

i ConvertedatanaveragespotrateforFebruary2018;i.e.,INR1equalsUS$0.015,accessedason06March2018

j Drugsthatdonotfallunderthepricecontrolmechanismk ConvertedatanaveragespotrateforAugust2017;i.e.,INR1equals

US$0.016,accessedason06March2018

Market insights


JapanRevamping the drug pricing system while attempting to sustain a pro-innovation climate

TheagingpopulationofJapancontinuestobeamainstruggle,thusstrainingGovernmentbudgets.Asaresult,Japancontinuestointroducemeasuresforcostcurtailment.OnesuchexampleistheMinistryofHealth,LaborandWelfare’s(MHLW’s)targetofachievinggenericdrugpenetrationof≥80%by2020.Buildingonthisstep,theMHLWplanstointroduceaprojectinApril2018tostrengthen the use of generics in priority prefecturesthatarecurrentlyexperiencinglowuptakeofthesedrugs.33Further,inDecember2017,Japan’sCentralSocialInsuranceMedicalCouncil(Chuikyo)adopted a new drug pricing policy,overhaulingthepricingsystemforbothestablishedandnewdrugsthroughthefollowingchanges:34

• Incrementallyreduceoff-patentdrugprices.Ata10-yearmarksincetheavailabilityofgenericsand≥80%substitutionbygenerics,thepriceofoff-patentdrugswouldbeslashedto2.5xthatofgenericsandwouldgraduallycometoparwithgenericsafter6moreyears.However,ifthegenericsubstitutionisbelow80%after10yearsofavailability,theoriginatordrugpricewillfallto1.5xthatofgenericsoverthenextdecade

• Cutthepricesofinnovativeandexpensivenewdrugsbynarrowingthelistofmanufacturersanddrugsfallingundertheambitofinnovationpremiums

• Makeannual,ratherthanbiennial,revisionsofdrugfeeschedules,effectiveFY2021

Toaddresstheincreasingdisconnectandindustryobjections,theJapaneseGovernmenthassetasideabudgetforanR&Denvironmentthatfostersefficient,low-costdrugdiscovery,withthegoalofmakingJapana major power in drug discovery.Towardthatend,theGovernmenthasearmarkedmeasuresthatincludefundingstartupsorprojectsthatfacilitatetheuseofartificialintelligence(AI)indrugdevelopment;revivingaresearch-baseddrugindustry;andpromotingdrugsofJapaneseorigininglobalmarkets.35

Market insights

9May 2018 |

South KoreaCultivating a culture of innovation to create a place for itself on the global map

Asdiscussedinlastedition,SouthKoreacontinues on its journey to become a global biotech hub byexpandingthecountry’spresenceintheglobalbiotechmarketfromitscurrent1.7%to5.0%by2025andbyadding120,000newbiotechjobsby2025.36 To meetthisambitioustarget,theGovernmentisexpectedtoinvestUS$320million(KRW349billion)inbiotechin2018,a10.5%increaseover2017.Ofthetotalinvestment,approximatelyUS$60million(KRW59.4billion)istargetedforpharmaceuticalR&D,tobackdevelopmentof100noveldrugsby2026.Concurrently,theGovernment,alongwithindustryplayersandforeigninvestors,seekstocreateanR&DfundworthUS$900million(KRW1trillion)toprovidefinancialassistancetohealthcarestartupsandtoinitiateatechnologytransfercoveringtheentiredrugdevelopmentprocess.Regulatoryauthoritiesarealsoaimingtosimplifygenetherapyandorgantransplantationregulationstoaccelerateresearchandcommercializationofvariousnoveltechnologies,includingCRISPRgenescissors.37 All these measures together areexpectedtoboostdomesticbiopharmaR&D,thusenablingthesectortoemergeasanewgrowthengineforthenation.38

Inthefieldofmedicaldevices,theSouthKoreanMinistryofFoodandDrugSafety(MFDS)isworkingtowarddraftingregulations to better govern new medical devices and technologies.Recently,Governmentauthorities,includingtheMinistryofHealthandWelfare(MHW)andtheMFDS,andmedicaltechnologycompaniesagreedtoadoptanewvalue-basedevaluationsystemformedicaldevicesandrelatedtechnologies.Underthisprogram,theregulatorybodiesplantodeploy“fast-track”approvalproceduresfornext-generationmedicaldevicesandalsotoallowhigherhealthinsurancereimbursementratesforinnovativemedicaldevices,toreflecttheirvalue.39SouthKoreahasalsobecomeamemberofthe

InternationalMedicalDeviceRegulatoryForum(IMDRF)tomaintainmedicaldeviceregulationsinaccordancewithinternationalstandards.40ThesestepsarebeingtoutedtoensurethesafeandquicklaunchofinnovativemedicaldevicesinKoreaandotherglobalmarketsandtohelpSouthKoreancompaniesgainfirst-entrantadvantage.Additionally,inlate2017,theMFDSreleasedanewdraftofmedicaldevicesafetyregulationsthatupdatedadverse-eventreportingguidelines.Thisrevisiontothesafetyregulationsillustratesthecountry’sincreasedfocusonenhancingthesafetymanagementofmedicaldevices.41

Alltheabovehighlightedmeasureshavebecomenecessary,with the nation witnessing an increased adoption of innovative technologies across the life sciences sector.TheKoreaPharmaceuticalandBio-pharmaManufacturersAssociation(KPBMA)haslaunchedajointtaskforcetopurchasean AI platform to streamline the drug discovery process and improve its efficiency.Asofnow,18localdrugmakershavecollaboratedonthisinnovation.TwomorepharmacompaniesareexpectedtobeaddedtothisR&Deffortinfuture.42SamsungMedicalCenter(SMC),inpartnershipwithMicrosoftKorea,isbuildinganAI-basedprecisionhealthcaresystemtoanalyzemedicaldata,optimizeclinicaldecision-makingandestablishdisease-specificpredictionmodels.43 Tofurtheraidtheintegrationofsuchdisruptivetechnologieswithintheindustry,theMFDShasestablishedaformalapprovalcriteriaforthenewgenerationofmedicaldevicesbasedonAIandbigdatatoallowwiderpatientaccesstomoreaccuratediagnosticandtreatmentoptionsandalsotoenablecompaniestodevelopandcommercializetheirproductsinlesstimeandatalowercost.44

l ConvertedatanaveragespotrateforFebruary2018;i.e.,KRW1equalsUS$0.00093,accessedason27February2018

TaiwanSeeking regulatory harmonization to extend its regional attractiveness

Taiwancontinuestoimprovetheregulatoryenvironmentofitslifesciencessector.Recently,theTaiwanFoodandDrugAdministration(TFDA)tookafirststeptoseparate the management of medical devicesfromthePharmaceuticalAffairsActof1993byreleasingdraftregulationsformedicaldevices.Additionally,theTFDAsetupajointprogramwithJapan’sMinistryofHealth,LaborandWelfareto accelerate the review of new drugsinTaiwan.Underthe

collaboration,TaiwanwillleveragecompiledreviewsfromJapan’sPharmaceuticalsandMedicalDevicesAgencyatthetimeofdrugapprovalprocessinTaiwan,withtheapplicant’sconsent.Thisjointprogramisexpectedtofacilitatesimultaneousreviews/approvalsandreducetimetomarket,therebyraisingTaiwan’sprofileasadestinationformultinationalpharmaceuticals.45


China (mainland)

South Korea

Japan

Singapore

Australia

India

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:

Taxupdates:significantdevelopments

11May 2018 |

ChinaCustoms compliance — a challenge for cross-border supply chains

China’seconomicgrowthcoupledwithanagingpopulationisdrivingdemandinthepharmaceuticalandmedicaldevicesindustries.ThepotentialofChina’smarketisattractinganinfluxofnewcompanies,alongsideestablishedmultinationalcorporations(MNCs).Allaretryingtocapturemarketshareintheearlystagesofthegrowthcurve.

Theindustryisalsohighlyregulated,however.Strictcontrolsoverpricingandsafety/qualitystandardshavebeenimposedthroughmeasuressuchasregistrationsandlicensing).Thepracticesofrelevantauthoritiesareevolvingtoalignwithregulatoryandmarketdevelopments.Amongvariousconsiderations,customsvaluation(determinationoftheimportprice)andtradecomplianceissuesrepresentahugechallenge

Import pricing and adjustments

TheissuessurroundingimportpricingandadjustmentsbetweenrelatedpartiesapplytoallMNCswithlocalsubsidiariesinChina,butconsiderationsuniquetotheindustryplaceadditionalchallengesonpharmaceuticalandmedicaldevicecompanieswithimportoperations:

• ►TheGovernmentusedtorestricttheprofitmarginearnedbypharmaceuticalsdistributorstoa“reasonable”range.Althoughtherehavebeenchangestothepreviousrestrictionsinrecentyears,increasedtransparencyrequirementshaveplacedadditionalpressuresonMNCstofindthebalancebetweentheirimportpriceandcorrespondingdomesticsalesprice.Forexample,giventherequirementtodisclosepricingateachstepinthesupplychain,distributorsmightbeaskedtofurtherreducebidpriceifitisconsideredunreasonablyhighcomparedwiththeirimportprice.

• ►PharmaceuticalandmedicaldevicecompaniesusuallyincurconsiderablemarketingandadvertisingexpenditureinordertogeneratelocalsalesandgrowmarketshareinChina.SuchexpendituresalsoincreasinglyattractclosescrutinyfromCustoms,particularlyconcerningthenatureand“appropriateness”ofthesecostswhentheimportertriestosupporttheirimportpricefromtheChinaside(e.g.,throughthesubtractive/deductivevaluationmethod,similartotransferpricing’sresaleminusapproach).

• ►Itistypicalfordistinctproductstoearndifferentprofitmargins;andpre-andpost-marketspecialist/technicalsupportservicesmayalsoneedtobefactoredintotheproductpricing(especiallyformedicaldevices/consumableproducts).However,theprofitmarginvarianceamongdifferentproducts/categoriesremainsachallengewhenhavingvaluationdiscussionswithCustoms.

• ►WehaveseensomeMNCsswitchtheirimport/distributionarrangementsfromthird-partytorelated-partydistributors(orviceversa)forcommercialandcompliancereasons—forexample,toensurethattheirdistributorhasacurrentGoodSupplyPracticelicense).Associatedwiththeimport/distributionmodelchange,anyincreaseordecreasetotheimportpricemeansthatCustomsmayimposeanadditionalassessmentiftheimportercannotprovidesupportablejustificationfortheimportpriceadjustment.

Also,withgreaterlocalization,thereisatrendforpharmaceuticalcompaniestosendproductsinbulkforproductioninChina.Ifthereisasignificantreductionintheimportprice,thismaybequestionedbyCustomsbecausethereductionmaynotbefullysupportable,especiallywhentheproductionmovedtoChinaislimitedtominorprocessing(e.g.,repacking).CustomsauthoritiesareincreasinglylookingatthefunctionsandrisksoftheChinesesubsidiariesfrombothacustomsandtransfer-pricingperspective.Whereachangeinbusinessmodeltakesplace,e.g.,onshoringoffunctionsandrisks,anddocumentationofthechangeisrequiredfortransferpricingpurposes,itisimportanttobearinmindthatCustomswillscrutinizethereporttoseeifthepricereductionsarereasonable.Thereappearstobeaneedforgreateralignmentbetweencustomsandtransferpricing.TherearemanycaseswheretheinconsistencieshavetriggeredanimmediateCustomsaudit.

• ManymajorpharmaceuticalandmedicaldevicecompaniesthathavepreviouslyhadvaluationdiscussionswithCustomsarenowrequiredtoprovideofficialswithanannualupdateontheirfinancialresultsandtokeepthemapprisedofanychangestotheirimportpricingarrangements.Thisincreasestheimporters’complianceburdenandtheriskofmismanagingthecustomsvaluationappraisal(asensitivetopicinChina)onanongoingbasis.

Fromtheimporters’side,manycompaniesreviewtheirfinancialresultswhenclosingthefiscalyear,whichmaynecessitateayear-endtrue-uportrue-downofthepast12months’importtransactions.Insituationswhereatrue-upisrequired,thiswillleadtoanoutstandingdutyand/orimportvalue-addedtax(VAT)liabilitythatmustbesettledwithCustoms.

Equallyimportant,theimporterwillalsohavetoobtaintheimportdeclarationdocumentscorrespondingtothetrue-upadjustment,inordertosupporttheoverseaspayments.Todate,Customsdoesnothaveanestablishedmechanismtofacilitatethisyear-endadjustmentprocess,resultinginthepotentialfor“trappedcash”inChina,butwenotethat(onatrialbasis)therehavebeendiscussionsbetweenCustomsandimporterstoexplorewaystosetupaformalprogramtosatisfythisneed.

Inadditiontotheabove,ChinarecentlyrestructureditsCustomsclearanceadministrationbycreatingTariffCollectionandAdministrationCenterstocentralizethemonitoringofimportdeclarationsnationwide.Thecenterssegregateresponsibilities


basedontariffchaptersinordertotakeanindustry-focusedapproach.Consequently,thisreformwillcontinuetoresultin moreinquiriesbeingreceivedbyimportersbecausethischangeallowsCustomstoassesstheimportdata/informationforpharmaceuticalandmedicaldevicecompaniesindifferentportsthroughoutChina,therebyestablishingindustrybenchmarksthatwillbeappliednationwide.

Onapositivenote,CustomshasimplementedanAdvanceRulingprogramthatenablesimporterstoapplyforaformalrulingoncustomsvaluation.Thus,successfulapplicantsmaygainmorecertaintyabouttheirimportpricingarrangements,dutycostsandcustomscompliancerisks,giventheabovementionedimportpricingissuesfacingmanyMNCs.However,thisinitiativeistoonewtojudgeitseffectiveness.

Clinical trials

Clinicaltrialscomplicatethecustomsvaluationprocessandareuniquetothepharmaceuticalindustry.BeforeanypharmaceuticalproductcanbeintroducedintotheChinesemarket,itmustundergoaclinicaltrialinChina.

Fortheimportationofclinicaltrialmaterials,manyfactorsmustbeaddressedtoensuresmoothclearancethroughCustoms.Considerationsincludelicensingissuesandcustomsvaluation.

IntheCustomsvaluationprocess,clinicaltrialmaterialsarenotyetcommercialized(i.e.,nosalesprice),sothetransactionvaluemethod(thepreferred,mostcommonlyusedcustomsvaluationmethod)cannotbeused.Therefore,boththeimporterandCustomsmustassessareasonablecustomsvalueforclinicaltrialmaterials.Thismaybeachievedbyusingoneoftheothercustomsvaluationmethods,buttheactualapplicationofanalternativemethodtendstobemorecomplicatedtoimplementinpractice.Difficultiesincludethematterofhowtodetermineareasonableresearchanddevelopmentcostforinclusioninthedutiablevalue;anotherquestioniswhetheritisappropriatetoreferenceanothercountry’simportpriceforassessmentpurposes.

Thiscontinuestocreatechallengesformanypharmaceuticalcompaniesattemptingtointroducenewproductsintothe Chinesemarket.

The two-invoice system

Thisisahottopicforhigh-valuemedicaldevices/consumablescompanies.TheGovernmenthasimplementedthetwo-invoicesystemforthepurposesofremovingsuperfluoustiersofdistributorsfromthesupplychain,toreducepricespaidbyconsumers/patients.

Forimportedmedicaldevices/consumablescompanies,thetwo-invoicerequirementmeansthereareonlytwotransactionlayersbeforetheproductsaresoldtohospitalsand/ormedicalservice

providers:fromtheimporter/nationaldistributortotheregionaldistributor,andthentothehospital.

Thisisunliketraditionalsupplychainmodels,whichgenerallyinvolvemultiplelayersofdistributorsbecauseofthehighdemandforpre/postmarketsupport(e.g.,specialist/technicalsupportservices).ThischangerequiresMNCstostrategicallyrevisittheircurrentcross-bordertransactionarrangementsandtheassociatedimportpricingstructure.Onceagainanybusinessmodelchangeshouldhavethefunctionalandrisksprofilechangesreflectedinthepricesandmarginsoftherespectiverelatedparties.

Conclusion

WhilethelargeandlucrativeChinesemarketpresentsabundantopportunitiesforMNCs,Customspresentsnumerouschallengesforimporters’cross-borderbusinessoperations.

Customsisfocusingparticularscrutinyontheimportationoflifescienceproducts.Companiesmustbeproactiveanddiligentaboutevaluating and developing strategies for addressing risks related to bothCustomsvaluationandtradecompliance.

Bryan Tang,Partner,IndirectTax,Ernst&Young(China)[email protected]

Joanne Su,Partner,TransferPricing,ChinaLifeSciencesTaxCo-LeaderErnst&Young(China)AdvisoryLimited [email protected]

Titus von dem Bongart,Partner,Ernst&Young(China)AdvisoryLimited,EYLifeSciencesTaxCo-Leader,China [email protected]

South KoreaControversy trends

Overall tax audit environment On31January2018,theSouthKoreantaxauthorityannounceditstaxadministrationpolicyfor2018.Majoritemsincludereductionoftaxauditsonsmallandmedium-sizedcompanies,andheightenedscrutinyoflargeSouthKoreanMNCsandtheirnonprofit-affiliatedcompaniesfortaxevasionandillegalmeansofwealthtransfer.Inaddition,thetaxauthorityannouncedthatitwillreducetheteamoftaxauditorswhomainlyperformspecialtaxaudits,whicharesimilartodawnraids.Theauditorsdonotprovidecompaniespriornotice.Theytargetcompaniessuspectedofengagingintaxavoidance/criminaltransactionsorwithissuesofsignificantconcernorfocusforthetaxauthority(e.g.,managementservicefees,beneficialownership,taxcredit/exemption,guaranteefeeforanintercompanyloan,etc.).Assuch,thenumberofspecialtaxauditsisexpectedtograduallydecrease.


