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12:00 AM
Apr 11, 2005
 |  BioCentury  |  Finance

Ebb & Flow

Pfizer (PFE) had a busy week, what with announcing a restructuring at its investor day and news that FDA wants the company’s Bextra COX-2 inhibitor off the market. But what should have grabbed the interest of the biotech crowd was the pharma giant’s announcement that it plans to repatriate more than $28 billion in cash from outside the U.S. this year.

The influx of international cash results from the October 2004 passage of the American Jobs Creation Act of 2004. The law allows U.S. corporations to repatriate earnings of foreign subsidiaries at a temporarily reduced tax rate of 5.25% - versus the normal 35% - if the income is permanently reinvested in the U.S. All the money has to be repatriated in 2005 and invested before Dec. 31, 2007. This could be good news for biotechs in the U.S., as this reinvesting could include product partnerships and M&A.

Daria Hodapp, a tax partner at Ernst & Young, told Ebb & Flow that repatriated dollars "can be used to just fund R&D, but also could be used to in-license, as long as it’s in the U.S. You can also use it to make your payroll."

She also noted the money can’t be used for stock buybacks or dividends.

PFE isn’t the only pharma company that plans to bring in cash from overseas. Indeed, between PFE, Bristol-Myers (BMY),Eli Lilly (LLY), Johnson & Johnson (JNJ), Merck (MRK) and Schering-Plough (SGP), up to $81.2 billion sitting outside the U.S. could be brought into the U.S., according to their 10-K filings. By comparison, these six companies spent a total of $23.6 billion on R&D last year (see "Boatloads of Cash").

PFE said the money it plans to repatriate would "strengthen Pfizer’s ability to pursue strategic opportunities while enhancing the company’s flexibility to invest in our R&D pipeline and new product potential in the U.S." Indeed, in its cost-cutting announcement last week, the company said R&D spending will grow about 4% to $8 billion in 2005 compared with $7.7 billion in 2004 (see BioCentury Extra, Tuesday April 5).

Along similar lines, LLY spokesperson Terra Fox said that company plans to use the money it repatriates - $8 billion - "for capital investments such as manufacturing and R&D facilities, compensation for new and existing employees, and R&D expenses."

Earnings warning shots

A pair of companies previewed soft earnings for the quarter ended March 31, and investors voted with their feet. Forest (FRX) dropped $4.48 (12%) to $33.51 on 17.3 million shares on Wednesday after lowering fourth quarter 2005 EPS guidance to $0.40. The Street had been expecting $0.52.

FRX said reduced inventory at wholesalers and chains lowered sales of Lexapro escitalopram and Celexa citalopram for depression and Namenda memantine to treat Alzheimer’s disease (AD). FRX expects net sales for the quarter to be $614 million, down from $725 million in the same period last year. On the week, FRX was down $3.78 (10%) to $32.93.

Protein chip developer Ciphergen (CIPH) fell $0.58 (31%) to $1.88 on Tuesday following Monday’s post-market news that first quarter revenues will come in at $6.3-$6.7 million, down from guidance of $8-$9 million. CIPH plans to report full first quarter earnings on May 6. The stock closed Friday at $1.89, down $0.73 (28%) on the week.

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