As US companies look to cash in on bloated market caps by using equity to fund huge mergers, federal regulators are closing loopholes to thwart the expansions.
Mergers in the pharma space have seen the brunt of this action on both companies and regulators. The too big to fight firms, with a business model of jacking up drug costs to generate profits to make the deal more palatable to investors, appears to have come to an end.
As the notion of stock buybacks seems to cool on the thought that the firm is buying stock at too high a valuation, the merger and acquisition route seems to running into a stonewall.
The tried and true idea of research to generate profits is too long and risky for most of these firms looking to grab quick profit before a market downturn.
US Treasury’s actions on tightening regulations on tax inversions — where an US company buys a firm in a tax-haven country and moves its HQ there to avoid taxes — is another weapon being taken from these multinational pharma firms.
The fact that all this corporate arms race in the pharma space has led to exorbitant drug prices for many Americans is not lost on regulators. The reclassifying of common generic drugs for new uses to extend patents to fund M&A may be coming to an end.