Author Archives: Carlos

Another Day, Another Inversion


Talk about lucky...

Talk about lucky…

A quick search resulted in several recent examples of US-based pharma companies executing “inversions” to reduce taxes via the acquisition of companies in Ireland:

Salix merges with Cosmo Technologies, the Irish subsidiary of Cosmo Pharmaceuticals of Italy, for >20% of the combined company. Both companies focus on GI, so strategically is makes some sense. What’s interesting is that such a small portion of the company is driving the inversion:

“Combining with Cosmo Tech makes tremendous strategic and financial sense for us as it further strengthens and consolidates our position as a leader in acquiring, developing and marketing products to treat gastrointestinal disease and disorders,” Carolyn Logan, Salix’s president and chief executive, said in a statement.

Now we’ve all seen this movie before, as evidenced by the recent Medtronic/Covidien transaction. In this deal, freeing “trapped” cash appears to be a large driver of this deal:

But Covidien’s overseas cash and the future foreign earnings from its businesses will not be subject to United States repatriation taxes, giving the enlarged Medtronic a new source of cash it can use freely. That will bring the amount of Medtronic’s “trapped” offshore cash down to about 40 percent of its total cash, from 60 percent as a stand-alone firm.

Medtronic said it planned to use its strengthened balance sheet to invest $10 billion in the United States over the next 10 years, a move apparently intended both to appease critics of inversions, and to emphasize the importance of the United States for the medical device industry.

Some other examples:

Israel-based Perrigo is up for sale, and part of the attraction is the substantial Ireland operation via the former Elan operation in Ireland.

Endo acquisition of Paladin Labs (Canadian) via the creation of a new legal entity in Ireland. And what does Endo have in Ireland? Not much:

The global headquarters of Endo International is so new that, apart from a few desktop computers, the most visible purchase to date is the Nespresso machine in the kitchen. Located in the basement of a Georgian house in central Dublin, the company, which makes branded and generic medicines, does not even have a brass plate on the door.

And, of course, we have the ongoing AbbVie chase of Shire.

For some companies, merely acquiring a manufacturing facility is sufficient, as demonstrated by Alexion Pharma’s move to acquire a facility in Ireland:

Alexion is doing something different. It acquired a factory in Ireland where its drugs are packaged into vials. By establishing this factory in Ireland, Alexion was then able to transfer “technical operations” and key patents on its main drug Soliris from the U.S. and Switzerland to its Irish affiliate. 

Other examples include:

Horizon Pharma acquisition of Vidara Therapeutics, a one-product company selling product in the US, with operations in Ireland.

The Actavis acquisition of Warner Chilcott in 2013 turned Activis into an Irish company, making it that much easier to wield the balance sheet necessary to acquire New York-based Forest Labs in February, 2014.

In hindsight, the Alkermes acquisition of Elan Drug Manufacturing in 2009 was one of the transactions which really brought this strategy to the attention of many investors and analysts.

Jazz Pharmaceuticals, via the acquisition of tiny Azur Pharma in 2013, is now being touted as an attractive option for US companies looking to execute an inversion.

Can This Continue?

In the US, President Obama recently announced his intentions to slam the door on these transactions by the end of the year.

By the same token, the Obama Administration is exploring to reduce corporate tax rated to 28%, and levels of up to 25% are being discussed in Washington.

Ironically, this is an issue that won’t do well with voters who tend to reject tax cuts for “big corporations” instead of individuals.

So with another 5 and 1/2 months to go, we think we’ll see more of these transformative transactions taking place.

Even if the Obama makes it difficult through legislation, other techniques, such as spinning off divisions to Irish investors, will be utilized by sharp companies looking to reduce costs and increase cash flow.

The irony is that the efflux of companies to Ireland is now fueling the growth of a real pharmaceutical and biotech cluster in a relatively small, English-speaking country that is near both European and US markets, and with direct flights from the US.

This makes it more attractive for US companies to relocate and tap into a growing pharma and biotech expertise in Ireland.

So expect there to be more consultants, investment bankers, and attorneys poking around basements of Irish office buildings, looking for inversion opportunities for companies in the US.


