An attractive tax regime for R&D, coupled with an equally attractive tax regime for intellectual property (IP), could make Ireland a world leader in life sciences and technology R&D, a leading adviser has claimed.
As the global life sciences industry struggles to manage rising risk, more than 40pv of executives surveyed from companies with revenues of at least US$15bn say their firms need to institute significant changes across the whole organisation to survive the next decade, according to a new report published by Deloitte Touche Tohmatsu (DTT).
The necessary changes identified in the area of research and development (R&D) provide a real opportunity for Ireland to attract inward investment.
Developed in collaboration with The Economist Intelligence Unit, the DTT report, ‘The Future of Life Sciences Industries: Transformation Amid Rising Risk’, reveals that 26pc of executives – 39pc in western Europe – said that the risks associated with R&D are set to rise sharply through the next decade.
While some companies do not anticipate changes to their approach to R&D, more than one-third of respondents indicate that they will mitigate risks attached to R&D by simply spending more money.
“This global report on the life sciences industry highlights a significant opportunity for Ireland,” Lorraine Griffin, Life Sciences tax partner, Deloitte Ireland, explained.
“Many opportunities exist for companies to maximise their R&D tax reliefs in Ireland. The R&D tax credit regime, which includes a credit of 25pc on qualifying expenditure, makes Ireland a very attractive location for companies to carry out R&D. If life sciences companies are looking to increase their spend in this area or to outsource this activity, Ireland must market itself as the location of choice.
“As the international environment for investment becomes increasingly competitive, Ireland must firmly position itself as ’The Innovation Island’. The Government has recognised that the knowledge economy will be instrumental in driving Ireland’s economy forward, and has made a number of improvements to the R&D tax scheme.
“However, focus continues to be given to a comprehensive tax regime for IP. Ireland needs a regime for granting tax relief on expenditure on IP and a tax efficient system for attracting qualified personnel in IP and R&D to locate in Ireland, in order to position ourselves to compete in the international marketplace.
“Such changes would position Ireland most favourably as a hub for IP investment, not least for the life sciences industry,” Griffin added.
The report revealed that one in four respondents believed that their entire company will have to change to face future risks; more than half recognise that their companies will have to undergo a major transformation, at least in some parts of the organisation.
Around 30pc of executives surveyed from pharmaceutical R&D companies said their companies will have to change completely to face future risk.
In western Europe, where markets have experienced slow growth since 2001, 31pc of responding executives call for a complete makeover of their companies.
“Mounting pricing pressures, expiring patents, high cost of R&D, and in some cases, plummeting stock prices, have impacted on the industry for the past decade, forcing life sciences companies to dramatically rethink their business models to survive in the next decade,” said Marguerite Larkin, head of Life Sciences, Deloitte Ireland.
“To thrive in the long run, companies cannot simply depend on future returns from new products in their pipelines. As they wake up to new market realities, they must tackle their challenges and address risk in a fundamentally different way, frequently requiring significant transformation,” Larkin added.
By John Kennedy
