Tax overhaul creates strategic decision point for US life science companies

December 06, 2017

Sales growth

The House and Senate tax overhaul proposals outline changes that will impact every sector of US business, and the life science industry is no exception. With a large reduction in corporate tax rate, the legislative proposals would free up significant cash flow for US pharma and biotech companies of all sizes. We asked 100 sales professionals from pharmaceutical and medical technology companies what they would do with the potential windfall and how they’re factoring these political changes into their forecasts for 2018 and beyond. Their responses show that shifts in US tax policy offer many strategic opportunities and choices for sales operation leaders across the life science industry.

Corporate America’s view of a lower corporate tax rate is overwhelmingly positive according to every major US stock index. Our surveyed sales professionals from all company sizes echo that overall trend, reporting an expected positive impact from the lowering of corporate tax rates. Interestingly, pharma sales professionals were less likely to expect a “very positive” impact compared to their medtech counterparts, perhaps due to the more multinational model of many US pharma companies where a lower US tax rate would have less of an impact. Regardless of sector or size, these life science companies are expecting a significant shift in available cash if this tax overhaul bill passes Congress.

 Prioritizing the shareholders

Successful sales operation leaders already have a plan for any immediate changes in cash flow arising from changes in US policy. Respondents from all company sizes reported they expect their companies to increase dividends and share buybacks. Even smaller company sales leaders (annual revenue under $100M) predict a transfer of the excess cash directly to the stockholders after some initial reinvestment into expanding their company’s capabilities.

Other recommendations from sales operation leaders for excess cash flow were more tailored to their specific company size. For example, smaller life science company respondents were more likely to recommend investing in expansion of current capabilities and resources than professionals from larger companies. On the other hand, only respondents from medium (annual revenue of $100M to $1B) and large (annual revenue above $1B) companies would recommend licensing a product from another company.

 Forecasting growth for 2018

Overall, sales professionals at life science companies anticipate only modest sales growth from changes to the corporate tax rate. 82% of life science sales professionals surveyed expect only a 1-5% increase in company growth if the corporate tax rate is lowered. This contrast between overwhelming positive outlook on the policy itself and the relatively lukewarm impact on company growth further underlines that the shareholders will reap the lion’s share of the windfall from any tax cuts across many life science companies.

Whatever cash is invested towards growth has the potential to make a significant impact on company outlook. Key areas of sales operations investment include expanding current capabilities, licensing a product from another company, and even acquiring another company, which are expected to yield increasing growth over the next 1-3 years.  Overall, the proposed tax changes offer the prospect of improved financial performance for medical technology, pharma, and biotech shareholders in the short term, while additional operating cash flow will fund growth initiatives expected to drive growth in the years ahead.

 

Please reach out to our authors to request a copy of our Sales Excellence Survey report on US Policy Trends.