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You are here: Home > Blogs > Company > US Tax Reform Jump-Starts M&A Activity in 2018

US Tax Reform Jump-Starts M&A Activity in 2018

June 6, 2018 | Company

Jane weber brubaker

The passage of the Tax Cuts and Jobs Act of 2017 paves the way for US corporations with large stockpiles of cash overseas to repatriate their capital at a one-time rate of 15.5% vs. the new corporate tax rate of 21%. Prior to the passage of the new law, the corporate rate of 35% and potential tax liability made it less than attractive for companies to bring their assets back to the US.

Big pharma companies are among those with the largest accumulated cash outside the US, including Amgen ($38.9bn), Gilead Sciences ($32.4bn), Bristol-Meyers Squibb ($9.6bn), and Celgene ($6bn).[1]

According to PharmaVitae’s M&A Outlook 2018 report, “A host of companies, led by Amgen and Gilead, have noted their intention for repatriation.” Many of these companies plan to use the windfall to ramp up M&A activities in 2018.

The report identifies more than two dozen potential acquisition targets, categorized by estimated deal size: up to $2bn, $2-10bn, and $10bn+. Companies may engage in dealmaking to fill strategic gaps, strengthen core capabilities, enter new markets, or complement overall goals with targets that generate strong returns.

Activity undertaken so far this year sheds light on some of the M&A strategies pharma companies may follow to strengthen their positionsin the coming months:

  • Sanofi acquisition of Bioverativ for $11.6bn, and Ablynx for $4.8bn
  • Celgene acquisition of Juno for $9bn
  • Roche acquisition Flatiron for $1.9bn

Offsetting Losses from Patent Expirations

Sanofi’s acquisition of Bioverativ is illustrative of the type of targeted deal-making pharma companies may engage in to offset patent expirations. The patents for Sanofi’s best-selling diabetes drug Lantus are set to expire between 2023-2028.[2]

With the Bioverativ deal, Sanofi is betting that factor replacement therapy will remain the standard of care in hemophilia for many years, although other innovative therapies such as gene therapy are gaining ground. The hemophilia market is valued at $10bn.[3]

The acquisition of Bioverativ was successfully completed on March 8.

Countering Competitive Pressures

With its single-domain antibody fragment, or “Nanobody,” the Ablynx acquisition gives Sanofi a strong foothold in rare blood diseases including the ultra-rare autoimmune blood clotting disease acquired thrombotic thrombocytopenic purpura (aTTP). In specialty areas such as aTTP, the competition is less intense and drug prices are higher.

There are approximately 7,500 new cases of aTTP a year in the US, EU and Japan. Ablynx’s late stage asset caplacizumab is the first drug approved for treatment of aTTP in both US and EU.

On May 14, Sanofi announced the successful results of the initial tender offer period for Ablynx.

Setting New Standards Through Innovation

Celgene’s acquisition of Juno Therapeutics establishes the company as a major player in the field of cellular immunotherapy. It also gives Celgene a hedge of protection against the upcoming expiration in the mid-2020s of its blockbuster cancer drug, Revlimid, which accounted for over 60% of its sales in 2017.[4] PharmaVitae’s M&A Outlook 2018 report states: “The pace of cellular immunotherapy innovation is repidlyrapidly evolving, and Celgene has bet that cellular immunotherapies have the potential to become a standard component of cancer care.”

Real-World Evidence Through Big Data

In February, Roche expanded its equity stake in Flatiron, a healthcare technology and services company, agreeing to acquire the remaining shares for $1.9bn. Flatiron’s cloud-based analytics platform is focused on cancer analytics and uses natural language processing to extract insights from unstructured data in electronic medical records tailored to the needs of oncologists.[5]

In announcing the acquisition, Roche Pharmaceuticals CEO Daniel O’Day stated, “This is an important step in our personalized healthcare strategy for Roche, as we believe that regulatory-grade real-world evidence is a key ingredient to accelerate the development of, and access to, new cancer treatments.”

These acquisitions foreshadow M&A activity in the coming months and years, as pharma companies seek to rebalance their portfolios, offset losses from patent expirations, and acquire high-value assets that provide stability in the short term, as well as growth potential long term.

[1] http://fortune.com/2018/02/22/us-companies-overseas-cash-tax-cut/
[2] https://www.accessdata.fda.gov/scripts/cder/ob/patent_info.cfm?Product_No=001&Appl_No=021081&Appl_type=N
[3] https://www.fool.com/investing/2018/01/24/will-sanofis-big-hemophilia-deal-pay-off.aspx
[4] https://www.investors.com/news/technology/celgene-rises-on-potential-it-could-settle-over-generic-revlimid/
[5] https://healthitanalytics.com/news/roche-buys-flatiron-cancer-analytics-ehr-tools-for-1.9b

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