AbbVie will move ahead with a roughly £32 billion (approximately $55 billion) cash-and-stock acquisition of Shire, the companies said today, in a deal that creates a broader specialty biopharma giant focusing on several areas of unmet need—and slices U.S.-based AbbVie’s taxes by moving the company’s headquarters, in the latest and largest of the tax-slicing “inversion” deals reshaping the industry.
The deal will combine the Abbott Laboratories spinout and the biotech giant 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 Basingstroke, U.K., though the company is formally headquartered in Dublin, Ireland.
Richard A. Gonzalez, AbbVie’s chairman of the board and CEO, and other top AbbVie executives will continue to work from the new entity’s operational headquarters in North Chicago, IL, where today’s AbbVie is based. Shire CEO Flemming Ornskov, M.D., will lead corporate integration efforts on behalf of Shire, and oversee the creation of a Rare Disease business unit within the new entity or “New AbbVie” following completion of the deal. Dr. Ornskov will be based in Switzerland, and report directly to Gonzalez.
The new entity’s combined portfolio will reflect both 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 the blockbuster best-selling prescription drug of the past few years.
The anti-TNF biologic Humira racked up $10.659 billion in 2013 sales—up 15% from 2012—placing it atop GEN’s List of Top 25 Best Selling Drugs of 2013. Humira’s success reflects in large measure its numerous indications, which include three forms of arthritis as well as moderate to severe chronic plaque psoriasis, moderate to severe Crohn’s disease, and even moderate to severe ulcerative colitis. Other top-sellers for AbbVie last year include AndroGel (testosterone gel) with $1.035 billion, and the HIV-1 drug Kaletra (lopinavir/ritonavir), with $962 million.
Shire’s top seller in 2013 was the attention deficit hyperactive disorder (ADHD) drug Vyvanse®, which generated $1.228 billion in sales, followed by Elaprase (idursulfase) for the rare disease Hunter syndrome, with $546 million; and the ulcerative colitis treatment Lialda/Mezavant, with $529 million.
“By combining AbbVie and Shire, we’re creating a unique, diversified biopharmaceutical company. The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities,” Gonzalez said in a joint statement issued by both companies.
Added Shire’s chairman, Susan Kilsby: “We believe that this offer reflects the substantial value that we have already created for Shire’s shareholders and the strength of our future prospects. We believe that the combined group represents an exciting fit of two complementary businesses that will create a new market leader in specialty pharmaceuticals with a portfolio of fast growing products, a promising pipeline and enhanced growth prospects.”
Kilsby and a member of Shire’s board, Dominic Blakemore, will join the New AbbVie Board following completion of the deal—which subject to conditions that include approval by AbbVie shareholders and approval by regulators in the U.S. and several other nations. U.S. approval is uncertain because of the inversion involved in the transaction.
The practice of tax inversion has come under criticism by the Obama administration following a series of such merger and acquisition deals by biopharmas. U.S. Secretary of the Treasure Jack Lew has asked Congress to stop inversions, retroactive to May. But in a response, Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, said the proposal was too punitive and restrictive to business, but added that Congress could consider other actions to address the issue.
Shire has long been speculated to be a target for takeover because of its success as a specialty biotech, and growing interest by U.S. businesses in reaping tax savings by combining with overseas companies.
Under the deal, Shire shareholders will be entitled to receive, for each Shire share, £24.44 ($41.69) cash and 0.896 shares in the new entity. That adds up to £52.48 ($89.51) per Shire share, based on AbbVie’s closing stock price yesterday of $53.52—a 53% premium over Shire’s share price of £34.67 ($59.12) on May 2, just before AbbVie made its first of five proposals for Shire. As of June 20, Shire had already rejected the first three proposals by saying they undervalued the company.
Shire finished 2013 with a 23% jump in operating income from continuing operations, to $1.734 billion on total revenues from continuing operations that rose 9%, to $4.934 billion, with product sales growth partially offset by a 36% drop in royalties and other revenues.