Shire growth shows AbbVie’s interest goes beyond tax

The headline news in AbbVie’s pursuit of Shire may be the opportunity to reduce its tax, but Shire’s second-quarter financial results suggest there is plenty more in the deal to attract the US drugmaker.

Shire’s quarterly revenues leaped 20 per cent to clear $1.5 billion for the first time, while the cost-cutting exercise initiated under chief executive Flemming Ornskov is starting to have an impact on profitability, with operating income up by a third to $630m.

Once again, Shire’s flagship attention-deficit hyperactivity disorder (ADHD) drug Vyvanse (lisdexamfetamine dimesylate) led the charge with a 20 per cent rise in sales to $360 million, but there were plenty of high points elsewhere in the results to encourage AbbVie.

Shire’s rare diseases portfolio put in a good performance in the quarter, with strong performances from Fabry disease therapy Replagal (agalsidase alfa) – up 14 per cent to $130m – as well as Firazyr (icatibant) for acute hereditary angioedema (HAE) attacks which rose 80 per cent to $89m.

Another HAE drug acquired along with rare disease specialist Viropharma in January – Cinryze (C1 esterase inhibitor) – added $130m to the pot, which was a 37 per cent increase on the same period last year.

Should all go according to Shire and AbbVie’s plan, this will be one of the last quarterly results presentations from Shire as an independent company, and the robust sales figures suggest one of AbbVie’s main drivers for the deal – product diversification – will be realised.

By acquiring Shire, AbbVie has taken a big step towards diversifying its portfolio and reducing its dependency on arthritis blockbuster Humira (adalimumab), commented Joshua Owide, director of healthcare industry dynamics at GlobalData.

“Humira could face competition from adalimumab biosimilars as early as December 2016 in the US and April 2018 in other markets,” said Owide. However, even after assuming the entry of the Shire portfolio, Humira will remain AbbVie’s “leading franchise far into the future”, he added.

Shire also confirmed it has bolstered its pipeline once again ahead of the takeover, completing the acquisitions of Lumena, which has two orphan drugs in phase II, and Fibrotech which has a drug for renal impairment in early-stage trials.

The company added that it plans to file for approval of dry eye therapy lifitegrast early next year but decided to discontinue further development of Vascugel for the treatment of acute vascular repair in patients undergoing haemodialysis.

Another driver for the deal is the opportunity for cost-savings, although AbbVie has not spelled out what it hopes to achieve in this regard and – given the lack of overlap in their businesses – these are expected to be relatively modest.

Product diversification aside, there is no denying that reducing the tax rate (from 22 per cent to around 13 per cent) is a massive draw for AbbVie, and GlobalData analyst Aparna Krishnan estimates the inversion could lower the company’s annual tax bill by as much as 7 per cent, which would equated to increased earnings of more than $350 million last year.

Put another way, that could save AbbVie $5 billion to $8 billion in tax paid on Humira profits over the next 15 years, depending on the impact of biosimilars on the franchise.

AbbVie has also downplayed the risk of legislative measures to block tax inversion deals, suggesting that the likely outcome is a reform of corporate tax rates in the US to reduce the incentive rather than measures specifically designed to block M&A activity.

Nevertheless, Shire has negotiated a clause in its agreement with AbbVie that any changes to US tax law are not grounds to back away from the takeover, along with compensation in the event that the deal does not come to fruition.

Shire will pocket a 3 per cent fee if AbbVie chooses to walk away – worth almost $1 billion – or at least $500 million to reimburse costs if the US company’s shareholders fail to back the deal.


Shire builds rare disease portfolio with Lumena acquisition

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