Benchmarking Study of the Characteristics of the · The measure taken is sales ex-manufacturer...

Benchmarking Study of the Characteristics of the Australian and International Pharmaceuticals

Industries

Main Body

Final Report

September 2005

A study undertaken for the Australian Government Department of Industry, Tourism and Resources, Invest Australia & the Victorian Government

Department of Innovation, Industry and Regional Development

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Table of Contents

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1. Introduction: the Australian pharmaceuticals industry in a global context a) Market size and recent growth The pharmaceuticals industry is one of the fastest growing worldwide. This growth will undoubtedly continue, as ageing populations, rising incomes, product innovations and increasing consumer expectations regarding health and longevity all contribute towards accelerating demand. Moreover, the industry clearly has a global focus. The top 30 global pharmaceuticals companies are drawn from the US, Europe and Japan, but seek out drug discoveries wherever they are made, routinely form alliances that span the globe, undertake clinical trials in a range of developed countries and locate new production facilities according to market and commercial imperatives. Global sales of pharmaceuticals (audited) amounted to around US$466 billion (A$660 billion) in 2003, according to IMS.1 (The Economist Intelligence Unit data in Table 1 cover the top 51 markets, so are slightly lower.) Australia is a small player in this global market, accounting for approximately US$4.7 billion (A$6.7 billion) of ex-manufacturer pharmaceuticals industry sales in 2003, or 1% of the world total (marginally less than its 1.2% share of global GDP—see tables below). Nonetheless, most of the world’s largest pharmaceuticals companies are active in this market. Pharmaceuticals firms from the US and the UK together accounted for around 60% of the Australian market in 2001. Table 1: Australian GDP 1999 2000 2001 2002 2003 2004 2005 GDP at current market prices (US$ bn) 390.9 377.0 358.2 398.9 505.1 595.0 602.8 GDP at purchasing power parity (PPP; US$ bn) 467.2 491.2 518.0 540.6 567.2 597.8 630.2 GDP per capita at current market prices (US$) 30,080 30,080 29,810 30,941 34,561 38,917 41,471 GDP per capita at purchasing power parity (PPP; US$) 41,159 41,159 42,449 43,855 46,722 49,485 51,881 Australia’s share of world GDP at current market prices (%) 1.4 1.4 1.2 1.3 1.2 1.2 1.2 Australia’s share of world GDP at purchasing power parities (%) 1.1 1.1 1.1 1.1 1.1 1.1 1.1

Source: Economist Intelligence Unit. Table 2: Australia’s share of world pharmaceuticals2 sales 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Australian sales (US$ bn) 3.1 3.0 3.0 3.6 4.7 5.5 6.0 6.0 6.0 6.2 World sales (US$ bn; leading 51 markets) 294.9 306.5 329.6 343.1 377.8 412.5 442.5 469.3 490.0 513.3 Australian share (%) 1.0 1.0 0.9 1.1 1.2 1.3 1.4 1.3 1.2 1.2

The measure taken is sales ex-manufacturer (including hospital sales) expressed in US dollar terms. Source for Australia is Snapshots International for the historical data, 1997-2002. Estimates from 2003 and forecasts for 2004-08 come from the Economist Intelligence Unit’s Market Indicators and Forecasts. World totals are derived from the 60 countries covered by the Economist Intelligence Unit’s Market Indicators and Forecasts product.

Sources: Snapshots International (historical data); Economist Intelligence Unit (forecasts).

Despite its relatively small size, the Australian pharmaceuticals industry has expanded strongly in recent years. IMS estimates suggest double-digit growth in the volume and value of output in the last five years. Official data on the value of sales under the government’s Pharmaceutical Benefits Scheme

1 IMS; www.pharmexec.com/pharmexec/data/articlelong/pharmexec/182002/17966/article.pdf 2 ‘Pharmaceuticals’ refers to total sales of pharmaceutical product deliveries to pharmacies and hospitals by the Anatomic Therapeutic Chemical Classification (ATC 2003) groups at retail prices. Depending on the allocation of products with more than one use, differences may occur across country, which then affects the size of specific ATC groups. Differences are likely to occur depending on whether data is for hospitals, wholesalers, pharmacies or other sources.

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(PBS—see Table 3) show they have expanded at an average annual growth rate of 12.4% in the decade to fiscal year 2003-04.3 Table 3: Pharmaceuticals manufacturing output and market size in Australia

Units (m) US$ m A$ m 1999 422 3,060 4,735 2000 455 3,066 5,300 2001 594 3,124 6,037 2002 812 3,611 6,633 2003 908 4,682 7,146 Average annual compound growth,

1998-2003 (%) 18 12 11

Source: IMS Health. Plain solid systemic formulations (i.e. not sustained or controlled release) captured 60.7% of the pharmacy market in 2003 according to IMS; injectables accounted for another 12.3%. Drugs for cholesterol were the most successful therapeutic class in 2003, capturing 10.3% of the total market.4 Antiulcerants, antidepressants, non-steroid antirheumatics and antipsychotics made up the top five largest therapeutic classes, capturing 27.2% of the market according to IMS. This pattern is similar to that in other developed countries, suggesting that the Australian pharmaceuticals market is mature. b) The role of federal government bodies The Pharmaceuticals Benefits Scheme (PBS) provides Australians with subsidised access to prescription medicines. Under the PBS, the Australian Government subsidises prescription medicines on behalf of Australians from pharmaceuticals companies. After a price has been negotiated by the Government and the suppliers, general consumers pay a co-payment of up to A$28.60 (as at April 2005) on each prescription, while concessional patients pay a co-payment of up to A$4.60 (as at April 2005). The great bulk of pharmaceuticals sold are listed on the PBS and their cost to consumers is subsidised by the federal government. Additional pharmaceuticals are listed on the Repatriation Pharmaceutical Benefits Scheme (RPBS), which can be accessed by all veterans and mariners. In 2000 around 93.5% of the number of prescriptions filled in Australia were for medicines listed on the PBS or the RPBS.5

The remainder were available on the private prescription market and attracted no government subsidy. A government body, the Pharmaceutical Benefits Advisory Committee (PBAC), makes recommendations regarding the listing of products on the PBS, and the Pharmaceutical Benefits Pricing Authority (PBPA) reviews the prices of already listed products and recommends pricing for new products. The PBS is an evidence-based medicines system that prices medicines on the basis of their therapeutic efficacy and their cost effectiveness in achieving health outcomes. The patent status of the medicines does not influence the price paid for listing on the PBS.

3 IMS Health, IMS World Review, 2003. 4 IMS Health, Australia Market Profile 2004. 5 Commonwealth Department of Health and Aging, Australian Statistics on Medicines 1999-00, Commonwealth of Australia, 2003, p.3.

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The PBS uses a reference pricing system to price medicines of similar safety and efficacy. Under the system, the lowest priced brand medicine sets the benchmark price for other brands of that medicine and other medicines within the same group. If a pharmaceuticals company demonstrates to the PBAC a clinical advantage for a particular medicine over alternative products then that medicine may be granted a higher subsidised price than the alternative. The interplay of the various roles played by these bodies gives the Australian federal government considerable control over prices paid to companies for the products that are listed on the PBS and RPBS. The federal government has limited influence over the number of prescriptions that are issued and hence little influence on the sales volumes of listed products. Some medicines are listed on the PBS with specific restrictions on which indications and patient groups they can be prescribed for. Although the demand for pharmaceuticals products is not strongly price elastic, the subsidisation of pharmaceuticals product prices paid by consumers (consumers pay the co-payment and the government pays the remainder of a price negotiated with suppliers) almost certainly gives rise to higher sales volumes than would occur in the absence of the subsidy. Table 4 lists the 20 largest suppliers to the PBS in 2003-04. The total number of prescriptions issued under the PBS and RPBS amounted to approximately 180 million.6 This is an underestimate of the total number of prescriptions however as non-PBS listed items and items priced below the patient co-payment are not included. The PBS has also led to a higher penetration of patented pharmaceuticals and brands marketed by or for the original patent holder than in other developed markets, and therefore, by definition, a smaller market share for generic drugs. The current market share of generics in Australia is approximately 18%, compared to the UK with 55%, the US with 50% and Canada with 40% (DITR, 20057).

6 www.hic.gov.au/abouthic/resources/our_organisation/annual_report/03_04/statistics/pbs11.pdf 7 Unpublished.

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Table 4: Top 20 suppliers to the PBS, 2003-04

Rank by total cost

Manufacturer Scripts, number Sales value, ex- manufacturer, A$

Total cost, A$

1 Pfizer 21,570,489 712,007,373 970,749,712 2 Merck Sharp & Dohme 12,495,471 470,204,219 632,922,940 3 Alphapharm 24,951,226 318,447,289 505,486,066 4 GlaxoSmithKline 9,684,409 336,146,256 455,974,770 5 AstraZeneca 9,619,224 318,396,721 433,977,132 6 Bristol-Myers Squibb 8,255,448 259,040,446 355,075,377 7 Aventis 9,133,093 187,474,770 271,696,044 8 Sanofi Synthelabo 8,567,030 150,997,002 224,474,251 9 Eli Lilly 1,937,240 172,535,769 219,904,590 10 Wyeth 4,176,894 122,015,671 168,594,591 11 Boehringer 3,651,118 102,936,167 142,825,081 12 Roche Products 2,112,496 103,031,981 135,772,208 13 Servier 4,791,723 81,442,388 121,870,126 14 Novartis 3,000,708 83,718,879 116,306,374 15 Janssen-Cilag 1,601,172 81,225,046 106,736,517 16 Novo Nordisk 884,567 75,996,276 97,661,420 17 Sigma 8,181,494 46,256,142 94,661,046 18 Schering 1,008,339 57,528,550 75,011,531 19 Mayne 3,152,457 44,020,580 68,493,381 20 CSL 2,840,583 40,708,676 62,992,165 Others 24,246,920 462,576,440 678,361,852 Total 165,862,101 4,226,706,641 5,938,892,174

Source: Pharmaceutical Benefits Pricing Authority, Annual Report for year ended 30 June 2004, Commonwealth of Australia, 2004, p. 24. c) Pharmaceuticals firms’ activities in Australia Although most of the global pharmaceuticals firms restrict their activities in Australia to distribution, a number of firms perform R&D and clinical trials. A small number undertake secondary manufacturing, and an even smaller number engage in actives manufacturing. Table 5 shows sales of pharmaceuticals in Australia by degree of manufacture. Table 5: Pharmaceuticals sales in Australia by degree of manufacture, 2001-02

Degree of manufacture Share of sales (%) Fully imported products 43.6 Fully finished imports packaged locally 18.1 Products formulated locally from purchased active ingredients 33.6 Other, including actives manufacture 4.7 Total 100.0

Source: Productivity Commission, Evaluation of the Pharmaceutical Industry Investment Program, Commonwealth of Australia, 2003. A snapshot of pharmaceuticals manufacturing plants in Australia is presented in Table 6. A more comprehensive presentation is given in Appendix 1—Summary of current Australian pharmaceuticals capacity.

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Table 6: Summary of Australian pharmaceuticals plants8

Firm Plant Contract Regulatory

Approval Actives Scale-up Secondarya Packagingb

ANSTO TGA,GMP One CSL Ltd TGA, FDA

(subsidiary ZLB Behring

only)

One

IDT Australia Ltd TGA, FDA, GMP, GLP

One

Sigma Company TGA Tasmanian Alkaloids TGA, FDA One Q-Gen TGA Alphapharm Pty Ltd TGA, FDA AstraZeneca Pty Limited TGA Bresagen Limited TGA, GMP Bristol-Myers Squibb Australia

Pty Ltd TGA, FDA

GlaxoSmithKline Holdings Pty Ltd (GSK)

TGA One

Gropep Limited GMP, TGA (pending)

One

Mayne Group Ltd TGA, FDA

Merck Sharp & Dohme (Australia) Pty Ltd

TGA

Progen Industries Ltd TGA, GMP, GLP, NATA,

OGTR

One One (small scale up aseptic

manufacturing)

(veterinary products

only) Pfizer Pty Limited TGA Four Roche Products Pty Ltd TGA Schering-Plough Pty Limited TGA Sigma-Aldrich Company Ltd FDA Six Organic Synthesis Centre

(University of Sydney) One

a Number of plants producing prescription human pharmaceuticals; includes contract manufacture. b Packaging relates to secondary manufacture only. TGA—Therapeutic Goods Administration licensed manufacturer; FDA—US Food and Drug Administration certification; GMP—Good Manufacturing Practice accreditation; GLP—Good Laboratory Practice accreditation; NATA—National Association of Testing Authorities accreditation; OGTR—Office of the Gene Technology Regulator accreditation.

In summary, several Australian-based companies are involved in actives manufacture. This includes the alkaloid extraction operations of GlaxoSmithKline and Johnson & Johnson (based around poppy farming in Tasmania); the production of a range of radio pharmaceuticals and similar products by the Australian Nuclear Science and Technology Organisation (ANSTO); niche production by the Institute of Drug Technology Ltd; and the fractionation of blood plasma by CSL Ltd into a range of therapeutic and diagnostic products. Secondary manufacturing is undertaken by several firms, including Alphapharm, AstraZeneca, Bristol-Myers Squibb, CSL, GlaxoSmithKline, Mayne Pharma, Merck Sharp & Dohme, Pfizer, Schering-Plough and Sigma Co. Due to the relatively small size of the domestic market, most 8 Information in Table 6 is based on secondary research by the Economist Intelligence Unit's project team and an e-mailed survey to relevant companies. We acknowledge that some information may be incomplete and that some companies are excluded as a result of nil replies to our requests for data.

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secondary production facilities in Australia have a strong export focus. In 1999-2000, around 38% of the revenue generated by the manufacture of human use pharmaceuticals was derived from exports.9 Many multinational companies are represented in Australia. The corporate nationality of pharmaceutical companies operating in Australia is shown in Table 7. Table 7: Australian market share, by nationality of firm, by value of sales10

Market share (%) by value of sales Corporate nationality 1997 2001 2003

US 41.2 45.3 45.0 UK 22.5 18.4 16.2 Swiss 10.2 8.8 8.1 German 7.7 8.4 9.0 Australian 7.6 7.7 9.1 French 7.8 7.6 0.7 Danish 1.3 1.8 1.5 Dutch 1.0 1.1 1.2

Source: IMS. Country Profiles from IMS world review.

The leading ten and 15 pharmaceutical suppliers into the Australian market account for 60% and 74% of total sales (ex manufacturer) respectively, according to IMS (see Table 8). The leading 25 companies account for almost 88% of the total market of US$3.1 billion (A$4.8 billion). The leading companies in Australia correspond broadly with the leading firms worldwide as shown in Table 8. Refer to Appendix 2—Local representation of global pharmaceuticals companies for a list of multi-national pharmaceuticals and biotechnology companies with Australian subsidiaries.

9 Productivity Commission, op. cit. 10 The sales values in this table represent local currency converted into US dollars.

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Table 8: Pharmaceutical companies’ sales in Australia, 2004 Rank Company Country of origin Audited sales

US$’ 000 Market share

% World ranking

1 Pfizer US 862,099 14.25 1 2 GlaxoSmithKline UK 464,153 7.67 2 3 Sanofi-Aventis France 448,420 7.41 3 4 Merck & Co US 418,568 6.92 5 5 Astrazeneca UK 374,385 6.19 7 6 Merck KgaA Germany 252,517 4.17 23 7 Novartis Switzerland 246,229 4.07 6 8 Bristol-Myers Squibb US 242,048 4.00 9 9 Roche Switzerland 241,680 3.99 8 10 Lilly US 190,188 3.14 12 11 Wyeth US 186,604 3.08 10 12 Johnson & Johnson US 154,261 2.55 4 13 Boehringer Ingelheim Germany 132,373 2.19 15 14 Baxter International US 129,977 2.15 26 15 Sigma Co Australia 129,891 2.15 1,107 16 Abbott US 115,864 1.92 11 17 Amgen US 110,285 1.82 13 18 Schering Plough US 95,712 1.58 16 19 Mayne Group Australia 89,480 1.48 125 20 Servier France 81,036 1.34 28 21 Schering Ag Germany 77,775 1.29 18 22 Novo Nordisk Denmark 68,950 1.14 22 23 Boots UK 57,159 0.94 110 24 CSL Australia 53,538 0.88 63 25 Bayer Germany 47,071 0.78 17

Sources: IMS: Custom research request

Exports of pharmaceuticals products have expanded substantially over the past five years. Exports of medicaments (which include some products for veterinary use as well as human use)11 rose from A$1.13 billion (US$0.7 bn) in 1999 to a peak of A$2 billion in 2001, before slipping to A$1.72 billion in 2002, largely due to data reclassification (data in current prices). Most of the ground lost was regained in 2003, when exports expanded to A$1.96 billion and reached A$2.4 billion for the financial year 2003-0412. Pharmaceuticals are Australia’s largest merchandise export by commodity type after cars and wine. Imports of pharmaceuticals products are greater than exports, amounting to A$4.4 billion in 2003. Over recent years, the value of pharmaceuticals imports has been around twice that of exports. A list of Australian pharmaceuticals companies is given in Appendix 1—Summary of current Australian pharmaceuticals capacity, and Appendix 2—Local representation of global pharmaceuticals companies.

11 Data from custom research request from Department of Foreign Affairs and Trade, STARS database. 12 Unpublished data; calculated by the Reserve Bank of Australia, using ABS data.

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d) The biotechnology sector

Biotechnology has become a driving force for dramatic change across a number of industry sectors. Nowhere is this better illustrated than in the pharmaceuticals sector, where biotechnology is seen as a potential way to supplement the pharmaceuticals R&D pipeline. Biotechnology firms join with global pharmaceuticals companies to bring research from the laboratory to the international market. Biotechnology entities form partnerships and collaborations with pharmaceuticals companies because global pharmaceuticals firms can offer strong skills and infrastructure for development and marketing, and can accelerate the preclinical investigation and clinical development of drugs and biologicals. The Australian biotechnology sector is characterised by a strong focus on investment and research in human health activities. Australia is a small biotechnology market participant in a sector where activity is heavily skewed towards North America and, to a lesser extent, Europe. While it is difficult to make international comparisons due to differing definitions of what constitutes biotechnology, nevertheless Ernst and Young has ranked Australia sixth behind the US, Canada, Germany, the UK and France with 226 local biotechnology companies in 200313. Hopper and Thorburn, using a different definition, have approximately 398 biotechnology firms operating in Australia at the end of 2004 (up from 370 in 2003)14. Table 9: Biotechnology companies by sector 15

Sector class 2003 2004 Human therapeutics 160 182 Diagnostics 54 58 Agricultural biotech 60 63 Suppliers 39 41 Environment 32 31 Food & beverages 16 14 Bioinformatic 9 10

These do not include firms that develop medical devices or have a fundamental information technology focus. Around 250 companies (63%) are engaged in activities associated with human health. This focus reflects both the orientation of major local research institutes and the often difficult process of extracting and retaining value from agricultural or environmental product development. The biotechnology industry employed around 6,100 people at the end of 2004. Companies specialising in human therapeutics continue to employ the bulk of staff at 46%, with agribiotech second (16%) and diagnostics third (15%). About 28% of employees are R&D staff16. The origins of new firms The formation of new biotechnology firms in Australia peaked at over 60 in 2000-01, and was 30 in 2003-04. In the period 2001-02 to 2002-03, over half the new firm formations were spin-offs from research centres or universities, reaching 66% in 2002-0317. In 2003-04 this figure fell to 50%, possibly due to greater levels of sophistication in the research institutions and more work going into pre-spin-off business planning. 13 Ernst and Young, On the Threshold Global Biotechnology Report, 2004, p. 2. 14 Kelvin Hopper and Lyndal Thorburn, 2005 Bio-Industry Review, Innovation Dynamics Pty Ltd, p. 2. 15 Kelvin Hopper and Lyndal Thorburn, 2003 Bio-Industry Review, Aoris Nova Pty Ltd and Advance Consulting & Evaluation Pty Ltd, 2003, p. 11; Kelvin Hopper and Lyndal Thorburn, 2005 Bio-Industry Review, Innovation Dynamics Pty Ltd. 16 Kelvin Hopper and Lyndal Thorburn, 2005 Bio-Industry Review, Innovation Dynamics Pty Ltd, p. 4. 17 Ibid., p. 8.

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Table 10: Number of New Start-ups and Percentage that are Research Spin Offs Number of start-ups % Research spin-offs 2000-01 64 59.0% 2001-02 46 57.5% 2002-03 47 66.0% 2003-04 30 50.0%

IPOs and listed companies There was a large increase in the number of biotechnology IPOs in 2004 from 2003, with 15 Australian biotechnology companies listing on the Australian Stock Exchange (ASX), up from five in 2003. These 15 IPOs raised A$154 million and brought the total number of listed biotechnology companies at the end of 2004 to 65. As at March 31 2005 there were 69 biotechnology companies listed on the ASX, and the market capitalisation of 15 of the leading biotechnology companies was A$8.26 billion.18 Venture capital During 2003-04 the healthcare sector including biotechnology continued as the most attractive industry for Australian venture capital, in terms of capital invested, number of companies receiving capital, and the number of investment transactions.19

The A$242.7 million invested in the healthcare sector for 2003-04 was 26.0% of the total venture capital invested (A$931.3 million) during the year. The next leading industry, distribution/transport, attracted 14% (A$130.7 million). The A$242.7 million comprised 112 investments in 90 health/bioscience companies, compared with 107 investments in 83 companies of A$76.7 million in 2002-03. Healthcare was also a decisive leader in the number of companies that received venture capital, with the 90 firms (23.3%) receiving funding. The next industry - information technology/software - saw 51 companies (13.2%) receive capital. The number of investment transactions or payments to health/bioscience during 2003-04, at 112 (24.7%), was well clear of second placed IT/software with 59 (13%). This highlights the level of co-investment by venture firms, and also of portfolio companies achieving milestones and earning further funding for the next stage in their development. The great majority of the venture-backed companies continue to be pre-revenue businesses in the biotechnology and pharmaceutical sectors with some medical device, software and other high-tech activities. VC funds A number of new VC funds are anticipating making investments in 2005. The Starfish Technology Fund closed to investors late in 2004 after exceeding its target of A$100 million, and raising A$138 million. The fund will focus on early, middle, and late stage companies in high-tech sectors, including biotechnology. The Australian New Zealand Biotechnology Partnership Funds were designed to facilitate and accelerate trans-Tasman biotechnology industry collaboration, providing greater regional critical mass to give Australian and New Zealand biotech companies better access to global market opportunities. Both the Burrill Australia Life Sciences and IB Australia Bioscience funds are looking to close by mid-2005. The IB Fund will focus on middle stage companies with products in clinical trials or expanding commercialisation plans. The GBS Bioventures III Fund closed after raising A$145

18 DITR, Biotech Business Indicators, Australian Government Department of Industry, Tourism and Resources, Canberra, May 2005. 19 Victor Bivell, Editor Australian Venture Capital Journal.

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million, some A$25 million over its target, and is looking to invest in seed, start-up, or early expansion investments.20

Table 11: New VC Funds expecting to make biotech investments in 2005 VC Fund Operator Total funds Burrill Australia Life Science Fund Burrill Australia Life Sciences Management A$200m* IB Australia Bioscience Fund Intersuisse/Bioscience Managers A$150m* Life Sciences Ventures Fund Celentis/Direct Capital A$100m* GBS Bioventures III GBS Venture Partners A$145m Starfish Technology Fund Starfish Ventures A$138m Australia New Zealand Biotechnology Partnership Fund New Zealand Trade and Enterprise Dept. A$12m

* Total funds sought. Source: DITR, Biotech Business Indicators, Australian Government Department of Industry, Tourism and Resources, Canberra, May 2005.

Recent alliances involving Australian companies Australian biotechnology companies entered into approximately 84 new alliances in 2004, a major increase from 38 in 2003. These included 25 (30%) with other biotechnology companies and 18 (21%) with research organisations. Pharmaceuticals companies were the focus of 12 (14%) partnerships, up from five in 2003. Table 12: Partnerships by Australian biotechnology companies, 2004

The predominant form of alliance in Australia is licensing (around two-thirds of alliances), but collaboration, development and research are also important.21

The structure of an alliance (i.e. what type of organisation is involved) reflects motivation. Alliances based on licensing are most often between pharmaceuticals companies and biotechnology firms, suggesting that they are driven by human therapeutic and diagnostic development. Universities are prominent in alliances involving research, while alliances based on development or collaboration are relatively evenly spread across various categories of participants. Almost all the alliances between biotechnology companies and pharmaceuticals firms involved the former providing the R&D and the latter the funding.22

The global nature of biotechnology is evident from the fact that 79% of partnerships entered into by Australian biotechnology companies in 2004 were with overseas-based companies. The US continues to be the most popular source of partnerships with 40.5% of all partnerships. In the second half of 2004 China and Japan became an increasing focus for partnerships as shown in Table 13. 20 DITR, Biotech Business Indicators, Australian Government Department of Industry, Tourism and Resources, Canberra, May 2005. 21 Bruce Rasmussen, Aspects of the Pharmaceutical Business Model: Implications for Australia, Centre for Strategic Economic Studies, Victoria University of Technology, August 2003, p. 7. 22 ibid., p. 8

Major partnerships Total Biotech-Biotech 25 Biotech-Pharma 12 Biotech-Device 7 Biotech-IT 1 Biotech-Tech Service 3 Biotech-Research Org 18 Biotech-Distributer 5 Biotech-Others 13 Total 84

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Table 13: Destination of partnerships by Australian biotechnology companies, 2004 1 Qtr 2 Qtr 3 Qtr 4 Qtr Total % of total

Australia 5 5 9 7 26 31.0

US 7 6 12 9 34 40.5 China 0 0 3 1 4 4.8 Japan 0 1 2 1 4 4.8

UK 0 1 2 0 3 3.6

Korea 0 1 1 0 2 2.4

Canada 2 0 0 0 2 2.4

Other 0 2 3 4 9 10.7

Source: Economist Intelligence Unit.

e) Australia’s position in the global economy: alternative competitiveness indicators

Table 14: Indicators from other competitiveness and benchmarking studies are listed below for reference

Criteria Source Ranking Science, Education and Technology Legal environment affecting R&D (does not restrain business development)—Singapore is the only

country in the study ahead of Australia IMD23 5

Patent and copyright protection (is adequately enforced)—Australia is ahead of all the other countries in the study

IMD 5

The education system (meets the needs of a competitive economy) IMD 3 Biotechnology Australia leads the Asia-Pacific region in number of public and private biotechnology companies

E&Y24

Australia is sixth in the world in number of biotechnology companies E&Y25 Governance and the business environment Resilience of the economy to economic cycles IMD 1 Start-up days (the number of days to start a business) IMD 1 Competition legislation in your economy IMD 2 The legal framework (encourages the competitiveness of enterprises) IMD 3 Adaptability of government policy to changes in the economy IMD 4 Corporate boards (do supervise the management of companies effectively) IMD 2 National culture (is open to foreign ideas) IMD 3 Values of society (supporting competitiveness) IMD 4 Socioeconomic indicators Human Development Index 2002 (combines economic-social-educational indicators) UN26 2 Cost of living index (India is the only country in the study that is ahead of Australia) IMD 14

23 IMD data is sourced from IMD World Competitiveness Yearbook 2004, IMD International. 24 Ernst and Young, On the Threshold: The Asia-Pacific Perspective 2004. 25 ibid. 26 UNDP, Human Development Report 2004. http://hdr.undp.org/reports/global/2004/pdf/hdr04_complete.pdf

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Table 15: Citation statistics and the research base (1999 unless otherwise indicated) Australia Germany Japan UK US % share of OECD life science publications27 3.0 7.7 9.8 9.0 37.0 % Global pop’n, 1999 28

0.30 1.37 2.10 0.98 4.60

% of life science publications (OECD average —54%)

58 50 50 55 55

Production of scientific publications (%)

2.8 8.3 10.6 8.8 36.3

Australia punches above its weight on the basis of citation statistics for life science publications. The table above illustrates the percentage shares of selected OECD countries for life science publications in 1999 against their respective shares of global population. f) Australia’s medical research base Australian business spending on R&D in the medical, health and biological sciences amounted to A$602 million (US$418 million) in 2002-03, or 10% of total business spending on R&D. Higher education institutions dominate R&D spending in the fields related to pharmaceuticals product development, accounting for approximately 48% of the total expenditure in these fields, while research bodies (government and private non-profit combined) account for a further 30% and business for the remaining 22%.29

Research institutes number around 50, with the greatest concentration occurring in Victoria (over one-third). Approximately 20 universities are directly involved in pharmaceutical-related research and/or alliances, with one-third being located in each of Victoria and New South Wales. There are six Co-operative Research Centres that have a prime focus on pharmaceuticals, and these have links to a variety of universities, research institutes and private-sector firms. Over 25 hospitals are involved in clinical trials. Research institutes (both government and private non-profit) and universities spend substantial sums on R&D in the areas of biological science and medical and health science. Government R&D expenditure in these areas in 2002-03 amounted to A$460 million (US$320 million), while private non-profit research institutes expended a further A$325 million (US$225 million).30 Higher education organisations, primarily universities, spent A$1.27 billion on R&D in the fields of biological science and medical and health science in 2002-03 (37% of their total spending on R&D).31 Australia has numerous research institutes, universities and hospitals engaged in R&D. (These are listed in full in Appendix 3—Private and public institutions, universities and research centres undertaking pharmaceuticals-related research and formulation development in Australia. See also Appendix 4—Key institutions and their broad areas of strength by therapeutic areas and platform technologies.) A large percentage of key institutions detailed in Appendix 4 are completely or partially committed to oncology. Small clusters appear in Sydney and Melbourne, with a small number of research institutes in Queensland also committed to cancer therapeutics. From the summary below it is evident the large number of research organisations have developed and are using platform technologies. 27 OECD, 2003, OECD Science, Technology and Industry Scoreboard – Towards a knowledge-based economy. http://www1.oecd.org/publications/e-book/92-2003-04-1-7294/A.13.htm28 OECD, 2004, No.2, Quarterly Labour Force Statistics, Total Population. http://www.oecd.org/dataoecd/62/38/2698549.pdf29 Australian Bureau of Statistics, Catalogue No. 8112.0. 30 Australian Bureau of Statistics, Catalogue No. 8112.0. 31 Australian Bureau of Statistics, Catalogue No. 8111.0.

