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news.AbbVie's recent $54 billion acquisition of Shire and subsequent relocation to Ireland will mean substantial tax savings for the US pharmaceutical giant, say analysts with research and consulting firm GlobalData.
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According to Aparna Krishnan, MS, GlobalData’s Analyst, and Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics, the rationale for the deal consisted of a mix of portfolio diversification, operating cost synergies and, somewhat crucially, tax savings. Shire, which itself relocated to Ireland from the UK back in 2008, has since seen a notable drop in its tax expenses, with a five-year average Effective Tax Rate (ETR) of 20.6% between 2008 and 2013, compared with 36.9% in 2008.
By comparison, AbbVie’s ETR was 22.6% in 2013. Krishnan says: "By shifting the legal headquarters of the newly-combined entity to Ireland, AbbVie could lower its annual tax expense by as much as 7%, which would have equated to increased earnings of more than $350 million in 2013. "To put this further into perspective, even after accounting for the impact of the arrival of biosimilars, a tax gain of this magnitude would translate into more than $5 billion in additional free cash flows from Humira alone over the next 15 years. Dampening the impact of biosimilars would see the tax savings on projected cash flows from Humira jump even further to around $8 billion."
In terms of underlying assets, Shire will provide AbbVie with a portfolio that includes a number of niche drugs used in orphan diseases, which have helped Shire to achieve double-digit growth historically. GlobalData believes that the particular importance of Humira to AbbVie’s business cannot be understated, as the drug accounted for 56.7% of the company’s top-line sales in 2013. Owide adds: "By acquiring Shire, AbbVie has taken a big step towards diversifying its portfolio and reducing its dependency on Humira and the risks associated with overreliance on one asset.
"Humira could face competition from adalimumab biosimilars as early as December 2016 in the US and April 2018 in other markets. However, even after assuming the entry of these treatments, Humira will remain AbbVie’s leading franchise far into the future, with a net present value of $37.6 billion and a free cash flow of over $60 billion through 2029."
To read GlobalData’s White Paper, AbbVie Acquires Shire as the Threat of Humira Biosimilars Looms, click here