Celgene provides hint at what tax reform could mean for M&A, if it ever happens

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Drugmakers had thought that with tax reform, 2017 would be a big year to do M&A, but Congress has yet to finalize a tax bill.

As pharma waits to see if Congress gets to the finish line with a promised tax cut for business, Celgene provided some insight on Sunday into what it could mean as far as M&A for the industry. The New Jersey drugmaker has $9 billion overseas that might be deployed, upping its purchasing power by 50%.

During a confab at the American Society of Hematology (ASH) meeting in Atlanta, execs said they are “actively reviewing M&A opportunities,” Mizuho Securities analysts told clients in a note today. While the company didn’t discuss specific targets, it did provide insight into the size of deals it might do, Mizuho said. Celgene has $2.5 billion in U.S. cash, and management figures it can raise another $14.5 billion and stay within the perimeters it considers acceptable to keep its balance sheet in shape. So, it has $17 billion to deploy.

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But “management noted this level of purchasing power assumes … no repatriation of ex-U.S. cash,” Mizuho told clients. Celgene has other avenues it could pursue to up its leverage, like issuing equity, but if Congress passes a bill with tax repatriation, its purchasing power would immediately become much richer. Mizuho noted that Celgene has about $9 billion in cash overseas.

Celgene investors have their fingers crossed. With its stock price down and having slashed guidance, the company is under pressure to pull off a deal or two that could fill in some of its gaps. The company missed revenue projections in the third quarter as a couple of key drugs came up short. Taking its performances into consideration, the drugmaker rolled back its 2020 sales guidance to a range of $19 billion to $20 billion, from a previous target of $21 billion. It shares were also hit hard by a trial failure in Crohn's disease. 

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Other U.S. drugmakers are also on the hunt for buying opportunities, and when the year began, the prospect of U.S. tax reform had pharma investors thinking this could be a big year for M&A. But with Congress yet to pull it off, deals instead have been few and far between. Pfizer, which some analysts have suggested may have its eye on Bristol-Myers Squibb, reportedly has about $85 billion in overseas funds. But it also has cited uncertainty around tax reform as a reason to hold off on big deals.

One big pharma deal that did happen this year was when Gilead Sciences plunked down $10.2 billion to buy Kite to get its approved CAR-T medication Yescarta. But with the tax bill yet to be approved, it now looks like not much is likely to be announced before 2018.

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