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Table 16: Australian companies research areas Company name Therapeutic area Platform technology Australian Nuclear Science and Technology

Organisation (ANSTO) radiopharmaceuticals

—

Commonwealth Scientific and Research Organisation (CSIRO)

gastrointestinal cancer, immunotherapy, diabetes

proteomics, biosensors

Australian Genome Research Facility — genomics, bioinformatics Austin Research Institute oncology, inflammatory diseases, organ

transplantation —

Howard Florey Institute of Experimental Physiology and Medicine

neurological disorders neurochemistry, neuro-imaging, neuro-informatics, genomics

Baker Medical Institute cardiovascular disease, cardiovascular neuroscience

DNA microarray, proteomics

Macfarlane Burnet Institute for Medical Research and Public Health

infectious disease, pathogenesis cell imaging

The Peter MacCallum Cancer Centre cancer, immunology and molecular biology genomics and stem cells Monash Institute of Reproduction and Development prostate cancer, infertility — Prince Henry’s Institute of Medical Research endocrinology, reproductive health, cancer — Ludwig Institute cancer cell biology, epithelial biology,

proteomics Australian Stem Cell Centre cardiac and blood products stem cell research and related platform

technologies The Murdoch Children’s Research Institute (MRCI) paediatrics genomics and neonatology Woolcock Institute of Medical Research respiratory diseases — The Prince of Wales Medical Research Institute neurological diseases — Garvan Institute of Medical Research — molecular modelling, proteomics,

genomics Nanostructural Analysis Network Organisation (NANO) — proteomics and genomics Department of Endocrinology, RPAH diabetes, obesity and cancer — The Victor Chang Cardiac Research Institute cardiovascular biology — The Hunter Medical Research Institute (HMRI) cancer, immunology, mothers and babies

research —

The Heart Research Institute atherosclerosis — The Children’s Cancer Institute Australia cancer — National Centre in HIV Epidemiology and Clinical

Research HIV —

Centre for Immunology HIV immunology, cancer, allergic and inflammatory disease and dementia, and

cardiovascular disease

—

Institute for the Biotechnology of Infectious Diseases, University of Technology, Sydney

parasitology and immunology —

Kanematsu Laboratories cancer and cytogenetics — Melanoma and Skin Cancer Research Institute

(MASCRI) skin cancer —

Queensland Institute of Medical Research (QIMR) immunology and cancer — Natural Product Discovery Centre — natural product screening Hanson Institute cancer, infectious disease, orthopaedics cell imaging, microarrays, protein

analysis The Western Australian Biomedical Research Institute

(WABRI) cancer, diabetes and malaria —

The Westmead Millennium Institute and Research Centres

cancer, genetic epidemiology, microbiology and infectious diseases, immunology, liver

and kidney disease

genomics, proteomics, bioinformatics, cell imaging and transgenics

The Centenary Institute of Cancer Medicine and Cell

Biology immunology and molecular medicine —

28

Summary: Australia is a relatively small player in the global pharmaceuticals market, but most of the world’s major pharmaceuticals firms are active in the country. Growth in the market has been significant over the last decade. A high-profile role is played in the market by the Federal Government, principally through the Pharmaceutical Benefits Scheme (PBS). The subsidisation of pharmaceuticals product prices almost certainly gives rise to higher sales volumes. The subsidised price, combined with price referencing, also explain a relatively high penetration of patented pharmaceuticals, and relatively low penetration of generics, as there is little or no incentive for consumers to change to a generic. Only a relatively small number of global pharmaceuticals firms are engaged in secondary or actives manufacture. Imports of pharmaceuticals are much higher than exports. A number of firms undertake substantial, locally-based R&D as well as clinical trials. Two of the leading 20 firms in the market (measured by sales) are Australian. The biotech sector is seen as a potential way to supplement pharmaceuticals companies’ existing R&D pipelines. Australia currently ranks sixth in the world in biotechnology—measured by number of firms. Most firms are still small, but a tier of medium-sized companies is emerging. Industry consolidation is being helped by a number of alliances between firms. Approximately 84 alliances involving Australian companies were announced in 2004. Universities have been prominent in research alliances, but major pharmaceuticals firms have become more involved as discoveries move towards becoming products. The major driver of research spin-offs was the view that they enhanced the returns available from patents and R&D.

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2. Industry benchmarking: Australia’s strengths and weaknesses evaluated a) Summary methodology and the representative models Australia must compete against other countries for pharmaceuticals foreign investment. Foreign investors’ decisions will be determined by a range of factors, most obviously: i costs (e.g. salaries, land, construction costs, utilities, freight); ii operating environment—qualitative and quantitative factors specific to the pharmaceuticals

industry (e.g. the number of graduates, the regulatory regime, tax systems and incentives); and iii the business environment in general. This Economist Intelligence Unit benchmarking study attempts to quantify these three factors, both for Australia and six other potential “competitor” countries—India, Germany, Japan, Singapore, the US and the UK. Data on costs were gathered by on-the-ground surveys in May-June 2004. Cost indices for the various categories are given in Section 4. The underlying data are set out in Appendices 7-10. Costs are shown in US dollars, with the exchange rates current at the time the data were collected. A list of the exchange rates to the US dollar are shown below for reference. Exchange rates to US dollar A$ 1.44 S$ 1.71 £ 0.54 Euro 0.82 Rs 45.12 Yen 111.39


Furthermore, costs are compared for seven distinct “representative models” for four different stages in the pharmaceuticals “value chain”. These models define operational costs for typical organisations in the research stage (for a small biotech); scale-up manufacturing; clinical trials (phases I-IV) and secondary manufacturing. Information collected on the operating factors specific to the pharmaceuticals industry is given in Section 5. The underlying data are contained in Appendices 11-17. Scores for the business environment in general are derived from the Economist Intelligence Unit’s Business Environment Rankings model, which scores countries’ overall business environments on a number of indicators. These are outlined in Section 6 and further explained in Appendix 18. In total, 198 separate indicators (including aggregates) were pooled and scored into these three key areas of interest to investors. The aggregate scores for each set of indicators (and overall score) were based on a weighted average system. The variation in weights for each indicator were set to reflect the relative importance of each indicator to a potential investor. Two weightings scenarios were developed for the model. The first was the primary reference values. The second weightings scenario was calculated to account for the different levels of importance allocated to various sub-categories by representatives at different stages of the value chain. For

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example, an operation at the research end of the value chain would allocate the level of importance of access to venture capital differently to a secondary manufacturing operation. The primary reference values were used in the rankings tables in the report and in the analysis of the data. The second weighting scenario was used to reflect the priorities of the operational environment of the research stage of the value chain. The weightings are based on data from the global survey of business leaders, with the final outcome determined by senior industry representatives with experience across all stages of the value chain covered in the study. b) Summary of benchmarking results by category by country The following tables and charts provide a visual, numerical and textual summary of the benchmarking results. Greater textual analyses of these results are specified in sections 3, 4 and 5 of the main report. A full explanation of the scoring methodology for each indicator is given in the benchmarking model accompanying this report. Most indicators are assessed on a quantitative basis (lowest cost country scores a 10 for example). Other non-numerical series were assessed on a quantitative basis by the Economist Intelligence Unit’s project team. The scores in the tables below give each country’s score out of a possible 10, (0 = lowest, 10 = highest). The figures in brackets give each country’s rank relative to the other comparison countries (1 = highest, 7 = lowest). Table 17: Cost categories by country Score (rank) Australia India Germany Japan S’pore UK US 1.1 Costs 7.8 (3) 9.7 (1) 5.5 (6) 6.3 (4) 8.1 (2) 6.2 (5) 5.1 (7) 1.1.1 Salaries & additional employment

costs 8.3 (3) 9.9 (1) 5.0 (6) 6.7 (4) 8.3 (2) 6.3 (5) 4.5 (7)

1.1.2 Office rental 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 4.0 (7) 7.0 (4) 1.1.3 Industrial land rental 7.0 (4) 10.0 (1) 6.0 (5) 5.0 (6) 8.0 (3) 4.0 (7) 9.0 (2) 1.1.4 Construction costs 6.0 (5) 10.0 (1) 8.0 (3) 5.0 (6) 7.0 (4) 9.0 (2) 4.0 (7) 1.1.6 Utilities 8.2 (1) 7.6 (2) 6.6 (5) 5.8 (7) 6.5 (6) 7.2 (3) 7.1 (4) 1.1.6 Freight (air & sea) 4.7 (7) 7.6 (3) 8.0 (1) 7.9 (2) 6.4 (6) 7.5 (4) 6.8 (5) 1.1.7 Plant & equipment32 5.0 (1) 5.0 (1) 5. 0(1) 5.0 (1) 5.0 (1) 5.0 (1) 5.0 (1)

The higher the individual country’s score for an individual indicator the better—the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same. Summary: Australia ranks third overall as regards costs. Costs are markedly lower than in the US, UK, Japan and Germany and only slightly higher, overall, than in Singapore. Australia ranks marginally lower than Singapore on all of the above property-related categories. Australia ranks third for office rental costs, fourth as regards the cost of industrial land, and fifth for construction costs. Australia ranks top on utilities costs, scoring particularly well on energy, but less well on some communication costs. Australia rates bottom on freight costs, with such costs appreciably higher than the next ranked country (Singapore). Identical scores are received for plant and equipment as a result of limited global suppliers with inelastic prices across countries.

32 Plant and equipment prices are set globally and the only differentiation across countries was related to shipping costs. Therefore, deriving a cost figure and score for plant and equipment did not make sense in the context of a global benchmarking study and countries were correspondingly given an equal score of 5.0.

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Table 18: Operating factors specific to the pharmaceuticals industry Score (rank) Australia India Germany Japan S’pore UK US 1.2 Operating factors specific to the

pharmaceuticals industry 8.2 (3) 5.5 (7) 7.6 (5) 7.4 (6) 8.6 (1) 8.0 (4) 8.2 (2)

1.2.1 Skilled professionals in pharmaceuticals industry 2000-03

7.8 (2) 5.3 (7) 7.2 (4) 7.7 (3) 9.7 (1) 5.9 (5) 5.6 (6)

1.2.2 Number of graduate degrees, total, 2000-02

8.3 (1) 5.3 (7) 6.0 (6) 6.3 (5) 8.3 (1) 7.0 (4) 7.7 (3)

1.2.3 Regulatory & quality systems 9.0 (4) 4.0 (7) 10.0 (1) 8.7 (5) 8.0 (6) 10.0 (1) 10.0 (1) 1.2.4 Taxation 8.1 (4) 6.5 (6) 6.4 (7) 7.2 (5) 8.9 (1) 8.2 (2) 8.2 (2) 1.2.5 Intellectual property regimes 9.0 (3) 4.0 (7) 9.2 (1)) 8.8 (4) 9.2 (1) 8.8 (4) 8.8 (4) 1.2.6 Incentives & government initiatives 8.8 (2) 8.7 (3) 6.8 (6) 5.5 (7) 10.0 (1) 7.4 (5) 7.6 (4) 1.2.7 Clinical trials 7.9 (1) 6.0 (5) 5.9 (6) 5.8 (7) 7.6 (3) 7.5 (4) 7.8 (2) 1.2.8 Level & type of investment 7.0 (4) 5.5 (6) 8.3 (2) 5.7 (5) 4.0 (7) 8.3 (2) 10.0 (1) 1.2.9 Industry & government expenditure

on R&D 5.0 (6) 4.0 (7) 6.5 (5) 8.5 (1) 8.0 (4) 8.5 (1) 8.5 (1)

The higher the individual country’s score for an individual indicator the better—the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same.

Summary: Australia ranks third overall in operating factors specific to the pharmaceuticals industry. The proportion of people employed in the Australian pharmaceuticals industry (relative to overall population) is above that of every country except Singapore, but the total available pool of skilled labour is markedly smaller. Australia ranks joint first overall in terms of the number of graduate degrees per 100,000 inhabitants. The UK, Germany and US are the top-ranked countries on regulatory and quality systems. Australia is part of a second group of countries, also including Japan and Singapore. Australia is middle ranked on tax but ranks highly regarding intellectual property (IP) regimes. The rigor of IP protection and its springboarding provisions provide an environment where generic and innovator companies can flourish. Australia is ranked second on incentives and government initiatives, below Singapore and ahead of India. It has R&D tax incentives, but the government does not offer the sort of grants or equity investment on offer in Singapore. Australia’s clinical trials sector has many advantages over other countries in the study but also some disadvantages. It scores relatively well with respect to the high percentage of clinical trials completed within allocated time and its low total average costs per clinical trials, but scores less well on the actual number of clinical trials taking place, even on a per capita basis. However, this indicates substantial capacity to invest further in clinical trials. Australia scores well on indicators relating to the level and type of investment in the pharmaceuticals sector, once the relatively small size of the sector is taken into consideration. Australia scores relatively lower on R&D spending.

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Table 19: Business environment Score (rank) Australia India Germany Japan S’pore UK US 1.3 Business environment 8.4 (4) 6.9 (7) 8.4 (5) 7.6 (6) 8.7 (1) 8.6 (3) 8.6 (2) 1.3.1 Political environment 9.8 (1) 7.0 (7) 9.5 (3) 9.6 (2) 7.3 (6) 8.2 (4) 7.5 (5) 1.3.2 Foreign investment policy 8.5 (5) 7.0 (6) 9.0 (3) 7.0 (6) 9.5 (1) 9.5 (1) 9.0 (3) 1.3.3 Labour market 7.0 (4) 6.5 (7) 6.7 (6) 7.0 (4) 8.0 (1) 7.5 (3) 7.8 (2) 1.3.4 Macroeconomic environment 8.9 (4) 8.6 (5) 9.1 (1) 7.7 (6) 9.1 (1) 9.0 (3) 6.9 (7) 1.3.5 Foreign trade and exchange 9.4 (1) 7.2 (7) 8.9 (3) 7.8 (6) 9.4 (1) 8.9 (3) 8.9 (3) 1.3.6 Infrastructure 8.0 (6) 5.1 (7) 9.4 (3) 8.9 (4) 9.6 (2) 8.1 (5) 9.7 (1) 1.3.7 Market opportunities 7.3 (4) 8.4 (1) 6.9 (7) 7.0 (6) 7.1 (5) 7.7 (3) 8.2 (2) 1.3.8 Tax regime 6.9 (5) 7.3 (4) 6.6 (6) 5.4 (7) 9.0 (1) 8.0 (3) 8.7 (2) 1.3.9 Private enterprise policy 9.1 (3) 6.3 (7) 8.7 (4) 7.8 (6) 8.7 (4) 9.5 (2) 9.6 (1) 1.3.10 Financing 9.7 (2) 6.4 (7) 9.4 (5) 7.9 (6) 9.7 (2) 10.0 (1) 9.6 (4)

The higher the individual country’s score for an individual indicator the better—the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same. Summary: According to the Economist Intelligence Unit’s business environment rankings, Australia will become a more attractive business location, with the country’s score rising from 7.8 in the historical period (2000-04) to 8.4 in the forecast period (2005-09). The country’s already liberal foreign trade and exchange-rate regime will be boosted by the lowering of tariffs in the few areas where they remain significant (namely motor vehicles and textiles). Australia also scores highly for its political environment, with political stability rated more highly than political effectiveness. c) Conclusions On the basis of the benchmarking model, Australia scores strongly on costs, most significantly against the other OECD member countries surveyed. Australian costs, however, are slightly higher than those in Singapore overall. Australia ranks well overall on operating factors specific to the pharmaceuticals industry and scores soundly regarding intellectual property regimes and clinical trials, but is below average on overall R&D expenditure. Australia scores highly for the number of skilled professionals and graduates per 100,000 inhabitants, although the relative size of Australia’s pool of labour is small compared with many of the countries in the study. Our per capita measurement boosts Australia's overall score and thus rank. Australia’s overall business environment is ranked behind that of Singapore, the US and UK.

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Focusing on the research stage The results of our benchmarking exercise, outlined previously, were based on an industry-wide evaluation. That is, it covered the four stages of the value chain (the research stage, bio scale-up manufacturing, clinical trials phases I-IV and secondary manufacturing) and our rankings and scores reflect this industry aggregation.

The Economist Intelligence Unit and the DITR were fully aware, however, that variables assessed in the cost and operating factors specific to the pharmaceuticals industry categories varied in importance to each part of the value chain. For example, the rate of taxation for research stage companies is of lesser importance than for secondary manufacturing firms if one is conducting a cross-country study of possible sites for locating your business. Conversely the quality of human capital at the advanced degree level is of much greater importance as is the availability of venture capital to start-up companies. The benchmarking model that accompanies this report was built to have dynamic weights so that the individual user could change the weights according to their own priorities. For the research stage a more formal approach was taken, with the DITR consulting an industry peer group. The alternative weightings are listed below.

For research stage option DITR Default weightings EIU

Costs 1.000 1.000 Salaries and additional employment costs

0.720 0.715

Office rental 0.160 0.080 Industrial land rent 0.040 0.080 Construction costs 0.040 0.080 Utilities 0.020 0.020 Freight (air and sea) 0.020 0.020 Equipment 0.000 0.020 Operating factors specific to the pharmaceuticals industry

1.000 1.000

Skilled personnel in pharmaceutical industry 2000-03

0.140 0.130

Number of graduate degrees, total, 2000-02

0.140 0.070

Regulatory and quality systems 0.050 0.160 Taxation 0.030 0.120 Intellectual property regimes 0.180 0.160 Incentives and government initiatives 0.150 0.130 Clinical trials 0.050 0.120 Level and type of investment 0.160 0.030 Industry and government expendituron R&D

0.100 0.080

The model was reconfigured with the new weights. While obviously the scores for each of the individual indicators for each country (see Tables 17 to 19) remained the same, in a weighted scoring model such as this altering the weights would change the overall category scores and possibly the overall rank for each country. As an illustration of this, consider the net effects these changes in weights had on Singapore for just one measured variable. Singapore scores well above the other countries in the study for the attractiveness to business of the overall tax environment (see Table 18). The relatively high weight of 0.12 in the original model boosts Singapore’s overall score for the category grouping "Operating factors specific to the pharmaceuticals industry". As taxation is of less importance to the research stage (especially for research start-ups) the DITR and the peer group of industry representatives suggested an alternative weighting of 0.03. This reduces the overall "importance" of the tax environment in each of the countries and changes the overall score for each country.

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Movements in overall country score and category scores from the use of research stage weightings in benchmarking model

Australia India Germany Japan Singapore UK US OVERALL SCORE -0.04 0.04 -0.05 -0.10 -0.11 -0.14 0.03 1.1: Costs 0.18 0.09 -0.06 0.01 0.18 -0.19 0.08 1.2: Operating factors specific to the pharmaceuticals industry

-0.25 0.03 -0.07 -0.30 -0.47 -0.24 0.01

1.3: Business Environment 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Changing the weights as defined results in changes to the overall score and category scores. The changes in scores are shown in the table above. India gains the most overall through increases in the weights for salaries and office rental (for which it scores highly at 9.9 and 10 respectively), and also through the decrease in weight given to the scoring for the regulatory and quality systems in place in each country (for which it scores relatively weakly). Apart from the US and India, all other countries experience falls in their overall scores once the weighted averages are calculated. Interestingly the movement in scores overall is just below what is necessary to change some of the overall rankings.

The default weightings used for the main study give Singapore the edge over Australia and both countries lead the rest of the group by a relatively safe margin. Using the research stage focused weightings results the change in overall score for Australia is just -0.04, a much smaller decline than the change in overall score for Singapore of -0.11. This is not enough to change the overall rankings for Australia and Singapore, although Singapore's lead is cut considerably. In addition, at the sub-component level Singapore drops a place in its rank for operating factors specific to the pharmaceuticals industry from 1st to 2nd, swapping places with the US. Movements in overall country rank and category ranks from the use of research stage weightings in benchmarking model (movements in rank are in brackets)

Australia India Germany Japan Singapore UK US OVERALL RANK 2 5 6 7 1 3 4 1.1: Costs 3 1 6 4 2 5 7 1.2: Operating factors specific to the pharmaceuticals industry

3 7 5 6 2 (-1) 4 1 (+1)

1.3: Business Environment 4 7 5 6 1 3 2

The refocused weights for the research stage recalibrate the importance of each indicator specifically by changing the relative importance of several individual indicators. The overall tax and clinical trials environments become far less important and the level and type of investment in the industry becomes much more important. Singapore's comparative advantages as a location for investment in this study result largely from its low tax environment, skilled but relatively cheap labour and overall business environment. Under the refocused weights Singapore loses some of these advantages. Australia remains third ranked for this sub-component ahead of the UK.

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3. Costs of the representative models of selected stages in the pharmaceuticals industry value chain For data comparability, hypothetical representative models of each of four stages of the value chain were developed in co-operation with DITR.

o Research stage o Bio Scale-up manufacturing o Clinical trials (phases I-IV) o Secondary Manufacturing

The benchmarking analysis centred on the annual implied costs of running these models on an annual basis for the major cost centres:

o cost/rental of industrial land; o cost/rental of office/laboratory space; o employment costs; and o cost of utilities.

To prevent a double weighting, the average costs per patient is not included in the benchmarking model as a cost but is accounted for under the clinical trials benchmark. A full explanation of the models and data underpinning the cost criteria are listed in Appendices 7 to 10. Table 20: Research stage representative model US$, per annum Australia India Germany Japan S'pore UK US Physical structure Office/lab space, sq metres 500 194,081 155,679 220,318 380,862 160,798 642,541 218,330 Staff (category number)33 (No. of

staff)

CEO (24) 1 144,952 144,980 630,213 276,834 221,846 603,678 820,867

Company director/VP (23) 1 143,167 86,061 196,678 179,844 189,128 184,075 249,588

Business development manager (4)

1 57,985 8,384 88,877 94,166 98,993 98,534 124,279

Senior scientist (2) 2 211,288 73,412 316,204 232,648 180,184 294,676 318,022

Scientist (3) 4 159,166 43,793 422,829 218,754 205,194 203,339 315,588

Research assistant (5) 2 62,656 6,095 108,219 83,473 31,981 73,401 105,514

Utilities

100 megawatt hours/year 7,519 10,529 16,668 9,812 9,234 9,735 12,628

350 gigajoules/year 2,364 1,319 4,688 4,187 8,628 2,750 3,187

5 megalitres/year 3,046 3,657 8,017 10,082 4,296 9,279 1,422

Total 986,224 533,910 2,012,711 1,490,662 1,110,282 2,122,009 2,169,424Total (Australia=100) 100.0 54.1 204.1 151.1 112.6 215.2 220.0

33 Refer to Appendix 8 Table A44 for category description and costs.

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Figure 1: Research stage

37

Bio scale-up manufacturing Table 21: Bio scale-up manufacturing representative model US$, per annum Australia India Germany Japan S'pore UK US

Physical structure Office rental (sq metres) 600 232,897 186,814 264,382 457,035 192,958 771,049 261,996 Industrial land rental (sq metres) 2,000 166,355 70,539 190,942 351,976 155,359 474,506 113,520 Staff (category number)34 (No. of

staff)

CEO (24) 1 144,952 144,980 630,213 276,834 221,846 603,678 820,867 Business development manager (22) 1 57,985 8,384 88,877 94,166 98,993 98,534 124,279 Senior bioprocess scientists (13) 5 308,385 73,538 464,275 341,110 407,057 533,656 486,272 Senior chemical engineers (11) 1 50,444 49,867 154,714 82,897 65,107 86,965 108,912 Chemical engineers (12) 1 42,074 29,864 111,794 45,011 25,020 67,796 83,128 Scientific/R&D director (2) 1 105,644 36,706 158,102 116,324 90,092 147,338 159,011 Technician/Validation officer/Development or production chemist (15)

7 299,994 112,722 775,339 365,457 123,805 553,426 474,099

Senior scientist (2) 1 105,644 36,706 158,102 116,324 90,092 147,338 159,011 Laboratory technician/Lab assistant/Research assistant (5)

6 187,969 18,286 324,657 250,418 95,944 220,204 316,541

QA Manager (17) 1 49,098 15,136 127,825 103,016 30,784 63,682 105,975 Validation officer (15) 1 42,856 16,103 110,763 52,208 17,686 79,061 67,728 QA/QC technicians/QA scientist (18) 7 223,840 40,008 747,007 379,999 100,166 404,213 503,485 Warehouse workers (25) 1 26,580 1,704 36,624 42,300 20,592 33,636 38,148 Purchasing officer/IT support (21) 1 56,156 9,875 43,605 84,920 19,799 43,317 112,188 Office administrator/Secretary (1) 1 28,472 3,044 33,803 40,679 18,067 33,511 55,897 Utilities 100 megawatt hours/year 7,519 10,529 16,668 9,812 9,234 9,735 12,628 350 gigajoules/year 2,364 1,319 4,688 4,187 8,628 2,750 3,187 5 megalitres/year 3,046 3,657 8,017 10,082 4,296 9,279 1,422

Total 2,142,273 869,781 4,450,397 3,224,757 1,795,526 4,383,675 4,008,292Total (Australia=100) 100.0 40.6 207.7 150.5 83.8 204.6 187.1

Figure 2: Bio Scale-up Manufacturing

34 Refer to Appendix 8 Table A44 for category description and costs

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Clinical trials involve many additional costs beyond those of land, labour and utilities. Specific costs related to clinical trials are often country based (timelines differ) and company specific. Much of the data are market sensitive and thus within the private domain not the public. Evaluation of the total average costs of clinical trials for each of these countries in the study is given in tables 45 and 46 in Section 5(g) of the report and in Appendices 14, 15 and 16. Table 22: Clinical trials phase I representative model US$, per annum Australia India Germany Japan S’pore UK US Physical structure35 Staff (category number)36 (No. of

staff)

Medical director (9) 1 130,886 16,092 169,756 171,694 133,723 144,644 173,447 Business development manager (4) 1 57,985 8,384 88,877 94,166 98,993 98,534 124,279 QA/QC Technicians/QA Scientist (18)

5 159,886 28,577 533,577 271,428 71,547 288,723 359,632

QA Manager (17) 1 49,098 15,136 127,825 103,016 30,784 63,682 105,975 Medical writer (10) 1 51,310 7,962 88,875 68,173 49,589 68,968 78,143 Office administrator (1) 2 56,944 6,087 67,606 81,359 36,135 67,023 111,794 Data entry clerk (1) 2 56,944 6,087 67,606 81,359 36,135 67,023 111,794 Nurse (20) 20 596,628 42,884 1,628,711 935,632 375,632 906,401 1,367,793Clinical data specialist/Biostatistician (8)

2 108,685 29,242 171,412 134,264 80,333 160,370 201,605

Laboratory technician/Research assistant (5)

2 62,656 6,095 108,219 83,473 31,981 73,401 105,514

Utilities 450 megawatt hours/year 33,259 47,310 74,716 44,156 28,694 43,806 56,826 1700 gigajoules/year 11,037 6,406 22,680 17,144 41,909 13,357 15,477 17 megalitres/year 10,340 12,435 27,258 575,545 14,605 30,668 4,834 Total 1,385,658 232,697 3,177,120 2,661,407 1,030,060 2,026,601 2,817,111Total (Australia=100) 100.0 16.8 229.3 192.1 74.3 146.3 203.3 Figure 3: Clinical trials (phase I)

35 Costs for office space were unable to be calculated as these units are almost always attached to a hospital. 36 Refer to Appendix 8 Table A44 for category description and costs.

