London - Odds are AbbVie and Shire will still take part in the drug industry’s merger spree even if they cancel plans to combine with each other.
Before Shire agreed to the $55 billion deal in July, analysts said the maker of fast-growing rare-disease treatments could attract other drugmakers including Allergan. Should the merger with AbbVie collapse, it may open the door for Allergan, which is up against a ticking clock to come up with a defensive move for fending off hostile bidder Valeant Pharmaceuticals International. Shire could also become an acquirer, with help from the $1.6 billion breakup fee it will receive should AbbVie walk away.
Part of North Chicago, Illinois-based AbbVie’s rationale for buying Shire was to be able to lower its corporate tax rate by moving its legal address abroad. Pfizer had similar plans with its pursuit of AstraZeneca earlier this year. With that deal having failed and AbbVie’s now in question, a merger of $179 billion Pfizer and $87 billion AbbVie is conceivable.
“Does AbbVie have a role in consolidation in the industry if this combination doesn’t happen? The answer is yes. Does Shire have a role to play? Yes,” David Amsellem, a New York- based analyst at Piper Jaffray Cos, said in a phone interview. “Shire will have a lot of options irrespective of AbbVie.”
PHARMA FRENZY
The pharmaceutical industry has been consolidating at a record pace, driven by American companies using deals as a way to lower their taxes while capturing new growth opportunities. Once lesser-known drugmakers, such as Valeant and Actavis, have also used mergers to bulk up and join the rankings of the industry leaders.
AbbVie, the maker of arthritis drug Humira, is on the verge of abandoning its deal with Shire after recent talks with the Treasury Department and Internal Revenue Service left it convinced that tax-rule changes would undermine the deal’s rationale, people familiar with the matter said yesterday, asking not to be identified discussing a private matter.
Amsellem said he still sees the chance of an AbbVie-Shire deal getting done because there are strategic merits even if they can’t get the tax benefits. AbbVie may want to lower its offer, though, and Shire might not go along with that, he said.
“The transaction is very much alive,” Amsellem said. “It’s just a question of price, if it’s not an inversion.”
SHIRE OPTIONS
Should Shire remain independent, it would likely continue to be a “serial consolidator” of orphan drug companies, said David Steinberg, a San Francisco-based analyst at Jefferies LLC. One target it could also pursue is Salix Pharmaceuticals Ltd, a maker of gastrointestinal remedies, as Shire has a significant franchise in this area, he said.
Salix, valued at $8.4 billion, has been at the centre of the hostile Valeant-Allergan situation. Allergan held on-again, off-again talks with Salix since July. They failed to reach a deal, and the company is in talks to sell itself to Actavis instead, people with knowledge of the matter said earlier this month.
Shire also checks the boxes Allergan is looking for: high growth and a specialty business model, Steinberg said.
Representatives for Irvine, California-based Allergan, New York-based Pfizer and AbbVie declined to comment. A representative for Shire didn’t respond to a request for commentt.
Bloomberg