- A group of top executives from some of the largest U.S. corporations, including four pharmas, on Feb. 21 sent a letter to Congressional leadership supporting business tax reform as an avenue to boost investment and production in the U.S.
- The sixteen execs, writing under the banner of the American Made Coalition, urged Congress to take up the kind of reforms proposed by House Speaker Paul Ryan, R-WI, and Ways & Means Committee Chair Kevin Brady, R-TX, which would move the U.S. towards a territorial taxation system.
- President Trump has pushed the pharmaceutical industry to bring back manufacturing jobs from overseas and make more drugs in the U.S. A more favorable tax code and a border adjustment tax, which has been mooted as a possible reform, would likely factor heavily in decisions to re-shore manufacturing.
As drug pricing controversies continue to simmer, pharma CEOs (and markets) are breathing a sigh of relief that President Trump seems to have softened his tone somewhat from seemingly favoring direct price negotiations earlier on. While Trump commented on the "astronomical" cost of drugs in a recent meeting with the industry, his newer focus seems to be oriented more around manufacturing in the U.S. and creating jobs.
Pharma companies have been trimming workforces and outsourcing production for years, but the prospect of dramatic changes to U.S. tax code could change the incentives.
Pfizer CEO Ian Read has said the current tax code compels pharma companies to manufacture outside of the U.S., but indicated tax reform may be a solution.
"I think the Republican leadership has overall tax changes that are overall favorable for the pharmaceutical industry," Read said in a recent earnings call. "Certainly would allow us to create more jobs in the U.S."
Read was one of four pharma CEOs to sign the recent letter urging for a territorial tax system. Celgene CEO Mark Alles, newly minted Eli Lilly head David Ricks and Merck chief Ken Frazier also signed onto the letter.
Territorial taxation would only tax local income earned inside the country. The U.S. currently uses a worldwide taxation system that imposes corporate income tax on all of a business' income, regardless of where it was earned. Companies can defer tax on income earned abroad by keeping that money off-shore, which many pharmas currently do.
The Ryan tax plan also includes a proposal for a border adjustment policy that would impose taxes on goods imported into the U.S. as a way to re-balance the trade deficit and put U.S. exporters on a more competitive footing. Such a policy could encourage pharma companies to produce more drugs domestically.
Ironically for Pfizer's Read, the letter supports changes that would help prevent so-called corporate inversions. Last year, Pfizer attempted to do just that through a failed $160 billion merger attempt with the Irish-headquartered Allergan.
On Thursday afternoon, Trump held a meeting with manufacturing CEOs, including Merck's Frazier, touting their commitment to bringing jobs back to the U.S. Such commitments are nice, but without a shift in incentives, large multinational companies like Pfizer, Merck and Eli Lilly aren't likely to upend their organizational footprint on a large scale.