Four days after AbbVie’s board of directors backtracked on earlier plans to acquire Shire, in a bow to growing U.S. political pressure against tax-slicing “inversion” mergers, Shire said Monday it agreed to end the planned acquisition valued at roughly £32 billion (about $51.7 billion).
AbbVie’s u-turn won’t come without cost. Under a termination agreement, AbbVie must pay Shire a “break fee” of approximately $1.635 billion by 5 p.m. London time (12 noon EDT) on Tuesday. AbbVie is also subject to Rule 35.1 of the U.K.’s Takeover Code, which bars AbbVie from making any offer for Shire for without consent of the takeover panel formed to oversee the planned merger.
“Whilst we are disappointed that the offer will not now complete, we continue to enjoy excellent prospects as we execute our plan to double Shire’s product sales to $10 billion by 2020,” Shire Chairman Susan Kilsby said in a statement.
Shire cited the AbbVie board’s October 16 decision to withdraw its recommendation to shareholders that they approve the deal with Shire. AbbVie acted three weeks after the U.S. Department of the Treasury said it would issue new rules designed to limit the economic benefits of so-called “inversion” transactions, in which the combined company redomiciles from the U.S. to a country with lower corporate taxes.
“The notice introduced an unacceptable level of risk and uncertainty given the magnitude of the proposed changes and the stated intention of the Department of Treasury to continue to revise tax principles to further impact such transactions,” AbbVie said in a separate statement Monday.
The Abbott Laboratories spinout and the biotech giant agreed to combine into a new company domiciled in the U.K.—entitling it to a 13% tax rate rather than its current 22%. Shire already maintains executive offices in Basingstoke, U.K., though the company is formally headquartered in Dublin, Ireland.
The new entity’s portfolio was intended to combine Shire’s specialties in rare diseases and neuroscience, and AbbVie’s offerings across therapeutic areas that include gastrointestinal, GI, neuroscience, and rare oncology indications—anchored by Humira, the blockbuster best-selling prescription drug of the past few years.
Instead, both companies insisted in their statements that they would do well without each other.
“We remain focused on building AbbVie’s business through enhanced internal R&D platforms, partnerships, strong commercial execution and licensing and acquisitions,” stated Richard A. Gonzalez, AbbVie’s chairman and CEO. “AbbVie has built a strong, sustainable strategy with a robust pipeline. Over the past 22 months we have delivered industry leading stockholder returns, our performance and business fundamentals remain strong, and we are on the cusp of a major new product launch with our treatment for [hepatitis C virus].”
The FDA has granted priority review to AbbVie’s NDA for an all-oral, interferon-free regimen for treating adults with chronic genotype 1 hepatitis C virus (HCV) infection. Similarly, the European Medicines Agency (EMA) has granted accelerated assessment for AbbVie’s marketing authorization applications for the regimen.
Added Shire’s board: “Shire believes that there are multiple opportunities available for Shire to grow through business development both within the core franchises of Shire as well as in adjacent therapeutic areas.”
Shire also cited several milestones since the AbbVie deal was announced in July, including: FDA acceptance for filing with priority review of a supplemental NDA for Vyvanse® for adults with binge eating disorder; a $248 million cash refund from Canadian revenue authorities, with a further $162 million due to Shire in late 2014; ongoing divestiture of noncore assets; a favorable ruling by the District Court for New Jersey that certain claims of the patents for Vyvanse were both infringed and valid; and a strategic licensing and collaboration agreement with ArmaGen.
On July 23, ArmaGen said it licensed to Shire worldwide commercialization rights to AGT-182, an investigational enzyme replacement therapy (ERT) for potential treatment of both the central nervous system and somatic manifestations of Hunter syndrome, also called MPS II. Shire agreed in return to pay ArmaGen up to about $225 million—including $15 million in upfront cash and equity, an additional equity investment, R&D funding, development and sales milestone payments, as well as future royalties up to double digits.