Corporate inversion could hurt drug development, DCRI and Duke authors say

March 17, 2016 – Instead of avoiding taxes, health care companies should focus on developing new therapies.

Pharmaceutical corporations should devote their efforts to developing new therapies rather than avoiding taxes, according to a pair of Duke researchers.

In an editorial published this week in the New England Journal of Medicine, the DCRI’s Kevin Schulman, MD (pictured), and the Duke School of Medicine’s Haider Warraich, MD, argue that recent efforts by companies to avoid higher taxes by a procedure known as “corporate inversion” could actually jeopardize their long-term growth.

kevin-schulman-newsCorporate inversion is the process by which a company re-incorporates itself overseas in order to reduce the tax burden on income earned abroad. In recent years a number of health care companies, including Pfizer and Medtronic, have undergone inversion by merging with foreign corporations. Such strategies can save a company billions of dollars in lower taxes.

However, Schulman and Warraich argue, inversions could potentially complicate companies’ relationship with the federal government. This relationship is important because these companies depend upon federal funding and a regulatory structure that is advantageous to their business.

To prevent this, Schulman and Warraich suggest that the federal government devise polices to discourage companies from pursing corporate inversion, while taking care not to penalize companies that do not invert. Such polices could include accepting the same prices in the U.S. market that the companies charge government purchasers in their new tax havens. The U.S. government could also direct the Food and Drug Administration to prevent inverting companies from qualifying for priority review of new drugs or from using or receiving priority-review vouchers.

“Developing new therapies — not avoiding taxes — remains the most durable way for pharmaceutical companies to remain profitable,” they write.