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Biotech and pharma firms like the tax law — but not because of their new rates

  • Johnson & Johnson Chief Financial Officer Dominic Caruso said the new law reduces some hurdles to allocating capital, but it won't change the company's overall strategy
  • Medtronic CEO Omar Ishrak said the new law will allow the medical device giant to access nearly all of its cash — up from 55 percent of it
President Donald Trump listens to the cheering crowd at a campaign rally in Phoenix, Arizona, U.S., August 22, 2017.
Joshua Roberts | Reuters
President Donald Trump listens to the cheering crowd at a campaign rally in Phoenix, Arizona, U.S., August 22, 2017.

At the biggest healthcare conference of the year, executives are happy about the new federal tax law — but not for the reason you may expect.

Many biotech and pharmaceutical firm won't gain much from the new corporate tax rate, but they'll benefit from being able to access overseas cash. Analysts see a spike in dealmaking this year thanks to an influx of cash.

But companies at the J.P. Morgan Healthcare Conference on Monday in San Francisco insisted the money won't fundamentally change their plans for putting capital to work.

"I do think now we have a more globally competitive system, a system that will benefit the U.S. economy and will benefit job creation in the U.S." -Dominic Caruso, chief financial officer, Johnson & Johnson

Johnson & Johnson Chief Financial Officer Dominic Caruso said the new law reduces some hurdles to allocating capital, but it won't shift the company's overall strategy. J&J's first priority remains its dividend, he said, then mergers and share buybacks.

"I do think now we have a more globally competitive system, a system that will benefit the U.S. economy and will benefit job creation in the U.S.," Caruso said in a presentation.

Big money overseas

The law encourages companies to bring overseas cash back to the U.S., a process known as repatriation. They're required to pay a tax on that money, and pharmaceutical companies have some of the largest stockpiles of overseas cash.

But the tax law President Donald Trump signed last month makes it cheaper for multinational companies to repatriate foreign cash, and they can use that money to fund transactions.

Medtronic CEO Omar Ishrak said the new law will allow the medical device giant to access nearly all of its cash, up from 55 percent of it. Repatriation will cost Medtronic between $2 billion and $3 billion over the next eight years on prior accumulated profit and cash, he said. The company will focus on reinvesting to offset the cost.

Celgene CEO Mark Alles said the changes will allow it to access about 60 percent of the cash it couldn't beforehand, and the one-time tax could be between $800 million and $1.3 billion. Ahead of the presentation, the biotech company announced it would buy Impact Biomedicines.

More companies may clarify on how the law will affect them this week.