DUBLIN – The pharma industry's corporate tax inversion odyssey is quickly turning into an unseemly dash for the lifeboats. Abbvie Inc.'s proposed $55 billion cash-and-shares takeover of Shire plc could be dead in the water, following an announcement from Abbvie that its board will reconsider the transaction in the light of recent U.S. government moves to curb corporate tax inversions.

North Chicago-based Abbvie said late Tuesday that its board would consider the issue next Monday, but Shire's investors have already decided on the likely outcome. Shares in Dublin-based Shire (NASDAQ:SHPG) slumped 30 percent Wednesday, closing at $170.49, down $74.08, notwithstanding the prospect of a massive $1.635 billion break-up fee, should the Abbvie board change its position on the deal. Shire would still receive $500 million in the event of Abbvie investors rejecting the deal, if Abbvie's board continues to recommend it.

A decision is likely to come sooner than Monday, as Shire said late Wednesday that it would waive the three-day notice period required under UK takeover rules. That leaves Abbvie free to consider the issue immediately.

Abbvie's move undermines the rhetoric of its CEO and chairman, Rick Gonzalez, who previously insisted that "we wouldn't be doing it if it was just for the tax benefit." The tax savings have evaporated, and it looks as if Abbvie won't be doing it, regardless of whatever other strategic considerations drove the transaction in the first place. (See BioWorld Today, July 21, 2014.)

Abbvie isn't commenting on the likelihood of it paying the break-up fee, but handing over the full amount would probably make Gonzalez's position untenable. A big part of the rationale for acquiring Shire and then shifting the merged company's domicile to the UK would have been the ability to complete a tax-free distribution of its overseas cash holdings. The notion that Shire could now receive almost 20 percent of its entire cash – Abbvie held $9 billion on its balance sheet on June 30 – would be a bitter pill for Abbvie investors to swallow.

Analysts were caught unawares and have interpreted the news cautiously. "We note that at this time Abbvie's board of directors has not withdrawn or modified its recommendation to Abbvie stockholders, and nothing has changed," Jeffrey Holford, analyst at Jefferies, noted.

"However, the very fact that the meeting has been called implies that at least one or more board members are troubled by the transaction as it stands. Some might speculate that this is more procedural than anything else, with the meeting being convened to evidence that the fiduciary duties of the board to its shareholders are being fully upheld."

Douglas Miehm, at RBC Dominion Securities, was similarly nonplussed. "Only a few weeks ago, Abbvie had continued to support the transaction and had written a letter to employees stating their continued interest in the deal and the benefits that would accrue to employees and shareholders," he stated in a research note. "As such, this commentary so late in the process is highly unusual. Abbvie was already aware of the Treasury proposals, and the only piece of recent news was the potential changes to Irish tax laws which should not have had an impact on the deal unless a new structure was being contemplated utilizing Ireland in some fashion."

Abbvie's shares (NASDAQ:ABBV) closed Wednesday at $54.63, up 50 cents.

It's the second proposed merger to unravel this month, following the unveiling of U.S. Treasury plans on Sept. 22 to reduce the tax benefits accruing from corporate tax inversions and, where possible, to stop them altogether.

Raleigh, N.C.-based Salix Pharmaceuticals Inc. recently walked away from an agreed $2.6 billion merger with Lainate, Italy-based Cosmo Pharmaceuticals SpA, under which the combined entity would have been located in Ireland. The Salix move added a break-up fee of $25 million to Cosmo's coffers. (See BioWorld Today, Oct. 5, 2014.)

Whether those transactions signal the end of the wider trend is a moot point for now. "Absolutely not" is the position of William McBride, chief economist of the Washington-based Tax Foundation, a not-for-profit tax policy research organization, which advocates reform of the U.S. corporation tax code. "It could very well scuttle more than one deal. I think it already has," McBride told BioWorld Today. "That doesn't mean it has fixed the problem by a long shot."

Abbvie's concerns over lack of tax-free access to its offshore cash holdings appears to be the main motivation for its present rethink.

"That was particularly one of the things addressed in the Treasury regulations," McBride said. As of now, it is unclear whether Shire, the U.S. Internal Revenue Service or Abbvie shareholders will benefit.

COSMO HOLDS ITS COURSE

Meanwhile, Cosmo Pharmaceuticals is holding to its course. The specialty pharma firm said Wednesday it will make the proposal to shareholders on Nov. 14 to move the company's registration to Luxembourg and to relocate its operating headquarters to Dublin. It also plans to build a new manufacturing plant in the Dublin region, should its two phase III projects, Methylene Blue MMX, a colon cancer detection method, and Rifamycin SV MMX, a targeted antibiotic therapy for bacterial infection of the colon, come good.

The move has no connection with the recently abandoned Salix transaction. "The Salix-Cosmo merger was an inversion deal, yes, but this was not driven by us; it was driven by Salix," Cosmo's chief financial officer, Chris Tanner, told BioWorld Today.

Cosmo has had a small subsidiary in Ireland for about 10 years – it is responsible for managing IP and the company's clinical trials, and that has informed its thinking. "If we set up a new plant, we may as well set it up in Ireland – all the more so as the Industrial Development Authority has been very friendly and accommodating, whereas in Italy everything is very complicated," Tanner said. Irish company law retains "arcane" provisions, however, including stamp duty on share transactions, which Cosmo wanted to avoid – hence the decision to move its registration to Luxembourg.

Tanner said he hadn't studied Ireland's new proposals on corporation tax, which were announced in this week's 2015 budget. The main aim is to curb aggressive tax planning by overseas firms by eliminating the infamous 'double Irish' tax loophole, which allowed Irish-resident companies to be nonresident for tax purposes. Cosmo had no plans to avail of off-shore tax havens in the Caribbean in any case. "The primary reason for the move is not for tax," Tanner said. "We are industrialists." (See BioWorld Today, Oct. 15, 2014.)

Indeed, the company could benefit from a new proposal to introduce next year a new tax regime for intangible assets, called the "Knowledge Development Box." Several commentators have likened the plan to the UK's Patent Box, although the government has yet to unveil any concrete provisions. It is undertaking a public consultation before drafting any legislation.