13May 2018 |

Asfarasthepharmaceuticalindustryisconcerned,thetaxauditorscontinuetofocusonpharmaceuticalcompanies’disbursementsmadeforsalespromotionactivitiesandthoseforfacilitationofrelationshipswithdoctorsandpharmacists.ItisoftenthecasethatpharmaceuticalcompaniesareassessedadditionaltaxesandpenaltiesinataxauditforthesetypesofdisbursementsandresorttofilingataxappealwiththeTaxTribunalandthentothecourt(ifnotsuccessfulattheTaxTribunallevel).

Inparticular,withtheintroductionofSouthKorea’snewhealthcarereform“K-SunshineAct,”localpharmaceuticalcompanieswouldberequiredtokeeprecordsofallbenefits(e.g.,samples,researchsubsidies,foodandbeverages)providedtodoctors,pharmacistsandotherhealthprofessionals.DuetotheK-SunshineActtakingeffecton1January2018,thetaxauthoritywillrequiredetailedexpensereportsalongwithsupportingdocumentsinfuturetaxaudits.Pleasesee“Sectorimpactsofthelegislationchange”forfurtherdetails.

Tax appeals and litigation Asmentionedabove,somepharmaceuticalcompanieshavefiledtaxappealswiththeTaxTribunalorthecourt.Suchappealsarerelatedtoissuesovertheeconomicbenefitsprovidedtodoctorsandpharmacists,intercompanytransactions,salescommissionspaidtocontractsalesorganizations(CSOs),etc.

Althoughtheoutcomeofthemajorityoftaxappealcasesisyettobefinalized,therewasaTaxTribunalcasethatruledinfavorofthetaxpayer.Thecaseconcernedthedeductibilityofexpensesrelatedtolocalsalespromotionactivities.AccordingtothedecisionissuedbytheTaxTribunal,apharmaceuticalcompany’sdisbursementsrelated to meals and drinks served in a restaurant to a group of doctorsandpharmacistsmaybeviewedasadeductibleexpenseifthereissufficientsupportingevidence,suchasdocuments.Thetribunalsaidtheevidencemustsubstantiatethattheseminarsorsalespromotioneventswereheldtointroducenewproductsortoexplainusageofthedrugs.Inpasttaxaudits,suchdisbursementsweredisallowedasadeductionandwerere-classifiedasanentertainmentexpense,whichissubjecttoastatutorydeductibilitylimit.Giventhis,pharmaceuticalcompaniesshouldrevisitthenatureoftheirdisbursementstoidentifythosethatmayqualifyasadeductibleexpenseandprepare/maintainsupportingdocuments.

Sector impacts of the legislative changeSouthKoreaenactedthe2018taxreformbillon19December2017,(the2018TaxReform)afteritwaspassedbytheNationalAssemblyon5December2017.The2018TaxReformalsoincludesprovisionsinlinewiththeOrganisationforEconomicCo-operationandDevelopment(OECD)BaseErosionandProfitShifting(BEPS)Action2(toneutralizetheeffectsofhybridmismatcharrangements)andAction4(tolimitbaseerosioninvolving


interestdeductionsandotherfinancialpayments),amongothers.Unlessotherwisespecified,the2018TaxReformwillgenerallybecomeeffectivefromfiscalyearsbeginning1January2018.TheEnforcementDecrees,whichprovidemorespecificguidanceonthelaws,werepromulgatedon13February2018.

The2018TaxReformaimstocreatejobs,redistributewealthandexpandthetaxrevenuebase.Duetothe2018TaxReform,manytaxpayerswouldbeexpectedtopaymoretaxesastheoveralltaxcutsanddeductionswilldecreaseandthetaxratesforbothcorporationsandindividualswillincreasefrom1January2018.Majortaxlawrevisionsinclude:

Effectiveforfiscalyearsthatbeganon1January2015,certaincorporationsweresubjecttotheAETthatexpiredasof31December2017.Underthe2018TaxReform,certaincorporationswillbesubjecttoarevisedAETregimeeffectiveforfiscalyearsbeginningon1January2018withasunsetclauseduetoexpire31December2020.MajorchangesintherevisedAEToverthepreviousprovisioninclude:

• ►Thetaxrateappliedonaccumulatedearningsisincreasedfrom11%to22%(inclusiveoflocalincometax).

• ►Dividends,unlikeinthepreviousprovision,wouldnolongerbeusedtodecreaseaccumulatedearnings.

AsinthelegacyAETregime,therevisedAETwouldapplytolargecorporationswhoseequitycapitalexceedsKRW50billionorcorporationsthataremembersofanenterprisegroupwithrestrictionsonmutualinvestment.AETmaybereducedbymakingqualifiedinvestments,payrollincreasesanddisbursementsencouragingthemutualgrowthoflargecorporationsandsmallandmid-sizedenterprises.

Expansion of qualified reasons for issuing revised import VAT invoicesEffectivefrom1January2018,qualifiedreasonsthatallowtaxpayerstobeissuedrevisedimportVATinvoiceshavebeenexpanded.Beforetherevisionofrelevanttaxlaw(i.e.,Article35oftheValueAddedTaxLaw(VATL)),thecustomsauthorityissuedrevisedimportVATinvoicesinoneoftheseinstances:

• Thetaxpayermadeamendedfilingsonavoluntarybasis(i.e.,notasaresultofadditionalassessmentofcustomsduty).

• Thetaxpayerwasassessedadditionalcustomsdutyormadeamendedfilingsinanticipationofadditionalcustomsdutyassessment,etc.(i.e.,inacustomsauditsituation),providedthatthereasonforadjustmentofcustomsdutybasemeetstheconditionsprescribedundertheVATL.ThequalifiedconditionsundertheVATLincludebyreasonofsimplemistakeoftheimporter,oriftheimportercansubstantiatethatnofaultlies withhim.


DuetotherevisionoftheVATL,minornegligenceoftheimporterhasbeenaddedasaqualifiedconditionunderwhichthecustomsauthoritymayissuerevisedVATinvoicesinacustomsauditsituationdescribedabove.

Implementation of the new K-Sunshine ActTheSouthKoreanGovernmentintroducedthenewhealthcarelegislationrequiringlocalpharmaceuticalandmedicaldevicecompaniestokeeprecordsofallbenefitsprovidedtohealthprofessionalssuchasdoctorsandpharmacists.Suchbenefitsinclude,forexample,samples,researchsubsidies,andfoodandbeveragesprovidedduringdetailingandsalespromotion-relatedmeetings.ThenewlegislationiscalledtheK-SunshineActbecauseofitssimilaritiestothePhysicianPaymentsSunshineActintheUS.Itspurposeistobringtransparencyandstabilitytothemarket.

TheK-SunshineActrequiresthecompaniestoestablishandmaintainanexpensereportingsystemtocollecttherelevantdata.Thecompaniesshouldprepareanexpensereportandsupportingdocumentswithinthreemonthsfromtheendofeachfiscalyearandshouldretainthemforfiveyears.IfrequestedbytheMinistryofHealthandWelfare(MOHW),thecompaniesshouldsubmittheseitemstotheMOHW.Theinformationcouldmaybeusedtoinvestigatewhethertherelevantpartieshavebeeninvolvedinanillegalkickbackscheme.FailuretosubmittheexpensereportandsupportingdocumentsuponMOHW’srequestwillresultinafineofonlyKRW2million(lessthanUS$2,000).However,noncompliancewouldlikelyresultinintensivescrutinyfromtheauthoritiesand/ortriggerotherinvestigations.

Intheshort-term,theK-SunshineActmaydiscouragesalesandpromotionactivitiesintheindustrybyreducingthefrequencyofcontactwithdoctorsandpharmacists.Also,pharmaceuticalandmedicaldevicecompanieswouldneedtomakeinvestmentstoestablishtheexpensereportingsystemandtoprepareandmaintainrequireddocuments.However,inthelong-term,despitesuchconcerns,somepharmaceuticalcompaniesareinfavoroftheK-SunshineAct,sayingitcouldhelpthemmonitortheirexpenses,detectanyimmoralbusinessconduct,andprotectthemagainstfalsecharges.

FromaSouthKoreantaxperspective,non-deductiblesalesandpromotionexpenseswilldeclineifpharmaceuticalandmedicaldevicecompaniesmoveawayfromface-to-facemarketingandpromotiontofocusononlinesalesandmarketing.

Pharmaceuticalandmedicaldevicecompaniesshouldconsiderinvestingsufficienttimeandefforttosetupanexpensereportingsystemandtomaintainsupportingdocumentstobepreparedintheeventofataxaudit.

BEPS update

Automatic exchange of CbCRSouthKoreaisasignatoryoftheMultilateralCompetentAuthorityAgreement(MCAA)ontheexchangeofcountry-by-countryreports(CbCR).Ithasactivatedexchangerelationshipswith51jurisdictionsasofDecember2017,accordingtotheOECD.IfanexchangerelationshipisnotactivatedbetweenSouthKoreaandthetaxjurisdictionoftheultimateparententity,aCbCRnotificationformshouldbesubmitted.Theform,statingthesurrogatefilingentity,shouldbesubmittedtotheSouthKoreantaxauthoritywithin6monthsfromtheSouthKoreanentity’sfiscalyear-end.IftheCbCRnotificationformisnotfiledtotheSouthKoreantaxauthoritywithinthestatutoryduedate,theCbCRformmustbesubmittedtotheSouthKoreantaxauthoritywithin12monthsfromtheSouthKoreanentity’srelevantfiscalyear-end.

Filing of CbCR in South KoreaInNovember2017,theSouthKoreantaxauthorityissuedaguidelineindicatingthattheCbCRfilingshouldbemadeviae-filing,throughaportalcalled”AXIS.”ThepersonresponsibleforuploadinginformationinHomeTax(i.e.,anelectronictaxreturnfilingportal)shouldgotothewebsiteandprovideanemailaddress.After2-3days,anemailwithanIDandpasswordforloggingontotheAXISportalwillbeprovided.Anelectroniccertificate,orkey,isalsorequiredtologon.

ExceptionsapplytoSouthKoreanentitiesthatceasedoperationsduring2017andaresubjecttofilingCbCRinSouthKoreaby theendof2018.Theseentitieswouldbeallowedtosubmit CbCRtotheSouthKoreantaxauthorityviaemail,giventheirspecialcircumstance.

Key amendments to transfer pricing regulations• ►Pursuanttothe2018TaxReform,thepenaltiesimposed

ontaxpayerswhofailtofilemasterfile/localfile/CbCRorwhofilefalseinformationincreasedfromKRW10millionperdocumentationtoKRW30millionperdocumentation.Thisrevisedpenaltyregimewillbeapplicablefrom13February2018.

• AtaxpayerwhowishestoobtainanAdvancePricingAgreement(APA)onorafter1January2019willberequiredtofiletheAPAapplicationby31December2018.


15May 2018 |

• ►Effectivefromfiscalyearsbeginningon1January2018,taxpayerswhofilelocalfilewithinthestatutorydeadline(i.e.,within12monthsfromthefiscalyear-end)willbegrantedawaiveroftheunderreportingpenaltyinthosecaseswheretransferpricingincomeadjustmentismadeasaresultofataxaudit.Anunderreportingpenaltyisgenerallycomputedas10%oftheunderreportedtaxamount.Beforetheamendment,SouthKoreanentitiesthatpreparedcontemporaneoustransferpricingdocumentationandsubmittedittogetherwiththeannualcorporateincometaxreturnbythestatutoryfilingduedate(i.e.,3monthsfromfiscalyear-end)wereeligibleforthewaiver.

Jae Cheol Kim,SouthKoreaLifeSciencesTaxLeader EYHanYoung(SouthKorea) [email protected]

JapanJapanese tax audit developments

WecontinuetoseeJapanesetaxauthoritiesincreasingtheirlevelofscrutinyduringtaxaudits.Areasofparticularfocusincludetransferpricing(TP),donationincomeandexpensechallenges,Japan’scontrolledforeigncorporation(CFC)rules,andR&Dtaxcredits.

JapanesecompaniescontinuetopursueoverseasM&Aopportunities.ThetargetcompanyoftenhasdifferentTPpoliciesfromtheacquiringcompany,anditcantakeseveralyearsfortheJapanesecompanytoreconciletheTPpoliciesofthetargetwiththatofitsown.Wherethereareinconsistencies,weseetheJapanesetaxauthoritieschallengingthetaxpayerstransferpricingandmakingadjustments.Asaresult,moreJapanesecompaniesareapplyingforAPAs,withanemphasisonbilateralAPAs.Further,Japanesecompaniesareincreasingthesizeoftheirin-housetaxdepartmentsinJapan,partlytodealwithincreasedobligationsresultingfromJapan’sadoptionoftheBEPSTPdocumentationrequirementsofcountrybycountryreporting,masterfileand localfile.

UnderJapanesetaxlaw,donationincomeandexpensesmayberecognizedwhereatransactiontakesplaceatapricethatisnotequaltothefairmarketvalueofthegoodsorservices.Adonationcantakeplacebetweentwothirdparties,evenwherethereisnocommonownership.Apartythatreceivestheeconomicbenefitshouldrecognizedonationincome,whichistaxable.Forexample,donationincomecouldberecognizedbyaJapanesecompanythatpurchasesgoodsorservicesforlessthanfairmarketvalue.Thepartythatprovidesaneconomicbenefitwouldrecognizeadonationexpense.Thetaxdeductibilityofacompany’stotalannualdonation


expensesisseverelyrestricted.Forexample,whereaJapanesecompanybearsthepromotionalexpensesofaglobalcampaignforaproduct,Japanesetaxauthoritiesmaychallengethedeductibilityoftheexpensesbyarguingthattheoverseassubsidiariesshouldhavebornesomeoftheexpenses.Inaninboundcontext,year-endTPadjustmentscanbechallengedasanondeductibledonationexpensewherethereisinadequatedocumentation,includinganagreementmadeinadvance.WeareseeingtaxexaminerschallengingtransactionswithrelatedpartiesusingthedonationincometheoryratherthanTP.Thiscanhaveadverseconsequences,becauseadonationincomeadjustmentisnoteligibleforacorrespondingadjustmentunderataxtreaty,raisingthepotentialfordoubletaxation.

TheJapaneseCFCruleschangedasof1April2018toincludepapercompanies,cashboxcompaniesandcompaniesonacountry“blacklist”potentiallytobeclassifiedasCFCsiftheireffectivetaxratefortheyearisunder30%.Underthepreviousregime,theeffectivetaxratetestwasunder20%.Althoughthereisanexceptionforcompanieswithanactivebusiness,thenewregimewillcapturemoresubsidiaries.WiththeUScuttingitsfederalcorporatetaxrateto21%,itispossiblethatsomeUScompaniesmaybeconsideredCFCs.Asaconsequence,JapanesecompaniesarereviewingtheirglobalstructurestoidentifyCFCriskand,wherepossible,arerestructuring.Weexpecttaxauditactivityinthisareatoincreasein2018and2019.

JapanoffersgenerousR&Dcredits,whichcansubstantiallyreduceacompany’seffectivetaxrate.AcompanymayclaimanR&Dcreditforupto20%(orhigherincertaincases)ofitsJapanesecorporatetaxliabilityfortheyear.JapanesetaxexaminerscontinuetofocusontheeligibilityofqualifyingexpendituresfortheR&Dcredit,includingreviewingindetailpersonnelcostsanddepreciationofequipment.OneoftheconditionstoqualifyfortheR&DcreditisthattheJapanesecompanymustbetheeconomicowneroftheresultingIP.Hence,inaninboundsetting,aJapanesecompanythatperformscontractR&DservicesforanoverseasgroupcompanyisnoteligiblefortheR&Dcredit.

US tax reform and Brexit

UStaxreformisgeneratingkeeninterestfromJapanesecompanies.ManyJapaneselifesciencescompanieshavesubstantialoperationsintheUS.ThefundamentalreformiscausingJapanesecompaniestoreviewtheimpactnotjustontaxliabilitiesbutalsoonthesupplychain.Forinstance,oneareabeingconsiderediswhetheritmaybebeneficialtodevelopintellectualproperty(IP)intheUS,oreventotransfercertainIPfromJapantotheUS.Thismaybeattractiveintermsoftheapplicabilityofthenewbaseerosionandanti-abusetax(BEAT),aswellastheforeignderivedintangibleincome(FDII)provisions.



Efforts to foster innovation

• ►Tosupportbusinessesinbuildingtheirowninnovations,thetaxdeductionforlaborcostsandconsumablesincurredonqualifyingR&DprojectsperformedinSingaporewillbeincreasedfrom150%to250%.Thischangewillbecomeeffectivefromtheyearofassessment(YA)2019toYA2025.

• ►Toencouragebusinessestoregisterandprotecttheirintellectualproperty(IP),theexisting100%taxdeductiononqualifyingIPregistrationcosts,whichisscheduledtoexpireafterYA2020,willbeextendedthroughYA2025.Further,thetaxdeductionwillbeincreasedto200%forthefirstSGD$100,000ofqualifyingIPregistrationcostsincurredforeachyearofassessment.ThischangewillbecomeeffectivefromYA2019toYA2025.

