Fall 2012 issue of Horizons

LIFE SCIENCES

For a sale, the event is measured when the title passes from the manufacturer to the purchaser and the tax attaches even if the sale is on credit and whether or not the purchase price is actually paid. For installment sales, the tax attaches to each partial payment. If the manufacturer both sells and leases the same item, the tax attaches to each lease payment until the total amount of the tax payments equals the amount of tax that would have attached on a sale. If the manufacturer is only in the business of leasing the product, the tax attaches to each lease payment. The Sales Price The tax is imposed on the price for which the device is sold and includes packaging and containers but excludes the cost of transportation, delivery, insurance and installation. It also excludes the excise tax itself, whether or not it is separately stated. Rebates, discounts and allowances, as well as charges for warranties paid at the purchaser’s option, are excluded from tax. States Looking to Increase Revenue Many states are pursuing more aggressive measures related to taxation and increasing revenue due to large budget shortfalls being experienced. As a result, many states have taken action in one of the following areas:

∙ Changes in apportionment rules

∙ Increases in tax rates

∙ Changes in filing requirements to a combined/unity filing approach from stand alone

M&A Activity Expected to Increase Life sciences deal activity is expected to continue and increase as a percentage of total deal activity due to large returns being more difficult to come by for mature businesses and mature industries. With respect to transactions, life sciences is a fairly complex industry to analyze. For life sciences, less than half of the deal activity is for companies that are actually generating revenue, of which, only 21% are profitable. Companies that are in either testing or trial phases represent 46% of the life sciences transaction activity and roughly 10% are companies categorized as in development. The majority of the money being invested is in a small number of large transactions ($2.5 billion and above). In analyzing the deal activity, as illustrated in the accompanying chart, the largest percentage of life sciences deals, 62%, are in venture capital as they focus on identifying the next “big idea” to generate large returns. The majority of investors in life sciences are willing to invest in lower dollar, early stage companies. As these companies mature, there is a much smaller market of willing investors, but they appear to be willing to pay big dollars. From an overall market perspective, the middle market was responsible for roughly 74% of all capital invested; however, middle market life sciences companies only represent 39% of the invested capital and only 12% of the transaction activity.

page 26 | horizons Fall 2012