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Is Big Pharma Using Corporate Tax Savings to Lower Drug Costs?


With the passing of the new tax bill, the corporate tax rate has come down from 35% to 21% which is likely to boosts profit margins. Moreover, the cash repatriation window allowed in the bill will help companies to bring in cash stashed in foreign locations at a one-time tax rate of 10%, leaving these companies with extra spending power.

Most big pharma companies discussed their plans to use the extra cash they save from the new tax bill at their fourth-quarter conference calls. The extra cash will mostly be invested in capital expenditures, products/pipeline, in-licensing or acquisition deals or rewarding shareholders through higher dividends and share buybacks. However, the majority of companies did not mention any effort regarding lowering of prescription drug costs.

Last week, Senator Tina Smith in letters to five big pharma companies, expressed concern about how big pharma companies plan to used billions of dollars they will save from the tax cut offered under the tax bill passed in December 2017. She is concerned about the fact that the companies are favoring investors instead of using the savings to bring down prescription drug costs. Major life-saving drugs which are protected by patents are steeply priced. Thus, making these drugs affordable will help consumers, as it will lower their medical costs.

The Senator has sent letters to CEOs of Pfizer Inc. PFE, Merck & Co., Inc. MRK, Johnson & Johnson JNJ, AbbVie Inc. ABBV and Abbott Laboratories ABT to provide the details of how they intend to utilize major savings from the tax overhaul.

The prices of major prescription drugs have skyrocketed over the past years, pinching hard U.S. citizens as their medical bills have soared. Moreover, the government also has to pay higher costs for the drugs that are covered under Medicare. The concern of the senator is thus justified. A move to restrict the use of tax savings for boosting shareholders will be a welcome move for consumers.

Moreover, large players from every other industry have similar plans, which have undercut President Donald Trump’s plans to create jobs and boost wages.

Senator Smith is also working toward making cheaper generic drugs available in the market faster by introducing a new legislation, as reported by KDAL.

Large Cap Pharmaceuticals Industry 5YR % Return

Large Cap Pharmaceuticals Industry 5YR % Return

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