• ►Tosupportbusinessesinbuyingandusingnewsolutions,theexisting100%taxdeductionforqualifyingIPin-licensingcostswillbeincreasedto200%forthefirstS$100,000ofqualifyingIPin-licensingcostsincurredforeachYA.QualifyingIPin-licensingcostsincludepaymentsmadebyaqualifyingpersontopubliclyfundedresearchperformersorotherbusinesses.Theyexcluderelatedpartylicensingpayments,orpaymentsforIPwhereanyallowancewaspreviouslymadetothatperson.ThischangewillbecomeeffectivefromYA2019toYA2025.

TheabovemeasureswillbeawelcomereliefforlifesciencescompaniesthatinvestheavilyinR&D.Theproposed250%R&Dtaxdeductiondoesnotimposeacaponqualifyingexpenditures.Therefore,lifesciencescompaniesincurringsignificantR&DexpendituresonqualifyingR&DprojectsperformedinSingaporewillbeabletocorrespondinglyenjoygreaterbenefits.

Proposed enhancements and adjustments

TheStart-UpTaxExemption(SUTE)schemewillbeadjustedtoprovidefora75%exemptiononthefirstSGD$100,000ofnormalchargeableincome(NCI)anda50%exemptiononthenextSGD$100,000ofNCI.Allotherconditionsoftheschemeremainunchanged.ThischangewilltakeeffectonorafterYA2020forallqualifyingcompanies.

ThePartialTaxExemption(PTE)schemewillbeadjustedtoprovidefora75%exemptiononthefirstSGD$10,000ofNCIand50%exemptiononthenextSGD$190,000ofNCI.AllotherconditionsofPTEremainunchanged.ThischangewilltakeeffectonorafterYA2020forallcompanies(exceptthosethatqualifyfortheSUTEscheme)andindividuals.

• ►Theexisting250%taxdeductionforqualifyingdonationsmadebetween1January2016and31December2018willbeextendedfordonationsmadeonorbefore31December2021.

AstheUKandEUcontinuetonegotiatethetermsofBrexit,itwasannouncedthattheEuropeanMedicinesAgency(EMA)willmovefromLondontoAmsterdamby30March2019.Japaneselifesciencescompaniesareevaluatingtheimpactofthisrelocation,alongwithtaxchangessuchasthelowercorporatetaxratesintheUKandsomeEUcountries,aswellasthestricterJapaneseCFCrulesmentionedabove.Somecompaniesmayconsidermovingcertainoftheiroperations,suchasregulatoryaffairs,fromtheUKtotheNetherlandsorotherEUcountries.However,thiswilldependonthetermsofthefinalBrexitagreement,astheUKhasindicatedthatitwishestoremainapartofEMA.

Jonathan Stuart-Smith,Partner,EYJapanLifeSciencesTaxCo-Leader Ernst&YoungTaxCo.(Japan) [email protected]

Tatsuhide Kanenari,Partner,EYJapanLifeSciencesTaxCo-Leader,TransferPricing,Ernst&YoungTaxCo.(Japan) [email protected]

SingaporeBudget accounts for major changes

Singapore’sFY2018budget(1April2018to31March2019) setsforthastrategicandintegratedplantopositionthenationforthefuture,whichisexpectedtobringthreemajorshiftsinthecomingdecade:

1.AshiftinglobaleconomicweighttowardAsia

2.Emergenceofnewtechnologies

3.TheagingpopulationofSingapore

Healthcarewasidentifiedasakeyareaofexpendituregrowth.SingaporehasmorethandoubleditshealthcarespendingfromSGD$3.9billionin2011toanestimatedSGD$10.2billionin2018.Inthecomingdecade,withanagingpopulationandtheattendantincreaseinchronicdiseases,Singaporewillneedtobuildmorehospitals,nursinghomesandeldercarecenterstomeettherisingdemandandmustalsoinvestinnewmedicaltechnologiestoimprovequalityofcare.Thiswillcausehealthcarespendingtoincreasefrom2.2%ofgrossdomesticproduct(GDP)toalmost3%ofGDPoverthenextdecade.

Lifesciencescompanieswillhavetremendousopportunitiestoworktogetherwiththedifferentstakeholders—payers,providers,technologyinnovatorsandothers—tocreatescalablesolutionsforsustainableaginginthelongrun.

17May 2018 |

meansoftheStreamlinedTaxAssuranceReview(STAR)projectonthe“Top1000”Australiancompaniesiftheyhavenotbeencoveredbyatargetedreview.

Insomerespects,thereisnotahugedifferenceintheworkloadthatcompaniesexperiencebetweentheseparallelstreams(particularlyattheriskreviewandSTARstage).Numerouspharmaceuticalcompanieshavebeencaughtupinthefirststreamandaresubjecttovarious“products”fromtheATO,includingclientriskreviewsandaudits.Fortaxpayerscaughtupinthesecondstream,theremaybesomereservationsabouthowstreamlinedtheSTARprocessreallyis—insomeinstances,itmayappeartobeascomprehensiveastheotherproductsbutwithashortertimeframe.Havingsaidthat,theSTARprojectisrelativelyembryonic—astheATObeginstoprocessmoreandmoretaxpayersthroughit,efficienciesmayemerge.

AkeyfeatureofboththesestreamsistheATO’sfocusontransferpricing.OneareaofscrutinyrelatestothevalueofthecontributionsmadebylocalteamsinAustraliawithregardtoregulatorysupport(forgettingproductsregisteredwiththeTherapeuticGoodsAdministration(TGA)andmaintainingthoseregistrations)andmarketaccess(forgettingproductsfundedbywayofthePharmaceuticalBenefitsScheme(PBS).Thisisaninterestingareaasitisnotuncommonforamultinationalcompanytoconsiderthatthevastbulkofthecontentthatgoesintotherelevantsubmissionsisundertakenoffshore.However,thissometimesappearstobeatoddswiththeATO’sviewthatthelocalemployeesmaybeprovidingsignificantvalueinpreparingthesesubmissionsandinrespondingtoqueriesfromtheTGAandPharmaceuticalBenefitsAdvisoryCommittee(PBAC).

Inthisregard,theATOmayconsiderthattheworkofthelocalAustralianemployeesineffectproducesanintangibleassetthatmaybelabeleda“marketingintangible”ora“regulatoryintangible.”Therearenumerousconceptualdifficultieswithsuchanargument,becauseitgivesrisetoseveralquestions.Forexample,doesanasset(asdefinedusingaccountingstandards)arisefromtheactivitiesofthelocalAustralianemployees?Ifso,canitberecognizedforaccountingpurposes?IsthisreallyjustpartofthegoodwillofthelocalAustraliancompanyratherthanaseparateidentifiableasset?Ifitisanasset,canitbeusedtobolsterthethincapitalizationpositionofthelocalAustraliancompany?

Noneofthesequestionsareeasytoanswer,anditisnotsufficienttoconsiderjustthefirstlevelofimpact(i.e.,thecreationofanasset)withoutthinkingthroughalloftheconsequentialissuestofollow.

Theabovedebatealsoappliestoareasoutsideanypotential“marketingintangible”or“regulatoryintangible.”ExamplesincludeclinicaltrialswherethelocalAustraliancompanymayhelptoconductoroverseeclinicaltrialsundertakeninAustraliathathavebeendevisedoffshore.


• Agoodsandservicestax(GST)willbeimplementedon1January2020onimportedservicesconsumedinSingapore.Business-to-businessimportedserviceswillbetaxedviaareverse-chargemechanism.Onlybusinessesthatmakeexemptsuppliesordonotmakeanytaxablesuppliesneedtoapplythereversecharge.Thetaxationofbusiness-to-consumerimportedserviceswilltakeeffectthroughanOverseasVendorRegistration(OVR)regime,whichrequiresoverseassuppliersandelectronicmarketplaceoperatorsthatprovidelocalconsumerswithsignificantsuppliesofdigitalservicestoregisterwiththeInlandRevenueAuthorityofSingaporeforGST.

ThisisconsistentwithrecommendationsprovidedbytheOrganisationofEconomicCo-operationandDevelopmentandaimstoleveltheplayingfieldforlocalsuppliers.

• ►Tosupporttheexpectedincreaseinhealthcare,securityandothersocialspending,theGSTratewillberaisedfrom7%to9%during2021and2025.Theexacttimingwilldependonthestateoftheeconomy,growthofthecountry’sexpenditures,andhowbuoyanttheexistingtaxesare.

Tan Ching Khee,Partner,Ernst&YoungSolutionsLLP,SingaporeLifeSciencesTaxLeader [email protected]

AustraliaInsights into the direction, tools and activities of the Australian Taxation Office (ATO)

IntheOctober2017EY Life Sciences Report,wecommentedthatthelifesciencessectorcontinuedtoremainafocusareafortheAustralianTaxationOffice(ATO),andwesetoutsomeoftheviewsespousedbytheATOpharmaclusterinameetingwithEYinlate2017.Inthisarticle,wehavegazedintothecrystalballandprovidedfurtherinsightson:(i)wherewebelievetheATOisproceedingwiththelifesciencessector;(ii)ourviewsontheATO’sapproachtotheartofinformation-gatheringand(iii)ourviewsontheATO’sincreasingarsenaloftoolsattheirdisposalfordealingwithtaxpayerstheydeemdifficult.

Where is the ATO going with the life sciences sector?

TheATO’sfocusonthelifesciencessector,inparticularthepharmaceuticalsubsector,occursthroughtwoparallelstreams—thefirststreaminvolvesaseriesofriskreviewsandauditsofhigh-profilecompanies,andthesecondinvolvesreviewsofcompaniesby



So,theobviousquestioniswhathappensiftheATOargumentsarecorrectandthereissomesortof“additional”localassetasdiscussedabove?Ifsuchargumentsaretrue,itmaymeanthatthecharacterizationofthelocalAustraliancompanyshouldbemodifiedtoincludetheprovisionofsuchservices.ThatwouldlikelyleadtotheconclusionthatthelocalAustraliancompanyshouldberewardedappropriatelyforsuchservices.Assuch,thismaymeanthatthereturnsthatAustraliancompaniesinthelifesciencessectorpreviouslyderivedmayneedtobeincreased.

ItwillbeinterestingtoseewhethertheparallelreviewactivitybytheATOwillculminateinthisoutcomeandwhetherthiswillbecomeabroaderindustrytrend.Ifso,thiswillhaveknock-onconsequences,especiallywherethelocalcompanyhasaninternationalrelated-partytransactionwithacompanyresidentofacountrythathasconcludedadoubletaxtreatyinAustralia—inthesecircumstances,themutualagreementprocedure(MAP)provisionsoftherelevanttreatymayneedtobeinvokedtoensurethatdoubletaxationdoesnotarise.

Information-gathering by the ATO

Asnotedabove,theATOisconductingasignificantamountofreviewactivityonAustraliantaxpayersinthelifesciencessector.Inthisregard,itmightappearthattheATOhasforgottenallthatithaslearnedaboutthelifesciencessectorand,inparticular,thepharmaceuticalindustry,throughreviews,consultativeprojectsandclusteractivitiesoverthelast20years.

Historically,theATOapproachwastoaskwrittenquestionsandforcompaniestoprovidewrittenresponses,whichweregenerallyaccepted.Suchresponseswereonlyassertionswithoutspecificsupportingevidence.Thisdoesnotsuggestthatsuchassertionswereincorrect,ascompaniesgenerallyunderstoodtheirobligationtorespondtruthfully.

However,theATO’sadoptionofan“assurancemodel”basedontheconceptof“justifiedtrust”(asdiscussedintheOctober2017report)hasflippedthisnotiononitshead.ATOauditorsarenowrequiredtohaveassuredthemselvesthattheevidencesupportsthepositionsadopted.Thisisasignificantshiftonthe“KnowledgeScale”asdepictedherein.

The Knowledge Scale

Assertions Information Evidence

Written answers to questionswithoutfurther materials

Reports,documents,extractsfromsystemsprovidedas explanations to questions

Court-admissibleaffidavitsandformallegal agreements togetherwithadmissiblebusinessrecords

Inordertomovealongthescale,wehaveseentheATOusetheirinformation-gatheringpowersmuchmoreextensively.Thisincludestheuseofinterviews(bothaccountableinformalinterviewsandthosecarriedoutunderformalpowers—knownas“section353-10interviews”).Wehavealsoseenasignificantincreaseintheuseofdiscoverypowers—formalnoticesthatrequireproductionofinformationorevidencewithsanctionsfornoncompliance.

Thediscoveryprocessesoftenrequirethelocationandfilteringofsignificantamountsofelectronicdata.Ourexperienceisthattheseprocessesaretime-consumingandexpensiveforclientsbecauseofthebreadthofquestionstheATOisasking.TheATOisalsoseekingtoshortenthetimeittakestocompletetheseprojects,perhapsnotfullyappreciatingthetime,costandresourcesthatcompliancerequires.

Inadditiontothesedomesticpowers,weareseeingactivitythatisdesignedtoaccessinformationlocatedoverseas.Thisisthroughrequestsforinformationfromforeignrevenueauthoritiesandtheuseofevidencebarnotices(referredtoas“section264Anotices”)ondomesticcompanies.Thelatterworkstorequirethirdparties(includingrelatedentities)offshoretoproducedocuments.Ifthedocumentsarenotproducedinthetimeframeallowed,theycannotbeusedincourttosupportthetaxpayer’schallengeto anyassessments.

CompaniesmustunderstandthattheATOnowhasextremelybroadaccesspowers,whichtheyareincreasinglyusingasstandardtoolsratherthanasalastresort.

Hybrid mismatch rules

FollowingthetighteningoftheGeneralAnti-AvoidanceRegime(referredtoasPartIVA),introductionoftheMultinationalAnti-AvoidanceLaw(MAAL)andthedivertedprofitstax(DPT),thelatesttoolintheATOtoolkitisthehybridmismatchrules,whichwerereleasedinexposuredraftformon7March2018.

ThehybridmismatchruleswillprevententitiesthatareliableforincometaxinAustraliafrombeingabletoavoidincometaxation,ortoobtainadoublenon-taxationbenefit,byexploitingdifferencesamongthetaxtreatmentofentitiesandinstrumentsacrossdifferentcountries.Thehybridmismatchrulesaresubjecttofurtherconsultation,andthedateofcommencementis“thefirst1January,1April,1Julyor1OctobertooccurafterthedaythisActreceivestheRoyalAssent.”Thelikelystartdateis1October2018.

TheserulesarebasedontheOrganisationforEconomic Co-operationandDevelopment(OECD)baseerosionandprofitshifting(BEPS)actionitemNo.2,“NeutralisingtheEffectsofHybridMismatchArrangements.”TheyaremodifiedfortheAustraliantaxlandscape.

19May 2018 |

Hereareafewobservationsaboutthesecomplexnewrules:

• ItisclearthattheGovernmentexpectsthataffectedtaxpayerswillrestructureoutofhybridarrangementsintoarrangementsthatdonotattracttheoperationofthehybridmismatchrules.However,thisraisesthequestionastowhetherPartIVAcouldapplytotherestructuring.Presumably,theanswerisno,basedonCPHPropertyPtyLtdv.FederalCommissionerofTaxation(1988)88FCR21.However,itisnotclearwhethertheATOwouldagreewiththisconclusion.TheATOexpressedadifferentviewinthecontextoftheMAALprovisionsatthetimetheywereintroduced.

• Australiansubsidiarieswillfinditdifficulttocomplywiththe“importedhybridmismatch”rules.Broadlystated,theserulesareintendedtopreventAustraliantaxpayersfromenteringintoarrangementsthatshifttheeffectofanoffshorehybridmismatchintoAustraliathroughtheuseofanon-hybridinstrumentsuchasanordinaryloan.ThedifficultyisthatfromanAustraliansubsidiary’sperspective,itmaybeimpossibletotellwhathappensintheglobalgroupafterthepaymentismadeinAustralia.TheneedtotraceapaymentmadebyanAustraliansubsidiarythroughaglobalgroup,toensurethatthereceiptofthepaymentisnotsubjecttoanypotentialhybridtreatment,maybevirtuallyimpossibletoundertakewithoutsignificantcooperationfromtheoffshoreparentcompany,ultimateparentcompanyandanyintermediaries.

• Anew“integrity”ruleconcernsintra-groupfinancingarrangementswithinmultinationalgroups.Therulewillapplywhere the routing of funds through foreign interposed entities resultsinanAustralianincometaxdeduction(e.g.,interestonaloan)andthereisimpositionofforeignincometaxonthepaymentatarateoflessthan10%.Whileitisnotentirelyclear,itislikelythatthe10%foreignincometaxisan“effectivetax”rateratherthanaheadlinerate.Ifthatiscorrect,itmayprovedifficulttonavigate.

Inmanyrespects,thehybridmismatchrulesaresignificantlymorestringentthantheDPTandMAALbecausetheyaresofar-reachinganddifficulttocomplywith.

Leonid Shaflender,Partner,InternationalTax Ernst&Young(Australia) [email protected]

Craig Jackson,Partner,TaxPolicyandControversy Ernst&Young(Australia) [email protected]

Jason Vella,Partner,TransferPricing Ernst&Young(Australia) [email protected]

IndiaUnion Budget 2018

On1February2018,theIndianFinanceMinisterpresentedtheUnionBudget,whichwasthelastfullbudgetofthecurrentGovernmentundertheleadershipofthePrimeMinister.Themostsignificantannouncementfromtheperspectiveofthelifesciencesandhealthsectorsrelatestothenationalhealthcoveragescheme.Describedbysomeastheworld’slargestsuchplan,itwouldcoverroughly100millionpoorandunderprivilegedfamilies—approximately500millionpeople.

