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Mylan angles to ax its tax bill, as CEO says feds unlikely to foil overseas buys

| Thursday, Aug. 7, 2014, 9:30 a.m.
Jasmine Goldband | Trib Total Media
Pill bottles roll off the line at Mylan Inc.’s pharmaceutical manufacturing plant in Morgantown, W.Va., in 2013.

Buying a foreign company and reincorporating overseas is not the only way for Mylan Inc. to reduce its tax expenses.

The Cecil-based generic drugmaker's income tax expense dropped 73 percent in the second quarter, as the company reported lower profit that was hurt by higher research, administrative and litigation costs.

Mylan is buying the overseas generics business of Abbott Laboratories for $5.3 billion, a deal that will allow the company to reincorporate in the Netherlands, where it will benefit from a lower tax rate.

Known as an inversion, a wave of similar deals has drawn scorn from President Obama and other Democrats, who have called for changes in tax law to prevent the practice. Among them is Sen. Joe Manchin, D-W.Va., the father of Mylan CEO Heather Bresch.

Bresch told analysts on Thursday that she does not expect Congress to pass any bills to block inversions.

“I just continue to think the odds of anything getting done, and looking at one little snapshot of our tax code, which needs significantly reformed, is unlikely,” she said on a conference call to discuss the company's second-quarter earnings.

“At the end of the day, it's going to be very difficult to take one piece of our tax code and try to be punitive for companies that are foreign-based or have chosen inversion,” Bresch said.

The issue is clearly on the minds of investors, who are worried that politicians could throw a wrench into Mylan's deal before it closes early next year, said Jeff Loo, an analyst with S&P Capital IQ in New York.

Drugstore chain Walgreen this week said it would not do an inversion when it buys Swiss health and beauty retailer Alliance Boots in a $15 billion deal. Investors responded by pounding Walgreen's stock down 14 percent.

The Treasury Department this week said that it was examining regulatory changes that would amount to a “partial fix” while the Obama administration keeps pushing Congress to curb inversions.

Tax lawyers have said the department has constrained powers to make inversions less attractive, including limiting companies' access to foreign cash to finance the deals.

“There's a lot of pressure on these companies with these tax inversions,” Loo said.

While Mylan's tax payment fell in the April-June quarter, Loo warned that taxes can fluctuate widely from quarter to quarter. The company paid $11.2 million in taxes in the second quarter, compared with $41 million a year earlier.

Mylan spokeswoman Nina Devlin said the company's taxes were lower primarily because its income was down. Mylan's profit fell 30 percent in the quarter to $125.2 million, or 32 cents a share, down from $177.7 million, or 46 cents a share, in the same quarter last year.

On an adjusted basis, net income was 69 cents a share, which Mylan said was in line with its prior guidance. Analysts were expecting 72 cents a share, according to Bloomberg data.

Mylan's stock dropped $1.43 a share, or 3 percent, to $46.49.

Revenue in the quarter was $1.8 billion, up from $1.7 billion. Expenses jumped 34 percent to $582.7 million, up from $433.7 million a year earlier, on higher spending for research and development, administration and court settlements.

Mylan also said it was narrowing its estimate for full-year earnings because of delays in product approvals at the Food and Drug Administration.

The company expects adjusted net income of $3.25 to $3.45 a share this year. It previously predicted adjusted net income of $3.25 to $3.60 a share.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or The Associated Press contributed to this report.

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