The NY Times is reporting two more inversions: AbbVie/Shire and Mylan/Abbott generics, with a re-incorporation in the Netherlands. They point out that it’s becoming a competitive necessity to lower taxes:

“As companies see competitors do it, they get more incentivized to do it as well,” said Wilco Faessen, a managing director at Barclays. “The competitive pressure is higher when some companies do it and others haven’t.”

It appears that health care companies are playing an expensive game of keeping up with the Joneses.

“There is likely a herd mentality going on where pharma companies are afraid they will be put at a competitive disadvantage if they don’t find a suitable foreign merger partner,” said J. Richard Harvey Jr., a professor at the Villanova University School of Law.

In fact, with the Abbott/Mylan deal, we now have a new term to deal with…the spinversion:

Abbott, which spun out AbbVie last year, will sell its pharmaceuticals operations in Europe, Japan, Canada, Australia and New Zealand to Mylan, which will then invert.

Under the unusual structure, being called a spinversion, Abbott Laboratories will divest itself of assets to allow a different company to strike an inversion. Abbott said it did not intend to be a long-term shareholder in Mylan and would seek to sell its stake.

The Wall Street Journal also chimes in with this piece:

“It’s at the point now that if you’re considering an M&A transaction, you’re absolutely thinking about whether it’s doable as an inversion,” said Christian Brause, a tax partner at law firm Sidley Austin LLP. “It’s just too good of an opportunity to waste.”

Reflections on BIO 2014



English: Night shot profiling the Colors and L...

Yeah, it’s nice there… (Photo Credit: Wikipedia)

We’re back and knee-deep in BIO2014 follow up work. Lacerta Bio was joined by 15,665 other “industry leaders” in days full of partnering discussions, pen-grabbing, eating and drinking, and many other sacrifices and challenges that those of us in our industry have to undergo.

But, before we forget about our trip, here are a few quick thoughts on another great BIO Convention.

1. San Diego is perhaps the perfect location for a convention. The hotels are great, and all within walking distance. The receptions were excellent. The Convention Center is quite good, with plenty of room for everyone. Even the wifi was good! Our only complaint? The amazing walking distances needed to navigate the Partnering Area.

2. It’s not unusual for us to meet with many ex-US companies. And, indeed, BIO2014 was no different. However, there were clearly (at least to us) a greater number of companies from China looking for innovative assets to develop and commercialize in China. One company told us that there are government funds available to finance the development and commercialization of innovative assets in China. So if you have assets and are willing to surrender Chinese commercial rights in exchange for licensing fees now, let us know…

3. The attendance (15,667) was up from BIO2013 in Chicago (13,594), but still below the Boston attendance of 16,505 in 2012. Maybe it was the layout of the Partnering area, but this BIO “felt” more crowded. Indeed, BIO reported over 29,000 scheduled Business Forum meetings, up from the 25,573 in Chicago last year. That’s not to say there wasn’t enough room. It just felt a bit busier in the Partnering area.

4. We were quite pleased to meet so many tech transfer officers who have significant industry licensing experience. This is not always the case, as many tech transfer offices are still staffed by folks from the academic/research side.

Overall, San Diego and BIO delivered another exceptional networking and convention experience. Now the pressure is on, Philly!

Related articles 

The Industrialization of Pharma R&D


Chaplin Modern Times

What goes on behind the walls of Big Pharma?

An excellent analysis of the AstraZeneca pipeline performance was recently published in Nature Review. The objective of this study was to identify and assess key factors which drive R&D performance:

Maintaining research and development (R&D) productivity at a sustainable level is one of the main challenges currently facing the pharmaceutical industry. In this article, we discuss the results of a comprehensive longitudinal review of AstraZeneca’s small-molecule drug projects from 2005 to 2010. The analysis allowed us to establish a framework based on the five most important technical determinants of project success and pipeline quality, which we describe as the five ‘R’s: the right target, the right patient, the right tissue, the right safety and the right commercial potential. A sixth factor — the right culture — is also crucial in encouraging effective decision-making based on these technical determinants.