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Table 23: Clinical trials phase II representative model US$, per annum Australia India Germany Japan S’pore UK US Physical structure Office/space (sq metres) 40 15,526 12,454 17,625 30,469 12,864 51,403 17,466 Staff (category number)37 (No. of

staff)

Clinical research associate (7) 1 44,933 10,265 54,315 43,866 25,718 58,721 79,342 Clinical project manager (6) 1 62,111 14,769 95,568 77,660 38,120 92,540 108,931 Clinical data specialist/Biostatistician (8) 1 54,343 14,621 85,706 67,132 40,166 80,185 100,802 Data entry clerk (1) 2 56,944 6,087 67,606 81,359 36,135 67,023 111,794 QA Manager (17) 1 49,098 15,136 127,825 103,016 30,784 63,682 105,975 Medical writer (10) 1 51,310 7,962 88,875 68,173 49,589 68,968 78,143 Utilities 100 megawatt hours/year 7,519 10,529 16,668 9,812 9,234 9,735 12,628 350 gigajoules/year 2,364 1,319 4,688 4,187 8,628 2,750 3,187 5 megalitres/year 3,046 3,657 8,017 10,082 4,296 9,279 1,422 BB connection business 225 277 122 460 55 0 100 BB rental business 528 1,608 441 1,267 1,878 1,433 2,094 Total 347,946 98,684 567,458 497,484 257,467 505,719 621,883 Total (Australia=100) 100.0 28.4 163.1 143.0 74.0 145.3 178.7

Figure 4: Clinical trials (phase II)


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Table 24: Clinical trials phase III representative model US$, per annum Australia India Germany Japan S’pore UK US Physical structure Office/space (sq metres) 40 15,526 12,454 17,625 30,469 12,864 51,403 17,466 Staff (category number)38 (No. of

staff)

Clinical research associate (7) 2 89,865 20,530 108,631 87,732 51,435 117,442 158,684 Clinical project manager (6) 1 62,111 14,769 95,568 77,660 38,120 92,540 108,931 Clinical data specialist/Biostatistician (8)

2 108,685 29,242 171,412 134,264 80,333 160,370 201,605

Data entry clerk (1) 2 56,944 6,087 67,606 81,359 36,135 67,023 111,794 Medical writer (10) 1 51,310 7,962 88,875 68,173 49,589 68,968 78,143 Utilities 100 megawatt hours/year 7,519 10,529 16,668 9,812 9,234 9,735 12,628 350 gigajoules/year 2,364 1,319 4,688 4,187 8,628 2,750 3,187 5 megalitres/year 3,046 3,657 8,017 10,082 4,296 9,279 1,422 BB connection business 225 277 122 460 55 0 100 BB rental business 12 528 1,608 441 1,267 1,878 1,433 2,094 Total 398,124 108,434 579,654 505,465 292,567 580,943 696,053 Total (Australia=100) 100.0 27.2 145.6 127.0 73.5 145.9 174.8 Figure 5: Clinical trials (phase III)


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Table 25: Clinical trials phase IV representative model US$, per annum Australia India Germany Japan S’pore UK US Physical structure Office/space (sq m) 40 15,526 12,454 17,625 30,469 12,864 51,403 17,466 Staff (category number)39 (No. of

staff)

Clinical research associate (7) 6 269,596 61,591 325,892 263,197 154,305 352,325 476,053 Clinical project manager (6) 1 62,111 14,769 95,568 77,660 38,120 92,540 108,931 Clinical data specialist/Biostatistician (8) 1 54,343 14,621 85,706 67,132 40,166 80,185 100,802 Data entry clerk (1) 2 56,944 6,087 67,606 81,359 36,135 67,023 111,794 Medical writer (10) 1 51,310 7,962 88,875 68,173 49,589 68,968 78,143 Utilities 100 megawatt hours/year 7,519 10,529 16,668 9,812 9,234 9,735 12,628 350 gigajoules/year 2,364 1,319 4,688 4,187 8,628 2,750 3,187 5 megalitres/year 3,046 3,657 8,017 10,082 4,296 9,279 1,422 BB connection business 225 277 122 460 55 0 100 BB rental business 12 528 1,608 441 1,267 1,878 1,433 2,094 Total 523,512 134,874 711,209 613,798 355,271 735,641 912,619 Total (Australia=100) 100.0 25.8 135.9 117.2 67.9 140.5 174.3 Figure 6: Clinical trials (phase IV)


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Secondary manufacturing Table 26: Secondary manufacturing representative model US$, per annum Australia India Germany Japan S’pore UK US Physical structure

Industrial space (sq metres) 35,000 2,911,208 1,234,426 3,341,493 6,159,585 2,718,790 8,303,854 1,986,600Staff (category number)40 (no. of

staff)

CEO (24) 1 144,952 144,980 630,213 276,834 221,846 603,678 820,867Senior scientist/Scientific director/R&D director/Scientific affairs manager (2)

15 1,584,659 550,593 2,371,528 1,744,860 1,351,381 2,210,069 2,385,166

QA/QC Technicians/QA Scientist (18)

65 2,078,515 371,505 6,936,497 3,528,565 930,109 3,753,404 4,675,215

QA Manager (17) 5 245,489 75,679 639,126 515,082 153,918 318,411 529,875Electrical and mechanical engineers (19)

40 2,117,916 409,064 4,638,266 1,668,462 932,971 2,491,985 3,833,065

Technician/Validation officer/ Development or production chemist (15)

25 1,071,407 402,580 2,769,070 1,305,204 442,160 1,976,523 1,693,210

HR, Finance, IT and other support services (21)

20 1,123,129 197,493 872,106 1,698,398 395,984 866,342 2,243,765

Office administrator/Secretary (1) 5 142,361 15,218 169,016 203,397 90,337 167,556 279,484Operators (25) 150 3,987,000 255,600 5,493,600 6,345,000 3,088,800 5,045,400 5,722,200Warehouse workers (25) 20 531,600 34,080 732,480 846,000 411,840 672,720 762,960

Utilities

850 megawatt hours/year 62,676 89,978 141,056 83,405 54,204 82,746 100,6063500 gigajoules/year 22,208 13,189 46,671 31,511 86,283 27,500 31,86735 megalitres/year 21,288 25,601 56,120 141,171 30,070 62,751 9,952

Total 16,044,408 3,819,986 28,837,241 24,547,474 10,908,694 26,582,937 25,074,832

Total (Australia=100) 100.0 23.8 179.7 153.0 68.0 165.7 156.3

Figure 7: Secondary manufacturing


43

Summary: On the basis of the cost requirements for the hypothetical representative models and the results of our cost survey, Australia performs strongly against the other countries in the study. For research stage companies, the equivalent cost of running the representative model in Australia is less than half the cost of running similar operations in the US, UK and Germany. Similar running costs in Japan are around 60% more expensive. Australia is only marginally more expensive than Singapore. Australia scores well for research costs—second least expensive after India. The UK and Germany have expensive and roughly similar bio scale-up manufacturing costs and expensive secondary manufacturing costs. Germany has the most expensive clinical trials in phase I, with the US having the title of most expensive clinical trials for phases two, three and other. Australia is a consistently cheaper location for each of the other parts of the value chain than the US, UK, Germany and Japan. India is consistently the least expensive overall mainly because of much lower comparable employ-ment costs, which are demonstrated in Table 27.

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Table 27: Summary table—Costs of the representative models of selected stages in the pharmaceutical industry value chain US$ per annum Australia = 100 (Rank)

Representative Model Australia India Germany Japan S'pore UK US

986,224 533,910 2,012,711 1,490,662 1,110,282 2,122,009 2,169,424 100.0 54.1 204.1 151.1 112.6 215.2 220.0

Research stage

(2) (1) (5) (4) (3) (6) (7) 2,142,273 869,781 4,450,397 3,224,757 1,795,526 4,383,675 4,008,292

100.0 40.6 207.7 150.5 83.8 204.6 187.1 Bio scale-up manufacturing

(3) (1) (7) (4) (2) (6) (5) 1,385,658 232,697 3,177,120 2,661,407 1,030,060 2,026,601 2,817,111

100.0 16.8 229.3 192.1 74.3 146.3 203.3 Clinical trials Phase I

(3) (1) (7) (5) (2) (4) (6) 347,946 98,684 567,458 497,484 257,467 505,719 621,883

100.0 28.4 163.1 143.0 74.0 145.3 178.7 Clinical trials Phase II

(3) (1) (6) (4) (2) (5) (7) 398,124 108,434 579,654 505,465 292,567 580,943 696,053

100.0 27.2 145.6 127.0 73.5 145.9 174.8 Clinical trials Phase III

(3) (1) (5) (4) (2) (6) (7) 523,512 134,874 711,209 613,798 355,271 735,641 912,619

100.0 25.8 135.9 117.2 67.9 140.5 174.3 Clinical trials Phase IV

(3) (1) (5) (4) (2) (6) (7) 16,044,408 3,819,986 28,837,241 24,547,474 10,908,694 26,582,937 25,074,832

100.0 23.8 179.7 153.0 68.0 165.7 156.3 Secondary manufacturing

(3) (1) (7) (4) (2) (6) (5)

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4. Cost data underlying the benchmarking model a) Labour costs of workers with relevant skills National statistical offices and international organisations (such as the International Labour Organisation) do not publish or survey employment data in the pharmaceutical industry by job type. While these organisations do publish employment data, there are no published records at the level of granularity needed for a study of this type. Given the requirements for a cross-country study and budget limitations, estimates were obtained from secondary sources. Economist Intelligence Unit respondents, based in the relevant countries, conducted field research by interviewing a number of local recruitment firms. Data on salary costs, compulsory 'on costs' and standard employer-sponsored benefits and salary packaging items were collated by respondents. Consultations with Hewitt Associates, SalaryExpert.com (a provider of salary information to the Economist.com) and Watson Wyatt verified the data. The CEO salary does not include share options and non-salary aspects of remuneration packages. Non-salary aspects of a CEO package have not been included as this information is not available, although it can be a significant factor at these higher level employment categories. It has also not been possible to distinguish between CEO salaries at different stages of the value chain. A detailed table of labour costs in US dollars and methodology are given in Appendix 8—Labour costs. Table 28 summarises the data on salaries and employment costs, where higher scoring countries have the lowest labour costs.

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Table 28: Salaries and additional employment costs Score (rank)

Australia India Germany Japan S’pore UK US 1.1.1 Salaries and additional

employment costs 8.3 (3) 9.9 (1) 5. 0(6) 6.7 (4) 8.3 (2) 6.4 (5) 4.5 (7)

1.1.1.1 Office administrator/Secretary 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 7.0 (4) 4.0 (7) 1.1.1.2 Data entry clerk 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 7.0 (4) 4.0 (7) 1.1.1.3 Senior scientist/Scientific

director/R&D director/Scientific affairs manager

8.0 (3) 10.0 (1) 5.0 (6) 7.0 (4) 9.0 (2) 6.0 (5) 4.0 (7)

1.1.1.4 Scientist 9.0 (2) 10.0 (1) 4.0 (7) 6.0 (5) 7.0 (4) 8.0 (3) 5.0 (6) 1.1.1.5 Business director/Business

development manager 9.0 (2) 10.0 (1) 8.0 (3) 7.0 (4) 5.0 (6) 6.0 (5) 4.0 (7)

1.1.1.6 Laboratory technician/Lab assistant/Research assistant

8.0 (3) 10.0 (1) 4.0 (7) 6.0 (5) 9.0 (2) 7.0 (4) 5.0 (6)

1.1.1.7 Clinical project manager/Clinical research managers

8.0 (3) 10.0 (1) 5.0 (6) 7.0 (4) 9.0 (2) 6.0 (5) 4.0 (7)

1.1.1.8 Clinical research associate 7.0 (4) 10.0 (1) 6.0 (5) 8.0 (3) 9.0 (2) 5.0 (6) 4.0 (7) 1.1.1.9 Clinical data specialist/Biostatistician 8.0 (3) 10.0 (1) 5.0 (6) 7.0 (4) 9.0 (2) 6.0 (5) 4.0 (7) 1.1.1.10 Medical director 9.0 (2) 10.0 (1) 6.0 (5) 5.0 (6) 8.0 (3) 7.0 (4) 4.0 (7) 1.1.1.11 Medical writer 8.0 (3) 10.0 (1) 4.0 (7) 7.0 (4) 9.0 (2) 6.0 (5) 5.0 (6) 1.1.1.12 Senior chemical engineers 9.0 (2) 10.0 (1) 4.0 (7) 7.0 (4) 8.0 (3) 6.0 (5) 5.0 (6) 1.1.1.13 Chemical engineers 8.0 (3) 9.0 (2) 4.0 (7) 7.0 (4) 10.0 (1) 6.0 (5) 5.0 (6) 1.1.1.14 Senior bioprocess scientists 9.0 (2) 10.0 (1) 6.0 (5) 8.0 (3) 7.0 (4) 4.0 (7) 5.0 (6) 1.1.1.15 Bioprocess scientists 9.0 (2) 10.0 (1) 4.0 (7) 8.0 (3) 6.0 (5) 7.0 (4) 5.0 (6) 1.1.1.16 Senior chemical engineers/Senior

bioprocess engineers/Head of manufacturing/Production manager

8.0 (3) 10.0 (1) 5.0 (6) 7.0 (4) 9.0 (2) 6.0 (5) 4.0 (7)

1.1.1.17 Technician/Validation officer/Development or production chemist

8.0 (3) 10.0 (1) 4.0 (7) 7.0 (4) 9.0 (2) 5.0 (6) 6.0 (5)

1.1.1.18 QA/QC controllers/QA manager 8.0 (3) 10.0 (1) 4.0 (7) 6.0 (5) 9.0 (2) 7.0 (4) 5.0 (6) 1.1.1.19 QA/QC technicians/QA scientist 8.0 (3) 10.0 (1) 4.0 (7) 7.0 (4) 9.0 (2) 6.0 (5) 5.0 (6) 1.1.1.20 Electrical and mechanical engineers 7.0 (4) 10.0 (1) 4.0 (7) 8.0 (3) 9.0 (2) 6.0 (5) 5.0 (6) 1.1.1.21 Nurse 8.0 (3) 10.0 (1) 4.0 (7) 6.0 (5) 9.0 (2) 7.0 (4) 5.0 (6) 1.1.1.22 Marketing executive 6.0 (5) 10.0 (1) 7.0 (4) 5.0 (6) 9.0 (2) 8.0 (3) 4.0 (7) 1.1.1.23 Marketing director 9.0 (2) 10.0 (1) 6.0 (5) 5.0 (6) 8.0 (3) 7.0 (4) 4.0 (7) 1.1.1.24 Company director/VP 9.0 (2) 10.0 (1) 5.0 (6) 8.0 (3) 6.0 (5) 7.0 (4) 4.0 (7) 1.1.1.25 CEO41 10.0 (1) 9.0 (2) 5.0 (6) 7.0 (4) 8.0 (3) 6.0 (5) 4.0 (7)

The higher the individual country’s score for an individual indicator the better - the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same.

41 The CEO salary does not include share options and other non-salary aspects of remuneration packages. It has also not been possible to distinguish between CEO salaries at different stages of the value chain.

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Figure 8: Availability of local managers with appropriate expertise: importance in decision to invest in an individual country

Source: Economist Intelligence Unit online survey, April 2004.

Cost differentials with Singapore are particularly interesting. Singapore has marginally lower reported costs of some scientist categories and the business director

category are higher.

b) Property-related costs In order to source the cost of office rent and industrial rent, data were averaged mainly from CB Richard Ellis’ and Cushman & Wakefield’s annual distribution reports, which provide annual per square metre costs for office locations in a range of cities. Where data were unavailable, the city respondents for the Economist Intelligence Unit’s Worldwide Cost of Living Survey were used. A variety of sources were used for construction costs, indicating the difficulty of sourcing consistent data for this specific area of real estate pricing. Detailed tables of costs in US dollars and methodologies are given in Appendix 9—Property-related costs. The following tables summarise the data by ranking the comparison countries. The lower cost countries have the highest scores and the highest (bracketed) rank.

• Costs for senior managers and most scientist categories are low in Australia compared with other

OECD countries. This is a significant advantage for Australia, as the results of the global survey of industry leaders illustrate that management expertise is of great importance to their investment decision making.

•labour costs overall, but the

• Australia has lower comparative salaries of senior chemical engineers, senior bioprocess scientists and bioprocess scientists compared with all other countries except India.

Summary: Australia ranks third overall as regards labour and labour-related costs. Costs are markedly lower than in the US, UK, Japan and Germany and only slightly higher, overall, than in Singapore. As expected India consistently has the lowest labour costs in all labour categories except for CEOs, where Australia is ranked the highest.

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Table 29: Office rental Score (rank)

Australia India Germany Japan S’pore UK US 1.1.2.1 Office rental (sq metre) 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 4.0 (7) 7.0 (4) Table 30: Industrial land rental Score (rank) Australia India Germany Japan S’pore UK US 1.1.3.1 Industrial land rental (sq metre) 7.0 (4) 10.0 (1) 6.0 (5) 5.0 (6) 8.0 (3) 4.0 (7) 9.0 (2)

Table 31: Construction costs Score (rank)

Australia India Germany Japan S’pore UK US 1.1.4.1 Construction costs (sq metre) 6.0 (5) 10.0 (1) 8.0 (3) 5.0 (6) 7.0 (4) 9.0 (2) 4.0 (7)


• Australia ranks marginally lower than Singapore on all of the above property-related categories. • Australia ranks lower than the US as regards the rent of industrial land, but higher than the US as

regards office and facility rental and construction costs. • Australia ranks better than the UK, Germany and Japan on office and industrial rents. Summary: Australia ranks third for office rental costs, fourth as regards the cost of industrial land, and fifth for construction costs. The online survey suggests that land rental costs are seen as an important, but not critical factor behind investment decisions. Figure 9: Low land rental and other costs: importance in decision to invest in an individual country


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c) Plant and equipment, utilities, freight costs During the study process and after consultation with a number of industry representatives, it became apparent that the major forms of capital in the shape of main plant and equipment required in the industry (which would make up the bulk of total plant and equipment costs) are manufactured in the US. Essentially prices are set globally and the only differentiation across countries is related to shipping costs. Therefore, deriving a cost figure and score for plant and equipment did not make sense in the context of a global benchmarking study and countries were correspondingly given an equal score of 5.0. Freight costs were calculated via a mixture of in-house research (for those countries covered by the Economist Intelligence Unit Worldwide Cost of Living Survey) and field correspondents, depending on which markets were best provided by local freight services and which were best provided by global services. In all cases a consistent average of the most popular providers were taken. To determine utility costs, utility prices were collected and compared between a number of cities in the seven countries. Detailed tables of costs in US dollars and methodologies are given in Appendix 10—Utilities, freight costs and methodologies. The tables below provide a more user-friendly way of interpreting this data, by ranking the comparison countries. The lowest cost countries have the highest scores and the highest (bracketed) rank. Table 32: Utilities Score (rank) Australia India Germany Japan S’pore UK US 1.1.5 Utilities 8.2 (1) 7.6 (2) 6.6 (5) 5.8 (7) 6.5 (6) 7.2 (3) 7.1 (4) 1.1.5.1 100 megawatt hours/year 10.0 (1) 6.0 (5) 4.0 (7) 7.0 (4) 9.0 (2) 8.0 (3) 5.0 (6) 1.1.5.2 450 megawatt hours/year 9.0 (2) 6.0 (5) 4.0 (7) 7.0 (4) 10.0 (1) 8.0 (3) 5.0 (6) 1.1.5.3 850 megawatt hours/year 9.0 (2) 6.0 (5) 4.0 (7) 7.0 (4) 10.0 (1) 8.0 (3) 5.0 (6) 1.1.5.4 350 gigajoules/year 9.0 (2) 10.0 (1) 5.0 (6) 6.0 (5) 4.0 (7) 8.0 (3) 7.0 (4) 1.1.5.5 1,700 gigajoules/year 9.0 (2) 10.0 (1) 5.0 (6) 6.0 (5) 4.0 (7) 8.0 (3) 7.0 (4) 1.1.5.6 3,500 gigajoules/year 9.0 (2) 10.0 (1) 5.0 (6) 7.0 (4) 4.0 (7) 8.0 (3) 6.0 (5) 1.1.5.7 5 megalitres/year 9.0 (2) 8.0 (3) 6.0 (5) 4.0 (7) 7.0 (4) 5.0 (6) 10.0 (1) 1.1.5.8 17 megalitres/year 9.0 (2) 8.0 (3) 6.0 (5) 4.0 (7) 7.0 (4) 5.0 (6) 10.0 (1) 1.1.5.9 35 megalitres/year 9.0 (2) 8.0 (3) 6.0 (5) 4.0 (7) 7.0 (4) 5.0 (6) 10.0 (1) 1.1.5.10 Local telephone call 10.0 (1) 8.0 (3) 9.0 (2) 7.0 (4) 6.0 (5) 4.0 (7) 5.0 (6) 1.1.5.11 Long distance telephone call 6.0 (5) 9.0 (2) 10.0 (1) 4.0 (7) 5.0 (6) 7.0 (4) 8.0 (3) 1.1.5.12 International call (region) 6.0 (5) 7.0 (4) 10.0 (1) 4.0 (7) 5.0 (6) 9.0 (2) 8.0 (3) 1.1.5.13 International call (global) 7.0 (4) 6.0 (5) 9.0 (2) 4.0 (7) 5.0 (6) 10.0 (1) 8.0 (3) 1.1.5.14 Broadband connection private 4.0 (7) 7.0 (4) 5.0 (6) 10.0 (1) 9.0 (2) 6.0 (5) 8.0 (3) 1.1.5.15 Broadband connection business 6.0 (5) 5.0 (6) 7.0 (4) 4.0 (7) 9.0 (2) 10.0 (1) 8.0 (3) 1.1.5.16 Broadband rental private 10.0 (1) 9.0 (2) 8.0 (3) 5.0 (6) 4.0 (7) 6.0 (5) 7.0 (4) 1.1.5.17 Broadband rental business 9.0 (2) 6.0 (5) 10.0 (1) 8.0 (3) 5.0 (6) 7.0 (4) 4.0 (7)


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Table 33: Freight42

Score (rank) Australia India Germany Japan S’pore UK US

1.1.6 Freight 4.7 (7) 7.6 (3) 8. 0(1) 7.9 (2) 6.5 (6) 7.5 (4) 6.8 (5) 1.1.6.1 Cost of air freight to London 6.0 (5) 8.0 (3) 10.0 (1) 4.0 (7) 5.0 (6) 9.0 (2) 7.0 (4) 1.1.6.2 Cost of air freight to Tokyo 5.0 (6) 8.0 (3) 9.0 (2) 10.0 (1) 6.0 (5) 7.0 (4) 4.0 (7) 1.1.6.3 Cost of air freight to New York 6.0 (5) 7.0 (4) 10.0 (1) 4.0 (7) 5.0 (6) 9.0 (2) 8.0 (3) 1.1.6.4 Cost of air freight from London 4.0 (7) 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 7.0 (4) 1.1.6.5 Cost of air freight from Tokyo 8.0 (3) 6.0 (5) 7.0 (4) 10.0 (1) 9.0 (2) 5.0 (6) 4.0 (7) 1.1.6.6 Cost of air freight from New York 4.0 (7) 7.0 (4) 10.0 (1) 5.0 (6) 6.0 (5) 8.0 (3) 9.0 (2) 1.1.6.7 Cost of sea freight to Rotterdam 4.0 (7) 9.0 (2) 7.0 (4) 8.0 (3) 5.0 (6) 10.0 (1) 6.0 (5) 1.1.6.8 Cost of sea freight to Yokohama 4.0 (7) 8.0 (3) 5.0 (6) 10.0 (1) 9.0 (2) 6.0 (5) 7.0 (4) 1.1.6.9 Cost of sea freight to New York 4.0 (7) 9.0 (2) 7.0 (4) 8.0 (3) 5.0 (6) 6.0 (5) 10.0 (1) 1.1.6.10 Cost of sea freight from Rotterdam 4.0 (7) 7.0 (4) 9.0 (2) 10.0 (1) 6.0 (5) 8.0 (3) 5.0 (6) 1.1.6.11 Cost of sea freight from Yokohama 4.0 (7) 8.0 (3) 7.0 (4) 10.0 (1) 9.0 (2) 6.0 (5) 5.0 (6) 1.1.6.12 Cost of sea freight from New York 4.0 (7) 6.0 (5) 5.0 (6) 10.0 (1) 8.0 (3) 7.0 (4) 9.0 (2)

The higher the individual country’s score for an individual indicator the better - the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same. • Identical scores are received for equipment as a result of limited global suppliers with inelastic

prices across countries. • Australia ranks top on utilities costs, scoring particularly well on energy, but less well on some

communication costs. • Australia rates bottom on freight costs, with such costs appreciably higher than the next ranked

country (Singapore). Summary: Australia’s freight costs are higher than most of its competitors largely due to its geographical location, which puts it at some distance from major population centres. However, it enjoys the lowest utilities costs.

42 London, Tokyo, New York: Cost of air freight from these cities to capital city of each country in the study. Rotterdam, Yokohama, New York: Cost of sea freight to these cities from capital city of each country in the study.

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5. Comparative analysis of the qualitative and quantitative indicators specific to the pharmaceuticals industry a) The availability of workers with skills relevant to the pharmaceuticals industry Measuring the potential pool of skilled labour proved difficult. Reported data on the labour force is patchy for most countries, even for member states of the OECD, and the reported categories of labour are often very broad. Employment data in the pharmaceutical industry by job type as requested for this study is not covered by national statistical offices and international organisations (such as the International Labour Office). While these organisations publish employment data in some instances to the four digit International Standard of Industrial Classification (ISIC) level (2423 for pharmaceuticals, medicinal chemicals, & botanical products), there are no published records at increased granularity to this. An alternative approach was necessary. A survey of each individual firm in each country was beyond the fee allocated to this part of the overall study and requested timeframe. Consequently estimation from secondary sources proved to be the best alternative approach. Given the paucity of the data for some countries we have used formulae based on nearest similar country in the study adjusted by the project team where necessary to differences in the composition of the pharmaceutical sectors in different countries. A detailed table of the number of workers with appropriate skills and the rationales behind the methodology is given in Appendix 11—Skilled professionals in the pharmaceuticals industry. The table below provides a summary of the data. Countries with higher numbers of estimated skilled personnel per category per capita have the highest scores and the highest (bracketed) rank. Table 34: Skilled personnel in the pharmaceuticals industry, 2000-03 Score (rank)

Australia India Germany Japan S’pore UK US 1.2.1 Skilled personnel in the

pharmaceuticals industry

7.8 (2) 5.3 (7) 7.2 (4) 7.7 (3) 9.7 (1) 5.9 (5) 5.6 (6)

1.2.1.1 Scientists and researchers per 100,000 members of the labour force

10.0 (1) 4.0 (7) 6.0 (5) 7.0 (4) 9.0 (2) 8.0 (3) 5.0 (6)

1.2.1.2 Business development personnel per 100,000 members of the labour force

6.0 (5) 4.0 (7) 7.0 (4) 9.0 (2) 10.0 (1) 5.0 (6) 8.0 (3)

1.2.1.3 Drug development personnel per 100,000 members of the labour force

7.0 (4) 4.0 (7) 9.0 (2) 8.0 (3) 10.0 (1) 5.0 (6) 6.0 (5)

1.2.1.4 Drug manufacturing personnel per 100,000 members of the labour force

10.0 (1) 6.0 (5) 8.0 (3) 4.0 (7) 9.0 (2) 7.0 (4) 5.0 (6)

1.2.1.5 Clinical/Regulatory personnel per 100,000 members of the labour force

7.0 (4) 8.0 (3) 6.0 (5) 9.0 (2) 10.0 (1) 5.0 (6) 4.0 (7)


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• Australia is ranked first for the number of scientist and researchers and for drug manufacturing

personnel, closely followed by Singapore. • Drug development personnel and clinical and regulatory personnel numbers are lower than

average in Australia. On both of these indicators Singapore scores 10. • Low numbers for business development personnel in Australia decrease the overall score for

skilled personnel in the pharmaceuticals industry. Australia is ranked second overall, closely followed by Japan and then Germany. Singapore is ranked first or second in all categories and first overall.