Intermsoftaxreformproposals,thebudgethaseliminatedtheexisting3%educationcess(i.e.,additionallevyovertaxamount)andintroducedacomprehensive4%healthandeducationcesstopartiallyfundthespend.Ithasalsoprovideda25%taxrate(vs.currentrateof30%),excludingsurchargeandcess,oncompaniesregisteredinIndiawithatotalturnovernotexceedingINR2.5billion(approximatelyUSD$38.5million)inFY2016-17.AstheIndianlifesciencessectorishighlyfragmentedwithnumeroussmall-andmedium-sizeplayers,theratereductionshouldbenefitmanycompanies.

Ontheinternationaltaxfront,IndiahasbeenasupporteroftheOrganisationforEconomicCo-operationandDevelopment(OECD)baseerosionandprofitshifting(BEPS)actionplansandhasbeenproactiveinimplementingthemeasures.IndiahasadoptedthemodifiedPErule(asperBEPSAction7)whilesigningthemultilateralinstrument(MLI),whichwouldresultinautomaticalterationofcertainbilateraltaxtreatieswideningthePEdefinition.However,thedefinitionof“businessconnection”underIndiandomestictaxlaw(whichisatestoftaxresidency)waslimitedinscopeandcoveredonlypersonswhohadtheauthoritytoconcludecontracts,therebynullifyingtheeffectoftheexpandeddefinitioninthetaxtreaties.Hence,inIndia’sbudget,ithasbeenproposedtoalignthisdefinitioninthedomesticlawwithBEPSAction7toincludepersonswhohabituallyplayaprincipalroleleadingtotheconclusionofcontracts.

Lifesciencescompanieshavingagencyarrangements,marketingsupportagreementsandanyindirectsalesandmarketingfootprintthrough,say,anaffiliateinIndiashouldexaminethefeasibilityandrisksofsuchmodelsgoingforward.

Inthelastbudget,theIndianGovernmenthadintroducedmasterfileandcountry-by-countryreporting(CbCR)compliancesinIndia.Movingastepahead,Indiahasmandatedelectronicfilingofmasterfile(alongwithCbCR)withaviewtoautomatefirst-levelriskanalysis.




Transfer pricing and dispute resolution

TheGovernmentiscontinuingitseffortstofosteranon-adversarialtaxregimeandtocurbtransferpricingdisputes,buildingoffoftheincrediblesuccessoftheadvancepricingagreements(APA)regime.Sincetheregimewasintroducedin2013,Indiahassigned203APAs(185unilateraland18bilateral).ThisincludesseveralAPAssignedbypharmacompaniesfortransactionssuchasR&Dservices,royaltiesandintragroupservices.

IndiawillnowsupportbilateraldisputeresolutionthroughacceptanceofbilateralAPAandmutualagreementprocedureapplications,evenintheabsenceofArticle9(2)intaxtreaties(i.e.,provisionforcorrespondingadjustmenttoavoideconomicdoubletaxation).Consequently,awindowofbilateraldisputeresolutionopportunitieshasopenedwithimportanttradingpartners,suchasFrance,GermanyandItaly.

TheIndianGovernmenthasalsorecentlyrationalizedthesafeharbormarginsforvarioustransactions(originallyintroducedin2013),whichhadnotresultedintheanticipatedlevelofsuccessexpectedfromtaxpayers.Amongotherthings,thesafeharbormarginsprescribedforspecifiedcontractR&Dserviceshavebeennowreducedfrom29%to24%onoperatingcosts.Safeharborrules(SHR)havealsobeenexpandedtoincludethereceiptoflow-value-addingserviceswithmarkupnotexceeding5%,therebyreducingtheburdenofdocumentationandtheanticipatedlevelofcontroversyfortaxpayerswhoarecomfortablewiththerevisedmarginsintheSHR.

Tax treatment of expenses relating to health care professionals (HCPs)

ThereisanongoingtaxcontroversytrendrelatingtopharmaceuticalandmedicaldevicescompaniesaroundthetaxdeductionofexpensesrelatingtoHCPs,grants,sponsorships,gifts,samples,etc.Taxauthoritieshavesoughttodisallowtheseexpenses.EffortshaveincludedtreatingthemasnoncompliantwithguidelinesissuedundertheIndianMedicalCouncilAct,1956(legislationconcerningtheprofessionalconductofHCPs).Sometaxpayers(e.g.,pharmaceuticalcompanies)havearguedthatthecouncil’sregulationsgovernmedicalpractitionersanddonotapplytothem.Inasetofrecentjudicialprecedent(s),ataxtribunalruledthatMedicalCouncilregulationscannotbeameasurebywhichtodecideallowanceofataxdeductionwhentheydon’tintrinsicallyapplytoapharmaceuticalcompany.

However,itisanticipatedthattaxauthoritieswillappealtheserulings.Hence,thisisexpectedtobeacontinuedissueinthe shortterm.

Goods and services tax (GST)

TheintroductionofaGoodsandServicesTax(GST)from1July2017wasasignificantstepforwardinreformingIndia’sindirecttaxstructure.Thechallengesofaligningtheinterestsofthefederalandstategovernments,addressingconcernsoftaxpayers,andtakingkeycorrectivedecisionshasbeenaptlyhandledthrough theGSTCouncil,anindependentbodywithrepresentationbyrelevantstakeholders.

21May 2018 |

FromaGSTimplementationstandpoint,thelifesciencessectorhas,byandlarge,navigatedthisphasewithoutsignificantissueorbusinessdisruption.GiventhattheGSThasalsodoneawaywithregressivetradebarriers,suchascheckpostatentrypointsforgoodsintostatesorlocalmunicipalareasintheerstwhileindirecttaxregime,thishascontributedtoeaseindoingbusinessandapanIndiasinglemarket.

ThegenericGSTrateforpharmaformulationscontinuestobeat12%,whichishigherthanintheearlierregime.Asaruleofthumb,exemptiontogoodsunderGSTislimited.However,manyintheindustryanticipateaGSTrateof5%,asitwouldbenefitpatientsandencouragehealthcareinitiatives.Thisisanareatowatch.

ForthefirsttimeinIndia,theentireindirecttaxcomplianceframeworkiselectronicviaanewITinfrastructure(GoodsandServicesTaxNetwork(GSTN))developedspecificallyforthispurpose.Oneofthekeychallengesfortaxpayersoverthelast6monthshasbeenaddressingthiscompliancerequirementunderGSTthroughtheGSTNITplatform.DuetothesizeandscaleofGSTcompliancerequirementsandtaxpayerbase,GSTNistakingtimetostabilize.Giventheunprecedentedscaleofthisexercise,theGovernmenthasproactivelysoughttoaddresstheseconcernsbygivingrelieftotaxpayersbyextendingtheduedateforreturns,waivingofflatefeesincaseofdelayinfiling,etc.

WhileeaseofdoingbusinessiskeytotheGovernment’sinitiatives,astudyhasrevealedthattherestillexiststhepossibilityoftaxevasionintheGSTregime,asthereisnoeffectivetrackingofthemovementoftaxablegoods.Toaddressthisconcern,aprocessfortrackingthemovementofgoodshasbeenproposed.Itisreferred

toasthe“EWayBill.”Inessence,everymovementofgoods(withcertainexceptions)wouldrequireasupportingdocument(EWayBill)generatedfromanelectronicportalthatwouldbecommonforallindustries.Thisrequirementwouldrequirecompaniestoinvestinandleveragetechnologysolutionstomitigateagainstsupplychaindisruptions.

OnecouldsaythatwhiletheGSTregimecontinuestoimprove,thereareareasthatrequireprogressatapracticallevel.Inthecomingmonths,itisexpectedthattheGSTCouncilwillfurtherrelaxsomeofthecumbersomelegalprovisionstobenefittaxpayers.Thereisalsoamovetosimplifycompliance.TheGovernmentiscognizantofthechallengesfacedbytheindustryandiscloselyworkingwithindustrybodiestosupportbusinessandensurethattherearenorevenueleakages.

Asevidentfromabove,India’staxlawsandadministrationaregoingthroughacontinuousreformunderPrimeMinisterModi’sGovernment.Severalgrass-rootslevelandstructuralmeasuresarebeingtakentoreduceadministrativebureaucracyandincreasetransparency.Theseincludee-auditsandtheuseofadvancedtechnologytoincreasetaxcollection.Thesearestepsintherightdirection.However,giventhelegacyandsizeofthetaxadministration,itisunlikelythatimplementationandresultswillcomeswiftly.

Rahul Patni,TaxandRegulatoryServices,Ernst&YoungLLP(India) [email protected]

Himanshu Tanna,Director,InternationalTaxServices, Ernst&YoungLLP(India) [email protected]



Thepaceoftransformationhasincreased,competitionhasintensifiedandbusinessmodelshavebeenprofoundlydisrupted.Thisshiftishappeningatbreakneckspeedacrossindustries,andpharmaisnoexception.

Customershaverapidlyembracedtechnologyandexpectastandardofservicethatishigherthaneverbefore.Withtheconsumerfirmlyinthedriver’sseat,traditionalpharmaplayersmustlooktowarddigitaltoreimaginethecustomerexperience.

TobetterunderstandthestateofthemarketinIndiaandthevisionfordigitizationintheindustry,wehaveengagedleadersfrommajorpharmacompaniesandhospitalchainsacrossIndia.TheEYDigitalMaturityIndex(EYDI),anonlinedigitalreadiness-assessmenttool,helpedustogaugethecurrentstateofthepharmacompanies.

Featured articleReinventing pharma sales and marketing through digital in India

ThisarticleisbasedonEYIndia’srecentlylaunchedthoughtleadership report titled Reinventing pharma sales and marketing through digital in India.ItprovidesinsightsintothedigitalreadinessofIndianpharmacompanies,barrierstoembracingdigital,andfuturedigitaltrendsthatareexpectedtoreshapetheIndianpharmaindustry.

Sriram ShrinivasanEYGlobalLifeSciencesEmergingMarketsLeaderandEYGlobalGenericPharmaceuticalLeaderErnst&YoungLLP(India)

[email protected]

Hitesh SharmaIndiaLifeSciencesLeader&TaxPartnerErnst&YoungLLP(India)

[email protected]

Alan KaltonExecutiveDirector,AnalyticsErnst&Young(Switzerland)

[email protected]

Abhinav UppalIndiaLifeSciencesErnst&YoungLLP(India)

[email protected]

By

Indian pharma’s journey to the digital world has just begun

Onourfive-stepdigitalmaturityjourney,Indianpharmacompaniesaresignificantlybehindtheirglobalcounterparts.EYDIresults demonstrate that most Indian companiesarestillatthe“beginners”and“conservatives”stages.Thisislaggingbehindtheglobaltrend,whichisformoredigitalpractitioners.OftheIndiancompaniesthatweresurveyed,only7%havemovedtowardthe“explorers”stage.

Source:Reinventing pharma sales and marketing through digital in India,EYreport.

Developing

Of the companies in India are still focusing on disparate strategies

The EY Digital Maturity Index (EYDI), a five-step digital maturity framework, found that India’s pharma companies are largely just beginning their digital journey

Established Leading

Beginners

53%

93%

Conservatives

Explorers

Practitioners

Disrupters

Globally, most pharma players are explorers, with companies now cautiously making a move toward being digital practitioners.

40%

7%

23May 2018 |

86%oftheseniorpharmaleadershaveastrongpositiveinclinationtowarddigitalasastrategicratherthanatacticalapproach.However,lackofcleardigitalstrategy/valuepropositionandchangemanagementareperceivedasthebarrierstoembracingdigital.

WefoundthatIndianpharmacompaniestendtogetcaughtupintechnologyhypeandrolloutinitiativeswithoutaclearunderstandingofstakeholders’needsandmarketdynamics.Gapsintechnology,lackofanintegratedapproach—resultinginmultipleagendasthatcreatesilos,andculturalresistancehave

beenidentifiedassomeofthemajorbarrierstoembracingdigital.Resistancetoinvestindigitaloftencomesfromleaders,whoareeitherskepticaloftheROIorbelievethattheycangrowwithoutdigitization.

Summarizinghisthoughtsonthematter,aseniorIndiandigitalleaderinthepharmaindustrysaid“Whateverwasbeingdonemanuallyearlierisnowbeingdonedigitally.Butwearenotaddingadditionalvalue.”

Digital intent is strong. Execution is not.

Data will become the new currency of digital marketing, and analytics will be the key enablerCompaniesaregraduallyrealizingthatthereisagreatamountofuntappeddatathatcanbeaccessedonlybydigitalmeans.WithrenewedinterestamongIndianpharmacompaniesingainingdynamiccustomerinsightsandpersonalizingcustomerexperience,datawillformthebackboneofsustainedandeffectivedigitalmarketing.Robustandmeaningfulanalyticswillholdthe potentialpowertounlocknewsourcesofvalueanddifferentiate itfromcompetitors.

Salesforceexcellencehasnowbecomeakeydigitalpriority.Indianpharmacompanieshaveembarkedonthejourneytosalesforceautomation.However,onlyfewIndianpharmacompaniesarespearheadingthegamewithadvancedanalyticsandclosed-loopcustomerrelationshipmanagement(CRM)systems.Despitedifferinglevelsofmaturity,mostoftheIndianpharmacompaniesaredrivinginitiativestomaximizesalesforceefficiency,aswellassomeformofcallreportingsolution(webormobile).

What’s holding Indian pharma back (according to pharma leaders)?

Digital intent is strong ... ... but execution is not

Considerdigitalacorestrategicenabler

Seelackofvalueproposition in digital solutionsforphysicians

Considerdigitalnotcentraltobusinessstrategy

Seelackofsufficientandauthenticdataaskeybarrier

86% 87% 80% 75%


Featuredarticle

4Ps to be the success factor for digital innovationsOuroverallanalysisindicatesthatanysuccessfuldigitalsolutionwillhave these four elements:

• Painless: Offerahassle-freeexperienceandminimizeinvasive“push”salestactics

• Prompt: Providemorereal-time,dynamiccontentwithtwo-waycommunication

• Personal:Understandthecustomerjourneyandco-createwiththem

• Purposeful:Makesureeveryinteractionisimpactful,anddeliveraconsistentmessageacrosschannels

Digitalwillplayanever-increasingrolein this era of profound transformations, characterizedbyincreasinglyinformedpatients/physicians,anewrangeofcustomersandnew,disruptiveentrants.Tostayrelevant,pharmacompaniesneedtoadoptamorenimbleapproachandmakedatathecurrencyofmarketing.

• AmobileappforIndianhepatologists,forinstance,providesthemwithclinicalcalculatorstounderstandthepatients’generalcondition,liverdiseaseseverityandrenalfunction.Theappfurtherempowersphysicianswiththerapyoptionsbasedonthegenotypeandliverstatus,real-timeguidanceondruginteractionsandinteractiveproductmonographs.

• Aleadingpharmacompanyhastargetedphysicians’needforpeerguidancebydevelopingamobileappthathelpsthemgetreal-timeguidancefromfellowdoctors.Thecompanyhasalsogoneastepfurtherinengagingwithdoctorspracticinginspecialtytherapyareasbyhelpingthemincreasetheirdigitalfootprint.

The untapped potential of patient-centricity in a digital worldOnlyathirdofthepharmaleadersrecognizetheneedtobecomepatient-centric,andofthose,onlyafewhaveearnestlystartedworkinginthisdirection.Indianpharmacompanieshavebeguntocapitalizeontheriseofhealthappstoengagemorewithpatients,butsuchappsremainlargelyunderleveraged,withanabysmalnumberofdownloads,duetonon-dynamiccontent.Real-timediseasemonitoringandinterventionarenotyetareality.Theindustry’smindset,regulationsandalackofwidespreaduseradeptnesswithsmartphoneslimitpharmamarketingpractices.

Building and sustaining patient-centric models will require pharma companies to redesign their digital agenda and operating models.Indianpharmacompanieshaveacknowledgedthisandarebeginningtoutilizeadvancesindigitaltechnologytoengagemorewithcustomersinawaythatistargeted,personal,timelyandpurposeful.

Few players have ventured into clinical decision support and peer guidance.Mostofthepharmacompaniesarelookingintounexploredareassuchasremotemonitoringsolutions,augmentedreality,etc.,toforgeapatient-centricapproach.Forexample,aleadingpharmacompanyhaslaunchedaflashglucosemonitoringsystemthatenablesreal-timesharingofdataonbloodglucoselevelswithdoctorsforaccurateandintensivemonitoring.Also,amobileappforvertigopatientsactsasaninteractivepersonaltrainerbyusingaugmentedrealitytoguidepatientsthroughvestibularrehabilitation.

Key success factorsSuccessoftheseinitiativesremainslimitedbecauseoflackofawarenessamongpatients.Therefore,itisimportanttocreateaholisticandseamlessexperienceforpatientsbyreachingthemthroughmultiplechannels.

• Onesuchsuccessfulinitiativeaimstocombinedigitalanddirectmarketingplatforms.TheprogramhasadedicatedYouTubechannelwithvideosonnutrition,lifestyleadviceandpatientstories.ThereisaFacebookpageaswell,educationandawarenessinteractivekiosksatdoctorsclinics,andWhatsApp-basedpatientandcaregivercomplianceandcounselingservices.

• Acampaignformigrainepatientsutilizesdigitalandsocialmedia,aswellasofflinesupportfromthefieldforce,tocreateawareness.Within9monthsofitsinitiation,thecampaignachievedareachofover47millionwithprintPR,nearly200,000websitevisitorsandover14millionthroughsocialmedia.

