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AbbVie faces stumbling blocks after cutting cord on $55B Shire deal

October 21, 2014
Life sciences
Days after AbbVie recommended that shareholders reject its $55 billion deal for Shire ($SHPG), the company officially cut the cord. And while Shire has big plans to succeed solo, AbbVie could face some stumbling blocks without the Dublin-based company in its fold.
 
AbbVie on Monday canceled the acquisition, blaming the deal’s collapse on new guidelines that tightened the reins on companies moving their domiciles abroad for tax-paying purposes. The Illinois-based company will pay a $1.64 billion breakup fee to Shire, the biggest such fee ever.
 
With a little extra cash in its pocket, Shire is poised to pick up where it left off pre-AbbVie. The company has chalked up at least 6 acquisitions under the stewardship of CEO Flemming Ornskov, and it plans to deliver on its promise of doubling product sales to $10 billion by 2020, Chairman Susan Kilsby said in a statement.
 
But AbbVie could face a rougher road ahead sans Shire–and investors know it. It’s losing patent protection in 2016 on Humira, the world’s best-selling drug, with more than $10 billion in sales. Immediately following the breakup, the company increased its quarterly dividend by 17% and announced a $5 billion share buyback over the next several years.
 
“We recognize that without a transaction the size of Shire, our cash position will build quickly, it has always been our commitment to return cash to shareholders,” AbbVie CEO Richard Gonzalez said in a conference call following the breakup (as quoted by Bloomberg).
 
Without access to Shire’s portfolio of rare disease and ADHD drugs, AbbVie could have less cushioning for the looming loss of Humira’s exclusivity. The anti-inflammatory drug raked in $10.7 billion last year, accounting for nearly 60% of AbbVie’s sales.
 
“[AbbVie’s] challenge now is in two years they lose their patent on one of the biggest blockbusters of all time, and they’ll have to replace that,” Bill Smead, CEO of Smead Capital Management, told Reuters in reference to Humira.
 
Meanwhile, other companies are also ditching inversion deals under the new tax guidelines. Raleigh, NC-based Salix Pharmaceuticals threw out its $2.7 billion merger agreement with Italy’s Cosmo Pharmaceuticals. Auxilium Pharmaceuticals recently abandoned its merger with Canadian biotechnology company QLT, instead agreeing to a deal with U.S.-based Endo International.
 
By Emily Wasserman
 

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