• Australia scores well as regards the existing pool of skilled labour. The number of scientists and

researchers as a proportion of the total labour force is large and Australia also scores well for the proportion engaged in drug manufacturing. Australia’s relatively small population is key here as all the other countries in the study, bar Singapore, have larger absolute skilled labour forces.

• Country scores for each indicator are based on the actual or estimated pool of available skilled

labour as a proportion of the total labour force. While Australia punches above its weight on a per capita basis in comparison with countries such as India and the US (hence its high scores), the absolute available pool of labour in each industry is much lower than for the other countries in the study apart from Singapore. This results from a much smaller overall working population and labour force. India and the US dominate if absolute measures are assessed.

• Differences in job categorisations between countries probably account for some discrepancies in

the table (e.g. Germany’s low number of scientists and researchers, but high number of people engaged in drug manufacturing).

Summary: The proportion of people employed in the Australian pharmaceuticals industry (relative to overall population) is above that of every country except Singapore, but the total available pool of skilled labour is small. The online survey suggests that the local availability of skilled R&D scientists and managers is very important to investment decisions and Australia scores well on this indicator. Australia receives a low rank for drug development and business development personnel. Figure 10: Labour cost of skilled (e.g. PhD) R&D scientists: importance in decision to invest in an individual country


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Figure 11: Availability of local R&D scientists from academia with appropriate skills: importance in decision to invest in an individual country

Source: Economist Intelligence Unit online survey, April 2004. Figure 12: Horizontal flexibility of labour between firms and with academia: importance in decision to invest in an individual country

Source: Economist Intelligence Unit online survey, April 2004. Figure 13: Availability of R&D scientists from abroad: importance in decision to invest in an individual country


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b) The number of new graduates and post-graduates with degrees relevant to the pharmaceuticals industry General published data on the number of new graduates and post-graduates with degrees relevant to the pharmaceuticals sector were largely unavailable outside of the US and Japan. Estimation is often necessary where data being investigated are more granular than those published by national statistical offices, industry organisations and international data publishers. Given the need for estimation and the paucity of data, the consultants commissioned to do this section of research broadly used the US as a template for Australia as the US had the most similar educational structure of the countries in the study. A similar approach was applied across all countries in the study where data deficiencies existed. A detailed table of the number of new graduates and post-graduates with appropriate skills, and methodology, is given in Appendix 12—Number of new graduate degrees. The table below provides a summary of data, by ranking the comparison countries. The countries with the highest number of chemistry and pharmacology degrees per capita have the highest scores and the highest (bracketed) rank. Table 35: Number of graduate degrees, total, 2000-02 Score (rank)

Australia India Germany Japan S’pore UK US 1.2.2 Number of graduate degrees, total,

per 100,000 inhabitants 8.3 (1) 5.3 (7) 6.0( 6) 6.3 (5) 8.3 (1) 7.0 (4) 7.7 (3)

1.2.2.1 Undergraduate degrees per 100,000 inhabitants

9.0 (2) 8.0 (3) 4.0 (7) 6.0 (5) 10.0 (1) 5.0 (6) 7.0 (4)

1.2.2.2 Masters degrees per 100,000 inhabitants

6.0 (5) 4.0 (7) 5.0 (6) 7.0 (4) 10.0 (1) 9.0 (2) 8.0 (3)

1.2.2.3 Doctorate degrees per 100,000 inhabitants

10.0 (1) 4.0 (7) 9.0 (2) 6.0 (5) 5.0 (6) 7.0 (4) 8.0 (3)


• Australia is ranked first for the total number of doctorate degrees and second for undergraduate degrees. It ranks first overall. Scores for this section are measured on a per capita basis not on the total pool of educated labour.

• Australia has a relatively small number of chemistry and pharmacology degrees, as would be

expected given its small population. • There are also some apparent problems with the classification of types of degrees—the underlying

data suggest that Australia has an unusually high number of pure science degrees, for example. Straight comparability across all countries is difficult given the differences in education systems and classification of types of degrees. Furthermore, data do not allow a “quality” rating of each degree type.

Summary: Australia ranks first overall in terms of the number of graduate degrees per 100,000 inhabitants. However, this does not imply that there are no skills shortages in specific areas. The number of students in Australia completing relevant masters degrees is below average.

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c) Regulatory and quality systems of significance to the pharmaceuticals industry Table 36: Regulatory and quality systems Score (rank)

Australia India Germany Japan S’pore UK US 1.2.3 Regulatory and quality

systems 9.0 (4) 4.0 (7) 10.0 (1) 8.7 (5) 8.0 (6) 10.0 (1) 10.0 (1)

1.2.3.1 Mutual recognition of data and standards

8.0 (4) 4.0 (7) 10.0 (1) 8.0 (4) 8.0 (4) 10.0 (1) 10.0 (1)

1.2.3.2 Compliance levels with such regulations and standards

10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1)

1.2.3.3 Time taken to reach significant milestones

9.0 (4) 4.0 (7) 10.0 (1) 8.0 (5) 6.0 (6) 10.0 (1) 10.0 (1)


• Australia, Germany, the UK and US have mature regulatory and quality systems in place. Japan’s

privacy laws are not as clear in comparison with the higher-ranking countries. Singapore is in the process of strengthening government privacy laws. Regulatory standards in India are not yet comparable to the rest of the countries.

• Only the US and EU have working groups developing or have developed guidance documents on

Process Analytical Technology (PAT), which is recognised as advocating the use of the most technologically advanced manufacturing processes. On this basis, the US, Germany and UK are all given equal and high scores, and Japan, Australia and Singapore are given slightly lower scores for this category. India has no mutual recognition agreements (MRAs) with any of the advanced countries and therefore has the lowest score.

• The US, Australia, the UK, Germany, Singapore and Japan have high monitoring and enforcement

standards and therefore better compliance. These countries are given the same score. India has the lowest rank due to poor enforcement levels, lack of communication between the central and state agencies and weak legal redress against firms that do not follow regulations.

• The UK, Germany and the US have the shortest approval times. Therefore, these three countries

have the highest scores. Although official data for India proved difficult to find, it is assumed to have the slowest approval times among all the countries in this study based on existing literature and in-field interviews.

Regulatory and quality systems Background Regulatory authorities and, therefore, pharmaceuticals companies place an increasing emphasis on following Good Clinical Practice (GCP), Good Laboratory Practice (GLP) and Good Manufacturing Practice (GMP). Under the European Directive on GCP in Clinical Trials, enacted in May 2004, GCP now has a legal basis and is mandatory in the EU. Australia too has established international standards for GLP, GMP and GCP. The GLP standards lay out regulations to be followed in non-clinical (animal and laboratory) studies, the GMP standards ensure that standardised procedures are followed during manufacturing, packaging and holding. Compliance with the GCP standards should ensure that all researchers and pharmaceuticals companies follow the regulations for safe and ethical conduct of clinical trials.

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US The Food, Drug and Cosmetic Act gives the US Food and Drug Administration (FDA) the right to inspect and approve methods used for the manufacture, processing, packaging and testing of drugs. This is to ensure the drug’s strength, quality, purity and safety. The Centre for Drug Evaluation and Research (CDER) is a sub-agency of the FDA, which reviews laboratory, manufacturing and clinical trial practices of a drug firm and conducts regular audits to ensure GLP, GMP and GCP compliance.43 The CDER’s role in the approval process is to review data submitted to the agency as part of new drug or generic drug applications and to establish specifications for the manufacture of the resulting drug product based on the submitted data. Before any application is approved by the CDER, a determination is made as to whether the firm participating in the manufacture, packaging or testing of the finished dosage form or new drug substance is in compliance with GMP. This determination is made by conducting pre-approval inspections. Method validations, method verifications, and forensic analyses are performed to confirm the authenticity of the pre-approval product and to ensure that it can be accurately assayed with the proposed regulatory methods. Post-approval inspections monitor and enforce these requirements. Further, pharmacovigilance of drugs is performed to monitor adverse drug reactions and to take immediate action when needed. Apart from GMP, manufacturing companies face increasing regulatory scrutiny. For example, the FDA places increasing emphasis on Process Analytical Technologies (PAT). PAT is voluntary but it is seen as supporting technical innovation in process control quality systems by the US FDA. PAT allows for the implementation of newer and better systems or processes if the manufacturer finds them to be an improvement over existing ones. Although all GMP guidelines accommodate the use of PAT, it is only the US and the EU that have established working groups and/or are developing guidance documents on PAT. The PAT system designs, analyses and controls pharmaceutical “manufacturing through timely measurements (i.e. during processing) of critical quality and performance attributes of raw and in-process materials and processes with the goal of ensuring final product quality”. PAT encompasses chemical, physical, microbiological, mathematical, and risk analysis, which are “conducted in an integrated manner”.44 For example, PAT could allow early review and analysis of a New Drug Application (NDA). On a drug packaging line, PAT could involve using an instrument that could scan the contents of a vial or container, and confirm that the label accurately describes the contents.45 In addition to manufacturing and clinical processes regulations, any entity or person involved in patient interaction needs to conform to the patient privacy act. The Health Insurance Portability and Accountability Act 1996 (HIPAA) ensures patient privacy and data security. Compliance with HIPAA is especially critical with post-approval studies and surveillance programmes. UK In the UK (as in Germany), drugs can be approved by a “centralised” or “decentralised procedure”. In the centralised procedure, authorisation is granted by the European Commission through the European Medicines Agency (EMEA) in London. The submitted documentation is reviewed by the scientists from the licensing agencies of the EU member states. Decentralised authorisation procedures are mutual recognition procedures. The marketing authorisation already granted by the regulatory authority in one EU member state is recognised by the licensing agencies of other member states within 90 days, unless there are major objections to doing so. The UK’s own regulatory authority is the Medicines and Healthcare products Regulatory Agency 43 http://www.fda.gov/cder/regulatory/default.htm 44 ibid. 45 www.packworld.com/articles/Features/17030.html

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(MHRA), which is an executive agency of the Department of Health, and it oversees the safety and efficacy of drugs and medical devices sold or supplied in the UK.46 It grants marketing authorisation to new products submitted in the UK based on satisfactory safety and compliance data. Biotechnology products have to use EMEA, rather than MHRA, and EU health ministers have agreed that the drugs for certain conditions (e.g. AIDS, cancer, diabetes and neurodegenerative diseases) will have to use this route. In addition to ensuring that firms meet GMP and GCP standards, the MHRA also investigates and monitors adverse drug reactions (pharmacovigilance), ensures compliance with statutory obligations, regulates clinical trials and takes enforcement action where necessary. Furthermore, the MHRA has a “yellow card” scheme, which allows for reporting of suspected adverse drug reactions by physicians, nurses, pharmacists, coroners, and dentists.47 When in doubt about a drug, a health professional can file the yellow card giving details of the drug, its reaction and patient’s symptomatic details. Such additional measures allow for extra vigilance post-market release. Patient privacy rules are laid out in data protection legislation and guidelines have been issued by the General Medical Council.48 These guidelines ensure against improper disclosure at all times; in cases where disclosure is needed, patient consent must be obtained. The privacy legislation extends beyond doctor-patient interaction and covers all the administration, research and personnel with access to patient records. Further data protection and patient privacy are achieved through obligations and rights set down in EU Directive 95/46/EC.49

Germany The Federal Institute of Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte, BfArM) under the Ministry of Health is responsible for approving finished human medical products on the basis of the German Medicines Act.50 The law requires a company to provide safety, efficacy and quality data, and only upon meeting the regulatory standards will the BfArM approve a drug. As in the UK, two new authorisation procedures have been created on the basis of EU regulations and directives: the centralised and decentralised authorisation procedures (see UK section above). In addition, data about medicinal products is regularly collected and evaluated after market authorisation is granted. Such adverse drug reaction monitoring is done for all finished products in the market in Germany and is considered to be the most important duty of the Pharmacovigilance Division. Data protection and patient privacy are achieved through obligations and rights set down in EU Directive 95/46/EC.51 The directive extends to organisations, individuals, associations or any entity involved in handling patient data. The data subject has the right to give or withhold consent to the processing of his/her data.

46 http://www.mhra.gov.uk/ 47 http://medicines.mhra.gov.uk/ourwork/monitorsafequalmed/yellowcard/how.htm 48 http://www.gmc-uk.org/standards/secret.htm 49 http://cersi.luiss.it/Articoli/veleth.pdf 50 http://www.bfarm.de/en/bfarm/index.php 51 http://cersi.luiss.it/Articoli/veleth.pdf

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The European Commission Directive 91/507/EEC has been enforced since January 1st 1992. It requires that all trials of a clinical development programme be performed in compliance with GCP guidelines. GLP guidelines have been adopted in general in the OECD guidelines (OECD principles of Good Laboratory Practice, 1983) and in the appropriate national laws and guidelines, e.g. Chemikaliengesetz vom 14.3.1990, Germany.52

India The Drugs Control Administration in India oversees the regulatory requirements of pharmaceuticals companies.53 In addition to laying down the regulatory requirements, it monitors firms for compliance with regulations such as GMP. All pharmaceuticals companies in India are required to follow GMP regulations as laid down by the World Health Organization (WHO). Further, companies are also required to follow GCP regulations to obtain a product-marketing licence. Central government and the state government branches work together in the testing and monitoring of pharmaceuticals and enforcement of regulations for pharmaceuticals.54 The agency also performs regular monitoring for adverse drug reactions and takes action when needed. India’s record on patient privacy and data protection is poor. There is no patient privacy law in India. This is a major concern for companies outsourcing their clinical trials to the country.55

India has the status of a provisional member of the OECD for GLP. India is an Observer to the OECD’s Working Group on GLP and also a member of the OECD Test Guidelines Programme. Four companies are registered for GLP compliance. Inspections started in 2004 and assessment of the Indian system is expected in around 2006.56

Singapore The Medicines Act requires all medicinal products sold in Singapore and manufactured locally for export to be licensed with the Centre for Drug Administration, Health Sciences Authority (HSA).57 In order to be licensed and approved, the drugs have to be manufactured following GMP standards. Further, clinical trials are subject to GCP regulations. Approved medicines are monitored on a regular basis for adverse drug reactions. The Health Sciences Authority has also appointed a Pharmacovigilance Advisory Committee (PVAC), which comprises experts in the fields of medicine, pharmacy, pharmacology and forensic sciences. One of their main roles is to assess the impact of major drug safety issues and advise the HSA on the appropriate regulatory actions to be taken to enhance drug safety. The basis for medical data protection in Singapore is the Singapore Medical Association’s Ethical Code. Hospitals, private care organisations and public health facility officials have to ensure that their ethics review committee is kept up to date on the regulatory regime governing medical records and private patient information. Patient consent is required for any disclosure of sensitive information. Recent public health problems (such as the SARS outbreak in 2003) have put the spotlight on the Singapore government’s privacy laws and the government has been working at making the laws more robust.58

52 http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=8361261&dopt= Abstract 53 http://cdsco.nic.in/ 54 ibid. 55 No data were found regarding GLP in India. 56 http://www.barqa.com/common/cms/download/glpaz/indi.htm 57 http://www.hsa.gov.sg 58 http://www.ey.com/global/download.nsf/Finland/Life_Sciences_Navigator_April2003/$file/April%202003%20LSN.pdf

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Japan The Pharmaceuticals and Medical Devices Evaluation Centre evaluates the quality, efficacy and safety of prescription drugs and medical devices as well as proprietary drugs, quasi-drugs and cosmetics that are purchased directly by the general public.59 The drugs have to be manufactured to international GMP standards. Clinical trials are conducted as per International Conference on Harmonisation (ICH) GCP guidelines. A federation of surgeons’ associations has drawn up guidelines for protecting patient privacy. The guidelines call on doctors to refrain from disclosing even the initials of patients’ names.60 The privacy guidelines in Japan are not as clearly laid out as they are in the US or EU, for example. The privacy guidelines (thus far) relate more to doctor-patient privacy than to privacy relating to other healthcare related staff such as clerical, administrative or research personnel. The Organization for Drug ADR Relief, R&D Promotion and Product Review (“Drug Organization”, in short) is responsible for the audit and facility inspections for GLP compliance for new drug applications.61

Australia The Therapeutic Goods Administration (TGA) carries out regulatory and enforcement activities in Australia.62 Any product for which therapeutic claims are made must be entered in the Australian Register of Therapeutic Goods (ARTG) before the product can be supplied in Australia. The Therapeutic Goods Act 1989 and associated Regulations and Orders set out the requirements for inclusion of therapeutic goods in the ARTG, including advertising, labelling, product appearance and appeal guidelines. All higher risk medicinal products are evaluated for quality, safety and efficacy. Higher level of risk products are prescription, some non-prescription medicines and medical devices, whilst lower risk products include many non-prescription medicines, such as complementary medicines and low risk medical devices. Products considered lower risk are assessed for quality and safety.63 Manufacturers of drugs have to comply with GMP standards. Post-marketing activities include investigating reports of problems, laboratory testing of products on the market and monitoring to ensure compliance with the legislation. As of July 1st 2006, the Australian TGA and the New Zealand Medicines and Medical Devices Safety Authority (Medsafe) will be replaced by a Trans-Tasman Therapeutic Product Agency.64 Australia’s Federal Privacy Act 1988 incorporates the OECD guidelines for protection of privacy. The act also covers patient privacy in healthcare research and healthcare services. A federation of surgeons’ associations has drawn up guidelines for protecting patient privacy. The guidelines call on doctors to refrain from disclosing even the initials of patients’ names. They are also urged not to reveal more than the month and year in providing time references about patients’ treatments.65 In 2000 a Privacy Amendment Act (Private Sector) was passed to provide protection of data in the private sector. Health information is sensitive information and, therefore, is subjected to additional regulations and higher standards of scrutiny. (Guidelines on Privacy in the Private Health Sector, October 2001. Defined in Section 6, Privacy Act 1988.)

59 http://www.pacificbridgemedical.com/ publications/Japan_new_GCP_requirements.pdf 60 http://202.221.217.59/print/news/nn07-2004/nn20040726a7.htm 61 http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=8720158&dopt= Abstract 62 http://www.tga.gov.au/ 63 http://www.tga.gov.au/docs/html/tga/tgaginfo.htm#what 64 http://www.jtaproject.com/ 65 http://202.221.217.59/print/news/nn07-2004/nn20040726a7.htm

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If the research in question is relevant to public health and safety, then the disadvantages of releasing private information are weighed against the benefits the information can provide to public health and safety. In such situations, a review is undertaken by the Human Research Ethics Committee (HREC) and an approval is given provided the written proposal satisfies all the required criteria.66 The National Health and Medical Research Council (NHMRC) has produced guidelines for genetic registers, which complement the National Privacy Principles with respect to the collection, use and disclosure of sensitive information, data quality and security and the use of unique identifiers. The HREC reports annually to the NHMRC. The NHMRC ensures that patient privacy has been followed at all times; where there is a violation, the matter is reported to the Federal Privacy Commissioner. Mutual recognition of data and standards Background Efforts to harmonise various elements of drug regulatory activities have been initiated by various intergovernmental organisations at regional and interregional levels in the past decade. The International Conference on Harmonisation (ICH) initiative, which started in 1990, is an interregional venture and includes regulatory authorities of the countries that are part of the ICH. Under the ICH guidelines, results from foreign clinical trials could comprise most or all of the clinical data for approval in the new region, so long as they are performed according to local requirements. In other cases, the company may need to develop “bridging” data to extrapolate from the clinical trial cohort to the local population.67 ICH has produced more than 45 guidelines describing technical requirements related to specific components of the drug registration process. The scientific level and therefore costs related to each guideline is high and reflects state-of-the-art technology.68

Mutual Recognition Agreements (MRAs) are established between countries that are on a comparable level of technical development and have a compatible approach with respect to certification and quality control of manufacturing practices. MRAs establish a framework, which enables certain procedures required in the importing country to be undertaken in the exporting country. MRAs increase international harmonisation and expand market access for the drug producer. All the countries listed above except India have signed MRAs with the US and some with each other. This implies that all these countries have similar levels of technical expertise and compliance with standard manufacturing practices. The GMP of one country may be recognised by another if an MRA has been signed between the two countries. The MRAs seek to facilitate trade while safeguarding health, safety and consumer protection requirements already established by the legislation of each country. Each country should have full confidence that legislation will be respected and followed by the partner countries. This confidence, however, can only be established with countries that have compatible product testing and approval procedures. To date, only GMP-based MRAs have been signed. The table below presents a summary of the MRAs that have been signed by the countries considered in this benchmarking study.

66 http://www.health.gov.au/nhmrc/publications/pdf/e43.pdf 67 http://www.ich.org 68 World Health Organisation, The Impact of Implementation of ICH Guidelines in Non-ICH Countries, 2001.

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Table 37: Coverage of Mutual Recognition Agreements US EU Japan Singapore Australia India Australia Co-operative Yes MOU* Yes n/a No US n/a No No No Co-operative No EU No n/a Yes non sterile

medicines No Yes No

*Memorandum of Understanding. Source: International agreements at http://www.tga.gov.au/international/index.htm as supplied by the TGA. The Pharmaceuticals Inspection Co-operation Scheme (PICS), which began in 1995, is a co-operative agreement between health authorities of countries that are part of the PICS.69 PICS is not a legal treaty but is a co-operation in the field of GMP. The purpose of PICS is to facilitate networking between participating authorities and the maintenance of mutual confidence, the exchange of information and experience in the field of GMP and related areas, and the mutual training of GMP inspectors. Australia, Germany, Singapore and the UK are participating authorities. US Regulatory authorities in the US rapidly signed-off on the ICH guidelines. The US has one of the oldest and fastest growing pharmaceuticals industries among all the countries studied. As a result, it has well-established manufacturing standards. Manufacturing standards in the US are considered to be of the highest quality and, hence, the rest of the countries’ manufacturing practices are compared against it. The US GMP includes PAT to account for newer systems and facilities introduced in existing manufacturing processes to improve consistency and efficiency.70 The US is not a member of PICS. UK and Germany Shared EU agencies and regulatory frameworks enable the UK and Germany to be considered together in this section. As in the US, regulatory authorities in the EU rapidly signed-off on the ICH guidelines. The European Medicines Agency (EMEA) PAT team was created in January 2004 to review the implications of PAT to ensure that the European regulatory framework and the authorities are prepared for and adequately equipped to conduct thorough and effective evaluations of applications based on PAT.71 Both the UK and Germany are members of PICS.72

India India’s regulatory standards are not yet comparable to the rest of the countries in this study.73 India has no MRAs with any of the advanced countries and therefore has the lowest score. India has yet to implement regulatory systems similar to PAT in the US. Singapore Singapore has agreed to ICH guidelines. The present Singapore GCP Guidelines 1998 is modelled along the ICH guidelines. All clinical trials now have to conform to the Medicines (Clinical Trials) Amended Regulations 1998 and the Singapore GCP Guidelines 1998.74 Singapore has signed MRAs with Australia, indicating high manufacturing standards, but has yet to implement regulatory systems similar to PAT in the US. Singapore became a member of PICS in 2000. 69 http://www.picscheme.org/overview/picsrole.htm 70 http://www.fda.gov/cder/gmp/index.htm 71 http://www.emea.eu.int/Inspections/PAThome.html 72 http://www.picscheme.org/docs/pdf/PICS%2001%2095%20Rev%203%20Revised%20Scheme.pdf 73 Adoption of the ICH E5 Guideline in Asia Pacific (excluding Japan), R&D Briefing No. 37, CMR International, 2002. 74 http://www.hsa.gov.sg/html/business/cda_trials_overview.html

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Japan Japan has also agreed to ICH guidelines, but implementation has been slow compared with EU countries and the US. Japan has signed MRAs with the US, indicating high manufacturing standards, but has yet to implement regulatory systems similar to PAT in the US. Australia Australia has implemented most of the ICH guidelines and is in the process of reviewing additional guidelines for implementation. Australia has a co-operative agreement with the US, indicating high manufacturing standards, but they have yet to establish a working group or develop guidance documents on PAT similar to the EU and the US. Australia is a member of PICS. The MRAs, Memorandum of Understandings (MOUs), and PICS membership point to Australia’s efforts to implement global harmonisation standards for consistency in product quality, manufacturing practices, safety and efficacy. Compliance levels with regulations and standards US In the US the compliance programme, conducted by the FDA, is designed to ensure that establishments involved in the manufacturing, testing, or other manipulation of new drug dosage forms and new drug substances are audited through on-site inspections for compliance with GMP.75 They are audited for conformance with application commitments and to ensure that data is authentic and accurate. The authentication is achieved through laboratory testing of products, including evaluations of the adequacy of analytical methodology. Both foreign and domestic establishments are covered by this programme. Such coverage is intended to be consistent to the extent possible and achieve uniformity of manufacturing standards. UK and Germany Since 1991, the UK and Germany’s requirements for manufacturing authorisations and GMP have been harmonised within the EU. In the EU, the inspections section of the EMEA deals with the verification of compliance with the principles of GMP, GCP and GLP and with certain aspects of the supervision of authorised medicinal products in use in the EU. In addition to inspection and supervision related activities, the agency also issues certificates for facilities that comply with WHO requirements of GMP. The inspections section also co-ordinates activities in connection with the GMP annexes of the various MRAs that have been negotiated between the EU and non-European countries. India India’s move to implement GMP under schedule M of the Indian Drugs and Cosmetics Act is intended to bring the manufacturing practices of Indian pharmaceuticals companies on a par with international standards.76 Making GMP mandatory is also considered necessary as the export of pharmaceuticals products from India to the developed world is increasing. Many of the large- and medium-scale drug units in the country implemented GMP before the government brought in this provision. It is the number of small-scale drug units that were under pressure to implement GMP standards. In response to growing concern expressed by the Indian Supreme Court and the National Human Rights Commission, the central government constituted an expert committee under the chairmanship of R.A. Mashelkar, director-general of the Council for Scientific and Industrial Research (CSIR), to

75 http://www.fda.gov/cder/guidance/4011dft.htm 76 http://www.pharmabiz.com/article/detnews.asp?articleid=21341&sectionid=47

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examine all aspects of the regulatory infrastructure.77 The committee in its report released in November 2003 noted that while appropriate regulatory and legislative systems existed, there was considerable non-uniformity of interpretation of the laws and enforcement standards followed by state drug control authorities. The Central Drugs Standards Control Organisation (CDSCO) discharges the functions to state governments for enforcement within the respective states. However, the infrastructure facilities and the number and quality of drug inspectors, testing facilities, and support systems vary from state to state. While in some states the organisation is headed by a technical person, others have administrators, police or medical persons as heads.78 Only a few states have well-equipped testing laboratories, while most have no laboratory or have a small one with scant testing facilities. The data collected by the committee found that only 15 of the 26 states surveyed have functioning testing laboratories, of which only seven were reasonably well equipped and staffed. Further, when the report was released there were approximately 5,748 drug manufacturing units in the country. Out of that total around 1,000 units may have complied with GMP norms.79 A large number of the remaining pharmaceutical units were considered too small and without adequate financial strength to modernise their plants. Singapore Under the Medicines Act of Singapore, manufacturers of medicinal products for human use are required to be licensed before they can manufacture the products for sale or supply. All pharmaceuticals manufacturers are required to conform with the current PICS Guide to GMP for Medicinal Products, which encompasses all the recommendations of the WHO in relation to GMP, before a manufacturer’s licence is granted or renewed.80 Pre-approval and routine GMP inspections are conducted to assess the conformance of pharmaceuticals manufacturers to GMP standards. Further, the HSA, through a system of pre-approval and periodic on-site GMP audit and licensing of the manufacturer, subjects all local manufacturers of medicinal products to GMP conformity assessment. As of April 1st 2004, all new overseas manufacturers who intend to register their new medicinal products in Singapore are subject to the GMP Conformity Assessment by the HSA.81

Japan The Organisation for Pharmaceutical Safety and Research (OPSR) inspects for GMP compliance. Under the pharmaceuticals law the OPSR checks for compliance when an application is submitted for: renewal; a new drug manufacturing business licence; a licence to add a manufactured product; or a licence to change a manufactured product. At each stage of pharmaceutical development, from manufacture/import through to distribution and utilisation, an approval and licensing system and an ongoing monitoring system are established. The key to Japan’s standards is the approval examination, although ongoing monitoring is in place.82 Standards concerning the non-clinical safety testing of pharmaceuticals (GLP) have been in place since 1982.83 GCP standards have been implemented since 1990. The Ministry of Health, Labour and Welfare has enforced these standards as ministerial ordinances since April 1997.84

Japan has agreed to the ICH E5 Guideline, but implementation has been slow. ICH Guideline E5, “Ethnic factors in the acceptability of foreign clinical data”, recommends a framework for evaluating the impact of ethnic factors on the effect of the medical product. It is one of at least 45 guidelines 77 http://www.drugscontrol.org/report.htm 78 ibid 79 ibid 80 http://www.hsa.gov.sg/html/business/cda_trials_overview.html 81 ibid 82 http://www5.cao.go.jp/otodb/english/houseido/hou/lh_02070.html 83 ibid 84 The Japanese government authority reference the EIU used for the research did not contain information regarding the frequency of audits.

