It would be difficult to miss the major trend in Big Pharma's latest round of earnings reports: Flat sales, falling profits, generic erosion and lots of talk about near-term growth from newly approved and forthcoming products.
But there's another commonality that's not so easy to spot. As The Wall Street Journal reports, drugmakers are chipping away at their tax rates, typically by shifting more revenue overseas. Bristol-Myers Squibb ($BMY), for example, reported a 23% tax rate for 2012. For 2013, it expects that rate to drop to 16%. Other companies that expect lower rates include Gilead Sciences ($GILD) and Amgen ($AMGN), the Journal says.
Lower tax rates--even of a percentage point or two--would put a forward spin on earnings at a time when drugmakers are struggling to replace sales lost to generic competition. Profit margins have suffered, even in the midst of cost cuts, partly because it's the older, higher-margin drugs that are falling off patent.
One analyst pegged the tax savings for Bristol-Myers at $200 million for 2013. Another, Tim Anderson of Sanford Bernstein, said in an investor note that the predicted tax rate "is now well below any drug name we cover."
How are companies managing it? Bristol cited a few reasons, including a "restructuring." Gilead says the IP is for its forthcoming hep C drug is in Ireland, which could allow it to book sales there. That's a common technique used by drugmakers to report sales in lower-tax jurisdictions. The federal tax credit for R&D also helps; Amgen mentioned it as a reason for the expected one-to-two percentage point drop in its own tax rate.
- read the WSJ piece (sub. req.)