Pharma shares sink as U.S. threatens tax-inversion crackdown

U.S. drugmakers have embraced the tax inversion strategy with open arms as of late, buying up foreign companies right and left and hauling overseas to take advantage of their lower rates. But U.S. officials are looking to stop them in their tracks--an intent that has some pharma investors worried.

Wednesday, the U.S. Treasury Department said it's reviewing a "range of options" to discourage tax inversions, which could include policies that "meaningfully reduce the tax benefits," of the deals, it said in a statement seen by Bloomberg.

The comments spooked investors, with American depository receipts for Dublin-based drugmaker Shire ($SHPG)--recently scooped up in an inversion by Illinois company AbbVie ($ABBV)--recording a 3.6% drop, their biggest single-day slip since last May, and those of former inversion target AstraZeneca ($AZN) declining 2.1%, the news service notes.

Shares of Swiss biotech Actelion ($ATLN) and Irish pharma Alkermes ($ALKS) were each down at least 2.5%, according to the Financial Times.

Senator Ron Wyden

"We're seeing the inversion trade unwind," BMO Capital Markets analyst Alex Arfaei told Bloomberg. "Many inversion targets had run up as the pace of deals picked up recently."

As Arfaei pointed out, some of the recent trans-Atlantic deals--including AbbVie's--have more to them than just a tax inversion. The Abbott-spinoff's pickup, for instance, will help it diversify beyond Humira, the best-selling arthritis drugs that brings in the bulk of the company's sales.

But that won't stop the Treasury and lawmakers from going forth with their plans to curtail the transactions. As an aide to Ron Wyden, Democratic chair of the Senate finance committee, told the FT, "We're going to push forward to put laws in place to stop companies from abusing this loophole."

Special Report: Pharma's top 10 M&A deals of 2013

- see the Bloomberg piece
- get more from the Financial Times (sub. req.)

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