Reuters Insider - Breakingviews: Inversion feeding frenzy
18/09/2014 20:02
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Description: Sept 18 - Robert Cyran and Reynolds Holding
discuss drugmaker Endo's tax-driven bid for
Auxilium and the dearth of tasty prey for pharma
sharks.
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Transcript (May be auto-generated)
Corporate inversions, mergers designed to take advantage of lower taxes in
foreign jurisdictions, are all the rage. And Rob Cyran, we're talking about one
today that makes my head hurt. I mean, it's a US company that's now an Irish
company going after another US company that wants a Canadian company. Please,
exactly it's what out for. It's really confusing. What it is, basically, you've
got these two companies. They're sharks, basically - they go up and they buy up
other companies and rights to other drugs. Right. And what they're doing is one
shark is trying to buy the other shark. Okay. Now, who are these companies? So
you've got Endo International. They're the company that bought a Canadian
company and inverted the whole company over to Ireland for the tax base. To
Ireland, right. They're trying to buy a company called Auxilium. Auxilium,
they're trying to buy a Canadian company, do a similar sort of thing. Yeah, to
move it all to Canada which has lower tax. Exactly, which they're paying lower
taxes.
Okay, got it. And what this shows, I think, is that there were probably a
paucity of assets. In other words, there've been so many of these deals, it's
been the biggest year ever for pharma M&A and most of it- a lot of it's been
concentrated among these kinds of specialty drug companies. Right. We've got
Valiant going after Allergan, we've got activists doing something. Yeah. And
what it means is perhaps there aren't that many fish in the sea and the sharks
are forced to eat each other, and that's not a good sign. What's driving this
deal? I mean, are these companies doing okay?
Are they losing money? They're doing both kind of not so great. And why is that?
Well, these companies, because what they do is they buy up- they have kind of
grubby assets. They buy drugs which the patents are about to expire or they're
unclear or they buy competitions about to head- about to start up. And both
these companies are facing really like if they don't do more deals, they'll face
declining sales. Like sharks, they have to keep on moving forward. If they
don't, they die. Yeah. And if they don't do deals, these companies eventually
kind of disappear. Yeah. So that's the problem they both face.
And we've looked at a lot of these inversions. Tim Hortons, for example, where
there's been a lot of talk - was that for taxes or, as we say, there were other
things driving it. Is this one about taxes or is it- Well, this is one, yeah,
because what they can do is- Endo, because they're in Ireland, they pay a much
lower tax rate, they can buy up the other company. And they've said they're not
going to buy- again, Endo's buying Auxilium. Auxilium is buying the Canadian
company. Endo said, "We only want Auxilium. We don't want the Canadian company
they're buying." In other words, they only want the US asset which pays high tax
rates. And they think they can cut costs and pay a lower taxes and the profit
will result. And there was more bad news for both companies today? Yes.
Well, yesterday because the FDA had a panel and they're looking at testosterone
use. It's gotten out of control. It causes some problems, of course, some heart
attack problems and other things. And a lot of doctors were kind of unethical or
just prescribing right and left. Yeah. And these companies, they both sell
testosterones. So the question is, you know, there could be some tight
restrictions on it and if that happens, both these companies' sales could get
hit. Okay. Interesting stuff. We'll be watching this deal as well as others. In
the meantime, stay tuned for more Breakingviews tomorrow