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The Ernst & Young Global Pharmaceutical Center

Roundtable Wrap-Up from China

In 2006, Ernst & Young Global Pharmaceutical Center leadership held client roundtables around the world to explore the challenges and opportunities facing pharmaceutical companies in an ever-changing landscape.

Shanghai, China. The following important insights come from the Shanghai Pharma Roundtable that Ernst & Young hosted on 31 October 2006.

Growing the Pharma Foothold in China
More and more multinational pharmaceutical manufacturers are pursuing partnering opportunities in China. To complete these or other types of transactions, a company needs to calibrate a new equilibrium between risk and reward by answering questions in areas including:

Velocity:

  • How quickly can we complete deals?
  • How can we "slow down time" to uncover key risks or avoid an undesired or inappropriate transaction?

    Transparency:

  • How can we perform better due diligence when all the necessary information could be obscured by historically imprecise accounting or poorly understood local practices?
  • How are our executives at the corporate level identifying — and executing on — the full scope of opportunities when there are few, if any, corporate development professionals at the local level?

    Cross-Border Value Chains
    Any delay in the transfer of pharmaceutical materials across borders — from active pharmaceutical ingredients to finished products — disrupts the entire supply chain and can cause financial and compliance risks. Whether in logistics, strategic trade, finance, or the tax department, pharma executives are asking tough questions about the movement of their goods and supplies across borders, including:

    • How does China fit into our supply chain?
    • Can we reduce the imbedded indirect costs in our cost of goods for both imports and exports?
    • How do we know if we have the right model for the domestic distribution chain?

    Two features of the value chain are affecting multinational companies operating in China: Free trade agreements and value-added tax (VAT) leakage.

    • China is entering into new free trade agreements — for example, the Association of Southeast Asian Nations (ASEAN) — creating more cross-border opportunities. But with any opportunities come risks. Under certain agreements, duty savings may increase to roughly 5 to 7 percentage points by 2009 from 1 or 2 percentage points in 2006.
    • Pharmaceutical companies manufacturing goods in China for export to other countries may not be receiving a full refund of VAT (i.e., "VAT leakage"). By structuring transactions properly, they may be able to reduce these costs.

    Additional Roundtables

    Mumbai, India, 9 October
    Basel, Switzerland, 6 November 2006

    Progressions 2006
    The Ernst & Young Annual Global Pharmaceutical Report

    The focus of Progressions 2006 is "Capturing Global Advantage in the Pharmaceutical Industry". Ernst & Young industry specialists and global pharmaceutical leaders from around the world have contributed their insight and outlooks to make it one of the most important publications we offer.

    To request your own copy of Progressions 2006, The Ernst & Young Annual Global Pharmaceutical Report, please contact your local Ernst & Young pharmaceutical representative.

    • Global Pharmaceutical Center
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    To request your own copy of Progressions 2006, The Ernst & Young Annual Global Pharmaceutical Report, please contact your local Ernst & Young pharmaceutical representative
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