It’s a comprehensive analysis, and we urge anyone who is interested in understanding why drug candidates fail during development to read this article a few times. For an excellent overview of the article, check our Derek Lowe’s post and corresponding comments.

What Caught Our Attention

 Several times throughout the article, the authors note that the company used to use quantitative metrics to judge R&D productivity:

…part of this productivity issue can also be attributed to a shift of R&D organizations towards the ‘industrialization’ of R&D. The aim was to drive efficiency while retaining quality, but in some organizations this led to the use of quantity-based metrics to drive productivity. The hypothesis was simple: if one drug was launched for every ten candidates entering clinical development, then doubling or tripling the number of candidates entering development should double or triple the number of drugs approved. However, this did not happen; consequently, R&D costs increased while output — as measured by launched drugs — remained static


This is because the focus of scientists and clinicians moved away from the more demanding goal of thoroughly understanding disease pathophysiology and the therapeutic opportunities, and instead moved towards meeting volume-based goals and identifying an unprecedented level of back-up and ‘me too’ drug candidates. In such an environment, ‘truth-seeking’ behaviours to understand disease biology may have been over-ridden by ‘progression-driven’ behaviours that rewarded scientists for meeting numerical volume-based goals 

Anyone who has been in the industry knows this has been the case for decades. But to have a large, multinational company come right out and say it is indeed refreshing. 

Fortunately for AstraZeneca, they have taken steps away from industrialization and towards what science should be:

The analysis we describe here was performed 3 years ago, and since then AstraZeneca has undergone considerable changes to implement the lessons learned…This has meant a conscious shift away from the high-volume-based strategy previously used in R&D to one where we focus on project quality and depth of understanding as a key driver of success.

Pharma scientists hard at work…

The Future of R&D

As the authors correctly note, it’s too early to decide if their shift towards a purer form of research will pay dividends in the form of greater efficiency. 

Maybe. Maybe not. 

But what is clear is that drug discovery research and development is damned hard. Biology does not easily divulge its secrets. And, even when it does, the secrets may not lend themselves to therapeutic approaches that are effective, safe, or convenient.

Coincidentally, VC and blogger Bruce Booth made an excellent point recently on the need for pharma researchers to learn their craft via a 5-10 year apprenticeship:

Without training in bigger pharma, there’s less talent for biotech; without that talent, biotech won’t make good drugs; without good biotech drugs, there’s no innovation for pharma, and then the end is nigh….in this brave new world, who is going to train the drug hunters of the future?  

Are we in a situation where “industrial” scientists are diluting the talent pool available for biotechs to hire? It’s certainly possible that this is happening now, and will continue to do so for the foreseeable future, worsening the problem Bruce Booth discussed in his post.


The otherwise annoying Forbes website has a good article by Matthew Herper on R&D productivity. The article is a summary of a report which analysis and ranks 22 companies based on various measures of R&D productivity.

The winner? Bristol-Myers Squibb.

Related articles

Preparing for BIO Webinar

This morning, Thompson Reuters and BIO presented a good webinar on preparing for BIO. I think it will be re-broadcast tomorrow

A lot of time was spent on characterising transactions on a macro scale, i.e., 2,315 deals in 2013, of which 31% were Licenses and Joint Ventures. 

While those statistics are interesting, the latter third of the webinar on preparing for BIO gave some good tips. 

Here are a few that stood out:

Start NOW – BIO projects that the number of meeting requests will exceed what was a very busy 2013 convention.

Profiles – We’re still seeing many companies with blank profiles. Why?

Tailor Messages – We’ve been preaching this message for years. That is, every meeting request message has to be tailored for the recipient.  We talked about this very point last year

We think the tailoring should go beyond the message and extend to the presentation to be used during the 30 minute partnering meeting.

We strongly recommend tailoring the presentation to the audience to the extent possible.

Placing an asset in the context of a prospective partner’s pipeline, for example, can make it easier for your counterpart to champion your cause internally.

Making it easier for your customer to “buy” what your selling is always a good approach to keep in mind. And that holds true for all the downstream steps, such as CDAs, data room access and organization, and so forth.