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developed by the ICH.85

Australia The Manufacturer Assessment Section (MAS) of the TGA is responsible for licensing Australian manufacturers and auditing Australian and overseas manufacturers wishing to supply therapeutic goods in Australia. The frequency of audits depends on the degree of risk to patients. Generally, the audit frequency is between 12 and 24 months (depending on the previous GMP compliance rating) for the high-risk category, 12-30 months for the medium-risk category and 12-36 months for the low-risk category. Australia’s audit department has been vigilant for breaches of compliance and has taken immediate action when needed.86 The National Association of Testing Authorities (NATA) is the monitoring body for GLP in Australia. Full inspections are conducted on a biannual basis; in addition there are annual study inspections. Time taken to achieve regulatory milestones The time taken for new drugs to clear significant milestones in the regulatory process is of great interest—and economic importance—for pharmaceuticals companies. Some studies, such as that by the Tufts Center for the Study of Drug Development, have compared approval times in the US and EU (the study does not include data for Australia, Japan, Singapore or India).87 In 2003 a study by AstraZeneca compared Japan, the US and UK drug approval times.88 The average approval times can vary from year to year and (with the possible exception of Japan) are quite close together. Approval time lengths are affected by a number of factors, including the availability of alternative therapies for similar indications; national regulations; the regulator’s access to information from other national agencies; the agency’s policies, procedures and resources; and the quantity of resources they have with which to do their work.89 Ranking positions of individual countries could therefore easily change in future. US A study by the Tufts Center for the Study of Drug Development shows that total review and approval time for new biopharmaceutical products in the US for the 2000-03 period is slightly below the EU. The Tufts Center study found that total average approval phase times for biopharmaceuticals in the US, which includes active review by the regulatory agency as well as company response time and issuance of final approval, was 16.7 months. A study conducted by AstraZeneca comparing the EU, Japan and the US shows US improvement in approval times every year since 1997 through to 2002. Both studies maintain that the US has the shortest average approval times, with the EU marginally slower.

85 World Health Organisation, The Impact of Implementation of ICH Guidelines in Non-ICH Countries, 2001. 86 http://www.inpharma.com/news/news-ng.asp?id=26796-australian-pharma-woes 87 Tufts Center for the Study of Drug Development Impact Report, Faster review longer response time mark new EU biopharmaceuticals, Volume 6, Number 2, March/April 2004. 88 Daniels, Moira. Changes and Challenges in the Current Regulatory Environment: What are the critical success factors? Where Science Meets Business, AstraZeneca 2003; www.soci.org/SCI/SCIpharm/4.1aMoira_Daniels.pdf. 89 Rawson, Nigel. Time Required for approval of new drugs in Canada, Australia, Sweden, the United States in 1996-98, Canadian Medical Association.

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Source:90

UK and Germany In the EU, new drugs can be licensed in more than one EU country at once in one of two ways: mutual recognition, or the centralised procedure. To accommodate the industry’s desire for more rapid approval times, the European Commission has prescribed a strict timescale of 210 days for the mutual recognition procedure. The mutual recognition procedure enables manufacturers to seek simultaneous licensing for a new drug in two or more member states, providing that they have an existing licence for that drug in at least one, known as the reference member state. The regulatory agency of the reference state then approaches the agencies of the states in which approval is sought. For biotechnology drug products, manufacturers must follow another route, known as the centralised procedure, which can also be used for highly innovative new drugs. In this procedure the advisory committee simply decides, after considering assessments by a partner regulatory agency, whether the drug should be approved throughout the EU. The study by the Tufts Center for the Study of Drug Development shows that total review and approval time for new biopharmaceutical products in Europe is nearly identical to the total time required for new drugs approved in the US for the 2000-03 period.91 The study found that total average approval phase times for biopharmaceuticals approved in both the US and the EU, which includes active review by the regulatory agency as well as company response time and issuance of final approval, were comparable and fell during 2002.92 In the EU, the process took 17 months to complete compared with 16.7 months in the US. New European biopharmaceuticals are beating industry benchmark times for new drug products in the active review phase of the approval process. However, company response time and the time needed by the European Commission to render a decision are lagging industry benchmarks. India To address lengthy approval times, India’s Drug Controller General (DCG), a division of the Ministry of Health, has streamlined its trial approval process. The DCG is responsible for formally approving each trial conducted in India as well as other oversight issues. The Indian government is promoting GCP through new guidelines issued by the India Council of Medical Research (ICMR) and it has 90 Tufts Center for the Study of Drug Development Impact Report, Faster review longer response time mark new EU biopharmaceuticals, Volume 6, Number 2, March/April 2004. 91 ibid. 92 ibid.

Tufts Center study: Summary of total approval phase times for products approved in the EU and US

• Total average approval phase times for biopharmaceutical products approved in both the

EU and US were comparable: 17.0 vs. 16.7 months, respectively. • Average total approval phase time for exceptional products in the EU was 14% shorter

than for the same products approved in the US. • Average US approval phase time for products with a priority review was 5% shorter than

for the same products in the EU. • Twelve of 18 products approved in both regions were approved in the US first, including

all of three Monoclonal Antibody Therapeutics (mAb therapeutics).

66

increased ICH-GCP training in this regard. It remains to be seen what effect these new changes will have on approval times. Although official data for India proved difficult to find, qualitative literature suggests India has the slowest approval time among the countries in the study.93 In addition, the Economist Intelligence Unit used in-field researchers to interview a number of senior employees in the pharmaceutical sector in India. The information gathered largely supported our assumption that approval times did lag those of the other countries in the study. Singapore Evaluation of new chemical/biological entities is conducted by the HSA. Application acceptance is completed within 14 working days. Upon acceptance of the application the target timeline is 210 working days. An additional 60 working days are needed for the regulatory decision-making process.94 If the HSA needs to seek clarification from the applicant, the application will be delayed until complete responses are received.95 Therefore, a new drug application will be processed within 10-12 months, contingent on completeness of the data provided. Review priority is scaled subject to the drug meeting the following criteria.

• Drug product is intended for the treatment of serious, debilitating and prevalent diseases. • Drug product is intended for a disease which lacks an adequate and appropriate alternative

therapeutic approach. • Drug product offers significant improvement in areas of effectiveness, treatment-limiting drug

reactions, or patient compliance. • Drug product has a local and regional significance.96

Japan A study by CMR International suggested that Japan has historically had longer approval times than the US or EU. In 2002 a study by AstraZeneca showed that approval times in Japan remained constant; meaning no improvement in the length of approval time was registered during the year.97 The study highlighted that the US and EU have shorter approval times, although Japan was able to narrow this gap when approval times significantly improved from 1996 to 2000. Australia The CMR study suggests that Australia has historically had slightly longer approval times than the US or EU. For this reason, Australia is scored down slightly in the rankings model. A report by the Canadian Medical Association demonstrates Australia’s median approval times from 1992 to 1998 compared with the US and UK. Overall, trends in approval times in Australia decreased throughout the six-year period from a median approval time of 1,000 days in 1992 to a median approval time of just under 600 days in 1998. But times remained consistently longer than approval times in the UK and US, thereby supporting the findings in the CMR study.98

93 http://www.indianpediatrics.net/june2004/637.pdf 94 http://www.hsa.gov.sg/html/business/cda_itg_faq.html 95 Data concerning the Health Sciences Authority’s ability to meet the timeframes are not part of the government authority’s reference, which is located at: www.hsa.gov.sg/html/business/cda_itg_faq.html 96 ibid 97 Daniels, Moira. Changes and Challenges in the Current Regulatory Environment: What are the critical success factors? Where Science Meets Business, AstraZeneca 2003; www.soci.org/SCI/SCIpharm/4.1aMoira_Daniels.pdf98 Rawson, Nigel. Time Required for approval of new drugs in Canada, Australia, Sweden, the United States in 1996-98, Canadian Medical Association.

67

Table 38: Median approval time for new active substance, years 1997 1998 1999 2000 2001 US 1.2 1.0 1.0 1.2 1.0 EU centralised procedure 1.3 1.2 1.4 1.5 1.3 Australia 1.5 1.3 1.3 1.7 1.5 Japan 1.2 2.4 2.8 2.0 1.4

Source: CMR International, www.cmr.org

Figure 14: Time taken to attain significant milestones in the regulatory process: level of importance in a decision to invest in an individual country


Summary: The UK, Germany and US are the top-ranked countries here, on all indicators. Australia is part of a second group of countries, also including Japan and Singapore. India’s regulatory standards are not yet comparable to these countries. The online survey suggested that approval times are of “great importance” in investment decisions.

http://www.cmr.org/

68

d) Taxation issues of specific significance to the pharmaceuticals industry Table 39: Taxation Score (rank) Australia India Germany Japan S’pore UK US 1.2.4 Taxation 8.1 (4) 6.5 (6) 6.4 (7) 7.2 (5) 8.9 (1) 8.2 (2) 8.2 (2) 1.2.4.1 Corporate tax rates 7.0 (3) 4.0 (7) 9.0 (2) 5.0 (6) 10.0 (1) 7.0 (3) 6.0 (5) 1.2.4.2 Interest (resident/non-resident) 10.0 (1) 6.0 (5) 4.0 (7) 7.5(3) 9.0 (2) 6.0 (5) 7.0 (4) 1.2.4.3 Dividends (resident/non-resident) 9.0 (3) 8.0 (4) 5.0 (6) 5.0 (6) 10.0 (1) 10.0 (1) 7.0 (5) 1.2.4.4 Capital 10.0 (1) 4.0 (7) 10.0 (1) 5.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 1.2.4.5 Property 10.0 (1) 5.0 (6) 10.0 (1) 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 1.2.4.6 Sales tax/Value-added tax 7.0 (4) 6.0 (5) 6.0 (5) 9.0 (2) 10.0 (1) 4.0 (7) 8.0 (3) 1.2.4.7 High income tax 5.0 (6) 9.0 (2) 4.0 (7) 7.0 (4) 10.0 (1) 6.0 (5) 8.0 (3) 1.2.4.8 Low income tax 5.0 (6) 9.0 (2) 4.0 (7) 9.0 (2) 10.0 (1) 9.0 (2) 9.0 (2) 1.2.4.9 Other employment taxes 10.0 (1) 5.0 (6) 4.0 (7) 8.0 (3) 6.0 (5) 9.0 (2) 7.0 (4) 1.2.4.10 Specific industrial incentives for

pharmaceutical firms 10.0 (1) 8.0 (4) 7.0 (6) 7.0 (6) 10.0 (1) 8.0 (4) 9.0 (3)


A full discussion of tax issues of special significance to the pharmaceuticals industry is included in Appendix 13—Tax issues. A summary presentation follows based on the tax situation in each country as measured in June 2004. It must be noted that the importance of tax considerations will vary greatly across the pharmaceutical value chain. For example, corporate tax is of little relevance to R&D companies, which in the Australian context generally operate at a loss. For these firms, the availability and level of direct assistance is much more pertinent. In contrast, corporate tax rates are an important consideration for firms engaged in the profitable manufacture of pharmaceuticals.

69

Table 40: General taxation issues: Australia, Germany, Singapore, Japan, UK, US and India compared (June 2004)

Australia Germany Singapore Japan

UK US India

Corporate taxes 30% corporate rate 26.5% corporate rate +

18% local trade tax +

5.5% solidarity surcharge on assessed

corporate tax +

20% withholding tax on half of distributed

dividends (withholding tax is

5% under US-German tax treaty,

0% for German company with EU

parent)

22% corporate rate 75% exemption of

first S$10,000 (US$5,848) of

taxable income and 50% for next

S$90,000 (US$52,632)

(applicable in 2003 assessment year –

uncertain if applicable in future)

40.87% effective rate – includes 30% national rate and 9.6% local rate

(special tax rate for small and medium-sized companies:

22% national rate + 5% local rate; local rate 7.2% for large corporations with

capital greater than ¥100m (US$8.98m))

+ 17.3% inhabitants tax

– charged by both prefectures and municipalities

(rates vary – basic rate of 17.3% in

Tokyo; up to 20.7% for large

corporations)

30% corporate rate Applies to profits

above £1.5m (US$2.78m)

35% corporate rate Graduated system:

15% for first US$50,000;

US$7,500 + 25% of amount exceeding

US$50,000 for US$50,001-75,000;


US$75,00 for US$75,001-100,000; US$22,250 +39% of amount exceeding US$100,000 for

US$100,001-335,000;


US$335,000 for US$335,001-10m; US$3.4m + 35% of amount exceeding

US$10m for US$10m-15m;

US$5.15m + 38% of amount exceeding

US$15m for US$15m-18.33m;

35% for above US$18.33m

35.87% effective rate – includes 2.5%

surcharge (41% effective rate

for firms incorporated outside

India) +

12.8% tax on distributed dividend

70


UK US India

Interest and dividend taxes

10% withholding tax on interest paid to

non-resident

15% withholding tax on dividends paid to

non-residents (exceptions to this

under different treaties)

30% withholding tax on interest

– applies to resident taxpayers in Germany

20% withholding tax on interest

(reduced by tax treaties for residents of some countries,

usually to 10%; exemptions exist on a

range of govt securities, foreign-

held debt, etc )

20% tax on interest (no interest tax on

international bonds or interest paid between

companies)

Interest payments included in

recipient’s taxable corporate income;

30% tax on interest flowing to a foreign

parent or foreign institution

Certain dividends taxed at 15% or 5% (same rate as capital

gains)

20% withholding tax on residents’ interest

income

Capital and property taxes

For federal income tax purposes, 100%

of the capital gain on the disposal of an asset of a non-life

insurance company (no matter how long the asset was owned)

and assets held by other taxpayers (for less than 12 months)

may be subject to capital gains tax

(CGT). Assets held for 12 months or

more by a taxpayer (other than a non-life insurance company) may be subject to a

discount of 50% (for individuals and

trusts) and 33 1/3% (for superannuation

Real estate tax levied on immovable

property owned by either individuals or

companies

4% property tax for owner-occupied

residential properties and 10% for others (rebates exist for

industrial and commercial properties)

4% stamp duty for primary real estate

purchases

Property taxes (“rates”) applied by municipalities

Property or “net worth” taxes levied

by some states, usually at about

1-2% of the property’s value

1% wealth tax on value of specified company assets

– applies to amounts exceeding Rs1.5m

(US$33,245)

71


UK US India

and life insurance companies).

Companies (other than life-insurance companies) receive

no discount.99

Sales or value-added taxes

10% goods and services tax (GST) – certain goods, like exports and “basic

foods” exempt

16% value-added tax (VAT) – 7% for

certain “necessity goods”

4% goods and services tax for

“standard items” – goods for export and international services

exempt

5% goods and services tax for goods

and services consumed by

businesses

17.5% value-added tax (VAT) – some items exempt or

subject to reduced rate

Excise taxes on certain commodities, such as alcohol and

tobacco, and on ozone-depleting

chemicals

Three-tiered excise duty of 8%, 16% and

24%

8% service tax

Personal taxes100 A$0-6,000 (US$0-4,167) taxed 0%; A$6,001-21,600

(US$4,167-15,000) taxed 15%;

A$21,601-63,000 (US$15,000-43,750)

taxed 30%; A$63,000-95,000

(US$43,750-65,900) taxed 42%;

Over A$95,000 (US$65,000) taxed

47%.101

Personal tax rates range from 16% on income exceeding

€7,664 (US$9,346) to 45% on income

Exceeding €52,152 (US$63,600)

S$0-20,000 (US$0-11,695) taxed 0%; S$20,001-30,000

(US$11,695-17,544) taxed 4%;

S$30,001-40,000 (US$17,544-23,392)

taxed 6%; S$40,001-80,000

(US$23,392-46,784) taxed 9%;

S$80,000-160,000 (US$46,784-93,567)

taxed 15%;

Under ¥3.3m (US$29,625) taxed

10%; ¥3.3m-9m

(US$29,625-89,797) taxed 20%; ¥9m-18m

(US$89,797-161,594) taxed 30%;

Above ¥18m (US$161,594) taxed

37%

£0-4,745 (US$8,787) taxed at 0%; £4,745-

6,705 (US$8,787-12,417) taxed 10%;

£6,705-35,245 (US$12,417-65,269)

taxed 22%; above £35,245 (US$65,269)

taxed 40%

Six-bracket system at 10%, 15%, 25%,

28%, 33% and 35% coming into effect for

taxable incomes, respectively, of:

US$14,300, US$58,100, US$117,250,

US$178,650 and US$319,100 for joint returns; US$7,150,

US$29,050, US$70,350,

US$146,150 and

Under Rs50,000 (US$1,108) taxed

0%; Rs50,001-60,000 (US$1,108-1,330)

taxed 10%; Rs60,001-150,000 (US$1,330-3,325)

taxed Rs1,000 (US$22)+ 20% of amount exceeding

Rs60,000 (US$1,330);

Above Rs150,001

99 http://www.ato.gov.au/businesses/content.asp?doc=/content/43486.htm 100 At the time of the benchmarking study Australian personal tax rates were: A$0-6,000 (US$-0-4,167) taxed 0%; A$6,001-21,600 (US$4,167-15,000) taxed 17%; A$21,601-52,000 (US$15,000-36,111) taxed A$2,652 plus 30% for each A$1 over A$21,600; A$52,000-62,500 (US$36,111-43,403) taxed A$11,772 plus 42% for each A$1 over A$52,000; over A$62,500 (US$43,403) taxed A$16,182 plus 47% for each A$1 over A$62,500.

72


UK US India

1.5% Medicare levy on taxable income,

plus an additional 1% for individuals

earning more than A$50,000

(US$34,722)

S$160,000-320,000 (US$93,567-187,135)

taxed 19%; Over S$320,000

(US$187,135) taxed 22%

US$319,100 for individual returns;

US$10,200, US$38,900, US$100,500,

US$162,700 and US$319,100 for

heads of households; and US$7,500,

US$29,050, US$58,625,

US$89,325 and US$159,550 for

married taxpayers filing separately

(US$3,325) taxed Rs19,000 (US$421)+

30% of amount exceeding Rs150,000

(US$3,325)

10% surcharge on incomes above

Rs850,000 (US$18,839)

Employment Taxes Employers pay pension contribution

on employees’ behalf, equal to 9%

of gross wage or salary

Fringe benefit tax of

3-8%, deductible against assessable

company income tax

Mandatory social insurance by

employers and employees combined

is 42% of gross income

Non-wage workers’

costs include: 14.3% of gross pay

for compulsory health insurance;

0.85% of gross pay for nursing-care

insurance; 19.5% of gross salary for pension scheme

Central Provident Fund (CPF), a

compulsory savings programme, provides

retirement and medical benefits.

Employers’ contribution 16%; employees’ rate is

20% for 55 year olds or younger, 12.5% for 55-60 year olds

and 7.5% for 60 year olds and over

Employers must also

Fringe benefits represent roughly one-third of total

wage costs. Some of the mandatory contributions required from

companies include: 8.675% pension

contribution (employee also

makes same contribution); 4.25%

national health insurance; 0.55-13.5% worker’s compensation

Both employees and employers pay

National Insurance Contributions (NIC),

which finance industrial injury compensation,

sickness benefit, unemployment pay

and old-age pensions

Employees pay 11% on weekly earnings

of £89.01-595 (US$165-1,102) and 1% on all earnings

Employees and employers are

required to make contributions of 6.2%

each on first US$87,000 of

earnings to federal old-age, survivors

and disability insurance (OASDI),

known as Social Security

Medicare

contributions – separate from Social

Fringe benefits normally add 40-50%

to base pay. Mandatory monetary

benefits include: Bonus for workers

earning Rs3,500/month or less (min of 8.33% and max of 20% of

annual wages in factories employing

10 or more); dearness allowance (based on cost-of-living index) for all levels below

management in firms

101 The Australian personal tax rates were changed on 10 May 2005 and apply from 1 July 2005: http://www.budget.gov.au/2005-06/overview/html/index.htm. Furthermore, from 1 July 2006 the upper threshold for the 30% tax rate will further increase to A$70,000 (US$48,600) and to A$125,000 (US$86,800) for the 42% tax rate. The top marginal tax rate of 47% will apply for people earning A$125,001 (US$86,800) and above.

73


UK US India

(shared equally between employee

and employer); 6.5% unemployment

insurance

contribute 3-4.25% for employees’

medisave account

(depending on risk); and 0.95%

unemployment insurance

Companies also frequently offer

family allowances, subsidised medical

and dental care, subsidised meals,

holidays and excursions, housing

and recreational facilities

above £595 (US$1,102) per week

Employers

administer sick pay, which can be

refunded to them by the state if they have

an unusually high proportion of their

workforce ill

Security payments – 1.45% of employees’

wages are paid by both employees and

employers

Federal unemployment

insurance rate is 6.2% on first

US$7,000 of each employee’s wage.

State unemployment insurance, mandatory

in 50 states, varies widely – employer receives a credit of up to 5.4% against

federal tax for amounts paid to state

unemployment insurance funds

employing 50 or more people;

severance pay of 15 days of average salary for each

complete year of continuous service

Employers contribute

4.75% and employees 1.75% of

wages to health insurance scheme

For companies

employing over 20 people, employers

and employees each contribute 12% of

basic wage (10% for five industries) to

pension fund

74

Figure 15: Low corporate tax burden: importance in decision to invest in an individual country

Source: Economist Intelligence Unit online survey, April 2004. Figure 16: Tax and other local or national government levies: importance in decision to invest in an individual country


top rate of income tax is 7%, which is the highest of the countries covered here, but now becomes effective at a higher

reign company (CFC) rules, together with reductions

Australia’s overall tax regime is judged to be the fourth most attractive of the seven economies covered here, behind Singapore, the UK and US. At the time the benchmarking study was conducted the least attractive feature of Australia’s tax regime was its income tax rates. These tax rates have recently changed. The 4threshold (increased from US$43,400 to US$65,900 for the 2005-06 financial year and US$86,800 from 1 July 2006). The high income tax burden was identified as one key obstacle to attracting highly paid personnel to Australia and retaining home-grown talent. Recent changes may go some way to addressing this. Australia’s corporate tax rate (payable on retained earnings and dividends) was cut from 36% in 2000 to 30% in 2001, but remains relatively high, especially when compared with Singapore. The level of corporate tax is cited by companies as a key factor in deciding where to invest. Reforms under way to lower the costs of complying with controlled fo

75

in the tax paid on foreign business income and a modernisation of Australia’s tax treaties with other

ther countries covered here are the w taxes on labour and the favourable tax treatment of interest and dividends. Non-wage labour costs

in Australia are the lowest of the seven economies, equivalent to just 10.5% of gross salaries. By contrast, they are 22.8% in Germany and 15.9% in the US. Tax on interest ranges from 0% to 10% (in Singapore the range is 0-15%), compared with a flat rate of 20% in the UK and 30% in Germany. Although Australia levies a 15% tax on dividends earned by non-residents—they are tax-free in Singapore—this still compares favourably with Germany, India, Japan and the UK. Finally, Australia’s goods and services tax (GST), at 10%, is higher than in Singapore, the US and Japan, but much lower than in Germany, India or the UK. Summary: Australia’s overall rank on taxation is 4th—below Singapore, the UK and US. Australia’s taxation ranking was let down by poor scores for personal and corporate taxation. Higher scores are recorded for its taxation of interest and dividends, and property.

countries, should help improve the attractiveness of the corporate tax regime. The strongest elements of Australia’s tax regime relative to the olo

76

e) Intellectual property regimes of significance to the pharmaceuticals industry Table 41: Intellectual property regimes102

Score (rank) Australia India Germany Japan S’pore UK US 1.2.5 Intellectual property regimes 9.0 (3) 4.0 (7) 9.2 (1) 8.8 (4) 9.2 (1) 8.8 (4) 8.8 (4) 1.2.5.1 Existence of provisions for data

exclusivity/protection 6.0 (4) 4.0 (7) 10.0 (1) 8.0 (3) 6.0 (4) 10.0 (1) 6.0 (4)

1.2.5.2 Patent duration 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.2.5.3 Patent extension provisions 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 9.0 (6) 1.2.5.4 Springboarding 9.0 (2) 4.0 (6) 6.0 (4) 6.0 (4) 10.0 (1) 4.0 (6) 9.0 (2) 1.2.5.5 Membership/compliance major

international obligations 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1)


• Existence of provisions for data exclusivity/protection: Data exclusivity provides the holder

with specific rights, namely that the data generated by the holder may not be referred to or used by another person or company for a specific period of time. For a new chemical entity, Australia, the US and Singapore provide five years of data exclusivity. Germany and the UK offer ten years data exclusivity. In Japan protection varies from four to ten years depending on whether it is a new indication for the same drug, a completely new chemical entity, or a new orphan drug. India currently has no data protection. Based on the number of years of protection, the scores for Germany and the UK are the highest (10), followed by Japan at 8, the US, Singapore and Australia score 6, and India scores the lowest at 4.

• Patent duration: At the time of the benchmarking study all the countries in the study except India offered patent protection for a term of 20 years. From January 2005 India was obliged to have made changes to its Patent Act to comply with the TRIPS agreement, including a patent term of 20 years. Amendments to the Indian patent law were made through a presidential decree issued on 26 December 2004. The presidential decree was approved by Parliament on 23 March 2005. Once the TRIPS agreement is implemented patent applications submitted after 1995 when granted will be honoured for 20 years. Previously however, patents in India were issued for seven years and therefore, India receives a low score of 4.

• Patent extension provisions: Although patents are granted for 20 years in most of the countries considered, the time taken for developing a drug and obtaining regulatory approval reduces the actual amount of time that a drug can enjoy market exclusivity. To counter this issue, patent extensions are granted so that companies can extend the patent life and recover some of the patent time lost in approval studies. In Australia extension is provided for up to five years resulting in a maximum effective patent life of 15 years. In the US, extension provides an effective patent life of 14 years. In the UK and Germany, Supplementary Protection Certificates provide a maximum of 15 years legal protection after the first marketing authorisation. Japan offers patent extension for five years and an effective patent life of 15 years on average. Similarly Singapore offers five years of extension and an effective patent life of 15 years. No patent extensions are currently offered in India. Australia, the UK, Germany, Singapore and Japan provide a maximum effective patent life of 15 years, and all get an equal high score of 10. The US, with a 14-year effective patent life, gets a score of 9. India scores the lowest (4) because it offers no patent extension.

• Springboarding: The term ‘springboarding’ refers to the availability of provisions that allow the development of a generic version of a patented pharmaceutical product, before the term of the

102 Note that the views of the IP system and what is ‘good’ will differ depending on whether a firm is an ‘originator’ or ‘generic’ manufacturer. For the purposes of scoring, stronger protection is scored more highly with the exception of springboarding, where its provision results in a higher score.