25May 2018 |

Reinventing pharma sales and marketing through digital in India

Find out moreThisarticleisbasedonEYIndia’srecentlylaunchedthoughtleadershipreporttitled“Reinventing pharma sales and marketing through digital in India.” This report provides detailed insights on digital readiness of Indian pharmacompanies,barrierstoembracingdigital,andfuturedigitaltrendsthatareexpectedtoreshapetheIndianpharmaindustry.

EY Digital maturity Index (EYDI) isanonlinedigitalreadinessassessmenttooldevelopedwithafive-stepframeworktogaugethedigitalmaturitylevelofthepharmacompaniesacross15parametersspanningtwokeydimensions:organizationalreadiness(strategyandculture,governanceandcapability)andstakeholderengagement(salesreps,physiciansandpatients).

Reinventing pharma sales and marketing through digital in IndiaCurrent assessment, gap analysis and future reality

The future of the industry IntegratedcommercialmodelswillbethenewnormalSix commercial trends that will shape the future of pharmaceutical sales and marketing in India digitalized

Commercial engagement innovation framework

The digital value proposition

Digital channels

Improved customer experience and

engagement

Leading stakeholder

insightClosed-loop marketing

(AnalyticalCRM+CLM+Multichannel)

Closed-loop marketing (Roboticprocessautomation/chatbot)

Com

mer

cial

obj

ectiv

es

Capturing, analyzing and using big data

Content-rendering Social Mobile Sensors and

devicesReal-time/real-

world dataDigitalized processes

Automation/self-serve

Greater connectivity

Increased flexibility and agility

Analytics as a core enabler

Enhancing stakeholder experience

Reinforcing purchasing decisions

Creating additional revenue streams

Near-term trend

EY analysis

Connected health platforms (Wearables/sensors+analytics+mobileapps)

Business model innovation (beyond the pill) Preventivecaremanagement 360-degreesolutionproviders

Social media reinforcement

Integrated multichannel marketing

Long-term trend


Featured articleIntelligent automation — will IA provide relief toasicklypharmaceuticalindustry?

Sabine DettwilerExecutiveDirector,ZurichLifeSciencesErnst&Young(Switzerland)

[email protected]

Kellie PearsonAPACAdvisoryCentre,ManagerErnst&Young(Singapore)

[email protected]

Hugo WalkinshawAsia-PacificLifeSciencesAdvisoryLeaderErnst&Young(Singapore)

[email protected]

Tanushree JainKnowledgeLifeSciencesAnalystErnst&Young(India)

[email protected]

Ker-Shuen TooDigitalOperationsAPACAdvisoryCentre,Senior ManagerErnst&Young(Singapore)

[email protected]

Kanika GoelKnowledgeLifeSciencesAnalystErnst&Young(India)

[email protected]

By

Executive summary

Thepharmaceuticalindustryhasbeenfacingimmensepressuretobringdowncostsyetincreaseinnovationtofindthenextblockbusterdrug.Thisarticleexamineshowintelligentautomation(IA)supportsthoseeffortsbycreatinggreaterefficiencyandimprovingtheexperienceofpatientsandhealthcareprofessionals.Additionally,IAhasincreasedanalysisandinsights,specificallywithinthecommercialvaluechain.

Introduction Eversincetheblockbustermodelhasbeenonthedecline,pharmaceuticalcompanieshavebeenoperatinginanenvironmentofconstantpressuretocutcostsyetinnovateatthesametime.Aspatentsfromtheseblockbusterdrugscometoanendandcheapergenericalternativesenterthemarket,pharmaceuticalcompaniesareincreasinglylookingforcosteffectivemeasures.Intelligentautomation(IA)willbeasteptowardeasingsomeofthatpressure,asdigitallabortakesoversomeoftherepetitive,deterministic,high-volumetasks.Thisfreesupresourcesforhigher-valueactivities.

Whileroboticprocessautomationisprimarilybeingdeployedtocontrolcosts,increaseproductivityandraiseprocessquality,moreintelligentsolutionsareenteringthemarket.Thesesolutionshavetheabilitytomimicanaspectofhumanintelligence—theycanlearnandmakecertaincognitivedecisions.Andso,while“robots”havebeenontheriseinback-officefunctions,newandmoresophisticatedsolutionswillincreasinglysupportinnovationacrosstheentirepharmavaluechain,resultinginbetterorganizationalperformanceaswellasenhancedcustomersatisfaction.

Inthisarticle,wewillhypothesizewaysinwhichpharmaceuticalcompaniescouldturntointelligentautomationforsupportincommercialfunctionsandhowcomplementarytechnologymayfurtherspurinnovationwithregardtothecustomer.Patients,healthcareprofessionalsandotherstakeholdershavecometoexpectmoreinthedeliveryofhealthcareoutcomes.Itisnolongerenoughforpharmaceuticalcompaniesto“provideapill.”Theymustdeliverhealthcareoutcomesthatareeffectiveandcost-efficient,andthatalignwithgovernments’agendatomakehealthcareservicesaccessibletoall.Andthedirectiontoward“beyondthepill”involves“intelligent”solutionstoenablethefullpotentialofsuchservices.

Aswithanynewtechnology,therewillbechallengestoovercome.Wewillhighlightthosethatareassociatedwithimplementingintelligentautomation.Despitethechallenges,IAwillhaveahugeimpactonthebusinessmodelofpharmaceuticalcompaniesandcouldtransformtheentireindustrytowardbetteroutcomesforpatientsaroundtheworld.

27May 2018 |

Robotic process automation (RPA) �

Example: Automation Anywhere, Blue Prism, UiPath

Cognitive RPA (including machine

learning, natural language processing)

Example: Arago, WorkFusion

Intelligent chatbotsExample: Kore.ai, Conversable

Artificial intelligence (AI)Example: Watson, Holmes

Chatbots and artificial intelligence to utilize the outputs produced by

robotic process automation60% of the enterprise's process activities

15% of process activities 15% of process activities 10% of process activities

What is IA? IAistheapplicationofasoftwarethatmimicshumanactionandconnectsmultiplefragmentedsystemsthroughautomationwithoutchangingthecurrententerpriseITlandscape.IAsolutionsrangefromrule-basedrobotswhoperformtasksastheyhavebeenconfiguredtodo,tocognitiverobotswhoarecapableofcontinuouslylearningandcanmakecertaindecisions.AllIAsolutionsareintendedtoimprovethewayhumansworkandtoenableustouseourtimemoreefficiently.

IntelligentAutomationisabroadtermtocoverfourdistinctautomationsolutions;(1)roboticprocessautomation(RPA),(2)cognitiveRPA,(3)intelligentchatbotsand(4)artificialintelligence.Thesesolutionsaresystemsoftwarethatautomateswhathumansdo.Theextentofautomationdependsonthesolutionsdeployed:

• Roboticprocessautomation:Usedwhereprocessesarehighlyrule-basedandstandardized,andforwhichtherearesignificanttransactionvolumes

• CognitiveRPA:Usedwhereprocesseshavevariationsandtheautomationsolutionisrequiredto“learn”newtasks

• Intelligentchatbots:Usedtorespondtoconversationalspeechandchatswithhumans,forexample,providinginformationtoqueries

• Artificialintelligence:Usedinnon-routinecognitivework,involvesinteractionswithhumansandcomplex,ambiguousreferencematerials.Ingestsinformationinasimilarmannertonon-specialisthumans,e.g.,readsandwritesdocumentstoforminsightsandanalysis

IAisanintegralpartoftheworkforceofthefuture.Bytakingupthemundane,repetitivetasks,IAfreesuphumanstofocuson:

• ►Strategyanddecision-making

• ►Insightsandsubjectiveassessments

• ►Advancedanalysisandinterpretation

• ►Managementandoptimization

Illustration of the “golden journey” of intelligent automation


Featuredarticle

Low riskNoninvasive technologyRPA can be overlaid on existing systems, allowing creation of a platform compatible with ongoing developments in sophisticated algorithms and machine-learning tools

ReliabilityNo sick days, services are provided 24/7/365

Right shoringGeographical independencewithout business case impact

AccuracyThe right result, decision or calculation the first time

ConsistencyIdentical processes and tasks, eliminating output variations

IntelligentCapable of continuous learning and decision-making

ProductivityCapable of continuous learning and decision-making

ScalabilityInstant ramp up/down to match demand peaks and troughs

Retention�Shifts toward more stimulating tasks

Benefits of intelligent automation

How can IA address challenges faced by a pharmaceutical company’s commercial value chain?

Access to drugsConsumershavecometoexpectanddemandimmediateaccesstoproductsandservicesinotherindustries,anditisnodifferentforthepharmaceuticalindustry.Currently,whenanillnesssurfaces,patientsseetheirdoctors,areprescribedtheappropriatemedicationandexpecttopromptlyreceivetheirmedicationinordertocommencetreatment.Tomeetthisdemand,pharmaceuticalcompanieshaveteamsandfunctionsinplacetoplanappropriatelyandensurethattheyhavesuppliesavailableintherightplaceattherighttimeinordertomeetdemand.Newtechnologieswithinintelligentautomationaresupportingthecustomer-centricexperiencebyharnessingthelargeamountsofdataavailable(e.g.,patientconsumptiondata,wearables,pharmacydispensingsystems),whichcansupportdemandforecastingandtriggertheprocesstofulfilldemandandenabletheexpectationsofthepatienttohaveaccesstomedicinesanytime,anywhere.

BostonScientific,aleadingmedicaldevicecompanyhasalreadyintroducedanAutomationAnywhereBottohelptheircustomerservicesteamstreamlinefourprocessesthatwereeithermanualorimpossibletodo.Thepilottrialwassuccessful,andthecompanyhasnowextendedtheiruseofthebotstoincludeover50processes,whichhasresultedincostsavingsanderror-freetransactionprocessing.

Enhance interactions with key opinion leaders (KOLs)Anintegralpartofasalesrepresentative’sjobistheneedtofrequentlymeetwithphysiciansandKOLstoengageindiscussionsabouttherapiesandprovideinformationonavailableproducts.Withoutcoordinationofthesemeetings,theirfrequencyandtheamountofinformationprovidedcanoverwhelmhealthcareproviders.Worse,theymaybepresentedwithdifferent,conflictinginformationortheexasperationofhavingtorepeatthemselves.

Asingledatabasethatcompilesallofacompany’sinteractionswithhealthcareproviders,includingthetopicsofdiscussion,willenableacoordinatedandseamlessengagementapproach.Sales,medicalandmarketaccessrepresentativesmaybedocumentingtheoutcomesoftheirphysicians’visitsindifferentdatabases,filesandfolders.RPAcanbeleveragedtoaccessthesedifferentsourcesofinformationandtocompiledata,enablingasingleviewofengagementwithanyphysicianacrosstheentireorganization(e.g.,functions,therapeuticareasandregions).RPAcancombtheinternettoidentifythelatestrelevantnews,basedonkeywords.Goingonestepfurther,predictiveanalyticscananticipatetopicsthataKOLmaybeinterestedin.Thismakesformeaningful,relevantdiscussionsbetweenthephysicianandanycompanystakeholder.

Provision of consistent informationAccesstothewealthofmedicalinformationontheinternethasempoweredpatientswithgreatercontrolovertheirhealth.Atthesametime,thischannelhasleftpatientsexposedtomisleadingorfraudulentinformationandaninaccurateself-diagnosis.Giventhatpharmaceuticalcompaniescannotcontrolthischannelofinformation,thequestionbecomes,“Whatcanpharmaceuticalcompaniesdotoimprovethequalityofmedicalinformationon theinternet?”

Pharmaceuticalcompanieshavelongdeployedhumanresourcestoanswerqueriesviathephoneorachattingtool.Recently,thetrendhasbeentoleveragechatbotstointeractwithphysiciansonlineandsuggestcoursesofactionbasedonthequeriesandinputprovided.Byidentifyingkeywordsandphrases,thechatbotcanfindtherelevantinformationinaninformationdatabase.Thephysicianwillhavetheabilitytoratethechatbot’sresponses,refiningthechatbot’saccuracy.Deployingchatbotsisacost-effectiveeffectivewayofprovidingaccurateanswerstofrequentlyaskedquestionsforphysicians24hoursaday,7daysaweek.Whereamorecomplexresponseisrequired,physicianshavetheoptionofreachingouttocompanyrepresentativeswiththeirqueries.

29May 2018 |

Overcoming “automation anxiety”

Coping with fast pace of transition

Redesigning the workforce to include the virtual workforce

Brand perception of “robotics”

Fear and job uncertainty

surrounding RPA

Lack of case studies to showcase value

Achieving global consistency with tailored local adoption

Fragmented impact

Specifying value and impact as only parts

of process automated

Integration with an incoherent existing

technology landscape

Understanding future workflow and handovers

due to fragmented impact

RPA can progress rapidly from proof of concept to

implementation

Roles are not holistically

redesigned to include the virtual

workforce

New skill sets required to manage/

collaborate with the virtual workforce

12 weeks or less not 24 months of typical technology

implementation

Managing varying regulatory and tax implications across

the countries

Achieving consistent global RPA change

approach

Varied change approach due to

varied impact

Inability to adapt to the new way of

working

Challenges associated with intelligent automation

Merck(MSD)inItalylauncheditsfirstchatbotforphysiciansin2016.Thechatbotcantailorcontentbasedonthephysician’sspecializationandcananswercomplexquestionsbyaccessingdataavailableinMSDHealth.Thissolutioniscurrentlybeingpilotedforregisteredphysicians.Followingfromthesuccessachieved,MSDintendstointegratethechatbotwithApple’sSiriandothervoice-recognitionsystemssothatphysicianscanverballyaskthechatbotaquestioninsteadoftypingitout,savingtimeandincreasingefficiency.

Itisnothardtoimaginethesamesolutionbeingexpandedtoserveabroaderrangeofhealthcareprofessionalsandpossiblypatients.

Data and analyticsPharmaceuticalorganizationsareincreasinglyturningtotechnologytohelpmakesenseoftheplethoraofmedicaldata,orbigdata,availabletoimprovepatientsafety.OnesuchexampleisCelgene’scollaborationwithIBMWatsonHealthtocreateanoutcome-andevidence-baseddrugsafetysupportsystemaimedatimprovingpatientoutcomes.Thishighlyautomatedsolutionisdesignedtoenabletherapidcollection,collationandanalysisofsafetydatafromvarioussources,includinganonymizedelectronicmedicalrecordsandmedicalclaimsdatabases.Thisapproachwillhelpstakeholderstobetterinterpretsideeffectsassociatedwithproducts,enablingbetter-informeddecisionsandimprovingpatientsafety.

Goingonestepfurther,pharmaceuticalcompaniesareexploringthepossibilityofleveragingdatatopredictandpossiblymitigateapatient’snextmedicalincident.TevaPharmaceuticalIndustries,inpartnershipwithIBMWatsonHealth,willcombinecloud-connectingdrugdeliveryandapptechnologytoprovideactionableinsights,suchasinstructingthepatienttocollecttheirmedicines,taketheir

medicinesorvisittheirgeneralpractitioner(GP).UsingIBMWatsonHealth’scognitiveprocessingcapabilitiesandalgorithms,datawillbeusedtocalculatetheprospectiveriskofahealthevent,suchasanasthmaattack.Tevawilldeliverthatinformationdirectlytopatientsandcaregiversviaasmartdeviceapplication.MedtronicisusingthesamepredictivetechnologytowarndiabetespatientsofabnormallylowbloodsugaruptothreehoursinadvanceinordertopreventahospitalorGPvisit,allowingdiabeticpatientstobetterself-managetheircondition.

ConclusionThepharmaceuticalindustrycontinuestofacethedilemma:doesitfocusonprovidingaffordabledrugs,ordoesitcontinuetoinvestinR&Dandinnovationdespitethecostimplications?Ourpointofviewisthisisnotnecessarilyaneither-orquestionbutoneofhowthingscanbedonebetter,leveragingIAanddigitalsolutionstobecomemoreefficientwhilereducinglaborcosts.However,IAgoesbeyondjustprovidingcostsolutionsandrelievinghumansofrepetitive,manualtasks.IAdrivesvaluebycreatingabettercustomerexperience,increasingtheaccuracyandrelevanceoftheinformationprovided.Anditfreesupresourcestofocusontwoever-crucialactivities:R&Dandinnovation,whichwillultimatelyleadtomoreaffordablemedicineandmorerobusthealthcaresystems.

AtEY,ourIntelligentAutomationCenterofExcellencehasthecapabilitiestosupportpharmaceuticalcompaniesthroughtheirdigitaltransformation.Wetakeabusiness-led,IT-supportedapproachthatfocusesonprovidingbusinessvalue,expeditingspeedtoservicesandincreasingbusinessagility.

Intelligentautomation—willIAproviderelieftoasicklypharmaceuticalindustry?


0

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45

Indonesia

27.3

Singapore Thailand Philippines Vietnam Malaysia Myanmar Cambodia Laos

43,3

17.0

28.8

16.4

22.9 22.9

15.6

22,7

15.013.2

22,4

1.4 2.3 1.0 1.4 0.2 0.3

+58%

+69%

+39% +47% +51% +70%

+61% +33% +35%

f = BMI forecast. Source: BMI Research

Featured articleMegatrends in ASEAN markets have healthcareindustrychartingnewwaters

Ishita Dhamani EYASEANLifeScienceLeader,AdvisoryErnst&Young(Singapore)

[email protected]

Igor Diaz Gondra SeniorAssociateLifeSciences,AdvisoryErnst&Young(Singapore)

[email protected]

By

HealthcarereformsinASEANmarketsarereshapingthepharmalandscape,bringingchallengesformultinationalcompaniesdoingbusinessintheregion.Nonetheless,greatopportunitiesexist.

