Beyond Borders: Global biotechnology report 2010

the bulk of this decline was driven by
Roche’s acquisition of Genentech, which
effectively absorbed one of the giants of the
biotech industry into a big pharma company.
Without this acquisition, the industry’s
revenues would have grown by 8%.
While this is undoubtedly much better than
a 9% decline, it still represents a reduction
from the growth rates the industry has
been accustomed to seeing. For most of
A closer look
the last decade, the biotech industry has
consistently delivered double-digit revenue
growth, driven by strong product sales at the
relatively small number of mature companies
with commercialized products — including
Genentech. That trend started to change in
2007, when revenue growth slowed somewhat
in the US market in the wake of certain new
safety-related warnings. In 2009, there was
a similar slowdown in Europe as UK-based
Seeking efficiency: considerations when operating
beyond borders
As biotech companies in the West look for efficiencies in the
“new normal,” many are increasingly drawn to outsourcing and
overseas operations to drive revenue growth and to capture
relative cost advantages. But operating beyond borders can
have complex tax implications, which should be considered up
front. While large pharmaceutical and biotech companies have
been global for some time and have experience designing tax
structures to minimize effective tax rates and take advantage
of tax incentives in different jurisdictions, this is unfamiliar
territory for many smaller biotechs.
Biotech companies expanding into new geographies may seek
to emulate pharma-like tax strategies, while those that are
already global will need to understand the risks and changing
environment that impact their effective tax rates. Those still in
the early stages of globalization should evaluate the feasibility
of multinational structures, given the changing tax environment.
They will also need to consider the political and economic
stability of potential countries for location of facilities and
availability of needed workforce.
At a time when the global recession has negatively impacted
tax revenues, many governments are working more closely
with each other to reduce the ability of companies to minimize
taxes through cross-border transactions. Some jurisdictions
Shire — the largest company by revenues
in the European market — faced what it
called a “transformational year.” Shire’s
revenue growth flattened when one of its
leading products faced generic competition
for the first time. While increasing generic
competition and pricing pressure will
continue to squeeze the industry’s revenue
growth in the new normal, it is worth noting
that the slowdown in 2009 cannot fully be
Bruce Bouchard
Ernst & Young LLP
have enacted legislation to restrict the ability to defer foreign
profits by expanding economic substance and business purpose
doctrines and by limiting the deductibility of worldwide interest
expense and headquarter expenses.
Still, there are opportunities to minimize global tax rates by
proactively managing the ownership and development of
intellectual property rights on a worldwide basis. An important
element of effective tax planning is the alignment of tax
strategies with business activities and objectives. Many of
these strategies take time to mature as intellectual property is
developed, so it is important for early-stage biotech companies
to proactively consider tax planning long before a product is
ready for commercialization.
Global organizations, or those considering going global, should:
• Align the tax strategy with the business strategy
• Evaluate the systems and resources for managing tax risk
• Strategically manage tax issues
• Include global tax risk in corporate governance planning
• Stay current on tax policy and legislative developments
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