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.
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.
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.