ThehealthcaresectorinASEANmarketsisexpectedtogrowata9.2%compoundannualgrowthrate(CAGR)between2016and2021,experiencingoneofthehighestgrowthsworldwide(Berger,2017).However,adifferentiationbetweenmatureandemergingmarketswithinAsiaisrequired,becausepharmaceuticalstrategieshavetofitacountry’sindividualneedsanddevelopfurther,go-to-marketmodelswillgraduallymirrorthosecurrentlyemployedinmaturemarketstoincludelocalR&Dandmanufacturingcapabilities.

ZoominginontheASEANmarket,wecanobservethreemegatrendsthatareshapingthefutureofthehealthcareindustry.First,theadoptionofuniversalhealthcaresystems,wheregovernmentsareheavilyinvestingininfrastructure,R&Danddrugmanufacturing.Second,theriseofaclass,withincreasingdisposableincome.Andthird,theagingpopulations.

However,ASEAN’shealthcareaccessisseenasahighlysignificantchallenge.Alackofreimbursementandpublicfundingareconsideredkeychallenges,followedbytheabsenceofhealthcareinfrastructureandaffordability(PwC,n.d.).Otherbarriersintheregionincludeincreasinghealthcarecostsandthehighdependenceonout-out-pocketexpenses.Thesechallengeshavepromptedgovernmentstotakeaction.

Spending on ASEAN health care in US$b in 2016 vs. 2021

(ASEANincludesthefollowingcountriesMyanmar,Vietnam,Laos,Thailand,Cambodia,Philippines,Malaysia,Singapore,Indonesia,BruneiDarussalam)

31May 2018 |

Indonesia

Total health spend (government vs. private health spend) US$b

Singapore Thailand Philippines Vietnam Malaysia Myanmar Cambodia Laos


32.858

17.43015.931

20.99019.418

1.710 1.157115

154

Govt. health spend, US$bPrivate health spend, US$bHealth spending per capita, USD

17.167

269923

234

12.088

20.770

10.352

15.6406.542

9.860 8.811

10.638

3.778

10.6257.570 7.120

967743

123 3,624 281 161 181 497 32 71 39

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Indonesia Singapore Thailand Philippines Vietnam Malaysia Myanmar Cambodia Laos

9.6%

8.4%

11.1%

5.7% 5.6%

10.1%9.2%

11.0%

12.0%

10.3%9.3% 9.6%

12.1%

5.7%

9.7%

6.8%

8.5%


Health care expenditure USD CARG 2018–2021Health care expenditure GDP CARG 2018–2021

6.2%

Health care expenditure compound annual growth rate (CAGR) vs. GDP CAGR (2018f–2021f)

Health care spending — Public vs. Private


Featuredarticle

ExamplesincludeIndonesia’sinitiativetoencourageprivateinvestmentinthehealthcarespace,withventuressuchasprivatehospitalgroups.Ontheotherhand,VietnamisexperiencingademandforprivatehealthcareduetotheGovernment’staxincentivesforforeigninvestors(Vietnam,n.d.).Bothcountrieshaveconsolidatedtheirnationaldrugprocurementsystemsaswellasestablishedauniversalhealthcaresystemthataimstoofferfreecaretotheentirepopulationinthecomingyears.Thailand,onthecontrary,alreadyhasawell-establishedhealthcaresystem,whereprivateinvestmentisexperiencingrapidgrowthasdemandforqualityservicesincreases.However,publichealthcareleavesthelocalpopulationwithoutthesamelevelofqualitywhilemedicaltourismisgainingmomentum(Deloitte,n.d.).ThePhilippinesisattractingmoreinvestmentforhospitalinfrastructureplansthroughpublic-privatepartnerships(PPPs)whiletheGovernmenthasproposedaprogramtoenhancehealthfacilitiesprioritizingthoselocatedinornearpoorprovinces(Deloitte,n.d.).Myanmarishavingdifficultyproducingenoughdrugstosupplyitsdomesticmarket,andtheGovernmentcontinuestoworktowardensuringallcitizensaccesstobasichealthcareservices(Deloitte,n.d.).

WehaveselectedIndonesiaandVietnamaskeyexamplesofthedirectioninwhichotherASEANdevelopingcountries’healthcaresystemsareheadinginthecomingyears.

Indonesia’s economic packages encourage foreign investmentIndonesiaiscurrentlythelargestASEANmarketintermsofhealthcareexpenditure.Majorchangesarereshapingthehealthcaresystem,bothpublicandprivate—and,therefore,thepharmaceuticalindustry(research,n.d.).AsofAugust2017,theIndonesianGovernmentintroduced16economicpackagestoreducebureaucracy,improvecompetitivenessandboosteconomicactivity(research,n.d.).Relaxed

enforcementoftheforeigndirectinvestmentlawhasencouragedforeigninvestmentssuchasnewfactories,whichwillreducetherelianceonimportsandmitigateexposuretocurrencyexchangefluctuations.

Indonesia’shealthcarechangesbeganin2007,whentheIndonesianGovernmentfoundedtheNationalProcurementagency(LKPP)tosupplydrugstopublichealthcenters.Toreducepharmaceuticalandmedicalspending,theGovernmentdevelopedvariouspoliciesthatcreatedacentralizedpublicprocurementsystem(bpjs-kesehatan.go.id,n.d.).In2012,theMinistryofHealthimplementedacentralizede-procurementsystem,e-tenderingande-catalogtoimproveeffectiveness,transparencyandaccountabilityinthetenderingprocess(team,n.d.).Twoyearslater,Indonesialauncheditsuniversalhealthcoverage(UHC),aimingtocoverallthepopulationby2019.AsofSeptember2017,70%ofIndonesianswerecoveredunderUHC,whiletheremaining30%werepayingout-of-pocketorrelyingonothertypesofinsurance(bpjs-kesehatan.go.id,n.d.).In2014,thePublicHealthInsuranceImplementingBody(BPJS)wasestablished

toassurethequalityandsustainabilityofthecountry’sUHCprogram,knownlocallyasJaminanKesehatannasional(JKN).TheBPJSisalsoresponsibleforprovidingcapitationandreimbursementforhealthcarefacilitiesandisexpectedtoplayakeyroleinthefutureoftheJKN(bpjs-kesehatan.go.id,n.d.).

ThepharmaceuticalindustryinIndonesiaisundergoingmajorchangeswiththeimplementationoftheJKNschemeandtheincreasingpurchasingpowerofIndonesians.Theuniversalhealthcaresystemwilldramaticallyincreasethedemandandconsumptionofdrugs,especiallygenerics.Thedemandforprivatehealthcareisalsoexpectedtoincreaseasaresultoftherisingupper-middleclass,whoareseekingmorepersonalizedcare.However,challengespersist,includingmalpracticeandcorruption.Alackofprotocolsandstandardsmightholdbackforeign investment and slow down the manufacturingsector.

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2013 2017 2021

27

Expenditure US$b Compound annual growth rate (CAGR)

Expenditure as a % of GDP

Source: BMI, EY AnalysisHealth care expenditure (USD)

38

21

+8.9%

+6.5%

0

1%

2%

3%

4%

2010 2015 2020f

3.0%3.2%

2.7%

Health care expenditure (USD)

Total health care expenditure in Indonesia

33May 2018 |

MegatrendsinAsianmarketshavehealthcareindustrychartingnewwaters

Centralized drug procurement fortifies Vietnam’s bargaining power There is greater foreign investment in thelocalpharmasector,whichissettoboostthegrowthinpharmaandsupportmodernizingofVietnam’shealthcaresystem(research,n.d.).VietnamhasbecomeaprimeinvestmenthubforMNCsasithasallthenecessarystructuralelements.Initsfavorarealarge,youngandcheaplaborforce,adesirablelocationwitheasyaccesstothesea,andastablepoliticalenvironment.MNCsrelocatingfromChinaduetolowerproductioncostsisalikelyscenariothatwillbenefitthemanufacturingsector(research,n.d.).

Vietnamtookamajorleapforwardin2009whenitdecidedtodevelopanationalhealthinsuranceprogram.Theprogramisexpectedtocover70%ofthetotalpopulationby2018and80%by2020.Toaccomplishuniversalhealthcoverage(UHC),theMinistryofHealth(MOH)andVietnamSocialSecurity(VSS)havebeenactivelyaddressingseveralissues,suchasstableandsustainablefunds,reducedout-of-pocketpaymentsandextendinggovernmentsubsidiestothepoor.Toachievethesegoals,theGovernment

isplanningtoimplementabasichealthservicespackage(BHSP)inordertocontrolhealthcarecosts,ensureservicequalityandrespondtohealthpolicypriorities(research,n.d.).From2014to2016,theMOHissuedtwokeycircularstoregulatethepharmaceuticalindustryintheprocurementprocessspace.Circular9(Vietnam,n.d.),providesalistofdrugsforprocurementthroughabiddingprocessandCircular11addressesthebiddingprocesstosupplydrugstopublichealthfacilities(11/2016/TT-BYT,63/2014/ND-CP,&09/2016/TT-BYT,n.d.).In2017,theprocurementsystemwascentralizedatanationallevelunderfourdifferentschemes,dependingonthedruglistsandotherdecentralizedprocurementsystemsforhealthcarefacilities(Thao,n.d.).ThiscentralizationwillallowtheGovernmenttomaximizeitsbargainingpowerbyleveragingeconomiesofscalewithcontractorsandpromoteamoretransparentsystem.

Despitethelowpercapitaspendingonmedicinesandtheclimateofcostcontainmentofmedicinescoveredbythepublichealthcaresystem,Vietnam’soverallpharmaceuticalmarketwillcontinuetoofferlonger-termbenefits

forpharmaceuticalcompanies,especiallyforlocalmanufacturers(Vietnam,n.d.).However,theVietnamesehealthcaresystemisfacingchallenges.Oneofthemainchallengesisthepoorregulatorystandardsinhealthcare.Itisanareainwhichthepharmaceuticalindustryhastraditionallybeenunclearandhasoftenimplementedonacase-by-casebasis,sometimesrepresentingamarket-entrybarriertoforeigncompanies(research,n.d.).OtherkeychallengesforVietnam’shealthcaresectorarepatients’self-medicationhabitsandapreferencefornational-levelhospitals,whichgrowincreasinglyovercrowded,ratherthanlocaldistrictorprovincialhospitals.Inaddition,becauseVietnamimportsrawmaterialstomanufacturedrugs,mostlyfromChinaandIndia,itmustcontendwiththeeffectsthatcurrencyexchangefluctuationshaveonitsoverallhealthcarebudget(research,n.d.).

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2013 2017 2021

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Expenditure US$b Compound annual growth rate (CAGR)

Expenditure as a % of GDP

Source: BMI, EY AnalysisHealth care expenditure (USD)

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+9.0%

+7.1%

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2013 2015 2020f

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Health care expenditure (USD)

Total health care expenditure in Vietnam


Featuredarticle

What lies ahead for health care in ASEAN developing markets?TheoutlookforthepharmaceuticalindustryinASEANispromising.Countries’adoptionofuniversalhealthcoverage(UHC)programswillincreaseexpendituresondrugs,particularlygenerics.Privateinvestorsandpublic-privatepartnershipswillplayakeyroleinprovidinghealthcareinfrastructureandpremiumservices.Governmentsarefocusingtheireffortsonexpandinghealthcarecoverageinruralareas and addressing the most urgent needs.Andtherisingincidenceofnon-communicablediseasesamongthemiddleclasscontinuestoincreasehealthcarespending.Finally,theimplementationofelectronicsystemswillsimplifyhealthcaredelivery,savecosts,andoffermoretransparentandefficientservice (analysis,n.d.).

Implications for multinational pharmaceutical companiesCost-containmentmeasuresfromhealthcarepayerswillbringchallengestomultinationalpharmaceuticalcompaniesattributedtoagingpopulationandgrowingprevalenceofchronicdiseases.Governmentsintheregionarefocusingoncost-efficiencymeasuresthroughpricingpressuresonpharmaceuticalcompanies,genericsubstitutionpoliciesandrationalprescribinginitiatives.However,significantcommercialopportunitiesformultinationalpharmaceuticalcompaniesoverthelong-termareexpected.InASEAN,pharmaceuticalsalesareexpectedtogenerateUSD40billionby2020 (BCG,2016).

Thenextfiveyears’keygrowthdriversincludegovernments’commitmenttohealthcare,improvementofmedicalservicesprovisionandenhancementoftheoperational environment together with robustmacroeconomicfundamentals,economicpoliciesreformsandthetradeintegration(AssociationofSoutheastAsianNations)whichaimstopromotefreemovementofgoods,servicesandskilledlabor(research,n.d.).

ASEANdiversemarketcharacteristicslaysoutchallengesformultinationalpharmaceuticalcompanies.Nonetheless,greatopportunitiesareyettobeexplored.Forexample,brandedgenericscanbeanaccesspoint,andalthoughtheycarryhigherpricetagsthanunbrandedgenerics,manyconsumersarewillingtopayapremiumfordrugssoldbywell-knownbrands.Thisshort-mediumtermstrategycanbeleveragedtobuildlong-termgrowthintheregionbyestablishingR&Dfacilitiesspecifictotheregion’sneeds,framingpublic-privatepartnerships,creatingstronglocaldistributionnetworksorestablishingjointventures.MNCsmustconcentratetheireffortstotailorspecificactionplansforeachofthemarketstobenefitfromtheseopportunities.

35May 2018 |

MegatrendsinAsianmarketshavehealthcareindustrychartingnewwaters


Mergers and acquisitions — global In2017,thelifesciencesM&Avaluecontinuedtowitnessaslowdownforthethirdconsecutiveyear.TheM&Adealvaluefell,primarilyowingtopolicydelays,includingcorporatetaxreformsandpolicyguidelinesonrepatriationofcashheldoverseasbyUScompanies.Inaddition,continuedpricingpressureandmarketaccesschallengesimpactedthecontributionoftheUSinoverallM&Adealvalue,withUSdealsrepresenting54%ofthe2017M&Avaluecomparedwith65%in2016.

Overall,thetotalgloballifesciencesM&Adealvaluein2017contractedto~US$228.6billion,downnearly14%overUS$265.4billionin2016.Therewere9dealsvaluedat≥US$5billioneachin2017,comparedwith10dealsvaluedat≥US$5billionin2016.ThetotalM&Aamountin2017wasdrivenbytwomegaticketacquisitions.ThefirstandthelargestdealoftheyearinvolvedtheacquisitionofSwitzerland-basedActelionPharmaceuticalsLtd.bytheUS-basedJohnson&JohnsonforUS$29.0billion.ThiswascloselyfollowedbytheacquisitionofCRBardbyitscompatriotmedicaldevicessupplier,BectonDickinsonforUS$24.2billion.Togetherthesedealsrepresentednearly23%oftotaldealvaluein2017.

Ontheotherhand,2017sawayear-over-yearuptickof11%ingloballifesciencesM&Aactivityintermsofvolume,withthenumberofdealsin2017surgingto2,578.Thisincreasewaswitnessedacrossallsubsectorsandwaslargelyduetoahighproportionofsmall-valuetransactions—nearly42%ofthetotaldealsvaluedatlessthanUS$50millionin2017vs.40%ofsuchdealsin2016.

Comparedwithitsfifthpositionin2016,lifescienceswasinfourthpositionasof01January2018onthebasisoftotaldealvalue,followingthetechnology,consumerproductsandretail,andoilandgassectors.

Global M&A activity in life sciences

Source:ThomsonONE.

Mergersandacquisitions(M&A)a

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Global M&A activity in life sciences

Number of dealsDeal value (US$b)

US$

b

Num

ber o

f dea

ls

2013 2014 2015 2016 2017 0

500

1,000

1,500

2,000

2,500

3,000

aIncludesintended,pendingandcompleteddeals

37May 2018 |

Life sciences M&A value share by subsector

Source:ThomsonONE.

Nineofthetop10dealsof2017wereclosedduringthefirsthalfoftheyear.Theweaklatterhalfwasprimarilyduetouncertaintyaround taxreforms.

ThetopM&Adealsin2017werelargelyspurredbypursuitforeconomiesofscaleinlightofincreasingconsolidatedcustomersandaccesstocomplementaryproductlinesornewmarketgeography.ThecombinationofJohnson&Johnson(J&J)-Actelion,completedon16June2017,addsthelatter’son-marketandpulmonaryarterialhypertension(PAH)specialtyportfoliototheacquirer’scurrentproductofferings.Aspartofthisacquisition,ActelionandJ&JseparatedActelion’sR&Dsegmentintoanewbiotechcompany,IdorsiaLtd.,whichisresponsiblefordrugdiscoveryoperationsandearly-stageclinicaldevelopmentassets.

Inanothersuchdeal,involvingBectonDickinsonandCRBard,BectonDickinsonwasabletoachievescaleinthehospitalsupplymarketwhileaddingBard’ssurgerydevicestoitsportfolio.Italsohelpedtheacquirerexpanditsofferingsbeyonddiabetestootherareas,includingoncology,peripheralvasculardisease,urology,herniaandcancer.

Further,2017sawanincreaseinprivateinvestors’participationinM&Aactivity.Threeoutofthetop10dealsin2017involvedacquisitionoflifesciencescompaniesbyventurecapitalists.