77

patent has expired, for the purpose of obtaining marketing approval from a regulatory body.103 Hence such activity is an exemption to what would otherwise be patent infringement. In the US this is know as the Bolar exemption. In Australia and other countries it is known as springboarding. Singapore allows springboarding and hence receives a high score of 10. The US Bolar provision is limited to springboarding within the US itself whereas Australia’s springboarding provision is limited to those patents that have been granted an extension of term, and hence both countries receive a slightly lower score than Singapore. Germany, Japan, India and the UK receive low scores since they offer limited or no springboarding provisions.

• Membership/compliance with major international obligations: World Trade Organisation members are obligated to provide protection to proprietary data as per Article 39.3 of the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement. The US, the UK, Germany, Australia, Japan and Singapore have adopted the TRIPS obligations and honour the data protection requirements. Hence, they all get a high score of 10. From January 2005 India was obliged to have made changes to its Patent Act to ensure compliance with the TRIPS agreement. Amendments to the Indian patent law were made through a presidential decree issued on 26 December 2004. The presidential decree was approved by parliament on 23 March 2005. India appears to have met the TRIPS deadline, but the changes were not in effect at the time of this study and hence India gets a low score of 4.

Table 42: Country-specific information as in 2004

Australia Germany India Japan S’pore UK US

Provisions for data exclusivity/protection

5 years

8+2+1

years

Uncertain

4-10 years

5 years

8+2+1

years

min 5 years

Duration of standard patent protection

20 years 20 years 20 years (from Jan 2005)

20 years 20 years 20 years 20 years

Patent extension provisions None Membership/compliance with

international obligations:

Trade Related Aspects of Intellectual Property Rights (TRIPs)

– the agreement applies to all WTO members, although pharma-related not binding

World Intellectual Property Organization (WIPO)

– administrator of Patent Cooperation Treaty

Springboarding extended patents

limited no limited no within US


103 DITR, Discussion paper on patent extension and springboarding, and the effect on generic pharmaceuticals manufacturers in Australia. Department of Industry, Tourism and Resources, 2002.

78

Background Intellectual property protection is one key factor that drives investment decisions in the pharmaceuticals and biotechnology sectors. Countries with the stronger patent protection and data exclusivity laws have more new drugs approved than those with poorer protection. Moreover, countries that have enhanced patent policies (e.g. Japan) have showed a steady increase in R&D activity.104

Figure 17: Intellectual property rights legislation: importance in a decision to invest in an individual country


Patent extension/data exclusivity provisions A number of countries now provide for extended patent terms for pharmaceuticals. These include Australia, Singapore, Japan, Korea, Israel, the US, and the member states of the EU. Although there are no internationally agreed standards for patent term extension, the provisions in those countries that provide for it contain some common features. • Extension is not automatic; the patent owner must make a specific application. • A maximum extension of five years is provided for. • The rights of the patent owner in respect of the patent are usually limited during the extended term

compared with the rights available during the original term. Many countries do not provide for patent term extension for pharmaceuticals. These include Argentina, Brazil, Canada, China, Colombia, Ecuador, Hungary, India, Malaysia, New Zealand, Peru, South Africa and Venezuela. Data exclusivity provides the holder with specific rights, namely that the data generated by the holder may not be referred to or used by another person or company for a specific period of time. Australia Sections 70–79A of the Australian Patents Act 1990 provides for the term of pharmaceuticals patents to be extended by a maximum of five years. Extensions are not allowed on patents covering the

104 M. Dickson and J. P. Gagnon, “Key factors in the rising cost of new drug discovery and development”, Nature Reviews Drug Discovery, 2003, 3: pp. 417–429.

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method of production or use of the product. To qualify for such an extension, the pharmaceuticals must be included in the Australian Register of Therapeutic Goods, and the period beginning on the filing date of the patent and ending on the first regulatory approval date for the substance must be at least five years. These provisions were inserted into the Patents Act 1990 by the Intellectual Property Laws Amendment Act 1998. The effect of these provisions is to provide for an effective patent life (EPL) of a maximum of 15 years, provided the time between the filing date of the patent application and the date of first regulatory approval is more than five years. If regulatory approval takes longer than five years, the EPL will be less than 15 years. The patent owner’s rights are not infringed by exploitation of the patented product for non-therapeutic uses, or for the purpose of gaining regulatory approval in Australia or elsewhere (see springboarding). In Australia, the Therapeutic Goods Amendment Act 1998 established a five-year data exclusivity period for new products containing pharmaceutical actives approved after 17 April 1998. The data exclusivity period begins on the date of inclusion on the Australian Register of Therapeutic Goods. Data exclusivity is only provided in relation to new active components that have never been included in the Australian Register of Therapeutic Goods. Therefore, data exclusivity is not provided for new uses or new formulations of existing compounds. UK and Germany The EU has finished its review of pharmaceuticals legislation. The European Commission, European Parliament and European Council agreed a position that was adopted by the Parliament in December 2003 and formally agreed by Council in March 2004. For the Council it was imperative that the review be finalised before the 1 May 2004 accession to the EU of ten new member states.105 The bulk of the new pharmaceutical regulatory package came into force on 20 May 2004.106 The main outcomes of the review, following the compromise between the Council and the European Parliament are: • Patent Extension provided. The Regulation on Supplementary Protection Certificates (SPCs)

continues, which grants patent extensions of up to five years to medicinal products. The UK and Germany have provided patent extensions in the form of SPCs since 1992.107 An SPC is granted for a maximum of five years and extends all the rights of a patent during the extension period. The effect of these provisions is to provide for an effective patent life of a maximum of 15 years.

• 8+2+1 years of protection for all procedures. Medical products for human use will benefit from a ten-year period of marketing protection (eight years of data exclusivity protection followed by two years of market protection). This protection period can be extended to 11 years if, during the first eight of the ten years, the marketing authorisation holder obtains an authorisation for one or more new therapeutic indications. This additional extension must be sought during the scientific evaluation prior to their authorisation and the new indications must be held to bring significant clinical benefit in comparison with existing therapies.108

• No restriction on generic manufacturing during +2 years of market protection. Generic manufacturers are not required to provide the results of pre-clinical tests and of clinical trials if they can demonstrate that their generic drug has been referenced to a medicinal product available for at least eight years within a member state or in the EU. However, these generic drugs cannot be placed on the market until ten years have elapsed from the initial authorisation of the referenced product.109

105 European Generic Medicines Association, http://www.egagenerics.com/pol-pharmarev.htm 106 Ashurst Lawyers, April 2005 ‘The Bolar Clause: Bringing the European generic pharmaceuticals industry into line with the US?’ Product Liability Update. http://www.ashurst.com/doc.aspx?id_Content=1659 107 European Council Regulation No 1768/92 of 18 June 1992. 108 European Generic Medicines Association, http://www.egagenerics.com/doc/ega_pharmarev-sum.pdf 109 ibid.

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• One-year data exclusivity for new indication granted only once.110 When applications for a new indication are made for well-established products, a non-cumulative period of one-year data exclusivity can be granted, provided significant pre-clinical or clinical studies were carried out in relation to the new indication.111

• One-year data exclusivity granted when classification of a medical product is switched to over the counter (OTC).

• Data exclusivity for line extension stopped. All marketing authorisations for additional strengths, pharmaceutical forms, administrative routes, presentations, as well as variations and extensions, shall be considered as belonging to the same initial global marketing authorisation.112

Therefore, in the EU, under the new arrangements, all products receive ten years data exclusivity. Generic companies can apply for permission to manufacture after eight years. However, the generic cannot be launched until the innovator product has been on the market for ten years. The data exclusivity period may increase to 11 years for a new indication if the medicine has significant clinical benefit compared with existing therapies.113 This will only apply to new products which apply for marketing approval after the new law is fully implemented which is required by November 2005.114 The UK and Germany have adopted a ten-year (8+2+1) data exclusivity provision for new chemical entities and significant new indications. The UK and Germany provide patent extensions in the form of SPCs. The SPCs are granted for a maximum of five years and extend all the rights of a patent during the extension period. The effect of these provisions is to provide for an effective patent life of a maximum 15 years. India India was obliged to introduce an intellectual property regime that is compliant with the World Trade Organization’s Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement from January 2005. In order to make the current system TRIPS compliant, the Indian Government made amendments to the Indian patent law through a presidential decree issued on 26 December 2004. The Patents (Amendment) Bill was passed by the Parliament on 23 March 2005. India will now provide for both product as well as process patents. The new patent law will also bring into force data protection provisions. However, neither the existing Indian Patent Act 1970 nor the new amendments provide any patent extension provisions. Japan The term of the patent may be extended upon application for registration of an extension by a period of less than five years.115 The application for the patent extension must be filed within three months of approval and at least six months before expiry.116

The data exclusivity period in Japan varies from: • four years for medicinal products with new indications, formulations, dosages, or compositions

with related prescriptions; • six years for drugs containing a new chemical entity or medicinal composition or requiring a new

route of administration; • ten years for orphan drugs or new drugs requiring pharmaco-epidemiological study.

110 ibid. 111 ibid. 112 ibid. 113 ibid. 114 http://www.egagenerics.com/gen-dataex.htm 115 http://www.jpo.go.jp/torikumi_e/kokusai_e/asia_ip_e/pdf/jpo/2002_vietnam.pdf 116 http://www.drugterm.com/country/japan.htm

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Singapore Under provisions in place since 1 July 2004, Singapore: • grants originators a data exclusivity period of up to five years from the date of marketing approval,

instead of the date of application (as it was previously); • extends the patent protection period if there is an administrative delay during the marketing

approval process.117 It provides extensions of five years, resulting in an effective patent life of 15 years for patents applied for on or after 1 July 2004.

US Limited Data Exclusivity. Under the Drug Price Competition and Patent Term Restoration Act 1984 (the ‘Hatch-Waxman Act’), which amended the US Patents Act, an innovative medicine’s clinical data is granted five years data exclusivity for a new product and an additional three years if additional new uses of the drug are found. Patent Term Restoration (PTR). Section 156 of the United States Patent Act (amended) 1994 (Title 35 of the US Code) allows for the term of a patent to be extended where the patent relates to a product where the commercial exploitation of the product is delayed by the need to seek regulatory approval to market it. 118 The calculation of the duration of the patent extension is complex, but takes into account the period between the date of the first clinical trial and the date of marketing approval, with the proviso that the sum of this period and the patent term remaining at the date of approval must not exceed 14 years. This provides for a maximum effective patent life of 14 years. The US administration has sought comparable patent extension policies from trading partners. Springboarding provisions Springboarding enables generics manufacturers to work on a product prior to patent expiry. It is restricted to work necessary for providing information required for obtaining regulatory approval. This allows for earlier regulatory approval and faster market entry upon patent expiry. What is required to satisfy the requirements for marketing approval varies. In many cases it is sufficient that the generic version is referenced (has demonstrated bioequivalence) to the innovator medicine, whereas in other cases clinical trials may be required to demonstrate safety and efficacy.119

Australia In Australia, springboarding is provided for under the Intellectual Property Laws Amendment Act 1998, an amendment to the Patents Act 1990 that provides, inter alia, for an extension of term for pharmaceutical patents. Springboarding allows manufacturers of generic drugs to undertake certain activities in relation to a product prior to patent expiry, at any time after the extension is granted. It is allowed from the date an extension is granted. These activities are limited to the purpose of meeting pre-marketing regulatory approval requirements in Australia or elsewhere.120 Springboarding only occurs on patents that have been extended and it is not available for patents covering the method of production or use of the product.121

US The Hatch-Waxman Act 1984 allows generic pharmaceutical firms to begin developing and testing their generic versions in preparation for FDA approval before the expiration of patents covering the 117 Singapore Ministry of Trade and Industry, http://www.mti.gov.sg/public/FTA/frm_FTA_Default.asp?sid=36&cid=1647 118 PhRMA, Incentives to Discover New Medicines: Pharmaceutical Patents, http://www.phrma.org119 DITR Discussion paper on patent extension and springboarding, and the effect on generic pharmaceuticals manufacturers in Australia. Department of Industry, Tourism and Resources, 2002; European Generic Medicines Association, http://www.egagenerics.com/doc/ega_pharmarev-sum.pdf120 IP Organisers, http://www.iporganisers.com.au/products/pharmaceuticalextensions.htm121 DITR Discussion paper on patent extension and springboarding, and the effect on generic pharmaceuticals manufacturers in Australia. Department of Industry, Tourism and Resources, 2002.

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innovator medicine (the Bolar exemption).122 In exchange for allowing this change, the Hatch-Waxman Act created several procedural provisions to allow innovators to defend their unexpired patents. Most notable is the 30-month stay on the FDA granting final approval to a generic issuing a patent challenge. When a generic pharmaceutical company files an application to the FDA, seeking permission to enter the market before the patent on the brand-name medicine expires; the patent holder may sue to enforce the unexpired patent. The Hatch-Waxman Act 1984 places a 30-month stay on the FDA issuing final approval of the generic. The stay is lifted at the earliest of the following three events: the generic wins a court decision in its favour, the patent at issue expires, or 30 months passes.123 However, the Bolar exemption only allows springboarding within the US; it does not allow testing to produce data for regulatory approval in other countries during the life of the US patent. Japan In Japan, springboarding provisions are not stated in the Patents Act. However Japan, like many other countries, does offer a research or experimental use exemption to patent infringement. The Japanese Supreme Court in 1999 found that clinical trials conducted for regulatory approval fell within the experimental use exemption.124 The Supreme Court stated that to find patent infringement in such cases would “effectively extend the life span of a patent, a benefit that cannot be said to be intended by the Patent Act”.125 Therefore, generic manufacturers may be able to rely on the experimental use provision to allow springboarding.126 Germany In Germany, similar to Japan, springboarding may be considered to fall under the experimental use exemption. The German Federal Supreme Court in 1998 widened the experimental use exemption to include clinical trials conducted for marketing approval.127

UK The UK also has an experimental use exemption in its Patent Act. However, when the courts considered the issue of testing for marketing approval prior to patent expiry it was found that such testing did not fall within the experimental use exemption.128 This case did not consider pharmaceuticals, but has been interpreted broadly, such that springboarding in the pharmaceuticals industry is not allowed in the UK.129 The differences that have emerged in Europe on the issue of springboarding have lead to moves to introduce a Bolar-type exemption into European law.130

The European Commission’s directive in relation to medicinal products includes the proposed introduction of a “Bolar provision” into the laws of the EU member states, which would eliminate the risk that bioequivalency testing of a generic drug would infringe a patent. The form of the relevant part of the directive is as follows: “Conducting the necessary tests and trials with a view to the application

122 The enactment of the Hatch-Waxman Act, among other things, overruled the Federal Circuit Court decision in Roche Products v Bolar Pharmaceutical, 773 F2d 858 (1984), and introduced what has become known as the Bolar exemption. 123 PhRMA, Incentives to Discover New Medicines: Pharmaceutical Patents, http://www.phrma.org124 Morrison and Foerster, June 2003 ‘Europe to Join Japan and the US – a Bolar Exemption in Europe?’ Legal Updates and News. http://www.mofo.com/news/updates/files/update1031.html 125 Japanese Supreme Court 16 April 1999, Ono Pharmaceuticals Co. Ltd v Kyoto Pharmaceutical Industries Ltd. Clinical Trials III noted in (1999) 30 IIC 448. 126 Morrison and Foerster, June 2003 ‘Europe to Join Japan and the US – a Bolar Exemption in Europe?’ Legal Updates and News. http://www.mofo.com/news/updates/files/update1031.html 127 Cooke A & Madawela, Y, December 2004 ‘Are you experiments exempt? - the varying scope of UK, European and US exemptions’ Patent World, Issue 168, pp 15-17. http://www.ipworldonline.com 128 Monsanto Co v Stauffer Chemical Co. [1985] RPC 515. 129 Ashurst Lawyers, April 2005 ‘The Bolar Clause: Bringing the European generic pharmaceuticals industry into line with the US?’ Product Liability Update. http://www.ashurst.com/doc.aspx?id_Content=1659 130 ibid.

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of [this Article] and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for those medicinal products.” Generic manufacturers will not be required to provide the results of pre-clinical tests and of clinical trials if they can demonstrate that their generic drug has been referenced (bioequivalent) to a medicinal product available for at least eight years within a member state or in the EU. However, these generic drugs cannot be placed on the market until ten years have elapsed from the initial authorisation of the referenced product.131 The UK and Germany have yet to implement this legislation; however the deadline for implementing the Directive is 30 October 2005.132

Singapore Singapore introduced a “Bolar” provision in the 2004 amendments to their Patents Act. This provision provides an exception to patent infringement for use of a patented product for the purposes of gaining regulatory approval in Singapore or another country.133

India India does not have provisions to allow for springboarding. Previously this was not necessary as India did not allow product patents, that is, claims to a chemical substance per se. Summary: Australia ranks highly regarding intellectual property regimes. The rigor of IP protection and its springboarding provisions provide an environment where generic and innovator companies can flourish.

131 European Generic Medicines Association, http://www.egagenerics.com/doc/ega_pharmarev-sum.pdf. 132 Cooke A & Madawela, Y, December 2004, ‘Are you experiments exempt? - the varying scope of UK, European and US exemptions’ Patent World, Issue 168, pp 15-17. http://www.ipworldonline.com. 133 Singapore Statutes Online, Chapter 221 Patents Act. http://statutes.agc.gov.sg.

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f) Incentives and government support schemes available to pharmaceuticals companies across specified countries Table 43: Incentives and government initiatives Score (rank) Australia India Germany Japan S’pore UK US 1.2.6 Incentives and government

initiatives 8.8 (2) 8.7 (3) 6.8 (6) 5.5 (7) 10.0 (1) 7.4 (5) 7.6 (4)

1.2.6.1 Grants 10.0 (1) 8.0 (4) 8.0 (4) 6.0 (6) 10.0 (1) 6.0 (6) 10.0 (1) 1.2.6.2 Equity investment 9.0 (2) 7.0 (3) 5.0 (5) 4.0 (6) 10.0 (1) 6.0 (4) 4.0 (6) 1.2.6.3 Tax incentives 8.0 (4) 10.0 (1) 7.0 (6) 6.0 (7) 10.0 (1) 9.0 (3) 8.0 (4)


• Scores are based on the availability of incentives and government support. Although the primary focus has been to measure incentives at the federal or central government level, some allowance has been made for the size of the programmes, and if they are only partially available (e.g. available at a state level as well).

• Singapore gains the top overall mark for providing extensive grants, equity investment and tax

incentives for investment. Australia comes second. The US, based on our research, provides few equity incentive opportunities at the federal level and thus ranks fourth. However, it is acknowledged that there is substantial additional funding available at the state and even city level in the US, but a survey of regional, state and city level incentive schemes and initiatives was beyond the scope of this study.

Australia Australia extends some important targeted incentives to the drug industry. Under its Pharmaceutical Industry Investment Programme (PIIP), which concluded on 30 June 2004, pharmaceuticals companies received notional or actual price increases in return for commitments to a broader scheme of qualitative activity and for increases in production value added and/or R&D. The PIIP aimed to compensate companies in part for the price suppression caused by the government exercising its monopsony (sole buyer) purchasing power under the PBS. The government committed up to A$300 million (about US$200 million) to the PIIP for 1999-2004. The new Pharmaceuticals Partnerships Program, known as P3, replaced the PIIP in the second half of 2004. P3 will provide A$150 million (US$110 million) over five years and will be accessible to all companies with a three-year track record of undertaking pharmaceuticals R&D activity in Australia. Participants are not required to supply medicines to the PBS. Successful applicants will receive A$0.30 for each additional dollar spent on eligible R&D in Australia, up to a maximum of A$10 million, over the five-year life of the programme. The programme is a competitive grants scheme that requires applicants to comply with a set of eligibility criteria and then compete for the available funds against a set of merit criteria. P3 will support an additional A$500 million (US$350 million) of investment in new pharmaceuticals R&D in Australia. The Commercial Ready Program, introduced in October 2004, provides support to small and medium-sized enterprises (SMEs). The scheme is designed to help firms undertaking R&D, proof-of-concept, technology diffusion and early-stage commercialisation. The scheme is a competitive grants programme requiring applicants to comply with a set of eligibility criteria and then compete for the available funds against a set of merit criteria.

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The Commercial Ready Program superseded the Biotechnology Innovation Fund, established in 2001 with A$40 million (US$30 million) to provide grants on a matching-dollar basis for investment in proof-of-concept activities, i.e. those used to demonstrate the practical value of an idea. The Commercial Ready Program combines elements of the Innovation Access Program (a venture capital programme), the Biotechnology Innovation Fund and the R&D Start program.134

Another such incentive programme is the Innovation Investment Fund (IIF), which is a venture capital programme investing in nine venture capital funds.135 The IIF, through these funds, provides assistance to companies so that they can commercialise their R&D. It assists companies that are at seed, start-up or early expansion stages of development. Further, the Australian Government has a Pre Seed Fund programme to help commercialisation of research undertaken by universities and public-sector companies. The Government expects to spend A$27.8 million from 2006 to 2010.136 The Australian Research Council (ARC) is an educational research funding body, which funds research through a competitive grants cycle. The ARC College of Experts’ recommendations on funding are forwarded to the Ministry of Education, where a further decision is made. If approved, the eligible candidates undertake research and provide annual progress reports to ARC. Grants to university researchers are also available through the National Health and Medical Research Council (NHMRC). The Research Committee of NHMRC covers health and medical research. It provides grants based on a robust peer review and provides assistance through a variety of mechanisms: individual research grants, broad research programmes, fellowships and special research units. In addition, all companies (including local and foreign drugmakers) may take a 125% tax deduction for eligible expenditure on R&D of more than A$20,000 (US$14,300). Some R&D activities undertaken overseas may be eligible. Companies that increase their expenditure on R&D relative to their performance may claim the Premium R&D Tax Concession at the higher rate of 175%.

134 http://www.ausindustry.gov.au/content/level3index.cfm?ObjectID=C97F1C38-1D68-41E4-9C302AEB7D94AA86&L2Parent=AEB901E5-7CB8-4143-A3BF33B2423F9DA6 135 http://www.ausindustry.gov.au/content/level3index.cfm?ObjectID=C872E5E3-B1E5-471E-8443AD706534D546&L2Parent=AEB901E5-7CB8-4143-A3BF33B2423F9DA6 136 http://backingaus.innovation.gov.au/2004/commercial/pre_seed.htm

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Case study: Australian state-level incentives A state-by-state analysis for every country included in the study is outside the scope of this report. However, the Economist Intelligence Unit presents below some case studies for interest identifying the availability and type of incentives at the state level in Australia. Victoria Victoria is attempting to position itself as a leader in biotechnology, with a particular emphasis on medical applications of biotechnology. Since May 2000 the state government has committed approximately A$900 million to innovation initiatives. The main grants programme offered by the Victorian Government is the Science, Technology and Innovation Infrastructure programme.137

Queensland Queensland has a ten-year Bio-industries Strategy and the government supports pharmaceutical companies through a range of development programmes, including the BioStart programme worth approximately A$6 million, the Smart State Fellowships programme and the Smart State Research Facilities Fund. NSW In August 2001, the BioFirst Strategy was launched. This is a A$69 million fund spread over five years. The NSW BioBusiness Program was a part of this scheme that provided a range of support for biotechnology businesses. Included in this scheme was A$18 million in research grants for 15 expatriate Australians in an attempt to lure them back to Australia. South Australia Bio Innovation SA is a public corporation incorporated by the South Australian Government in 2001 to enable the creation of 50 new bioscience companies in the state by 2010. Matching funding is given to successful applicants up to A$250,000.138

Others General business schemes in each state are outlined elsewhere (DITR, 2003).139

Germany The German government is not particularly generous in its targeted incentives for pharmaceuticals companies. The Federal Ministry of Education and Research (BMBF) co-ordinates a wide range of grants and subsidies for professional qualification and for research projects, sometimes together with the Federal Ministry of Economics and Labour (BMWA). Emphasis is put on research in biotechnology and information technology as well as medicine. In some cases, management and assessment of grants is delegated to public- and private-sector research associations and institutes, such as Forschungszentrum Jülich or Fraunhofer-Gesellschaft.

137 http://www.innovation.vic.gov.au/programs 138 http://www.bioinnovationsa.com.au/ 139 DITR, Commonwealth and State Government Programs Supporting Innovation in Firms, Commonwealth of Australia, Canberra, 2003. http://www.industry.gov.au/assets/documents/itrinternet/innovation_FirmPrograms.pdf

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There are two key sources of grant funding available for pharmaceutical-related R&D in Germany: the Sixth Framework Programme and National R&D Funding. The EU has established the Sixth Framework Programme to provide R&D funding for international consortia. Its objective is to increase the competitiveness of the European Research Area and facilitate knowledge-transfer/knowledge-sharing within Europe as a whole. In general, a maximum of 50% of the total eligible costs for R&D projects can be recovered or funded and 100% of the direct costs of project management and training activities. Eligible costs normally include personnel costs and project-related equipment costs. Funding is subject to the formation of integrated projects or networks of excellence. Partnering plays an integral part in the Sixth Framework Programme, since all projects require several European partners from different countries, although partners may also include associated or third countries such as Israel or the US. The BMBF and the BMWA are normally responsible for federation-wide programmes, such as National R&D Funding. They aim to support projects in the national interest and those with high technical and economic risk, as well as to further develop state-of-the-art modern technology in Germany. Generally, the closer the products or processes are to reaching the market, the lower the funding level. Detailed cost refunding structures are evaluated under each programme. In most cases, these programmes offer non-refundable grants for research products or projects. Private companies can usually obtain up to a maximum of 50% of the eligible costs for research projects and up to 30-35% for projects that are depreciated over the project period. India The Indian government extends various tax incentives to drugmakers. A ten-year tax holiday is granted to foreign and domestic companies engaged exclusively in scientific R&D with commercial applications. In the pharmaceuticals industry, the weighted deduction for R&D expenses by knowledge-based companies was raised to 150% (from 125%) in the 2000-01 (April-March) budget and then extended to biotechnology, clinical trials, filing patents and obtaining regulatory approvals. Moreover, knowledge-based industries (biotechnology and pharmaceuticals) are allowed to import duty-free R&D equipment up to 25% of free on board value (fob) of exports in the preceding year. R&D-based measures in the Union Budget 2003-04 for the pharmaceuticals sector included the following. • Duties on reference drugs down to 5% from 25%. This will result in lower prices of life-saving

drugs, benefiting local pharmaceuticals companies with strong R&D bases, including some multinational corporation (MNC) subsidiaries.

• Drugs and materials for clinical trials will have no duties. Although this will have only a marginal impact initially, it will provide long-term benefits.

A Pharmaceutical R&D Support Fund (PRDSF) is to be established. The fund will be administered by the Drug Development Promotion Board (DDPB), under the control of the Department of Science and Technology. The composition and structure of the DDPB are yet to be decided, although it will apparently be along the lines of the Technology Development Board, which is roughly equivalent to a government venture capital fund for individual or small enterprises. The 2004-05 budget specified that companies carrying out scientific R&D and approved by the Department of Scientific and Industrial Research (DSIR) before 1 April 2004 would be entitled to a 100% deduction in profits for ten years. A part of the planned allocation of Rs 1,000 crore (US$222 million) for R&D in agriculture (up from Rs775 crore (US$172 million) in 2003-04) would be diverted into biotech R&D. The DSIR will get Rs650 crore (US$144 million), up from last year’s

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Rs520 crore (US$115 million). Programmes in the pharmaceuticals segment receiving budgetary support include molecular biology of selected pathogens for developing drug targets, exploration and exploitation of microbial wealth of India for novel compounds and biotransformation process, asthmatic and allergic disorders mitigation mission and newer scientific herbal preparation for global positioning. Despite contacting numerous sources, detailed information on R&D incentives in India was relatively scarce.140 Japan Japan offers high-technology firms (including drug companies) special depreciation allowances and tax incentives. R&D expenses (including the cost of assets used for R&D) and the purchase cost of specific equipment are eligible for tax credits. Firms may also take a corporation tax credit—generally 7%—of the acquisition cost of certain qualifying machinery and equipment. The maximum credit is limited to 20% of the corporation tax. As an additional tax incentive for research, the amount of R&D spending that can be deducted from taxable income has been increased. Previously, companies could deduct 15% of the increase in their R&D spending from the previous year. Starting in fiscal 2003, 12% of overall R&D spending has been deductible. This tax incentive applies to all industries, but it will bring particularly large benefits to the biotechnology industry, where the ratio of R&D spending to sales is higher than in other industries. The step is estimated to translate into up to ¥100 billion in tax cuts for the entire biotech sector. Information on R&D-based incentives in Japan was also difficult to obtain. 141

Singapore To encourage inward investment in the industry, the government has developed lucrative tax breaks, grants and strong administrative support. The government also launched the Asia-Pacific Economic Co-operation (APEC) Co-ordinating Centre for Good Clinical Practice in April 1996, which was given the task of constructing a common framework for assessing medicines sold throughout South-east Asia. To encourage the life sciences industry, the government committed S$1 billion (US$580 million or A$830 million) in November 2000 for the Life Sciences Investment Fund to encourage strategic co-investments and joint ventures to promote spin-off activities, facilitate technology transfer, strengthen industrial capabilities and commercialise new technologies developed in Singapore. The Economic Development Board (EDB) also set aside S$25 million from the Life Sciences Investment Fund for a new initiative called the Life Sciences Start-Up Competition in November 2000. This aims to generate new ideas and business proposals in four areas of the life sciences: pharmaceuticals, biotechnology, medical devices and healthcare services. These programmes are run in conjunction with the government’s S$7 billion contribution to the sector under the National Science and Technology 2005 plan, announced in October 2000. Grants are provided through Singapore’s Research Incentive Scheme for Companies (RISC), which is administered by Singapore’s EDB. The grants are available to all Singapore-registered companies and have no repayment or profit/intellectual property-sharing requirement. The grant is disbursed to the company on a reimbursement basis and the first disbursement may be made after acceptance of offer.

