'We'd love to use the cash': Big pharma's getting ready to spend tax reform dollars on big deals


trump tax reform
Trump
holds an example of what a new tax form may look like during a
meeting on tax policy with Republican lawmakers in
November.


Evan
Vucci/AP



  • There’s a lot of anticipation for big-ticket
    pharmaceutical mergers and acquisitions to take off in
    2018.
  • That’s in large part because of the tax reform that
    passed in 2017, which frees up cash companies have overseas and
    lowers the corporate tax rate. 
  • “We’d love to use the cash to buy and partner to expand
    our pipeline,” Eli Lilly chief financial officer Josh
    Smiley told Business Insider.
  • The first two weeks of 2018 have been slower that some
    might have expected, but one analyst expects there’s much more
    to come. 
  • “There’s a potential for another round of change within
    the pharmaceutical sector, given there’s this much money
    overseas and that’s got a chance to be repatriated,”
    GlaxoSmithKline US pharmaceuticals president Jack Bailey told
    Business Insider.

Every year, the biggest names in the pharma industry head to San
Francisco to the JPMorgan Healthcare Conference. And almost every
year, a couple of big industry deals get announced at the
event. 

This year, the expectation of M&A was especially
pronounced. That’s in large part because of tax reform in
the US, which in addition to offering companies based in the US a
lower corporate tax rate allows them to repatriate some of the
cash they have overseas and put it to use. The life sciences is
one of the industries with the
most cash overseas
that’d be eligible for repatriation. 

“There was a big, big expectation that there was going to be some
big M&A announced,” UBS senior healthcare analyst Jerome
Brimeyer told Business Insider.

On Sunday, biotech giant Celgene acquired Impact Biosciences in a

$7 billion deal
. And the Danish pharmaceutical company Novo
Nordisk made
a $3.1 billion bid
for the biotech company Ablynx, which was
rejected.  Based on the conversations Brimeyer’s heard in
San Francisco this week, the deals announced this year far have
been underwhelming. “There was almost a disappointment that there
wasn’t more M&A,” Brimeyer said. 

That disappointment won’t last forever, he said. “I think given
tax reform, there’s much more to come. I think that’s going to be
an important factor for the performance of biotech and pharma
this year. ”

Cash waiting to be used 

It’s something that’s on company’s radars, Brimeyer said,
especially as they think of ways to use that repatriated cash.
Other options besides acquiring companies with new medications in
the works include share repurchasing programs, increasing
dividends, and in some cases paying down debt. 

Eli Lilly chief financial officer Josh Smiley told Business
Insider that the company has about $9 billion in cash overseas
that will be repatriated over the next few years. While an
estimated $3.5 billion will be paid in taxes to the US, the
remaining money will ideally be used to build up the treatments
Lilly has in the works. 

“We’d love to use the cash to buy and partner to expand our
pipeline,” Smiley said. Ultimately, the hope is to have one-third
of Lilly’s pipeline of medicines that are in development coming
from outside the company.

But the changes that tax reform brings doesn’t necessarily mean
there’s going to be an across-the-board flood of new deals, since
some major pharmaceutical companies aren’t based in the US to
begin with. 

“You can’t just say ‘OK, it’s going to trigger M&A in
pharma,’ I think it’s going to be very company specific,”
GlaxoSmithKline US pharmaceuticals president Jack Bailey told
Business Insider. The cash could also be used for other purposes,
such as internal investments and dividends, he said.

“What we do know is there’s a potential for another round of
change within the pharmaceutical sector, given there’s this much
money overseas and that’s got a chance to be repatriated,” Bailey
said. “So I think it’s going to be fascinating to watch, much
like the pricing and reimbursement, legislative actions, and
regulatory actions.”

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