Top 10 global life sciences M&A, 2017

Thepharmaceuticalssubsectorledthedealvalueat~US$100.4billion(912deals)in2017,contributing44%tothetotalM&Aactivityin2017.DespitehavingmaximumcontributiontototalM&Adealvaluein2017,thesubsectorwitnessedayear-over-yeardeclineof18%.Thedeclinewasmainlyduetoadropinthenumberofmegaticketacquisitions:3transactionsworth≥US$5billionin2017vs.5similardealsin2016.Similarly,thebiotechM&Adealvalue,contributing18%tototalsectordealamount,sawasteepyear-over-yeardeclineof32%in2017,primarilyduetofewerhigh-valuedeals:thereweretwodealsworth≥US$5billionvs.3dealsworth≥US$5billionthepreviousyear.Thedealsin2017showcasecompanies’attemptsatgainingadvantageinleadingtechnologiessuchasCAR-T,CRSIPR(clusteredregularlyinterspersedshortpalindromicrepeats)andgenetherapy.GileadScience’sUS$11.1billionacquisitionofchimericalantigenreceptorT-cell(CAR-T)therapyspecialistKitePharmavalidatesthistrend.

Incontrast,healthresearchandtestingwitnessedastaggeringgrowthof~4xyear-over-yeartoreachUS$19.1billionin2017.Thisincreasewascatapultedbyonedealworth≥US$5billion,accountingfor26%ofthetotaldealvalueofthissubsectorin2017vs.theabsenceofanysuchdealin2016.

IntermsofcontributiontotheoverallindustryM&Abyvaluein2017,themedicaldevicessubsectoraccountedfor30%(upfrom29%in2016)and,healthresearchandtestingsubsectoraccountedfor8%(upfrom2%in2016).

Medical devicesHealth research and testing Pharmaceuticals

2013

%

2014 2016 20172015

Biotechnology

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70

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Target company Subsector Country Acquiring company

Country Deal value (US$b)

Deal status

ActelionPharmaceuticals

BigPharma Switzerland JohnsonandJohnson

US 29.0 Completed

CRBard MedicalDevices

US BectonDickinson

US 24.2 Completed

KitePharma Biotechnology US Gilead Sciences

US 11.1 Completed

PatheonNV MedicalDevices

Netherlands Thermo Fisher US 7.1 Completed

STADAArzneimittel

Generics Germany Nidda Healthcare

Germany 6.8 Pending

VWR Corp MedicalDevices

US Avantor PerformanceMaterials

US 6.6 Completed

MedtronicPLC-PatientCare

MedicalDevices

US Cardinal Health

US 6.1 Completed

ARIADPharmaceuticals

BigPharma US Takeda US 5.3 Completed

PAREXELInternational

LStools US PamplonaCapital Management

UK 5.0 Completed

AkornInc. Generics US FreseniusKabi Germany 4.8 Pending

Source:ThomsonONE;CapitalIQ.

Mergers and acquisitions — Asia

Source:ThomsonONE.

Mergersandacquisitions


Inlinewiththeglobaltrend,AsialifesciencesM&Adealvaluein2017sloweddowntoUS$30.4billion,adeclineof25%fromUS$40.5billionin2016.Thesizeofdealsin2017wassignificantlylowerthanwhatwasrecordedin2016,withtwodealseachworth≥US$1billionin2017comparedwithsixsuchtransactionsin2016.Thus,theregion’scontributiontoglobalM&Astoodat13%,hintingtowardasignificantdifferenceinaveragedealsizebetweenAsiaandglobalM&A.

However,Asiaaccountedfor~33%oftheglobaldealmakingbyvolume,withthenumberofdealsin2017continuingtoincreasesince2013.Theregionwitnessed851M&Adealsin2017vs.794in2016.

Asia M&A activity in life sciences

Source:ThomsonONE.

WithinAsia,thebiotechsubsectorrecordedthehighestyear-over-yeargrowthindealvalue—42%—largelyduetoNanjingXinjiekouDepartmentStore’sacquisitionofShidingShengwuBiotechnologyinChina.Thistriggeredthesubsectortorecordthesecond-highestcontributiontothetransactionamount,26%,in2017vs.14%in2016,thethird-largest.Bycontrast,theothertwosectors,pharmaandmedicaldevices,reportedsignificantdeclinesof34%and45%,respectively,indealvalue.

Onthebasisofcompoundannualgrowthrate(CAGR)since2013,subsectordealmakingvalueswitnessedasignificantuptickinbiotechwith70%CAGRduring2013-2017.Ontheotherhand,thepharmaceuticalsubsectorobservedweakgrowth(i.e.,a2%CAGR)duringthisperiod.Thepharmasubsector’scontributiontothetotalregionM&Acontinuedtodipandnowstandsat~50%in2017(vs.73%in2013).

Asia life sciences M&A value by subsector (US$b)

0

10

20

30

40

50

60

Number of dealsDeal value (US$b)

US$

b

Num

ber o

f dea

ls

2013 2014 2016 20172015 0

150

300

450

600

750

900

Medical devicesHealth research and testing Pharmaceuticals

2013

US$

b

2014 2016 20172015

Biotechnology

0

10

20

30

40

50

60

Source:ThomsonONE(*ChinaincludesHongKongSARandMacau;“others”includestargetcompaniesbasedoutofTaiwan,Vietnam,Malaysia,Singapore,NewZealand,Bangladesh,Philippines,CambodiaandThailand).

Mergersandacquisitions

39May 2018 |

China(includingHongKong)aloneaccountedforasmuchas67%oftotaldealvaluein1H17.ThiswasdrivenbytwodealsworthmorethanUS$500meachoutofthetotalofthreesuchdealsrecordedinAsiain1H17.However,inabsoluteterms,China’scontributiontoAsianM&AactivityhasdroppedtoUS$8.4bin1H17,adeclineof16%fromUS$10bin1H16.Thispointstowardthecountry’ssignificanceintheoverallregionalM&Alandscape.SouthKoreawasadistantsecond,accountingfor16%ofthetotaldealvalueinAsia.Thecountry’scontributionincreasedfromUS$1.2bin1H16toUS$1.9bin1H17,registeringanincreaseof60%intotaldealvalue.FollowingsuitwasAustralia,withan11%contributiontotheregion’sdealvalue.Alltheremainingregionscombinedrepresentedonly6%oftotalAsianM&Adealvalue.

Bycount,Chinaagainaccountedformorethan50%oftotalAsiantransactionsin1H17.ChinaM&Adealsinearly2017largelyincludeddomesticconsolidationandsub-billion-dollardeals.SouthKoreaandAustraliatogetherrepresented20%ofAsia’sdealvolume.

Asia life sciences M&A by target country/region, 2017

Therewere11M&Adealsworth≥US$500millioneachin2017(vs.12dealsin2016).Ofthese11deals,sixinvolvedbothtargetandacquirerdomiciledinChina.Also,Chinawasresponsiblefor5ofthe10largestdealsin2017.Thetop10dealsshowcasedactiveinvolvement of private investors as the acquirers.

Inthelargestdealoftheyear,theinvestmentarmofCITICCapitalHoldingsLtdacquired~52%stakeinChina’ssecond-largestpharmaceuticalmanufacturingcompany,HarbinPharmGroup.Throughthecashtransaction,CITICCapitalintendstoincreaseitsholdinginthepharmacompanywhileassumingthepositionofcontrollingshareholderofthebusinessinwhichithaspreviouslybeenaninvestorsince2005.

Source:ThomsonONE,CapitalIQ.(*includesmainlandChina,HongKongSARandMacau)

Country Target Acquirer Value (US$m)

Deal description/rationale

HarbinPharmGroup

CiticCapitalEquityInvest

1,179.5 • CITICCapitalEquityInvestmentistolaunchatenderofferfora51.7%shareinHarbinPharmaceutical,apharmaceuticalmanufacturer,forCNY5.86(US$0.89)incashpershare.

Shiding Shengwu BiotechHong

NanjingXinjiekouDeptStore

1,051.4 • NanjingXinjiekouDepartmentStoreCoLtdagreedtoacquire100%shareofShidingShengwuBiotechnologyfromSanpowerGroupinastockswaptransaction.

iNova Pharmaceuticals

PacificEquityPartnersandtheCarlyleGroup

930.0 • iNovaPharmaceuticals(Australia)PtySPVagreedtoacquireiNova(Australia)fromValeantPharmaceuticalsInternationalInc.inaleveragedbuyout.

YunnanBaiyaoHolding

JiangsuYuyueTech

829.7 • JiangsuYuyueTechnologyDevelopmentacquired10%stakeinYunnanBaiyaoHolding.

ZhuhaiWeixingIndustrial

ZhuhaiHengqinWeichuang

661.8 • ZhuhaiHengqinWeichuangacquired100%shareofthetargetfromLivzonPharmaceuticalGroup.

JeilPharmaceuticalCo

Shareholders 617.9 • JeilPharmaceuticalCospunoffitsentirepharmaceuticalbusinesstoitsshareholders.

CBCardioHoldings

BlueSailMedCoLtd

617.0 • BlueSailMedicalCoLtd,aChina-basedmedicaldevicecompany,agreedtoacquirea62.61%stakeinaSingapore-basedmanufacturerofirradiationapparatuses,CBCardioHoldings.

CardinalHealth Shanghai PharmaCentury

576.0 • ShanghaiPharmaCenturyGlobalLtd(basedinHongKong)engagedincompleteacquisitionofLabuan-basedCardinalHealth,amedicalequipmentandsuppliesmerchantwholesaler,fromCardinalHealthCaymanIslandsLtd.

TorrentPharmaLtd

Torrent PharmaLtd

557.5 • TorrentPharmaceuticalsLtdacquiredbrandedformulationportfolioofUnichemLaboratoriesLtdinacashtransaction

HealthForwardHoldingsLtd

ChinaBiologicProducts

536.4 • ChinaBiologicProductsHoldingsacquired100%sharesofabiologicmanufacturer,HealthForwardHoldingsLtdinastockswaptransaction.

Top 10 Asia life sciences M&A, 2017

0

5

10

15

20

25Number of dealsDeal value (US$b)

US$

b

Num

ber o

f dea

ls

China*Australia

JapanSingapore

Others*India

South Korea 0

50

100

150

200

250

300

350

400

450

500

*


FinancingandIPOs

Asian IPOs

Source:CapitalIQ.

IPOactivityinAsiacontinuedtogainmomentum(byvolume),with2017witnessingthehighestnumberofIPOsclosedsince2013;2017aloneaccountedfor31%ofthetotalnumberofIPOsraisedsince2013.Atotalof71Asia-basedcompaniesraisedcapitalthroughIPOsin2017vs.46ofsuchIPOclosingsin2016,highlightinga54%increaseinthenumberofIPOsclosedduringtheyear.Howevercomparedwith2016,2017sawadropinIPOactivity,withtotalcapitalraisedduringtheyearfallingtoUS$4.2billion,asignificantdeclineof30%intermsofcapitalraised.ThiswasprimarilyduetotwobigIPOsworth~US$2billioneachin2016whiletherewasasingleIPOthatraisedcapitalworthmorethanUS$0.5billionin2017.

0

1

2

3

4

5

6

7

Number of IPOsIPO value (US$b)

US$

b

Num

ber o

f IPO

s

2013 2014 2016 20172015 0

10

20

30

40

50

60

70

80

Asian IPO activity in life sciences

41May 2018 |

Source:CapitalIQ.

WhiletheIPOactivityintheUSandEuropecontinuedtosurge,theIPOactivity(byvalue)inAsiain2017wasstalledduetouncertaintyaroundChina’sNationalPeople’sCongressandchangesinlistingrulesoftheHongKongStockExchange.Inaddition,ashiftintrendtowardsmallerdealshasalsoimpactedthetotalcapitalraisedduringtheyear.

InAsia,allthesubsectorsregisteredstrongdouble-digityear-over-yeargrowthinthenumberofIPOsclosedin2017.Despitea75%growthinthenumberofIPOsclosedinpharmain2017andcontinuingtoremainasthelargestcontributortoIPOfunding,thesubsectorwitnesseda34%year-over-yeardeclineintheamountofcapitalraised.ThiswasadirectresultoftheabsenceofevenasinglebigIPOthatresultedincapitalofmorethanUS$500million,whilein2016therewasanIPOworthapproximatelyUS$2billion.

Ontheotherhand,thebiotechsubsectorwitnessedthehighestgrowthintermsofcapitalraised,withtotalIPOsvaluedatUS$0.9billionin2017,a~3xrisefromUS$0.3billionin2016.ThissignificantincreaseisattributabletothreeIPOsworthmorethanUS$100millioneachin2017,comparedwiththeclosingofonlyoneIPOworthmorethanUS$100millionin2016.Thissubsectoraccountedforthesecond-highestcontribution,21%,tothetotalnewcapitalraisedin2017.Theremainingtwosubsectors—lifesciencestoolsandservices,andmedicaldevices—contributed15%and14%,respectively.ThelargestIPOof2017wasraisedbyalifesciencestoolsandservicescompany.

Medical devices Life sciences tools and servicesPharmaceuticals

2013

US$

b

2014 2016 20172015

Biotechnology

0

1

2

3

4

5

6

7

Asian life sciences IPOs by subsector (US$b)


FinancingandIPOs

Source:CapitalIQ(*includesmainlandChina,HongKongSARandMacau).

TwelveIPOsin2017raisedmorethanUS$100millioneach.Ofthese,onlyoneresultedincapitalexceedingUS$500million.Amongthetop10IPOsinAsiain2017,ninecompanieswerebasedoutofChinaandonewasfromIndia.

Ofthetotal71IPOsraisedin2017,46belongedtocompaniesbasedinChina,with11generatingmorethanUS$100millioneach,includingoneIPOthatclosedaboveUS$500million.Inaddition,eightcompaniesinIndia,sevencompaniesinAustraliaandsixcompaniesinSouthKoreaalsocompletedpublicofferingsduringthisperiod.TheremainingfourIPOswerefromcompaniesinJapan,SingaporeandTaiwan.AveragecapitalraisedperIPOwashighestamongcompaniesheadquarteredinChina,distantlyfollowedbyIndia.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000Number of IPOsIPO value (US$m)

US$

m

Num

ber o

f IPO

s

China*

Australia Japan

SingaporeIndia

South Korea 0

5

10

15

20

25

30

35

40

45

50

Asian life sciences IPO by headquarter country, 2017

43May 2018 |

FinancingandIPOs

TwelveIPOsin2017raisedmorethanUS$100millioneach.Ofthese,onlyoneresultedincapitalexceedingUS$500million.Amongthetop10IPOsinAsiain2017,ninecompanieswerebasedoutofChinaandonewasfromIndia.

China-basedlifesciencestoolsandservicesfirmWuXiBiologics’listingontheHongKongStockExchangewasthelargestAsianIPOduring2017.Thecompanygarneredtotalcapitalof~US$509.7million.ThiswasfollowedbyanIndia-basedpharmaceuticalcompany,ErisLifesciencesLimited,whichraisedUS$269.8million.OneinterestingIPOactivityobservedduringtheyearinvolvedtheNASDAQlistingofChina-basedZaiLabLimitedboostingthecompany’sreputationandgivingitanadvantageinM&Aactivity.

Source:CapitalIQ.(*includesmainlandChina,HongKongSARandMacau)

Issue company Headquarter country

Subsector Amount raised (US$m)

Exchange

WuXiBiologics(Cayman) China* Lifesciencestoolsandservices

509.7 HongKongStockExchange

ErisLifesciencesLimited India Pharmaceutical 269.8 MumbaiStockExchange

CisenPharmaceuticalCo.Limited

China Pharmaceutical 176.9 ShanghaiStockExchange

TianshengPharmaceuticalGroup

China Pharmaceutical 172.1 ShenzhenStockExchange

ShandongSitoBiotechnology China Pharmaceutical 156.0 ShenzhenStockExchange

ZaiLabLimited China Biotechnology 150.0 NASDAQ

DaShenLinPharmaceuticalGroupCompanyLimited

China Pharmaceutical 146.3 ShanghaiStockExchange

HarbinMedisanPharmaceuticalCompanyLimited

China Pharmaceutical 144.7 ShenzhenStockExchange

WuhanHiteckBiologicalPharmaCompanyLimited

China Biotechnology 126.6 ShenzhenStockExchange

GeteinBiotechInc. China Biotechnology 107.9 ShanghaiStockExchange

Top 10 Asian life sciences IPOs, 2017


EY thought leadership EY perspective on life sciencesThefollowingisasampleofrecentlifesciences-relatedthoughtleadershipproducedbyEY.Pleasevisitey.com/vitalsignsforthefullEYlibraryofindustryinsightsandreports.

Life Sciences 4.0: Securing value through data-driven platforms InEY’slatesteditionofourProgressionsseries,weexplorehowhealthisbeingreimaginedasaresultofscientificandtechnologicalchangeandrisingcustomerexpectations.Wealsoexaminetheramificationsforlifesciencescompanies’marketofferings,businessmodelsandthenewcapabilitiesneededasthedisciplinesofhealthcareandtechnologymergetobecome“healthtechnology.”

When the human body is the biggest data platform, who will capture value?Progressions 2018 Life Sciences 4.0: Securing value through data-driven platforms

Pulse of the industry: Medical technology report 2017Asthepaceofchangeaccelerates,howcanmedtechsmoveaheadandstaythere?Answeringthisquestionisastrategicimperativeformedicaltechnologycompaniesnomattertheirsize.In2017,thevelocityandscopeoftechnologicalinnovationareblurringthelinesbetweenmedicineandtechnology,redefiningtraditionalmedtechandfundamentallyalteringbusinessmodels

Beyond borders: biotechnology report 2017 – staying the course Itwassupposedtobeabadyearforbiotech.Forthissector,thesimplestoftruismshasalwaysheld:whatgoesupmusteventuallycomedown.Marketspeakedin2015anddeclinedin2016;payerpressureandUSelectionyearrhetoricweighedonthesector;drugapprovalsfellsharply;andbiotechcompaniesfacedadwindlingsupplyofpublicmarketcapitaltofundR&DinkeyUSandEuropeanmarkets.

