A Health and Life Science Centre of Expertise

Economic Update, October 2011, by Dr Anthia Zammit:

Starting with the thalidomide tragedy, a series of disasters taught us the painful lesson that drugs can be dangerous. The word ‘phocomelia’ (seal limb), coined by French anatomist Etienne Geoffroy Saint-Hillaire in 1836, sank into scientific obscurity for a good 120 years – until Thalidomide was placed on the market. The drug had been promoted as a safer alternative to existing sedatives as a cure for morning sickness in pregnant women, but was to be the cause of gross fetal deformity. Between 1956 and 1961, 12,000 children had been born with severe thalidomide-induced birth defects. One third of them died within a month.

Until the 1960’s pharmaceutical companies were not legally required to prove the safety and efficacy of new medicines before placing them on the market. The Thalidomide tragedy drastically transformed Pharmaceutical Law forever, as global efforts were made to legally regulate the safety of medicines and provide an effective system for the licensing and monitoring of medicinal products. Medicines regulation demands the application of sound medical, scientific and technical knowledge and skills, and operates within a legal framework. The specificity of a legal statute governing medicinal products is warranted by the complexity of the product and the need to protect public health. Indeed such legislation usually contains important derogations from the legislation applicable to other consumer goods.

Medicines and medical devices are unique products: they are a highly-specialised socially-essential commodity. Although the health sector is traditionally cited as one of the largest sources of national expenditure, it has recently proved to be a major driving force of the global economy. Notwithstanding the strict legal controls it is subject to, the pharmaceutical industry enjoys a profit windfall unsurpassed by any other industry. IMS Health has estimated the global pharmaceutical market to be worth over $800 billion. In Malta, the value of pharmaceutical exports in 2010 exceeded 176 million euro.

However, it is an industry at crossroads having undergone several large mergers and acquisitions in the last few years as companies seek to develop personalized medicine and new biologic drugs to counter diminished innovation and upcoming blockbuster drug patent expiries. It is an industry that has come under recent scrutiny via the European Union’s Pharmaceutical Inquiry and the United States Pharmaceutical Investigation under the Foreign Corrupt Practices Act. The pharmaceutical sector must also adapt itself to the new EU legislative ‘Pharmaceutical Package’ and the US Health Reform legislation. Companies must also adapt to operating in a changed business environment, marred by the global financial crisis.

These changes call for new approaches in finding the legal solutions to presentday challenges and adapting the legislative framework to regulate and support R&D initiativies in nanotechnology, pharmacogenomics, pharmacogenetics, biotechnology and personalised medicine, while taking into account the profit-driven nature of healthcare and pharmaceutical businesses and the need to safeguard consumers’ access and availability to safe, high quality, efficacious medicinal products at an affordable price. The development of new clinical and production methods, technological advancement and the implementation of rigorous regulatory requirements have revolutionised and transformed these niche sectors. Therefore, the appropriate results-driven business climate is not only instrumental but indispensible to healthcare and life science advancement.

In the face of important business development decisions, a number of world-leading brand-name and generic pharmaceutical manufacturers and medical device producers, including Watson; Actavis; Baxter; Siegfried; and Cardinal Health, have chosen to set-up business operations in the Maltese Islands and continue to invest in expanding their existing facilities. The healthcare and life sciences industries are primarily attracted to the Islands’ legal framework, which as a European Union member state and member of the eurozone, is fully harmonised to that of the EU. Coupled with Malta’s favorable tax regime, which has been approved by both the European Commission and the OECD, this makes the Islands ideally positioned to cater for new international business investment in niche sectors.

Malta’s tax rules allow for beneficial treatment of taxable profits distributed to shareholders from income arising to the Maltese companies outside Malta. The limited liability company is the most commonly used vehicle for international business: the company pays tax at the flat rate of 35 per cent and shareholders enjoy a refund of the Malta tax paid on the distribution of dividends. The types of tax refunds available are six sevenths (85.7%) of the advance corporation tax paid by the company; five sevenths (71.4%) in the case of passive interest and royalties; and two thirds (66.7%) where the distributing company claims double taxation relief. A 100 per cent refund is due where profits derive from a Participating Holding. A Participating Holding arises where a company holds directly at least 10% of the equity shares (equity shares carry voting and dividend rights and an entitlement to assets available for distribution in the event of a winding up) of a non resident company and meets certain other criteria stipulated by law.

Additionally, companies engaged in research and development in science and technology are eligible to investment aid and tax incentives, and the supply of pharmaceuticals goods qualifies for an exemption with credit for Value Added Tax (VAT). Last year, Malta also enacted legislation introducing an income tax exemption applicable in respect of royalties derived from patents approved by Malta Enterprise in order to encourage and assist creative research and development resulting in the registration of patents.

Effective regulation, spearheaded by a strong independent regulatory agency (the Medicines Authority) has certainly consolidated Malta’s reputation as a centre of excellence in healthcare and life sciences. Regulatory law pertaining to medicinal products for human use, medical devices and chemicals in Malta is harmonised with the relevant European Union legislation. Malta grants good manufacturing practice and good distribution practice certification, which is fully standardised to that of the EU, through its regulatory authorities and has fully implemented and enforces compliance to EU legislation relating to importation and parallel importation, licensing/marketing authorisation, packaging and labeling, wholesale distribution, clinical trials, pharmacovigilance and advertising of medicinal products, as well as classification, labeling and packaging of chemicals under REACH legislation, and medical devices legislation and regulatory requirements.

As pharmaceutical, medical device and chemical exports via Malta continue to grow exponentially, generics manufacturer Actavis Ltd., announced in 2010 that it is to invest a further 12 million euro, to expand its existing operations. This year, Watson Pharmaceuticals celebrated the commencement of a €3.3 million expansion project in Malta. Malta’s thriving healthcare and life sciences industries is evidently the result of success stories of a number of leading companies, supported by a tailor-made legislative framework aimed at encouraging innovation and R&D and the continued supply of safe, high quality medical therapies to consumers and patients worldwide.