Replies to post #12288 on Biotech Values

[TaxDude]

Red: About the $ big-pharma re-patriation:

Companies are required to repatriate the cash prior to 12-31-05, but they are not required to spend it prior to 12-31-05. They must have a "qualified re-investment plan" in place prior to the repatriation, but the plan can be very general in nature. I'm not 100% sure about the specifics (I think the IRS regs just cme out)... but I think if a company reinvested the repatriated earnings over a 2 or 3 year time frame, this would be okay. Thus, I would not expect a flood of acquisitions prior to 12-31-05 simply due to this tax incentive.

[DewDiligence]

Re: big-pharma repatriation

The exact rules are spelled out in a U.S. Treasury document that I haven’t read. However, the basic skeleton has been laid in the business press. The main points are:

1. The federal tax rate on repatriated earnings is reduced by 85% (from 35% to 5.25%) in 2005 only.

2. Companies wishing to take advantage of this 85% reduction must submit a written plan to the IRS explaining what the repatriated money subject to the exemption will be used for.

3. In general, use of the repatriated money for acquisitions will qualify for exemption.

4. Among all U.S. industries, Big Pharma has the most money to be repatriated. That’s because a large proportion of BP’s earnings come from overseas, thanks to various tax games they play with transfer payments between multinational subsidiaries for manufacturing and IP licenses.

--
There is no question that there will be more large biotech acquisitions during the balance of 2005 and thereafter (if the repatriated funds have not yet been spent).