Biotechnology Report 2017

Staying the courseBeyond borders

Appendix

http://www.ey.com/gl/en/industries/life-sciences/vital-signs

http://www.ey.com/Publication/vwLUAssets/ey-when-the-human-body-is-the-biggest-data-platform-who-will-capture-value/$FILE/ey-when-the-human-body-is-the-biggest-data-platform-who-will-capture-value.pdf

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-medical-technology-report-2017

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-staying-the-course

45May 2018 |

Building an engaging aging strategyInthisarticle,thefirstinaseriesexploringtheupsidesofaging,EYoutlinesthepotentialopportunitiesthatcouldariseifthereisengagementontheagingtopic.In2017,itisstillpossibletochangetheconversationandseizetheupsideofthedisruptionthatwillbecausedbythemassivedemographicshiftcurrentlyunderway.

Building creative partnerships for lifelong wellness Asindividuals,eachoneofusisonanagingjourney.Butourjourneyisnotonethatwetravelalone.Oursuccessatmakingashifttolifelongwellnessdependsontraditionalandnontraditionalpartnersworkingtogethertowardacommongoal:tolivelongandlivewellwithjoy,dignityandconnection.ThisinstallmentfromtheEY Engaged Aging series explores theseideasmorefullyandasks:“Whatnewpartnershipswillseizetheupsideofaging?”

How can new partnerships close the gap between healthy aging and “growing old”?Building an engaged aging strategy

Value-based health care and value labs USpayerscontinuetostruggletomanagemedicalproductcostsontwofronts:first,high-volume,high-costchronicdiseases;andsecond,high-costspecialtyproducts.Althoughstakeholdersareinterestedinvalue-basedmodelsthatlinkadrug’sperformancetoemergingevidenceofimprovedpatientoutcomes,suchagreementsaredifficulttoimplementandtoolimitedinscopetodriveashifttovalue-basedreimbursement.

Capital Confidence Barometer – Life Sciences | 15th edition In the EY 15th Capital Confidence Barometersurveyoflifesciencesexecutives,wefoundthatM&Aexpectations,althoughnotquitebacktothepenultimatehighofOctober2015,havecontinuedatnear-recordlevels.Infact,despitetheeconomicandpoliticaluncertaintiesatthetimeofthissurvey,54%oflifesciencesexecutivesexpecttopursuedealsinthenext12months,upfrom45%sixmonthsago.

2018 M&A Firepower Report: Life Sciences Deals and Data Whatlessonsdoes2017provideforsettingyourcompany’stransactionstrategyin2018?Inthewakeofyear-endUStaxlegislation,conditionsareripeforasurgeinlifesciencesM&Aasbusinessleadersweighstrategicprioritiesforcapitalallocationdecisionstogenerateinorganicgrowth.Despiterelativelyhightargetvaluations,M&Aremainsessentialforgrowth,especiallyastechnology’shealthcareconvergencethreatenstraditionalbusinessmodels.

Life SciencesGlobal Capital Confidence BarometerMay 2017 | ey.com/ccb | 16th edition

Can economic uncertainty and record M&A coexist?

2018 M&A Firepower Report 1

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-eyeing-the-aging-opportunity

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-building-creative-partnerships-for-lifelong-wellness

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-value-based-healthcare-and-value-labs

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-capital-confidence-barometer-life-sciences-16th-edition

http://www.ey.com/gl/en/industries/life-sciences/ey-vital-signs-2018-ma-firepower-report-life-sciences-deals-and-data

Contacts

Sriram ShrinivasanGlobalEmergingMarketsLeaderandGlobalGenericPharmaceuticalLeaderMumbaisriram.shrinivasan@in.ey.com+912261920380

Rick FonteAsia-PacificLifeSciencesTaxLeaderSingaporerichard.fonte@sg.ey.com+6563098105

Hugo WalkinshawAsia-PacificLifeSciences [email protected]+6563098098

Andrew ChenAsia-PacificLifeSciencesTransactionsCo-LeaderShanghaiandrew.chen@parthenon.ey.com+862122283939

Abhay BangiAsia-PacificLifeSciencesTransactionsCo-LeaderSingaporeabhay.bangi@sg.ey.com+6563096151

Pamela [email protected]+442079513523

Patrick FlochelEYJapanLifeSciencesGlobalLeadershipTeamTokyopatrick.flochel@jp.ey.com+81335031542

EY Life Sciences sector leaders


Sung Yeon [email protected]+82237876844

Hitesh SharmaIndiaLifeSciencesLeader&TaxPartner,Ernst&[email protected]+912261920620

Felix [email protected]+862122282586

Hironao [email protected]+81335031566

EY JapanSouth Korea

India

EY Oceania

Titus von dem Bongart [email protected]+862122282884

Ishita [email protected]+6590291483

Gamini [email protected]+61292484702

EY Greater China

EY ASEAN

47May 2018 |

LifeSciencescontacts

EY Life Sciences service line leaders

China (Mainland)

Felix Fei Assurance Shanghai [email protected] +862122282586

TitusvondemBongart TaxCo-Leader Shanghai [email protected] +862122282884

JoanneSu TaxCo-Leader Beijing [email protected] +861058153380

Steve Au Yeung Advisory Shanghai [email protected] +862122288888

Andrew Chen Transactions Shanghai [email protected] +862122283939

Hong Kong/Macau

CaryWu Assurance HongKong [email protected] +85228499122

KarinaWong Tax HongKong [email protected] +85228499175

Edward Chang AdvisoryCo-Leader Shanghai [email protected] +861058152321

JudyTsang Transactions HongKong [email protected] +85228469016

Taiwan LinTu AssuranceCo-Leader Taipei [email protected] +886227578888ext. 88810

KyKyLin AssuranceCo-Leader Hsinchu [email protected] +886227578888ext. 88856

Ann Shen Tax Taipei [email protected] +886227578888ext. 88877

JonHuang Advisory Taipei [email protected] +886227578888ext. 88862

AudryHo Transactions Taipei [email protected] +886227578888ext. 88898

Australia Gamini Martinus Assurance Sydney [email protected] +61292484702

LeonidShaflender Tax Sydney [email protected] +61282956735

DeniseBrotherton Tax Melbourne [email protected] +61392888758

MilanMilosevic Advisory Sydney [email protected] +61292485028

JasonWrigley Transactions Sydney [email protected] +61292485303

New Zealand JonHooper Assurance Auckland [email protected] +6493008124

AaronQuintal Tax Auckland [email protected] +6493007059

South Korea Sung Yeon Cho Assurance Seoul [email protected] +82237876844

JaeCheolKim Tax Seoul [email protected] +82237700961

YongSikKim Advisory Seoul [email protected] +82237876600

HyoSukHan Transactions Seoul [email protected] +82237700907

Oceania

South Korea


Greater China

Singapore/Brunei

SweeHoTan Assurance Singapore [email protected] +6563098238

ChingKheeTan Tax Singapore [email protected] +6563098358

IshitaDhamani Advisory Singapore [email protected] +6590291483

AbhayBangi Transactions Singapore [email protected] +6563096151

ASEAN

LifeSciencescontacts

Japan HironaoYazaki Assurance Tokyo [email protected] +81335031566

JonathanStuart-Smith TaxCo-Leader Tokyo [email protected] +81335062426

TatsuhideKanenari TaxCo-Leader Tokyo [email protected] +81335061364

Tetsuro Sano Advisory Tokyo [email protected] +81335031490

TakayukiOoka Transactions Tokyo [email protected] +81345826422

India RaviBansal Assurance Mumbai [email protected] +912261920460

RahulPatni Tax Mumbai [email protected] +912261921544

Murali Nair Advisory Mumbai [email protected] +912261920380

KrishnakumarV Transactions Mumbai [email protected] +912261920950

Japan

India

49May 2018 |

Indonesia PeterSurja Assurance Jakarta [email protected] +622152894012

PeterNg Tax Jakarta [email protected] +622152895228


BernardNg Transactions Jakarta [email protected] +862122282005

Thailand/Myanmar

Saifon Inkaew Assurance Bangkok [email protected] +6622649090

SuSanLeong Tax Bangkok [email protected] +6622649090



Philippines/Guam

AnaLeaCBergado Assurance MakatiCity [email protected] +6328948354

FrancisRicamora Tax MakatiCity [email protected] +6328910307

JosephIanCanlas Advisory MakatiCity [email protected] +6328910307


Malaysia YoonHoongHoh Assurance KualaLumpur [email protected] +60374958608

JaniceWong Tax KualaLumpur [email protected] +60374958223



Vietnam/Cambodia/ Laos

Ernest Yoong Assurance HoChiMinhCity [email protected] +84838248210

ThinhXThan Tax HoChiMinhCity [email protected] +84838248360



ASEAN (continued)

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2 “PharmaceuticalIndustryToFaceContinuedScrutinyOverToughRegulatoryEnvironment,”01September2017,BMIResearch,accessed20February2018.

3 “HealthcareAccesswillbeboostedbythe2018budget,”05January2018,BMIResearch,accessed15February2018.

4 “BillfordrugpriceregulatoryboardOK’d,”12February2017,viaDowJonesFactiva,©2018,accessed16February2018.

5 “SignificantPotentialForGenericMedicineSalesGrowth,”01February2018,BMIResearch,accessed15February2018.

6 “ImprovementsToTheIntellectualPropertyEnvironmentWillBeAPositiveForDrugmakers,”03January2018,BMIResearch,accessed28February2018.

7 “GovernmenttosupportmedicalR&D,”26September2017,viaFactiva,©2018,accessed28February2018.

8 “ThailandEmergesasSoutheastAsia’sPrimeDestinationforBiotechnologyDevelopment,”14November2017,viaFactiva,©2018,accessed28February2018.

9 “Singapore’sPipsprogramtogivepharmasectorahugeboost,”BioSpectrum Asia,06September2017,https://www.biospectrumasia.com/news/54/9436/singapores-pips-program-to-give-pharma-sector-a-huge-boost.html,accessed28February2018.

10“MoUSignedtoLaunchPharmaInnovationProgrammeSingapore,”08September2017,viaFactiva,©2018,accessed28February2018.

11“GuildwelcomesremovaloflocationrulessunsetclauseasPBSbillpasseslowerhouse,” AJP.com,12February2018,https://ajp.com.au/news/bright-new-day/,accessedon26February2018.

12“Australia’sresearcheffortsgetfurtherboost,”BioSpectrum Asia,03November2017,https://www.biospectrumasia.com/news/47/9719/australias-research-efforts-get-further-boost.html,accessed09February2018.

13“Australialaunchesnationalcancerprogramme,”BioSpectrum Asia,20September2017,https://www.biospectrumasia.com/news/47/9488/australia-launches-national-cancer-programme.html,accessed09February2018.

14“$200millionresearchboosttoimprovethelivesofAustralianpatients,”Commonwealth of Australiawebsite,11October2017,https://www.pm.gov.au/media/200-million-research-boost-improve-lives-australian-patients,accessed09February2018.

15“$8millionboostforcancerresearchprojects,”Australia Ministry of Healthwebsite,19December2017,http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2017-hunt134.htm,accessed09February2018.

16“PrioritiseinvestmentinthePBStoimproveaccesstoallcancermedicines,”Medicines Australia,30November2017,https://medicinesaustralia.com.au/media-release/prioritise-investment-in-the-pbs-to-improve-access-to-all-cancer-medicines/,accessed09February2018.

17“Priorityreviewdesignationsmedicaldevices(includingIVDs),”Commonwealth of Australiawebsite,13January2018,https://www.tga.gov.au/book-page/designation-process,accessed09February2018.

18“Consultation:Proposedregulatorychangesrelatedtopersonalisedand3Dprintedmedicaldevices,”Commonwealth of Australiawebsite,09November2017,https://www.tga.gov.au/consultation/consultation-proposed-regulatory-changes-related-personalised-and-3d-printed-medical-devices,accessed09February2018.

19“BigPharmaGetsBoostasChinaSpeedsUpNewDrugApprovals,”10October2017,viaFactiva,©2018,accessed06February2018.

20“CFDAtoimplementICHguidelines,”30January2018,viaFactiva,©2018,accessed06February2018.

21“China—Biotechnology—MarketOverview,”03October2017,viaFactiva,©2018,accessed06February2018.

22“Ruleswouldtightenonlinedrugsales,”ChinaDaily,16November2017,http://www.chinadaily.com.cn/china/2017-11/16/content_34593483.htm,accessed05February2018.

23“ShortagesofessentialdrugscontinueinChinadespitereforms,”24November2017,viaFactiva,©2018,accessed06February2018.

24“ModicaretobepartofIndia’snewpharmapolicy,”The Mint,16February2018.http://www.livemint.com/Industry/wnNmQhSrvrDBkb0HilXCvM/Modicare-to-be-part-of-Indias-new-pharma-policy.html,accessed06February2018.

25“BMIIndiaPharmaceuticalsandHealthcareReportQ22018,”BMIResearch,accessed06March2018.

26“Aftercardiacstents,governmentnowcapskneeimplantsprice,cutspricesbyupto69%,”The Economic Times,17August2017,https://economictimes.indiatimes.com/industry/healthcare/biotech/healthcare/after-cardiac-stents-government-now-caps-knee-implants-price/articleshow/60088338.cms,accessed06March2018.

27“Fearingmorepricecontrol,medicaldevicecompaniesproposegovernmenttovoluntarilycutprices,”The Economic Times,02September2017,https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/fearing-more-price-control-medical-cos-propose-govt-to-voluntarily-cut-prices/articleshow/60330951.cms,accessed06March2018.

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Sources

| EY Life Sciences Report: Asia50

51May 2018 |

Further reading from EY Life Sciences

Progressions 2018 Life Sciences 4.0: Securing value through data-driven platforms

Increasedcustomerexpectationsandrapidtechnologicaladvancesaredisruptingthehealthcareindustry,causingpowertoshiftacrosstraditionalstakeholdergroupsandcreatingopportunitiesfornewentrants.Asthedataandalgorithmsthatdrivepatient-centrichealthoutcomesbecometheultimatehealthcareproducts,organizationsthatharnessdata-fueledinsightswillleadinthisnewindustryparadigm.

LifeSciences4.0examinesthispowershift,createsafuturevisionforthehealthcareindustryandsuggestshowlifesciencescompaniesshouldrespond.

Tocreatevaluenowandinthefuture,biopharmasandmedtechsmustadoptagile,data-centricbusinessmodelspresentlyonlyseeninotherindustries.Thatmeanslifesciencescompaniesmustbuild—orparticipatein—interoperableinformationsystemsthatdeliverdata-drivenimprovementstohealthoutcomes.Andtheymustformagile,oftenshort-term,partnershipsandcollaborations.

Ascompetitionincreasesandcapitalbecomesscarcer,weexpecttoseecompaniesnarrowingtheirfocusfromdiversifiedbusinessmodels.

“Embracing Life Sciences 4.0 is both a global urgent need and an opportunity. If companies leverage technology to create platform interfaces and combine their proprietary data with those from other health stakeholders, they can position themselves as powerful leaders and capture sustainable future value.”

—PamelaSpence,EYGlobalLifeSciencesIndustryLeader

A new equation for delivering valueFuturevalue(FV)isdrivenbyinnovation(I)

thatfocusesonoutcomeswithahighdegreeofpersonalization andisfueledbyunlockingthepowerofdata(D).

Source:EY

Future value

InnovationData

OutcomesxPersonalization

For peopleFor physiciansFor payersFor policymakers

ParticipatoryPrecisePredictiveProactive

Data streams Traditional and non-traditional partners

Platforms of care

(Connect+Combine+Share)

http://www.ey.com/Publication/vwLUAssets/ey-when-the-human-body-is-the-biggest-data-platform-who-will-capture-value/$FILE/ey-when-the-human-body-is-the-biggest-data-platform-who-will-capture-value.pdf

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How EY’s Global Life Sciences Sector can help your business Aspopulationsageandchronicdiseasesbecomecommonplace,healthcarewilltakeaneverlargershareofGDP.Scientificprogress,augmentedintelligenceandamoreempoweredpatientaredrivingchangesinthedeliveryofhealthcaretoapersonalizedexperiencethatdemandshealthoutcomesasthecoremetric.Thisiscausingapowershiftamongtraditionalstakeholdergroups,withnewentrants(oftennotdrivenbyprofit)disruptingincumbents.Innovation,productivityandaccesstopatientsremaintheindustry’sbiggestchallenges.Thesetrendschallengethecapitalstrategyofeverylinkinthelifesciencesvaluechain,fromR&Dandproductsupplytoproductlaunchandpatient-centricoperatingmodels.

OurGlobalLifeSciencesSectorbringstogetheraworldwidenetworkofnearly17,000sector-focusedprofessionalstoanticipatetrends,identifytheirimplicationsandhelpourclientscreatecompetitiveadvantage.Wecanhelpyounavigateyourwayforwardandachievesustainablesuccessinthenewhealth-outcomes-drivenecosystem.

©2018EYGMLimited.AllRightsReserved.

EYGno.02673-184GBL1802-2592848

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Thismaterialhasbeenpreparedforgeneralinformationalpurposesonly andisnotintendedtoberelieduponasaccounting,taxorotherprofessionaladvice.Pleaserefertoyouradvisorsforspecificadvice.

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