AbbVie, Shire investors agree to settle lawsuit over scuttled tax-inversion deal

AbbVie agreed to settle with Shire investors over its abandoned tax inversion, a court filing shows. (AbbVie)

After AbbVie walked away from its proposed Shire buy, Shire investors said AbbVie never disclosed its true intentions—avoiding U.S. taxes by moving its official headquarters to Ireland. Now, the sides have agreed to settle their legal fight.

Shire since sold itself to Takeda for $62 billion. But back in 2014, AbbVie and Shire were planning their own megamerger in a deal that would have moved the U.S. drugmaker's official headquarters to Ireland and dramatically cut its tax bill.

It was one in a series of biopharma tax inversions—or attempted inversions—including Pfizer's proposed-and-abandoned Allergan buyout. But just as the ink was drying on AbbVie's Shire agreement, public and political pressure swelled against the tax-avoiding deals. Then-President Barack Obama, U.S. lawmakers and others blasted inversions as “unpatriotic,” Shire investors wrote in their lawsuit against AbbVie. The U.S. Department of the Treasury ultimately changed its rules to discourage inversions, and AbbVie walked away from its Shire pursuit. 

After AbbVie pulled out, Shire investors said AbbVie was never upfront about its intentions. For instance, on one July 2014 conference call, AbbVie CEO Richard Gonzalez said tax benefits were “not the primary rationale” for the combination, the suit said. “We would not be doing it if it was just for the tax impact," Gonzalez maintained.

But AbbVie reversed course after the Treasury changed the rules governing inversions. The changes removed “fundamental financial benefits of the transaction,” AbbVie said, according to the suit. Fortune Magazine called Gonzalez’s statements about the merger “outright deceit.” 

In its response to the suit in court, AbbVie denied many of the plaintiffs’ allegations. The drugmaker said it “repeatedly disclosed that tax benefits were one factor among a number of factors” supporting the proposed Shire deal.

Now, the sides have struck an agreement in principle to settle the allegations, according to a new filing in federal court in the Northern District of Illinois. The parties plan to file "a motion for preliminary approval of the settlement within the next few weeks," the filing says. The entry didn't disclose a dollar amount. AbbVie didn’t immediately respond to a request for comment. 

The biopharma landscape has changed dramatically since AbbVie and Shire discontinued their deal talks. Shire has since sold to Takeda for $62 billion, creating a leading biopharma company. AbbVie later scooped up Pharmacylics for $21 billion, getting half of the rights to Imbruvica, a rising star in the oncology world that last year generated $3.59 billion for the Illinois drugmaker.

And AbbVie ended up not needing the inversion, after all. Thanks to new tax changes pushed by President Donald Trump, the company last year paid an adjusted tax rate of 8.7%.

Now, AbbVie is working to diversify beyond the world’s bestselling drug, Humira. As it works to grow sales for other meds, AbbVie’s defense strategy for Humira has caught criticism. The company has inked numerous settlements with biosimilar companies for 2023 launches in the U.S. even as copycats have hit the market in Europe. Critics have said the company’s “patent thicket” around Humira is anticompetitive.