For some pharma dealmakers, corporate domiciles in Ireland have become hot commodities. The Irish tax code figured prominently in two recent biopharma buyout deals, and, as Bloomberg reports, this makes the biotech group Alkermes ($ALKS) and Jazz Pharmaceuticals ($JAZZ) potential targets.
These are strange times for the biopharma industry, with a confluence of factors pushing down on profits, including internal factors such as years of poor productivity in innovative drug research as well as external forces such as generic drug competition and payers unwilling to support expensive prescriptions.
One easy way to improve a drugmaker's financial picture: Pay less tax. Last month Allegan, MI-based Perrigo ($PRGO), a maker of generic and OTC products, agreed to buy the biotech outfit Elan ($ELN) in a deal valued at $8.6 billion, saying that taking over Elan's Irish domicile would help the company save $150 million annually, much of the savings from reduced taxes.
Grabbing tax advantages might sound far less inspiring than rebooting outdated approaches to drug R&D, or even seeking buyouts of companies with innovative drugs, especially to those who believe that value in the industry is built in the lab more than mastering tax codes. Yet at least for now, dealmakers are zeroing in on Ireland's corporate tax rate of 12.5%, which is nearly three times less than the U.S. corporate tax.
"You've got a classic inefficiency in the tax rate market," Brean Capital analyst Gene Mack said, as quoted by Bloomberg. "I think everybody is trying to find a synergy in the Irish tax rate right now."
As long as the "inefficiency" exists, expect drugmakers to pursue lowered tax rates. In addition to Perrigo, Actavis ($ACT) pulled the trigger on the buyout of Warner Chilcott in May.Alkermes CEO Richard Pops
Alkermes CEO Richard Pops has also noted the tax advantages his company gained in buying Elan's drug technology business in 2011. Yet he has been plowing a significant amount of resources into growing the company's R&D pipeline, which he announced last month would double with the addition of three new programs that aim to best some blockbuster treatments for chronic diseases.
Pops, who joined Alkermes more than 20 years ago, aspires to add more internally developed drugs to a business built on reformulated therapies such as Risperdal Consta and Invega Sustenna. The ultimate goal is to erect another "Big Biotech" on par with Biogen Idec ($BIIB) and other industry giants. And a buyout of his company could interrupt the R&D revival under way.
As Bloomberg reported, companies such as Allergan ($AGN), Forest Laboratories ($FRX) and Mylan ($MYL) had been in the hunt for Elan before Perrigo emerged with the winning offer. The implication there is that those companies could be circling over other buyout targets in Ireland.
- check out Bloomberg's article
Special Report: Richard Pops - The 25 most influential people in biopharma today - 2013