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Lilly CEO says tax reform could lead to more dealmaking

January 8, 2018

Eli Lilly and Co. CEO Dave Ricks said Monday that the recent changes in U.S. tax policy will help the drugmaker lower its global tax burden as he continues to look for deals in areas like oncology.

“We may win a few more contests that we were losing before,” he said in an interview at the annual J.P. Morgan Healthcare Conference in San Francisco.

Indianapolis-based Lilly’s global tax rate will be lowered slightly as a result of the changes that President Donald Trump signed into law in December, Ricks said, adding that Lilly will be able to access cash regardless of where it’s stored. He said that foreign companies whose tax rates remain lower will affect deal-making but Lilly will stand to be competitive.

“The next investment, the next plant we build, the next lab we want to build, we can make that decision without so much worrying about what the tax rate is, and rather, where’s the talent and the market we want to serve and the best way to do that,” he said.

Ricks said that he still wants to build out the company’s pipeline, particularly in cancer treatments. There are attractive companies developing treatments in immunology, diabetes and oncology, he said.

Puerto Rico questions

There are still questions about how taxes will affect the company’s operations in hurricane-ravaged Puerto Rico, where Lilly manufactures some drugs, Ricks said. Drug and medical-device makers have poured billions into the U.S. territory, creating thousands of jobs and driving almost a third of its economic output. The tax overhaul may have raised the costs of doing business on the island.

“That’s something that was not addressed in this tax reform package,” he said. “Absent some change, it will become economically more difficulty through time. We don’t have any changes planned, but I’m worried for the island in that regard.”

Additionally, Ricks said it made sense to begin a review last year of the future of Eli Lilly’s animal-health business, Elanco, given that became CEO about a year ago and the Lilly has been building up the division the past few years.

Elanco has grown rapidly, having made at least 10 deals since 2007. In 2016, Elanco opened a 48,000-square-foot research center next to its Greenfield headquarters to develop vaccines for pets and livestock animals.

“It’s a mature business now, and that integration has been completed,” he said, adding the review should be done by the middle of the year.

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