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By Greg Reh, Vice Chairman and Life Sciences Sector Leader, Deloitte LLP
For many US life sciences and health care companies, 2017 was a year of market and legislative uncertainty. Much of the year was dominated by on-again-off-again efforts to repeal and replace the Affordable Care Act (ACA), which has now turned to discussions about reforming the tax code. For some life sciences companies, this uncertainty created a wait-and-see approach to investments – particularly mergers and acquisitions (M&A).
However, 2017 was also a year of regulatory, scientific, and technological progress, which I expect will continue to create some favorable tailwinds for life sciences companies in 2018. The year-old 21st Century Cures law, for example, is already helping to further innovate drug-approval processes. We also saw regulatory approval for a first-of-its kind CAR-T (Chimeric Antigen Receptor T-cell) therapy. The treatment, for certain children and young adults with leukemia, uses a patient’s own T cells, which are extracted, cryopreserved, transported and modified before being returned back to the patient through infusion. A second therapy was approved two months later.1 Moreover, an advisory committee from the Food and Drug Administration (FDA) recently recommended approval for the first gene therapy in the US.
As life sciences companies look ahead to 2018, it can be important for them to determine how to effectively monitor and manage strategic risk–and hedge their bets–particularly across these four key areas:
Specifically, life sciences companies could see changes in the following areas:
Repatriation of overseas cash: Proposed changes could let life sciences companies repatriate cash held overseas at a lower tax rate
New taxes on foreign income: Proposals also include new taxes on the foreign income that US companies generate from patents and other intellectual property, regardless of where that IP is held
Reduction in orphan-drug credits: Proposals call for reductions in the orphan-drug credit that was originally created as an incentive for rare disease research
Repeal of the medical device excise tax: This 2.3 percent tax, a provision in the ACA, is set to be reinstated on January 1, 2018. Eliminating the tax has been part of repeal and replace discussions, but recent tax-reform proposals do not specify any changes.
Strategic risk management can help counter uncertainty
There are many unknowns as we head into a new year. During such periods of uncertainty, we advise our life sciences clients to focus on effectively managing strategic risk. Strategic risk management is how a company identifies and prepares for a variety of possible scenarios relative to its business objectives. Being aware of legislative, technological, scientific or regulatory risks is different than being prepared to respond to them, and the best prepared companies could wind up with a competitive advantage.
Within a life sciences company, people in regulatory affairs, business development, product development, R&D, or manufacturing may not necessarily work together or share information. But they should – particularly when it comes to improving a company’s strategic positioning. That is strategic risk management.
No one knows which way the political and regulatory winds will blow in 2018. While I expect political uncertainty will continue to be a headwind for 2018, some of the tailwinds we experienced this year could blow stronger in 2018.
Greg serves as the Deloitte Global Life Sciences & Health Care Industry Leader. In this role, he advises life sciences and health care clients and practice leaders within Deloitte’s global network; and is responsible for the overall industry group that conducts research and provides consulting, advisory, tax and audit services to clients in the industry. The global life sciences and health care industry group is comprised of over 20,000 colleagues in more than 90 countries that work with pharmaceutical, biotech, medtech, payer, provider and government clients. Greg also leads Deloitte’s relationship with one the world’s largest health care companies, which entails enabling and coordinating client teams around the world. Prior to his current roles, he served as the US life sciences leader; and as the global life sciences leader. Greg’s experience over the last 27 years includes working with multinational pharmaceutical, biotechnology, and chemical manufacturing organizations where he led consulting engagements in support of regulatory, clinical, commercial and manufacturing operations. His engagements focused on technology strategy and solution development; business-technology enabled transformation and the management of change. Prior to his consulting career Greg held positions at a government research lab, where he led teams in the design and development of life support devices; and was a lecturer at the University of Pennsylvania. Greg holds an MS from the University of Pennsylvania, and a BSME from Drexel University.