Should a Pharma Company Relocate from Canada to the US?

Introduction

This paper considers whether a pharmaceutical company operating just outside Toronto should relocate to the United States — specifically to Colorado — in light of several compelling factors. Those factors include the high market value of the company's Canadian land, the comparatively greater tax and labor costs of doing business in Canada, the trade efficiencies created by the North American Free Trade Agreement (NAFTA), and related financial incentives. While the case for moving may appear straightforward on its surface, the decision is far more nuanced. Both financial and non-financial considerations deserve careful attention before any commitment is made.

Financial Case for Relocation

Several financial arguments favor relocating from Canada to Colorado. First, the land the company currently owns is valued at approximately seven million dollars — and that figure does not include the buildings, structures, or infrastructure on the property. Second, the passage and implementation of NAFTA has made cross-border trade and commerce substantially cheaper and easier than it was before the 1990s. Third, taxes and labor costs in Canada are considerably higher than they would be in the United States and, more specifically, in Colorado.

These financial considerations are meaningful. Prescription drugs attract intense public scrutiny regarding cost, and if manufacturing and operational costs can be reduced, those savings could benefit consumers without compressing margins. A successful relocation could also make the company more competitive with U.S.-based firms that have already found ways to lower their cost structures.

It is also worth noting the global tax exposure that U.S.-based corporations face. As illustrated by the Burger King corporate inversion debate, American companies are taxed on worldwide income — not just revenue generated within the United States. A company earning ten million dollars entirely from Canadian operations, for instance, would still owe U.S. federal taxes on that income. This dynamic adds a layer of complexity to any cross-border financial comparison and is a factor that any corporate decision-maker must understand before drawing conclusions about where taxes will be lower.

Non-Financial and Reputational Considerations

The financial picture, though favorable, does not tell the whole story. Several high-profile cases illustrate the reputational risks that accompany cross-border corporate moves. When Burger King publicly explored relocating its corporate headquarters to Canada — partly to escape U.S. worldwide taxation — the company faced intense backlash. Critics labeled the move unpatriotic and accused the company of failing to pay its "fair share" of taxes, a phrase frequently deployed by politicians and commentators critical of corporate tax optimization (Ferdman, 2014). The pharmaceutical company in question would likely encounter similar — or even more pointed — criticism, given the already fraught public debate over drug pricing.

The controversy surrounding Turing Pharmaceuticals and its then-CEO further illustrates how quickly pharmaceutical companies can become political targets. The scrutiny that followed Turing's pricing decisions placed the entire industry under a magnifying glass, and certain practices that might otherwise go unnoticed could attract government or public attention in a new regulatory environment (Mullin, 2016). A company moving from Canada to the United States would not only be entering a different tax jurisdiction — it would be entering a different and highly charged regulatory and political landscape.

There are also practical non-financial questions to resolve: How will the company identify and recruit a qualified workforce in Colorado to replace the employees left behind in Toronto? What is the regulatory framework the company would now operate under, and how does it differ from Canadian requirements? What response should the company expect from the Canadian government, Toronto municipal authorities, and the broader community? Moving an established pharmaceutical operation across an international border is not a minor undertaking, and the human and community dimensions of that move carry real weight.

Many corporate leaders subscribe to the Milton Friedman model of business responsibility, which holds that a company's primary obligation is to increase profits for its shareholders (Friedman, 1970). Under that view, if the numbers favor relocation, the decision is clear. However, a growing body of opinion holds that businesses also bear responsibilities to employees, communities, and the public — and that decisions made solely on financial grounds can produce lasting reputational damage that ultimately undermines shareholder value itself.

Conclusion

Ultimately, the company should do what is best for its long-term interests, including its public image. If the financial benefits of relocating to Colorado are both substantial and durable, the move may well be worth pursuing. Shareholders may not only prefer but actively demand such a decision, and a shareholder revolt is a serious threat to any company's strategic continuity. At the same time, the decision must be fully thought through well in advance, with clear-eyed recognition that non-financial factors — community impact, workforce disruption, regulatory exposure, and reputational risk — can be decisive. The move should proceed only if its total benefits demonstrably outweigh the blowback that will inevitably follow when plans are announced to Canadian authorities, Toronto stakeholders, and the public.

References

Ferdman, R. (2014). We finally have an idea of how much money Burger King will save by moving to Canada. Washington Post. Retrieved 24 February 2016, from https://www.washingtonpost.com/news/wonk/wp/2014/12/11/burger-king-could-save-a-whopping-amount-of-money-by-moving-to-canada/

Friedman, M. (1970). The social responsibility of business is to increase its profits. Colorado.edu. Retrieved 24 February 2016, from

Mullin, E. (2016). Turing Pharma says Daraprim availability will be unaffected by Shkreli arrest. Forbes.com. Retrieved 24 February 2016, from http://www.forbes.com/sites/emilymullin/2015/12/21/turing-pharma-says-daraprim-availability-will-be-unaffected-by-shkreli-arrest/#11db056c2e82