Industry analysts can't help but handicap which drugmakers will be the next target of heated industry M&A interest. So three days into the new year, they are putting their money on Jazz Pharmaceuticals ($JAZZ), the Ireland-based company that has itself been in acquisition mode.
Two weeks ago Jazz said it would pay $1 billion to buy Italy-based Gentium ($GENT), which has the EU-approved orphan drug, Defitelio. R.F. Lafferty analyst Difei Yang told Bloomberg that acquisition is a positive step forward for Jazz that "makes them a more attractive target." He suggested generic drugmakers Mylan ($MYL) and Teva Pharmaceutical Industries ($TEVA) might want to make a run at Jazz as a way to get into the high-margin orphan drug category.
It is not only its high-margin portfolio, but also its low tax rate domicile that sometimes makes Jazz the subject of takeover talk. It moved its base to Ireland from Palo Alto, CA, after its 2011 merger with Azur Pharma. Some drugmakers have noted Ireland's low tax rate as one of their motivations for buying drugmakers based there. In July, Allegan, MI-based Perrigo ($PRGO), a maker of generic and OTC products, agreed to buy Ireland-based Elan in a deal valued at $8.6 billion. It said that having Elan's Irish domicile would save the combined company $150 million annually, mostly from lower taxes.
Brean Capital analyst Gene Mack doesn't believe the tax advantage that Jazz offers is motive enough to offset the huge price someone would have to pay to get it. He points out to Bloomberg that Jazz' market cap now stands at about $7.3 billion, up from just $1.6 billion two years ago.
"It's not as simple as it seems," Mack said. "You've got to see other synergies, some other fundamental benefit. It can't just be for the Irish tax rate."
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