140 The prime sources were India-based UK trade representatives: Mamtha Sharma, senior trade and investment adviser, British Trade Office, Bangalore; and Anjali Mirchandani, senior trade and investment adviser—Pharmaceuticals, UK Trade and Investment, Mumbai. In addition, other organisations contacted included: the Indian Pharmaceutical Alliance; the Indian Drug Manufacturers Association; Department of Industry Policy and Promotion, Ministry of Commerce and Industry (http://www.dipp.nic.in); Income Tax Department of India (http://incometaxindia.gov.in); and the Ministry of Finance (http://finmin.nic.in). 141 The primary sources were: Yoshinori Ito, director, Health and Welfare Department, JETRO London; and Japan’s Ministry of Health, Labour and Welfare.

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Claims may be made on a quarterly basis, with the final claim made within six months of completion of the project. Levels of support are as follows:

• 50% support for manpower costs (salary, economy airfare, cost of living allowance, training costs);

• 30% support for equipment and materials; • 30% support for professional services; • 30% support for intellectual property rights (licensing/royalties, technology acquisition).

Equity investment: Bio*One Capital, a subsidiary of Singapore EDB Investments Pte Ltd, manages four dedicated biomedical sciences funds totalling over US$700 million (A$1bn): Biomedical Sciences Investment Fund (BMSIF); PharmBio Growth Fund; Life Sciences Investment Funds; and Singapore Bio-Innovations Fund. Bio*One Capital works closely with the Singapore EDB Biomedical Sciences Group to introduce companies to potential collaborators in the private and public sectors for R&D, clinical trials, manufacturing, product distribution and joint ventures. It also assists companies in setting up operations in Singapore. Bio*One also administers the Biomedical Sciences Innovate ‘N’ Create Scheme (BMS INC) that is set up to support local biomedical start-ups. To date, Bio*One Capital has in its portfolio over 80 investee companies globally. Bio*One Capital focuses on strategic investments that make key scientific and economic contributions to Singapore’s biomedical sciences industry, with the goal of generating highly skilled jobs as well as transferring technology and expertise to Singapore. Direct equity investments are made in promising start-up companies in Singapore, private companies worldwide or with established players to set up Singapore-based joint ventures. Singapore also offers more generalised incentives, not just to the pharmaceuticals sector. These include the following. • The Pioneer Incentive, which awards full corporate tax exemption on qualifying profits for a set

period. The incentive is awarded to projects that are very strategic and result in the creation of desirable industries in Singapore. The incentive may be awarded for both manufacturing and services.

• The Development and Expansion Incentive that provides preferentially lower corporate tax rates

for a set period on all qualifying profits above a predetermined base. Aimed at encouraging companies to move into higher value-added activities in Singapore, this incentive is only awarded to projects that generate significant economic spin-offs to Singapore.

• The Investment Allowance is an allowance on qualifying equipment costs incurred within a set

period. The scheme aims to encourage investment in equipment, to achieve greater productivity and to upgrade the technology of the industry. The allowance is extended to investment that should result in greater efficiency in resource utilisation or introduce new technology into existing industry.

• The R&D and Intellectual Property Management Hub Scheme encourages companies to channel

more funds (that is, via foreign-sourced royalties and foreign-sourced interest) into R&D activities.

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• The Enhanced Tax Deduction for R&D Expenses enables companies to claim for tax deduction on expenses on R&D outsourced to any R&D organisation, local or overseas. This helps companies find the best R&D capabilities available, and encourages them to control and fund their R&D activities from Singapore.

• A Single Tax Deduction for patenting costs is extended to Singapore-based companies and

businesses. This is to encourage more companies and businesses to patent their inventions and make Singapore an attractive base for intellectual property management.

UK The UK does not offer many targeted incentives to pharmaceuticals companies, but it does give tax benefits for R&D expenditures in general. The government began extending an R&D tax credit for large companies from April 1st 2002. It takes the form of a deduction, at a rate of 25% of R&D expenditure from a company’s taxable income, in addition to the existing 100% deduction for current R&D expenditure. The tax credit is of particular benefit to the British pharmaceuticals industry. For SMEs the value of the deduction is 150%. Loss-making SMEs can also claim repayment of the credit at 24%. Moreover, R&D expenditure on specified vaccines and medicines made from April 22nd 2003 attracts another 50% deduction from taxable income. This credit applies to companies of all sizes. The British government has sharply scaled back industry-specific incentives in recent years. Under LINK (an agency of the Department of Trade and Industry), the government pays up to one-half of the eligible costs of a project. Eligible research must involve collaboration between a company and a research-technology organisation, such as a university or an industry-sponsored research association. LINK now comprises about 30 programmes under five main categories. The only open programmes in life sciences are currently in “health technology devices” and “bioremediation”. Selective Finance for Investment (SFI) is available for companies looking at investing in an “assisted area” but needing financial help to go ahead. Assistance is also available to SMEs investing in Tier 3 areas. Delivery of the scheme in England is primarily through the relevant local Regional Development Agency. It is intended that the majority of support should be focused on high-quality, innovative, knowledge-based projects that provide skilled jobs. Apart from a small proportion of cases that have significant employment benefits, the emphasis is on raising productivity and improvement in the skills base. SFI is discretionary and normally takes the form of a grant or occasionally a loan and in each case the amount and terms of assistance will be negotiated as the minimum necessary for the proposed project to go ahead. Assistance can be provided to: • establish a new business; • expand/modernise/rationalise an existing business; • set up R&D facilities; • enable businesses to take the next step from development to production.

Under the scheme, there will be a minimum threshold for grant applications of £10,000 (US$18,000, or A$26,000). The grant maximum in Tier 3 areas is being increased from £75,000 to £100,000. Applications of less than £100,000, in both the Assisted Areas and Tier 3, will not require job creation or safeguarding to be eligible for support.

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The government has increased access to risk capital through a number of funds directed towards SMEs. They include funds with a specially high-tech focus such as the £100 million (US$180 million, or A$260 million) UK High Technology Fund launched in 2000, with the government, the European Investment Bank and private pension funds co-investing in technology venture capital funds. US The US government does not offer targeted incentives to pharmaceuticals firms, although it does finance extensive research in federal laboratories and at universities. Many innovations made in these settings find their way into marketable products. A federal income tax credit is available (including for drug companies) for “qualified research expenses”, which Congress has regularly extended on an ad hoc basis. The credit is generally limited to 20% of the excess of the current year’s research expenditures over the average of such spending during the four immediately preceding taxable years. Unused credits may be carried back three years and forward 15 years. However, the base amount of this credit may not exceed 50% of a company’s qualified R&D expenditures.

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Case study: US state-level incentives A state by state analysis for every country included in the study is outside the scope of this report. However, the Economist Intelligence Unit presents below some case studies for interest identifying the availability and type of incentives at the state level in the US. North-east142

Massachusetts: The Massachusetts Department of Economic Development offers several financial incentives, including an Emerging Technology Fund,143 which provides loans and guarantees for specialised buildouts and equipment needs; an R&D tax credit; tax credit for investing in new plant and equipment; an R&D sales tax exemption; and an exemption from local property taxes for R&D and manufacturing firms. Connecticut: CURE (Connecticut United for Research Excellence) was commissioned by the state as the centre of the bioscience cluster.144 Connecticut Innovations Inc. is a quasi-state organisation that invests in bioscience start-up companies and manages the BioFacilities fund. Additional financial incentives include a US$60 million BioFacilities fund to outfit laboratories, 6% tax credit for R&D, 20% incremental increase to R&D tax credit, Net Operating Loss carryover for 20 years, property tax abatement in designated enterprise zones, sales tax relief on bioscience materials and equipment, and guarantee on machinery and equipment loans for early start-up companies through local banks. New York: Since 1995, the state has invested more than US$1 billion in high-tech and biotech, as well as research labs and academic centres. The 2003-04 budget proposed by the governor included a state tax incentive to leverage up to US$250 million in new venture capital investments for small and emerging businesses connected to the governor’s Centers of Excellence programme and other state-supported research facilities. New York has a US$4.65 million Technology Transfer Incentive Program, designed to help business make a rapid transfer of ideas and technology from the lab to the marketplace. New Jersey: The New Jersey Economic Development Authority (NJEDA) offers several financial programmes to assist biotech companies. The Technology Business Tax Certificate Program enables high-tech companies in the state to turn net operating losses and R&D tax credit carryovers into cash for their businesses. Qualified companies can tap into US$40 million annually to use for working capital, buy equipment or facilities, or cover other expenses. The programme is aimed at biotechs and other expanding businesses with 225 or fewer employees that have at least 75% of their workforce based in the state. Pennsylvania: The state government began investing US$1.6 billion in life science and biomedical research in 2004. This is being distributed to Pennsylvania-based research institutions (approximately US$64 million per annum for 25 years), including US$100 million in fiscal 2002 for the initiation of three life science greenhouses; US$60 million for venture capital funding to support commercialisation of demonstrated new life science business opportunities; and US$140 million in projected leveraged funds for the venture capital fund. The state awarded Customised Job Training Grants totalling US$1.7 million to four bio/pharma companies, and provided net operating loss tax credits of US$7 million and job creation tax credits of US$3.9 million to bio/pharma companies between 2002 and 2003.

142 http://www.bio-itworld.com/archive/061503/insights_northeast.html 143 http://www.massdevelopment.com/financing/lg_technology.aspx 144 http://www.curenet.org/

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Mid-Atlantic and South-east145

Maryland: Maryland invests directly in technology through two state-run venture funds, the Challenge Investment Program and the Enterprise Investment Fund. The state government also provides technical assistance, workforce training, and trade and export resources. Workforce development programmes offer matching grants to increase workers’ skills and improve productivity. North Carolina: The highest concentration of R&D resources for biotech is in the Research Triangle Park area, which features the Research Triangle Institute (a non-profit contract research organisation sponsored by Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University). The Commerce Finance Center, part of the North Carolina Department of Commerce, co-ordinates financial incentives that apply to biotech and other industries. These include the governor’s industrial recruitment fund and tax credits for job creation. The recruitment fund helps companies that are creating jobs and investing in new machinery and equipment. Grants range from US$50,000 to US$1 million. The Biotechnology Center has invested more than US$20 million to stimulate the formation and growth of new biotech companies. This includes US$12 million invested in 12 North Carolina venture capital funds that finance young biotechnology companies, and US$8 million in loans to 62 start-up companies for R&D on new products. Mid-west146

Ohio: The state’s Third Frontier initiative is a ten-year, US$1.6 billion investment aimed to bring high-paying, high-tech jobs to Ohio. It includes US$350 million for the Biomedical Research and Technology Transfer Fund, and planned to distribute US$25.5 million during 2003 and 2004. Ohio’s Technology Action Fund targets technology commercialisation and early-stage capital. For 2003, the state legislature allocated US$14.1 million for the Technology Action Fund to support efforts furthering the commercialisation of near-term technology. Michigan: Michigan Life Sciences Corridor Fund supports life science research and commercialisation through annual contributions of US$50 million over 20 years. The fund led to the start-up of 50 new life science companies over the past two years by donating US$145 million to Michigan life science industries. The Life Sciences Corridor distributed another US$32.5 million in late May 2004. The Corridor Fund also helped launch four venture capital funds offering US$65 million in seed capital investments to Michigan life science companies. The state’s 11 “SmartZones”, a network of high-tech clusters, are centres of technology transfer, attracting 21 companies and more than US$100 million in investments. They offer lab space, six incubators with free business space for start-up operations, and “accelerators” that assist start-ups in locating funds and commercialisation. Michigan’s Economic Growth Authority (MEGA) offers the High-Tech MEGA Credit to businesses involved with biotechnology, laboratory testing related to product development, medical device technology, and product research. The credit allows companies to receive a single business tax (SBT) credit for the incremental SBT liability attributable to expansion or location in Michigan and a refundable credit equal to the personal income tax attributable to

145 http://www.bio-itworld.com/archive/061503/insights_midatlantic.html 146 http://www.bio-itworld.com/archive/061503/insights_midwest.html 147 http://www.bio-itworld.com/archive/061503/insights_southwest.html 148 http://www.bio-itworld.com/archive/061503/insights_northwest.html 149 http://www.bio-itworld.com/archive/061503/insights_southwest.html

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new jobs being created at the site of the expansion or new location. These credits can be awarded for up to 20 years and for up to 100% of the taxes related to the project. Indiana: Indiana offers several financial incentives for life sciences. Energize Indiana is the state’s ten-year, US$1.25 billion plan to create 200,000 high-wage, high-skill jobs in the life sciences and other high-tech fields. Energize Indiana’s Indiana Venture Fund is a ten-year, US$144 million investment that allows companies to leverage state money to help start-ups get off the ground. Developments for a Growing Economy (EDGE) tax credits are based on the added payroll for new Indiana jobs created as a result of a project. Lilly BioVentures, a US$75 million venture capital fund, targets the newest research technologies and identifies those likely to make a difference within ten years in the development of breakthrough compounds. Purdue University’s Task Venture Fund provides one-time, pre-seed capital of up to US$250,000 for faculty members launching companies. Missouri: Special services for biotechnologies are growing rapidly in Missouri. In addition to the Nidus Center and the Center for Emerging Technologies, the state is finalising a Commercialisation Center. Funded through the Danforth and McDonnell foundations and the Monsanto Fund, the Commercialisation Center will operate through a collaboration of all area universities and Missouri’s two incubators to hatch a continuous stream of new companies. These companies may find support through Prolog Ventures, RiverVest Venture Partners, Oakwood Medical Investors, and Ascension Health Ventures, which have helped raise more than US$284 milllion over the past three years for medical and biotech investments. Many life science companies in Missouri take advantage of the Equipment Tax Credit for firms locating to distressed communities. The 40% tax credit capped at US$75,000 for three years is not based on the size of the company, but rather dedicated to building in areas that could benefit from economic stimulation. To help build the life science workforce, Missouri reimburses students who work in biotechnology for the first two years of their higher education. South-west147

Colorado: Among its financial incentives, Colorado offers biotechs an R&D tax refund for state sales and use taxes—essentially a refund for the sale, storage, and use of tangible property used in biotech research. Employee training grants are also available for new biotech companies that move to the region, including about US$400 per employee in grants administered through Colorado’s community college system. Further, the state of Colorado lets each local community negotiate tax breaks with individual firms. Certain regions are called Enterprise Zones, which offer numerous tax credits for locating in economically lagging areas of the state. As for formal technology transfer programmes, a university-funded organisation, the Colorado Alliance for Bioengineering, co-ordinates biotech activities among faculty in all universities throughout the state. Utah: The University of Utah has a technology transfer programme with Utah State University that has created far-reaching technology transfer and licensing agreements related to plant and animal genetics. Utah offers a 6% R&D tax credit that allows biotech firms to deduct qualifying research-related expenses, including payroll, buildings, and even corporate income taxes in Utah. There is also an Industrial Assistance Fund for new job creation in the biotech sector. Companies may apply to the fund and collect from US$1,000 to US$3,000 for each new job created. As usual with most states, the money is doled out case by case. When biotech companies build new facilities in Utah there are local tax inducements offering as much as 85% off new property taxes for up to 15 years. The tax credit does not apply to firms moving into existing buildings, however.

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Texas: Among the various start-up incubation and technology transfer resources in Texas are the TEKSA Innovations Corp, a for-profit “business integrator” focused on developing biotech companies; and the Texas Technology Transfer Association (T3A), a non-profit organisation created to facilitate the commercialisation of new technologies. Financial incentives made available to biotechnology companies in Texas include a tax credit of 5% of research-related expenses, and a tax credit of 25% of wages paid for new jobs created in R&D, among other areas. The Texas Department of Economic Development offers a Capital Access Fund to help finance companies with fewer than 500 employees, so long as 51% of those workers reside in Texas. North-west148

Washington: The state offers an annual business and occupation tax credit of up to US$2 million for companies conducting R&D in computing and biotech electrical devices. A job-creation tax credit is available for every qualified position in the state, up to US$4,000 for each qualified position with more than US$40,000 in salary. The credit is US$2,000 for positions with salaries under US$40,000. The state is also funding a new biotech-planning organisation, via a public/private partnership, which would include US$250,000 in state funding. Established support programmes include a US$1 million annual award from the Washington Technology Center to Washington State University professors who team with companies for help on development or marketing of tech-related products. So far, the programme has provided US$4 million to 50 company partnerships in biotech and biomedical devices. West Coast149

California: The state of California offers a 15% R&D tax credit for qualifying in-house research, along with a 24% R&D tax credit for R&D conducted outside a company, but within the state. This research incentive is usually awarded for work with universities. In addition, there is no cap on R&D spending. The California Technology Investment Partnership (CALTIP) provides matching funds grants of up to US$250,000 for biotech firms that win federal funding or grants for research, while the University of California’s US$20 million Discovery Grant fund provides grants to match investments made by biotech firms working with university researchers. Northern California, also known as the Bay Area, has a high cost of living, however—some say the highest in the US. To mitigate this, the state offers a wide range of tax credits and other financial incentives to lure relocations, expansions, and start-ups. A 6% investment tax credit is permitted for equipment purchases, with this credit awarded for up to nine years, while a 6% manufacturing investment credit is also available for up to ten years. The latter credit includes equipment used and buildings constructed.

Summary: Australia is ranked second on this measure, below Singapore and ahead of India. It has targeted tax incentives, but the government remains wary of offering the sort of grants or equity investment on offer in Singapore.

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g) Clinical trials Table 44: Results from the benchmarking model—Clinical trials Score (rank) Australia India Germany Japan S’pore UK US 1.2.7 Clinical trials (CTs) 7.9 (1) 6.0 (5) 5.9 (6) 5.8 (7) 7.6 (3) 7.5 (4) 7.8 (2) 1.2.7.1 Total number of clinical trials (CTs)

per 100,000 inhabitants 7.0 (4) 4.0 (7) 6.0 (5) 5.0 (6) 8.0 (3) 9.0 (2) 10.0 (1)

1.2.7.2 No. of Phase I CTs per 100,000 inhabitants

6.0 (5) 4.0 (7) 7.0 (4) 5.0 (6) 8.0 (3) 9.0 (2) 10.0 (1)

1.2.7.3 No. of Phase II CTs per 100,000 inhabitants

8.0 (3) 4.0 (7) 7.0 (4) 5.0 (6) 6.0 (5) 9.0 (2) 10.0 (1)

1.2.7.4 No. of Phase III CTs per 100,000 inhabitants

8.0 (3) 4.0 (7) 6.0 (5) 5.0 (6) 9.0 (2) 10.0 (1) 7.0 (4)

1.2.7.5 No. of other CTs per 100,000 inhabitants

7.0 (4) 4.0 (7) 6.0 (5) 5.0 (6) 10.0 (1) 9.0 (2) 8.0 (3)

1.2.7.6 Total average cost of CTs per patient 9.0 (2) 10.0 (1) 7.0 (4) 4.0 (7) 8.0 (3) 6.0 (5) 5.0 (6) 1.2.7.7 No. of patients in CTs per 100,000

inhabitants 8.0 (3) 4.0 (7) 5.0 (6) 6.0 (5) 7.0 (4) 9.0 (2) 10.0 (1)

1.2.7.8 No. of sites for CTs per 100,000 inhabitants

10.0 (1) 4.0 (7) 6.0 (5) 7.0 (4) 5.0 (6) 8.0 (3) 9.0 (2)

1.2.7.9 Time for ethics to approve CTs 4.0 (6) 4.0 (6) 6.0 (4) 8.0 (2) 8.0 (2) 6.0 (4) 10.0 (1) 1.2.7.10 Percentage of CTs completed within

allocated time 9.0 (2) 10.0 (1) 5.0 (5) 5.0 (5) 9.0 (2) 7.0 (4) 4.0 (7)

The higher the individual country’s score for an individual indicator the better - the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same

• Australia is ranked first overall (as a weighted aggregate) for clinical trials. Its overall score is boosted by low average costs of clinical trials, a relatively large amount of recognised trial sites and a high percentage of clinical trials completed within the allocated time. Australia does less well on the total amount of clinical trials taking place even on a per capita basis.

• The US also ranks highly largely as a result of the total number of clinical trials taking place relative to the other countries in the study (the US has a significantly higher amount of clinical trials even when assessed against the size of its population). Singapore scores well on costs, but is let down by a relatively small number of sites for clinical trials.

• The number of trials in India is small, and India’s apparent advantages in costs are offset by

factors such as longer times for ethical approval of clinical trials. Japan is lowest ranked overall, let down by poor scores for costs and existing patient numbers. The percentage of clinical trials completed within the allocated time is also low.

Background This section is based on research undertaken by Thomson CenterWatch on behalf of the Economist Intelligence Unit. Data concerning the conduct of clinical trials are poorly documented, especially on a country-specific basis. Data are typically unavailable for numbers, costs, timeliness and design specifics of trials. Due to differing international standards and definitions, fragmented site/sponsor relationships and the proprietary nature of much of these data, no centralised information resource exists to which the industry can turn, despite its obvious value. This report is based on a global analysis of the clinical trials industry and benchmarks seven countries using both primary and secondary data. The methodology and detailed analysis for this study is dealt

.

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with in Appendices 14-16. The appendices also include further discussion of the problems of estimating average clinical trials costs per phase, and on some apparent outliers in the numerical data below. DITR sought information on time to patient enrolment as part of the benchmarking analysis. However, this data was not readily available for countries other than the US and hence was not included. However, the timeliness of patient enrolment is one factor in determining the percentage of clinical trials that are completed within the allocated time. Data on the availability of scientists and research managers in the area of clinical trials was also not available.

Table 45: Survey results and conclusions—data and estimates based on time period 1 January 2003 – 1 January 2004*

Australia India Germany Japan S’pore UK US

1.2.7.1 Total clinical trials (CTs) 622 200 1,300 550 195 6,174 39,731

1.2.7.2 No. of Phase I CTs 63 10 312 103 21 2,877 19,969

1.2.7.3 No. of Phase II CTs 140 50 520 162 19 1,630 13,803

1.2.7.4 No. of Phase III CTs 369 120 400 249 91 1,314 4,959

1.2.7.5 Other** 50 20 68 36 64 353 1,000

1.2.7.6 Average total cost of CTs per patient

US$3,984 US$2,500 US$5,000 US$18,000 US$4,400 US$6,000 US$6,716

1.2.7.7 No. of patients in CTs 20,000 5,500 6,000 104,370 3,745 689,687 3,681,731

1.2.7.8 No. of sites for CTs 2,135 500 600 3,250 11 3,500 25,000

1.2.7.9 Average time for ethics to approve CTs in weeks

11-16 12-15 5-10 4-6 4-6 6-9 1-4

1.2.7.10 Percentage of CTs completed within allocated time

80% 85% 30% 30% 80% 65% 10%

*Unless otherwise noted in methodology. **Other includes phase IV, medical devices, non-medicinal, and bioequivalence (generic) studies.

Table 46: Country estimates of clinical costs per patient per phase 2003 Estimates of clinical costs, 2003 (Costs per patient per phase, US$) Av cost per patient Phase I Phase II Phase III Phase IV (Index) 123.5 102.5 95.5 75.5 Australia 3,984 4,922 4,085 3,806 3,009 India 2,500 3,088 2,563 2,388 1,888 Germany 5,000 6,177 5,127 4,777 3,777 Singapore 4,400 5,436 4,512 4,204 3,324 UK 6,000 7,412 6,152 5,732 4,532 Japan 18,000 22,237 18,457 17,197 13,597 US 6,716 8,297 6,887 6,416 5,073

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CenterWatch collected all available data points from both primary and secondary research methods including the use of surveys. An analysis was performed to determine consensus estimates on all metrics. Wherever possible, published data (i.e. government agency records, published academic metrics) were used. Results are based on analyses of surveys, combined with an estimated figure from additional clinical trial players. Thomson CenterWatch were not able to collect data on the cost of clinical trials at the per patient per phase level as most of the respondents to the survey considered these data to be market and commercially sensitive. CenterWatch has made an estimate of the costs per patient per phase for each country based on available data, including FastTrack Systems “Index of Mean Trial Cost per patient in clinical trials by clinical phase 1997-2003” and an analysis of 342 clinical trials.150 The resulting estimates maintain the original proportion of estimated cost differences, and cannot account for phase-specific regional advantages. For example, if country X had significant relative advantage in phase I studies, due to, for instance, a highly willing healthy subject population and an advantageous regulatory process, this benefit would not be reflected in our estimate. A more detailed explanation of the methodology used for these estimates is at Appendices 14-16. Australia The conduct of clinical trials in Australia follows one of two regulatory pathways—the CTX or the CTN pathway. Australia and the UK have similar regulatory systems for clinical trials. Although the country contains many large, global CROs, they perform only an estimated 35% of the nation’s trials. The remaining portions are conducted by sponsors themselves or academic medical centres. For a list of organisations that conduct clinical trials refer to Appendix 3. Australia has advantages with clinical trial costs and percentage of clinical trials completed within designated time. Australia also ranks highly on the number of recognised clinical trial sites. As previously noted Australia does less well on the relative number of clinical trials actually taking place. Recent data from the Therapeutic Goods Administration (TGA) have indicated that the number of clinical trials has increased in recent months.151

India India’s clinical trials regulation is complex and not well documented. Phase I trials in India are scarce, due to laws which prohibit the conduct of such trials unless they have already completed trials elsewhere. Few sponsors wish to repeat these trials unless some new key piece of clinical data would be learned, a situation not commonly associated with early, short-term safety studies. India has a large cost advantage compared with markets in developed nations, as illustrated in Table 45. A study performed by Rabo Finance India produced figures stating a 50-60% cost saving on trials performed in India as compared with the West.152 India’s primary constraint is the time it takes to get a clinical trial approved by both ethics and regulatory agencies. Some industry sources put approval time at as long as 24 months (Appendix 14). This specific disadvantage in India’s outsourcing attractiveness provides some insight into the country’s low number of studies performed by global sponsors. Domestic pharmaceuticals development relies heavily on the copying of generic drugs from developed Western countries, a process that is less research intensive than new drug development. This serves to further reduce trial numbers relative to other markets. When necessary India is able to recruit a large number of patients to clinical trials (although for this study the actual number of patients involved in clinical trials was second lowest). For example, the

150 Operating costs are incorporated in the average costs in Tables 45 and 46. For more details on costs refer to Appendix 7. 151 Pharma-in-Focus, Australia CT growth kicks up, Lush Media, 13-19 June 2005. 152 http://in.rediff.com/money/2004/dec/22spec.htm

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German manufacturer Mucos Pharma approached SIRO Clinpharm (one of India’s first contract research organisations) to find 750 patients to test a drug for head and neck cancer. Within 18 months the company had recruited enough volunteers across five hospitals. In Europe, it took double the time across 22 hospitals to find just 100 volunteers.153 Another strength of India’s clinical trials industry is the percentage of trials that are completed within the allocated time. More importantly, India has a population of around 1 billion people with a large pool of potential patients for many diseases including cancer and diabetes. In the global survey 84% of respondents surveyed cited access to markets through clinical trials of being of critical importance through to moderate. In addition, 44% of respondents surveyed said population factors such as pharmagenomic differences are of critical to great importance. Given India’s numerous and diverse population this is an important natural advantage over other countries included in the study.154 Germany Germany’s clinical trials market is, by and large, composed of the country’s own national drug development industry. According to a leading CRO based in Frankfurt, the few clinical trials in Germany are conducted to provide notable medical “opinion leaders” with clinical experience. Most of Germany’s investigative drug trials recruit patients from Poland and the Ukraine. Medical doctors in Germany are among the highest paid in Europe due to the insurance/government healthcare system. Global survey results indicated that the cost of appropriately skilled labour is important but not crucial. Germany has a relatively low cost per patient estimate compared with other developed nations in the study. The country’s policies on socialised healthcare contributed to a large percentage of this figure by bearing some of the patient treatment costs associated with clinical trials. Results indicate that clinical trials in Germany have only a 30% chance of being completed within the allocated time. Despite having a population one-third larger than the UK the total number of clinical trials are substantially lower, with a low average number of patients enrolled in trials. Singapore The clinical trials market in Singapore is aided by a well developed clinical trials infrastructure, strict adherence to international standards, considerable investment by multinational trials sponsors and providers, and a well educated, English-speaking population. Ongoing international procedure harmonisation and industry development should continue to drive growth, though Singapore’s clinical trials industry does face specific and important hurdles. The potential patient population, while well educated and generally willing, is small, and growing slowly. It must be noted that the data for 2003 are not entirely representative of normal market conditions in the country, as the country was impacted by the SARS outbreak. Overall market size was reduced by almost 25% from 2002, according to feedback given to Thomson CenterWatch during the survey, and interviews indicated that companies faced significant challenges with enrolment and retention rates. Although less expensive than the US and Europe, Singapore faces significant regional cost competition from Australia, India and China. Singapore’s market, despite recent growth and the effects of SARS, is still relatively small as illustrated in Table 45, however, 80% finish within the allocated time. In addition, the number of sites for clinical trials is very low (see Table 44) and global survey results indicate that logistical factors are important when making investment decisions. UK The clinical trials market in the UK is well established, but lacks the same strong sponsor presence found in the US that would conduct in-house trials. Technomark, a consulting services company for the pharmaceuticals industry, lists 213 contract research providers with offices in the UK, compared with 294 in the US, despite the fact that the US conducts more than six times as many trials (as results 153 http://www.sciam.com/article.cfm?articleID=00033282-DBF5-10F9-975883414B7F0000 154 http://www.oxfordancestors.com/papers/mtDNA03%20PopulationsIndia.pdf

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demonstrate in Appendices 14-16).155 This significant CRO presence is indicative of a well-established contract research market.

