Humira is the world's bestselling drug, marketed by the Big Pharma company that’s expecting to chalk up the lowest tax rate in the industry this year. And a new Reuters investigation shows how AbbVie benefits from the Trump Administration tax changes by offshoring its patents and running a loss in the U.S.
For 2018, AbbVie expects to pay a staggeringly low 9% tax rate on projected revenue of $32 billion. Behind those numbers are several maneuvers.
According to Reuters, AbbVie has stored dozens of Humira patents in Bermuda, which has no corporate taxes. The company declined to discuss its tax arrangement with the news service—and its setup isn't entirely public—but Reuters noted that many drug companies park patents in tax havens and then affiliate companies pay royalties to market and manufacture a drug in a more lucrative market, such as the U.S.
In AbbVie's case, the company has run a U.S. loss every year since it became a standalone company in 2013. During the same period, its U.S. sales have soared.
Mechanisms in the Trump Administration's tax changes benefit the company, according to Reuters. The administration slashed the U.S. corporate tax rate to 21% and attached a provision that profits from tax havens be taxed by the U.S. at a rate of 10.5%.
But companies can apply U.S. losses against that rate to further lower their tax bills. Under the new tax law, companies that record profits overseas can benefit from running a loss in the U.S.
Ahead of the tax bill's passing, Senate Finance Committee Ranking Member Ron Wyden, D-Ore., warned of the changes. He plans to issue a report later this summer about the tax bill, according to Reuters, and other Democrats are looking at how the bill incentivizes companies to park patents overseas.
"Under the territorial international tax system in this bill, corporations will get a bigger tax cut if they lay off their American workers, pack up and move abroad," Wyden said in prepared remarks on the bill in November. "It creates colossal new loopholes—huge, new gifts for tax cheats."
AbbVie came out a major winner in tax reform, and the company quickly pledged to spend part of its savings on U.S. capital projects, accelerated pension funding and charitable gifts. The company also said it would boost nonexecutive compensation. Last month, it gave $100 million to Puerto Rico hurricane relief.
Aside from those expenses, the company and others have been criticized for deploying their tax savings for share buybacks. In an April report, Sen. Cory Booker detailed how Pfizer, Merck, AbbVie, Amgen and Celgene kicked off share buybacks—worth a total of $45 billion—shortly before or after tax reform's passing. He said drugmakers should have used the savings to lower drug prices.
In response, an industry spokesperson said Booker's report "buries the lede."
The companies were "cherry picked for inclusion"—at least partly because of their spending on buybacks—but even those companies "committed at least $23 billion to research and development and capital projects, such as new U.S. manufacturing facilities that will drive domestic economic development and job growth and billions more to unspecified projects," according to a PhRMA representative.
More recently at an industry conference, Ovid Therapeutics CEO Jeremy Levin, formerly Teva's chief executive, said pharma wasted a chance to invest its tax savings, according to Scrip Pharma Intelligence.
AbbVie's 9% projected 2018 tax rate compares with 17% for Pfizer, 18% for Eli Lilly and 14% to 15% for Amgen.