AbbVie’s relocation to Ireland following the acquisition of Shire for $54bn is expected to reduce the annual tax expense for the company by more than 7%, according to research and consulting firm GlobalData.
GlobalData analyst Aparna Krishnan and healthcare industry dynamics director Joshua Owide said that the thinking behind the deal consisted of a mix of portfolio diversification, operating cost synergies and tax savings.
Since its relocation from the UK to Ireland in 2008, Shire has seen a notable decrease in its tax expenses, with a five-year average effective tax rate of 20.6% between 2008 and 2013, compared with 36.9% in 2008. In 2013, AbbVie’s effective tax rate was 22.6%.
Aparna Krishnan said: "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 $350m 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 $5bn 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 $8bn."
In terms of underlying assets, Shire will provide AbbVie with a portfolio that includes a number of niche drugs used in orphan diseases. These drugs have helped Shire achieve double-digit growth.
GlobalData said that it 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.
Joshua Owide said: "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 $37.6bn and a free cash flow of over $60bn through 2029."
On 18 July, the boards of Shire and AbbVie reached an agreement on the terms of a recommended combination of both the companies. The transaction is expected to create a well-positioned and focused specialty biopharmaceutical company.