Market Round Up

Deal-making in the healthcare and pharmaceuticals industry continues to be robust in the second half of 2014 and first half of 2015. High deal activity and volume in early 2015 has continued to be strong from late 2014. Initial public offerings in the healthcare and pharmaceuticals sector accounted for more than a quarter of equity raised for 2014 on the Australian Securities Exchange (ASX). Increasing health care spending, Australia’s aging population, advances in medical technology and growing healthcare service demands have fuelled investor interest.

Healthcare and pharmaceuticals trends that we have seen and expect to continue throughout 2015 include:

Private Equity -  Activity in the private equity space continues in the strong as private equity firms set their sights on pharmaceutical businesses and hospital networks.

Digital health and e-health -  Greater reliance on digital health and e-health services will drive acquisitions and investments. Healthcare is shifting to patient-centred and outcomes-based delivery models with technology playing a crucial role in the transformation. We predict big things for technology companies looking to enter and specialise in the healthcare sector. 

Divestitures - Divestitures will continue to be a consistent theme for the remainder of 2015. Companies that have completed transactions in late 2014 and early 2015 will continue to seek to maximize the value of their assets through strategic divestitures as they evaluate their newly combined businesses. We expect that this will create numerous acquisition opportunities.

Disclosure requirements for listed companies 

Listed life sciences companies are reminded of the importance of market disclosure requirements under the Corporations Act 2001 (Cth) and the ASX Listing Rules.

Following an investigation by the Australian Securities and Investments Commission (ASIC), ASX-listed medical technology company, Rhinomed Limited was recently fined A$33,000 for failing to comply with its continuous disclosure obligations.

Rhinomed Limited, a respiratory technology company, made an announcement to the ASX on 9 July 2014 that it will partner with Fitness First health clubs to promote its Turbine® technology throughout July 2015.  The deal was described in the announcement as an "outstanding commercial opportunity" and "a real coup" for Rhinomed.

Following a referral from ASX, ASIC alleged on 6 June 2014 that Rhinomed and Fitness First had entered into an agreement concerning a promotional campaign in which Fitness First was to promote the Turbine® product in some of its gyms and health clubs in Australia.

ASIC alleged by failing to inform the ASX of the agreement on 6 June 2014, Rhinomed was in breach of its continuous disclosure obligations as set out in Section 674(2) of the Corporations Act 2001 (Cth) and ASX Listing Rule 3.1.

Rhinomed was issued with an infringement notice by ASIC, which it complied with, following payment of the A$33,000 penalty on 9 June 2015.

Baker & McKenzie's recent deals 

  • Advised Merck & Co.,Inc on the non-US aspects of the US$14.2 billion sale of its consumer care division to Bayer, including the global trademark and prescription rights for CLARITINTM™ and AFRINTM™.
  • Advised Care Pharmaceuticals Pty Ltd on its acquisition of the “Hydralyte” business in Australia and New Zealand.
  • Advised IMS Health on the acquisition of Mercurial Insights, a provider of technology and services in relation to sales, marketing and performance management in the healthcare sector.
  • Advised a leading private equity firm on the acquisition of i-Med Networks, the world's largest group of medical diagnostic clinics.
  • Advised Lake Imaging Holdings Pty Ltd on the 100% acquisition of South Coast Radiology, Queensland's largest independent radiologist-owned medical imaging provider.

Japan Australia Economic Partnership Agreement

The Australian healthcare products and services industry is expected to reap substantial benefits from the Japan Australia Economic Partnership Agreement (JAEPA), which commenced in early 2015.  The Australian Government has proclaimed the JAEPA as the most ambitious free trade agreement Japan has concluded with another country.

Significantly for Japanese investors, the JAEPA increases the monetary threshold for Australian Government approval of Japanese investments in Australian companies from A$252 million to A$1,094 million into non-sensitive sectors such as healthcare.

With a rapidly aging population, Japan is expected to see an increasing demand for healthcare and aged-care services and will likely look towards Australian companies for medical research and development, education, medical devices and healthcare management.

Foreign Investment Update: Potential traps for investors

The Australian Government recently announced its reforms to Australia’s foreign investment framework, that will apply from 1 December 2015.

The main elements of the reform package are stronger enforcement of foreign investment rules; stricter penalties to encourage compliance; introduction of an application fee system for FIRB applications; increased scrutiny of foreign investment in certain sectors; and a commitment to consult on options to deliver a more modern and simpler foreign investment framework, following further consultation.

From 1 December 2015, all applications to the Foreign Investment Review Board will attract a fee. The fees will range from A$5,000 to A$100,000, depending upon the type of investor, the type of acquisition, the nature of the property and the value of the acquisition. Importantly, Chinese, Japanese, Korean, Singaporean and Thai investors will be subject to special thresholds in certain circumstances.

Non-complying foreign investors will be exposed to increased maximum penalties and to new types of enforcement action, which could include:

  • different types of penalties, including forfeiting a percentage of the purchase price or market value of the property;
  • imprisonment of individuals; and
  • a divestment order, requiring that the property be sold, and that any capital gain made by the investor be forfeited to the Government.

Third parties (whether real estate agents, marketeers, developers, solicitors or otherwise) who knowingly assist investors in such non-compliance will now also incur penalties.