Harmonisation with international standards has limited the UK’s historical advantage in early stage trials in recent years, with the implementation of the ethics committee review of healthy volunteer studies. With the loss of this advantage, the UK has faced mounting pressure to reduce costs (the highest in Europe) and improve efficiency. The government-sponsored Bioscience Innovation and Growth Team, in their “Bioscience 2015” report, has suggested the establishment of a National Clinical Trials Agency to help “build a mutually advantageous collaboration between the NHS and industry for patient benefit”. Such an agency would be charged with facilitating the conduct of trials by establishing a central registry for sites, development projects, and sponsors, in the hopes of pairing these interests more efficiently. Survey results indicate that the UK conducts a substantial amount of clinical trials, and, considering this large number, the 65% that finish within the allocated time indicates a strong result (refer to Appendices 14–16). The UK’s overall score is let down by the low result for total average cost of clinical trials per patient and the time for ethics approval of clinical trials. Japan The majority of trials are conducted at large state-run hospitals and universities, with practising physicians as primary investigators. There is little incentive for efficiency by investigators, and Japan’s highly subsidised healthcare system yields fewer patients willing to engage in trials. This leads to serious problems in timely enrolment, and some literature sources estimate that as few as 55% of sites meet their enrolment goals according to Thomson CenterWatch. High patient costs have been borne thus far due to a historical reluctance on the part of Japanese regulators to accept data from international studies for the approval of medical products in Japan. But the trend to internationalise development processes will put mounting pressure on the market to improve efficiency or see drastic size reductions. Across a number of the measured indicators in this study, the Japanese clinical trials market is the second least attractive of the countries profiled. The primary shortcoming is timeliness of patient enrolments and the number of trials that are completed in time, due to serious and pervasive inefficiencies detailed in our literature reviews. Outsourcing penetration is low, as noted above, due to regulator reluctance to accept international data. The issue of timely enrolment is compounded by Japan’s highly restrictive regulatory process. While device development is similar to that of other countries, drug development is performed in a few multi-year trials, in contrast to the model used in most other countries. The length of these trials is one of the key drivers in the high cost per patient. These long procedure intensive trials have not translated into improved review times or overall development times, with Japan lagging behind the US in both categories. US The clinical trial market in the US is regulated by the FDA, which shares a large amount of public information regarding trial submissions, drug development histories and regulatory information. Drug databases and trial databases supply easily accessed reference material on drugs in development, to pre-clinical to market.

The US performs nearly 40,000 clinical trials every year on an estimated 3.7 million people at 25,000 sites. During the last decade the average cost of conducting a clinical trial on one patient has continued to rise. This industry trend has been the primary push for the globalisation of clinical trials into emerging markets. The US had the second highest cost per patient of all seven countries studied.

155 http://www.biotechnologyireland.com/pooled/profiles/BF_COMP/view.asp?Q=BF_COMP_8310

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The number of clinical trials studies performed by US companies rose from 3,275 in 1994 to 3,900 in 2002156. Total spending in clinical trials is rising rapidly. At 2000 prices, typical phase I, II and III programmes cost means of US$15.2 million (A$21 million), US$23.5 million (A$33.6 million) and US$86.3 million (A$123.3 million).157 Around half of the cost of a typical study goes on payments to investigators and CROs.158 This offers an indication of the potential market available to investors and clinical trial units. Of all the countries surveyed, the US has the largest and most mature clinical trials market. The industry benefits from a large supply of scientists and research managers. Results indicate that the average time for ethics to approve clinical trials in the US is the lowest of all countries included in the study. The number of sites far exceeds every other country (see Table 45) and the global survey indicates that this factor is an important consideration when making investment decisions. However, results indicate that the US suffers from low percentage of trials completed within allocated time coupled with a high average cost per patient. EIU online survey of factors affecting investment decisions The following pie charts summarise the views of the senior industry leaders consulted in the Economist Intelligence Unit’s online survey (April 2004) of industry executives with relevance to the area of clinical trials.

156 Singh A, Gilbert J and Henske P, “Rebuilding Big Pharma’s Business Model”, (A#2003800191), In Vivo, 11/01/2003, p. 73. 157 Kermani F and Bonacossa P, “New ways to recruit trial subjects”, Applied Clinical Trials, February 2003, pp. 38-42. 158 DiMasi JA, Hansen RW, Grabowski HG, “The price of innovation: new estimates of drug development costs”, Journal of Health Economics, 2003; 22:151-85.

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Figure 18: EIU survey results of importance accredited to investment decision makers on expertise and experience in clinical trials

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Figure 19: EIU survey results of importance accredited to investment decision makers on population factors, product champions, access to market and world class medical institutions and recruitment costs

Summary: Australia ranks first for clinical trials followed by the US, Singapore and the UK. Australia’s advantages over other countries in the study are its relative low average costs for running a clinical trial, the number of sites for clinical trials and the high percentage of clinical trials completed within allocated time. Australia did not score as well on indicators that measured the number of clinical trials being conducted, even on a per capita basis. This indicates, however, that there is significant capacity in Australia to do more clinical trials. Indeed, recent data from the TGA indicate that the number of clinical trials has increased significantly over 2004 and 2005. The US scored well largely as a result of the comparatively large number of clinical trials being conducted in those countries, but costs per trial are amongst the highest and their high rankings may be transient if lower costs are a key driver for the future. Singapore’s clinical trial market is supported by effective infrastructure and low costs. Low costs benefit India, although its clinical trial regulation is for the moment more complex and cumbersome. Germany is ranked sixth due to long ethical review times, stiff regulatory requirements and high costs. The pressure of global markets may force Japan to address timeliness, efficiency, per-patient cost and a restrictive regulatory process.

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h) Indicators of the level and type of investment in the pharmaceuticals industry A comprehensive breakdown of the data is available in Appendix 17—Investment indicators in the pharmaceuticals sector. Table 47: Level and type of investment Score (rank) Australia India Germany Japan S’pore UK US 1.2.8 Level and type of investment 7.0 (4) 5.5 (6) 8.3 (2) 5.7 (5) 4.0 (7) 8.3 (2) 10.0 (1) 1.2.8.1 Number of agreements 2000-04 7.0 (4) 6.0 (5) 9.0 (2) 5.0 (6) 4.0 (7) 8.0 (3) 10.0 (1) 1.2.8.2 Number of companies/start-ups

2000-04 7.0 (4) 6.0 (5) 9.0 (2) 5.0 (6) 4.0 (7) 8.0 (3) 10.0 (1)

1.2.8.3 Number of venture capital firms/funders 2000-04

7.0 (4) 5.0 (5) 9.0 (2) 5.0 (5) 4.0 (7) 8.0 (3) 10.0 (1)

1.2.8.4 Total venture investment 2000-04

7.0 (4) 6.0 (5) 9.0 (2) 5.0 (6) 4.0 (7) 8.0 (3) 10.0 (1)

1.2.8.5 Proceeds from IPOs 2000-04 6.0 (5) 5.0 (6) 8.0 (3) 7.0 (4) 4.0 (7) 9.0 (2) 10.0 (1) 1.2.8.6 Number of IPOs 2000-04 8.0 (3) 5.0 (6) 6.0 (5) 7.0 (4) 4.0 (7) 9.0 (2) 10.0 (1)


Investment in Australia’s pharmaceuticals sector in the form of venture capital and initial public offerings (IPOs) has been healthy in the years 2000-04, relative to the size of the country’s industry. This indicates a relatively high level of value-added research and innovation. The data indicate that investment of this type has been much higher than the comparable levels of investment in India, Singapore and even Japan. Levels of investment lag those of Germany, the UK and US, but Australia fares well if the levels of investment are scaled up in terms of economic size. Summary: Australia scores well on indicators relating to the level and type of investment in the pharmaceuticals sector, once the relatively small size of the sector is taken into consideration.

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i) Industry and government expenditure on pharmaceuticals-related R&D Table 48: Industry and government expenditure on R&D Score (rank)

Australia India Germany Japan S’pore UK US 1.2.9 Industry and government

expenditure on R&D 5.0 (6) 4.0 (7) 6.5 (5) 8.5 (1) 8.0 (4) 8.5 (1) 8.5 (1)

1.2.9.1 Total expenditure 5.0 (6) 4.0 (7) 7.0 (4) 9.0 (2) 6.0 (5) 8.0 (3) 10.0 (1) 1.2.9.2 Expenditure as percentage of industry

turnover 5.0 (6) 4.0 (7) 6.0 (5) 8.0 (3) 10.0 (1) 9.0 (2) 7.0 (4)

The higher the individual country’s score for an individual indicator the better - the number in brackets gives its rank out of the seven countries surveyed, with “1” the highest and “7” the lowest. Data in the tables are truncated to one decimal place, however scores at multiple decimal places account for differences in rank where scores appear to be the same. The most appropriate comparative government expenditure data available were from the OECD. Singapore and India are not members of that group. The R&D expenditure of the top five pharmaceutical companies in India were used to obtain estimates. Figures for Singapore were requested from the Agency for Science, Technology and Research. In addition, literature reviews demonstrate that the top five pharmaceutical companies in Singapore are increasing investment in R&D over the next 5-10 years.159 Schering-Plough, Merck & Co, and Novartis are in the process of expanding operations in Singapore. The Government’s investment strategy and open courting of major companies may have been the catalyst for Pfizer and GSK to express interest in expanding their bio-tech presence in Singapore in early 2004.

Table 49: Pharmaceuticals R&D expenditure, 2003 By industry

(US$ bn) % of sales By government

(US$ bn) % of sales

Australiaa 0.52 10.7 0.21 4.3 Germanyd 3.6 13.7 2.0 7.6 Japanc 8.2 15.6 6.9 13.2 UKb 3.2 19.5 2.5 15.2 USe 29.0 15.8 13.4 7.3 Indiaf 0.13 2.4 n/a n/a Singaporeg 1.22 480.0 0.79 316.0

a 2005. Source: Australia—Australian Pharmaceuticals Industry Fact Sheet, Australia Department of Industry, Tourism and Resources b.http://www.abpi.org.uk/statistics/section.asp?sect=3#13; http://www.ost.gov.uk/research/forwardlook03/pdf/tables/bbs.pdf c http://www.efpia.org/6_publ/infigure2004b.pdf (2002)d http://www.bpi.de/en/download/pharmadaten_2003.pdf e http://www.efpia.org/6_publ/infigure2004b.pdf (2003) f http://pubs.acs.org/cen/business/83/i05/8305bus1.html g National Survey on F&D in Singapore 2004, Agency for Science, Technology and Research.

There is a trend to increasing funding for R&D in science. The Indian government, for example, increased R&D expenditure from 0.6% of GDP in 1999 to 1.1% in 2004 and planned a further rise to 2% by 2007 (represents all R&D expenditure, not just that for the pharmaceuticals sector). Whether the new government will retain this pace of increase remains to be seen. The EU plans to spend 3% of GDP on science by 2010. However, the inclusion of a number of additional countries in May 2004 may mean that the EU is unable to hit its target. For example, while Poland shows the fastest annual growth in GDP in Europe, total research expenditure has fallen in real terms over recent years. The following table summarises R&D expenditure as a percentage of GDP. These figures reflect investment in R&D generally and health particularly. The data set does not allow the expenditure on pharmaceuticals and biotechnology to be desegregated.

159 Agency for Science, Technology and Research. EDB Singapore, Press Release 6 February 2002.

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Table 50: R&D expenditure as a percentage of GDP Total R&D, 2003 (% of GDP) Health R&D, 2002 (% of GDP) Australia 1.5 0.06b

Germany 2.5 0.03 India 1.1a n/a Japan 3.1 0.03 Singaporec 2.2 n/a UK 1.9 0.10b

US 2.8 0.23 a 2004; estimated. b 2001. c EDB Singapore: Biomedical Fact Sheet. Summary: Our assessment was based on both the absolute level of expenditure based on available data and as a percentage of total pharmaceutical sales in the domestic market. These measurements were used as a check on each other. Australia scores relatively lower on R&D spending in absolute levels and as a proportion of overall sales. Australia’s health-related R&D spending is lower as a proportion of GDP than in the UK and US, but higher than in Germany. Singapore's R&D expenditure is high as a ratio to overall sales but this is more of a reflection of a small domestic market and its unique position as a major exporter relative to GDP. With government encouragement, Singapore has attracted an increasing sum for R&D expenditure from major pharmaceutical companies. This is particularly evident in Table 49 with R&D expenditure substantially outweighing total sales for both private and public spending in Singapore. India also has secured more in R&D expenditure from major pharmaceuticals of late.

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6. Business environment rankings Table 51: Political environment Score (rank) Australia India Germany Japan S’pore UK US 1.3.1 Political environment 9.8 (1) 7.0 (7) 9.5 (3) 9.6 (2) 7.3 (6) 8.2 (4) 7.5 (5) 1.3.1.1 Armed conflict 10.0 (1) 6.0 (6) 10.0 (1) 10.0 (1) 8.0 (4) 8.0 (4) 6.0 (6) 1.3.1.2 Social unrest 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 8.0 (5) 8.0 (5) 1.3.1.3 Change in government 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 6.0 (7) 10.0 (1) 10.0 (1) 1.3.1.4 Terrorism threat 10.0 (1) 6.0 (5) 8.0 (3) 10.0 (1) 8.0 (3) 4.0 (6) 4.0 (6) 1.3.1.5 International disputes 8.0 (1) 4.0 (7) 8.0 (1) 6.0 (4) 6.0 (4) 8.0 (1) 6.0 (4)


Table 52: Foreign investment policy Score (rank) Australia India Germany Japan S’pore UK US 1.3.2 Foreign investment policy 8.5 (5) 7.0 (6) 9.0 (3) 7.0 (6) 9.5 (1) 9.5 (1) 9.0 (3) 1.3.2.1 Foreign investors 8.0 (3) 8.0 (3) 8.0 (3) 8.0 (3) 10.0 (1) 10.0 (1) 8.0 (3) 1.3.2.2 Openness of national culture 8.0 (2) 6.0 (6) 8.0 (2) 4.0 (7) 10.0 (1) 8.0 (2) 8.0 (2) 1.3.2.3 Expropriation risk 10.0 (1) 8.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.2.4 Investor protection 8.0 (4) 6.0 (6) 10.0 (1) 6.0 (6) 8.0 (4) 10.0 (1) 10.0 (1)


Table 53: Labour market Score (rank) Australia India Germany Japan S’pore UK US 1.3.3 Labour market 7.0 (4) 6.5 (7) 6.7 (6) 7.0 (4) 8.0 (1) 7.5 (3) 7.8 (2) 1.3.3.1 Industrial disputes 6.0 (5) 6.0 (5) 8.0 (3) 10.0 (1) 10.0 (1) 8.0 (3) 6.0 (5) 1.3.3.2 Unit labour costs 6.0 (3) 8.0 (1) 2.0 (7) 6.0 (3) 8.0 (1) 4.0 (6) 6.0 (3) 1.3.3.3 Schooling 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 6.0 (6) 10.0 (1) 10.0 (1) 1.3.3.4 Labour flexibility 8.0 (2) 6.0 (7) 8.0 (2) 8.0 (2) 8.0 (2) 8.0 (2) 10.0 (1) 1.3.3.5 Restrictive labour laws 6.0 (5) 4.0 (7) 8.0 (3) 6.0 (5) 8.0 (3) 10.0 (1) 10.0 (1) 1.3.3.6 Wage regulation 6.0 (6) 8.0 (1) 6.0 (6) 8.0 (1) 8.0 (1) 8.0 (1) 8.0 (1) 1.3.3.7 Hiring foreign nationals 8.0 (2) 6.0 (6) 8.0 (2) 6.0 (6) 10.0 (1) 8.0 (2) 8.0 (2) 1.3.3.8 Cost of living 6.0 (3) 10.0 (1) 4.0 (4) 2.0 (7) 7.0 (2) 4.0 (4) 4.0 (4)


Table 54: Macroeconomic environment Score (rank) Australia India Germany Japan S’pore UK US 1.3.4 Macroeconomic environment 8.9 (4) 8.6 (5) 9.1 (1) 7.7 (6) 9.1 (1) 9.0 (3) 6.9 (7) 1.3.4.1 Price stability 10.0 (1) 8.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.4.2 Budget balance 10.0 (1) 6.0 (5) 8.0 (3) 2.0 (7) 10.0 (1) 8.0 (3) 6.0 (5) 1.3.4.3 Government debt 10.0 (1) 8.0 (2) 6.0 (4) 2.0 (7) 4.0 (6) 8.0 (2) 6.0 (4) 1.3.4.4 Exchange rate volatility 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 8.0 (7) 1.3.4.5 External balance 4.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 8.0 (5) 2.0 (7)


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Table 55: Foreign trade and exchange Score (rank) Australia India Germany Japan S’pore UK US 1.3.5 Foreign trade and exchange 9.4 (1) 7.2 (7) 8.9 (3) 7.8 (6) 9.4 (1) 8.9 (3) 8.9 (3) 1.3.5.1 Capital account liberalisation 10.0 (1) 6.0 (7) 10.0 (1) 10.0 (1) 8.0 (6) 10.0 (1) 10.0 (1) 1.3.5.2 Tariff and non-tariff protection 10.0 (1) 4.0 (7) 8.0 (3) 8.0 (3) 10.0 (1) 8.0 (3) 8.0 (3) 1.3.5.3 Openness actual/exp. Trade 8.0 (3) 10.0 (1) 8.0 (3) 4.0 (7) 10.0 (1) 8.0 (3) 8.0 (3) 1.3.5.4 Current account 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1)


Table 56: Infrastructure Score (rank) Australia India Germany Japan S’pore UK US 1.3.6 Infrastructure 8.0 (6) 5.1 (7) 9.4 (3) 8.9 (4) 9.6 (2) 8.1 (5) 9.7 (1) 1.3.6.1 Phones 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.6.2 Phone faults 10.0 (1) 6.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.6.3 Road density 8.0 (4) 6.0 (7) 10.0 (1) 8.0 (4) 10.0 (1) 8.0 (4) 10.0 (1) 1.3.6.4 Electricity production 4.0 (6) 2.0 (7) 8.0 (4) 10.0 (1) 10.0 (1) 8.0 (4) 10.0 (1) 1.3.6.5 Distribution infrastructure 8.0 (4) 4.0 (7) 10.0 (1) 8.0 (4) 10.0 (1) 8.0 (4) 10.0 (1) 1.3.6.6 Rail density 6.0 (5) 4.0 (7) 10.0 (1) 10.0 (1) 8.0 (4) 6.0 (5) 10.0 (1)

1.3.6.7 Ports 8.0 (4) 6.0 (7) 10.0 (1) 8.0 (4) 10.0 (1) 8.0 (4) 10.0 (1) 1.3.6.8 Personal computers 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.6.9 R&D spending 8.0 (4) 6.0 (7) 10.0 (1) 10.0 (1) 8.0 (4) 8.0 (4) 10.0 (1) 1.3.6.10 Office rents 8.0 (3) 10.0 (1) 6.0 (5) 5.0 (6) 9.0 (2) 4.0 (7) 7.0 (4)


Table 57: Market opportunities Score (rank)

Australia India Germany Japan S’pore UK US 1.3.7 Market opportunities 7.3 (4) 8.4 (1) 6.9 (7) 7.0 (6) 7.1 (5) 7.7 (3) 8.2 (2) 1.3.7.1 GDP 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 4.0 (7) 10.0 (1) 10.0 (1) 1.3.7.2 GDP per head 10.0 (1) 2.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.7.3 GDP growth rate 6.0 (3) 10.0 (1) 4.0 (6) 4.0 (6) 8.0 (2) 6.0 (3) 6.0 (3) 1.3.7.4 Share of world trade 8.0 (6) 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.7.5 Exports growth 6.0 (2) 10.0 (1) 4.0 (7) 6.0 (2) 6.0 (2) 6.0 (2) 6.0 (2) 1.3.7.6 Imports growth 6.0 (2) 10.0 (1) 4.0 (7) 6.0 (2) 6.0 (2) 6.0 (2) 6.0 (2) 1.3.7.7 Natural resources 10.0 (1) 6.0 (6) 8.0 (3) 8.0 (3) 2.0 (7) 8.0 (3) 10.0 (1) 1.3.7.8 Invest efficiency 6.0 (4) 10.0 (1) 6.0 (4) 4.0 (7) 8.0 (2) 6.0 (4) 8.0 (2)


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Table 58: Tax regime Score (rank) Australia India Germany Japan S’pore UK US 1.3.8 Tax regime 6.9 (5) 7.3 (4) 6.6 (6) 5.4 (7) 9.0 (1) 8.0 (3) 8.7 (2) 1.3.8.1 Corporate tax 6.0 (4) 6.0 (4) 4.0 (6) 4.0 (6) 10.0 (1) 8.0 (2) 8.0 (2) 1.3.8.2 Marginal tax 8.0 (4) 10.0 (1) 6.0 (6) 4.0 (7) 10.0 (1) 8.0 (4) 10.0 (1) 1.3.8.3 VAT rate 4.0 (7) 8.0 (4) 6.0 (5) 10.0 (1) 10.0 (1) 6.0 (5) 10.0 (1) 1.3.8.4 Social security contribution 10.0 (1) 8.0 (2) 6.0 (6) 4.0 (7) 8.0 (2) 8.0 (2) 8.0 (2) 1.3.8.5 Fiscal incentives for investment 6.0 (5) 6.0 (5) 8.0 (1) 4.0 (7) 8.0 (1) 8.0 (1) 8.0 (1) 1.3.8.6 Fairness of tax system 8.0 (3) 6.0 (7) 10.0 (1) 8.0 (3) 8.0 (3) 10.0 (1) 8.0 (3)


Table 59: Private enterprise policy Score (rank)

Australia India Germany Japan S’pore UK US 1.3.9 Private enterprise policy 9.1 (3) 6.3 (7) 8.7 (4) 7.8 (6) 8.7 (4) 9.5 (2) 9.6 (1) 1.3.9.1 Protection of private property 10.0 (1) 8.0 (7) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.9.2 Government regulation 8.0 (2) 6.0 (7) 8.0 (2) 8.0 (2) 8.0 (2) 8.0 (2) 10.0 (1) 1.3.9.3 Freedom to compete 10.0 (1) 6.0 (7) 8.0 (4) 8.0 (4) 8.0 (4) 10.0 (1) 10.0 (1) 1.3.9.4 Competition policy 10.0 (1) 8.0 (4) 8.0 (4) 8.0 (4) 8.0 (4) 10.0 (1) 10.0 (1) 1.3.9.5 Protection of intellectual property 10.0 (1) 6.0 (7) 10.0 (1) 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.9.6 Price controls 8.0 (3) 6.0 (7) 8.0 (3) 8.0 (3) 8.0 (3) 10.0 (1) 10.0 (1) 1.3.9.7 Lobbying 8.0 (1) 4.0 (7) 8.0 (1) 6.0 (5) 8.0 (1) 8.0 (1) 6.0 (5) 1.3.9.8 State control 8.0 (3) 6.0 (6) 8.0 (3) 6.0 (6) 8.0 (3) 10.0 (1) 10.0 (1)


Table 60: Financing Score (rank) Australia India Germany Japan S’pore UK US 1.3.10 Financing 9.7 (2) 6.4 (7) 9.4 (5) 7.9 (6) 9.7 (2) 10.0 (1) 9.6 (4) 1.3.10.1 Banking sector 8.0 (4) 6.0 (7) 10.0 (1) 8.0 (4) 8.0 (4) 10.0 (1) 10.0 (1) 1.3.10.2 Stock market 10.0 (1) 4.0 (7) 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.10.3 Financial distortions 10.0 (1) 8.0 (6) 10.0 (1) 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.10.4 Financial regulation 10.0 (1) 6.0 (6) 10.0 (1) 6.0 (6) 10.0 (1) 10.0 (1) 8.0 (5) 1.3.10.5 Foreigners' access to cap market 10.0 (1) 8.0 (6) 10.0 (1) 8.0 (6) 10.0 (1) 10.0 (1) 10.0 (1) 1.3.10.6 Access to invest finance 10.0 (1) 6.0 (7) 8.0 (5) 8.0 (5) 10.0 (1) 10.0 (1) 10.0 (1)


According to the Economist Intelligence Unit’s business environment rankings, Australia will become a more attractive business location, with the country’s score rising from 7.80 in the historical period (2000-04) to 8.31 in the forecast period (2005-09). The bilateral free-trade agreement with the US and the lowering of tariffs in the few areas where they remain significant (namely motor vehicles and textiles) will boost the country’s already liberal foreign trade and exchange-rate regime, which is the country’s most attractive feature. Australia also scores highly for its political environment, although political stability is rated more highly than political effectiveness. Less attractive features for business investors include Australia’s tax system, particularly its high taxes on personal income, and deficiencies in the labour market, namely restrictive labour laws, a high degree of wage regulation, a relatively high incidence of strikes and the rising cost of living. Progress

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is expected to be made in these areas, particularly in the labour market, with less restrictive labour laws, rising skills levels and more harmonious industrial relations (thanks to falling levels of unionisation) underpinning a significant improvement in the country’s global ranking in this category. The country’s comparatively small population and its geographical isolation also drag down its score for market opportunities, although these factors are partly offset by the economy’s relatively strong growth prospects. An explanation of individual countries’ scores is given in Appendix 18—Business environment rankings and forecast backgrounds. Summary: Australia’s overall business environment rankings are generally good, bolstered by good scores for the political environment, the foreign trade and exchange-control regime, and the macroeconomic environment.

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