Last month, the U.S. Treasury took action to make tax inversion deals less profitable. This is cited as a primary reason AbbVie reportedly dropped plans to acquire Shire. This decision calls into question another deal similarly based on tax inversion involving Medtronic and Covidien.
In the wake of the news, Shire’s stock price dropped by roughly a third. The odds are poor that Shire will get a similarly lucrative offer again. Analysts suggest this may be an opportunity for local biotech firms, such as Acceleron, a Cambridge firm currently in partnership with Shire.
In addition to that angle, there is speculation that Shire may move its U.S. headquarters from its current location in Pennsylvania to Massachusetts. This is due in part to its local growth. Their employee base here has reached 1425 in total.
On the other hand, the failure of this deal may throw up obstacles to such a move by putting more attention on Shire’s own drug pipeline. It was recently announced that the FDA wants more pediatric data on the ADHD medication they are currently developing. This represents yet another delay in the approval process. Like so many drugs aimed at children, this one has already had a drawn out process filled with setbacks and delays.
In spite of some mixed opinions among industry analysts, the general consensus seems to be that the deal involving Covidien and Medtronic will still go through. Even after the U.S. Treasury made such deals less profitable, Medtronic continued to develop its financing plans for the deal. Based on that fact, that deal looks pretty solid and unlikely to fail. However, it is on less firm ground than it first enjoyed. Therefore, should there be further tax law developments or other changes that undermine such deals, it could still fall through. Still, the strategic underpinnings of the deal have been called “compelling” by Jefferies analyst Raj Denhoy.
With the expected closing just a few short months away in early 2015, each passing day will make it all the harder for either party to pull out of the deal.
