With the New Year comes a new tax system in the U.S., and now many analysts and consultants are digging into how the GOP's reform will affect major pharma players. This week, Leerink Partners analysts are out with their picks for the large biotechs that will see the most benefit, and a few that might pay more.
In a note Thursday, Leerink analyst Geoffrey Porges wrote that of companies in his team's coverage, Biogen, AbbVie and Regeneron are set to gain the most from the tax bill. Biogen and AbbVie currently have "relatively suboptimal tax structures," he wrote, and will likely make up ground from the changes.
Regeneron will likely see a lower tax rate by a few percentage points, according to the analyst, which should in turn boost its valuation by 3% to 5%. Gilead could also see long-term benefits too, the analyst wrote.
On the other end of the coin, Celgene and Amgen are likely to see minimal effects from the bill and could see small increases in their tax bills. Alexion will likely have to pay slightly more taxes, the analyst figures. Many companies won't see a large benefit because they already have "highly efficient tax structures," Porges wrote.
One topic many industry watchers are keeping an eye on in the wake of tax reform is dealmaking. M&A has been relatively stagnant for two years as industry executives awaited the results of the 2016 election and for tax reform last year. Now, many feel the industry is set for a rebound.
Adding to that sentiment is an ability by drugmakers to repatriate foreign cash at 15.5% tax rate under the new bill. Pharma has tens of billions of dollars overseas and some believe companies will deploy that cash for a new wave of buyouts.
Leerink analysts aren't so sure. They noted that large cap biotech companies alone will have to pay $19 billion to access their foreign cash reserves. Porges wrote that it's a "large price tag for an uncertain benefit."
"The old system of stashing and borrowing worked quite well for most companies, and it is unclear to us how this available cash will be deployed other than through questionable value-generating (i.e. non-cash flow generating) activities, such as increased dividends and share repurchases," he pointed out in Thursday's note.
To that point, Pfizer recently announced it is increasing its first-quarter dividend by 6% and is earmarking $10 billion for share buybacks. That move plays into the criticism that the tax bill won't lead to job creation as President Donald Trump has suggested, but rather enrich corporations and shareholders.