Will threats of an inversion crackdown quash pharma's foreign-deal bonanza?

Endo CEO Rajiv De Silva--FiercePharma file
Endo CEO Rajiv De Silva

U.S. legislators are threatening to make it more difficult for American companies to take off for a new home in a tax-advantaged country. But what's in store for drugmakers who have already wrapped their own so-called tax inversion deals--and those who are planning them for the future?

As far as Endo ($ENDP) chief Rajiv De Silva is concerned, his company--which completed its tax move with a buyout of Dublin-based Paladin Labs that closed this February--doesn't have much to worry about. He's said he's confident his deal, and others like it, won't be challenged, the Irish Independent reports.

"Our belief is that ultimately the thing that would resolve this current conundrum is comprehensive U.S. tax reform," he said on a call with analysts, as quoted by the newspaper. "We continue to believe that this is a very complex matter and will likely take time to implement."

Investors, on the other hand, so far haven't seemed to share the same confidence, with American depository receipts for Dublin-based drugmaker Shire ($SHPG)--recently nabbed in an inversion by Illinois company AbbVie ($ABBV)--last week sinking 3.6% in their biggest single-day slide since last May.

Shareholders have also reacted to comments from President Barack Obama, lawmakers and the U.S. Treasury Department, all of whom have said they're working on coming up with ways to discourage the agreements. Last week, shares of potential inversion targets AstraZeneca ($AZN), Actelion ($ATLN) and Alkermes ($ALKS) all headed south.

But some say the difficulty of curtailing the inversion-deal wave may not stop new tax-related takeovers from happening. Billy Tauzin, a former congressman and ex-head of a pharma lobby group who now advises companies, told the Financial Times he doesn't expect drugmakers to take cues from Walgreen ($WAG), which last week opted not to switch its tax base to Switzerland or Britain as part of its £6 billion takeover of pharmacy chain Alliance Boots.

As Tauzin points out, public opposition helped convince Walgreen to abort the tax switch. And it's not quite as easy to rally that same opposition to drugmakers."I'm a cancer survivor and a company in California made the product that saved my life," he told the FT. "I don't think it would have mattered to me if I was upset with that company politically."

So while pharma companies might delay their inversion plans until after November elections, few will do away with them altogether, he predicts.

"They're all public companies and investors expect them to make economic decisions, not necessarily just politically smart decisions," said Tauzin. "They might want to time it differently, but I don't think they're going to change what is the right economic decision for their companies."

- see the FT story (sub. req.)
- get more from the Independent

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