Pfizer, the nearly 200-year-old drugmaker, plans to invest $5 billion in capital projects that include strengthening its U.S. manufacturing operations after winning a lower tax rate under Republican legislation last year.
The investment, stretched over five years, puts New York-based Pfizer in the ranks of companies from JPMorgan Chase, the largest U.S. lender, to iPhone-maker Apple that are increasing their spending in the wake of massive tax cuts intended to buoy the U.S. economy.
The law, championed by President Trump, slashed the top corporate rate to 21 percent from 35 percent while allowing companies to bring earnings from overseas back to the country without penalty after a mandatory one-time fee of 15.5 percent on cash and 8 percent on other assets. Previously, companies paid U.S. taxes on overseas holdings moved to the U.S. even when they had been taxed in the country where they were held.
“The system that had been in place put U.S.-based multinational companies at a competitive disadvantage vis-à-vis foreign competitors with regard to the tax rate and international access to the capital,” Pfizer CEO Ian Read told investors on an earnings call Tuesday. “The new tax code addresses these issues and helps level the playing field to make U.S. companies more competitive.”
Along with infrastructure spending, Pfizer will make a $500 million contribution to its pension plan this year and has earmarked $100 million for a one-time bonus to all non-executive workers before the end of March.
The drugmaker is also reviewing how the revamped tax code might affect the return of cash to investors, who received $12.7 billion through dividends and stock-buybacks last year.
“We remain committed to delivering attractive shareholder returns in 2018 and beyond,” Chief Operating Officer Frank D’Amelio said on the call.
Pfizer’s projected tax rate for this year dropped to 17 percent from a projected 23 percent, executives said, though the repatriation charge will cost the company about $15 billion.
The company is among four U.S. drugmakers most likely to attempt mergers and acquisitions, according to a report from credit-rating firm Moody’s earlier this month that analyzed how pharmaceutical-makers might spend savings from the tax cuts.
The others are Amgen, Gilead, and Celgene. All four are grappling with challenges from a shrinking market for some medications to the expiration of patents on others that will enable rivals to produce cheaper generic versions.
Pfizer’s U.S. patent on Lyrica, a treatment for diabetic nerve pain, will expire in mid-2019, for instance, and Celgene will eventually have to grapple with producers of a generic version of Revlimid, a cancer drug that makes up 60 percent of its revenue, Michael Levesque, a senior vice president at the New York-based firm, told the Washington Examiner.
Expiring patents on such products force pharmaceutical companies “to replenish their pipelines,” Levesque said. “That’s not always done internally. Many times, it’s done through acquisitions.”
Pfizer’s earnings of 62 cents a share in the three months through December, adjusted to account for one-time items such as acquisitions and divestitures, topped the 56-cent average estimate from analysts surveyed by FactSet. Net income surged to $12.3 billion from $775 million a year earlier.
