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Shire deal is year’s biggest in US

AbbVie can claim Irish address and lower tax rate

Suzanne Plunkett/REUTERS

Drug maker AbbVie Inc. will pay nearly $55 billion for Lexington biotech Shire PLC, joining two global companies with substantial operations in Massachusetts through the biggest US business deal of the year.

The agreement disclosed Friday was spurred by potential tax savings for Illinois-based AbbVie, which will be able to claim Shire’s Ireland address and pay corporate taxes at that country’s lower rate.

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The deal will create a biopharmaceutical goliath with nine research centers and 14 manufacturing plants worldwide and a combined market value of $137 billion. Together, they generate about $25 billion annually in sales of drugs that treat common conditions such as arthritis, as well as medicines to treat rare genetic disorders such as enzyme deficiencies, a key business for Shire.

“This legitimizes Big Pharma’s interest in the rare disease business,” said Brian Corvino, head of the commercial consulting practice at Decision Resources Group in Yardley, Pa. He said drugs for rare diseases often are sold to smaller patient populations for hundreds of thousands of dollars per patient each year.

The companies will have more than 15 drug candidates in late-stage clinical trials or under review by regulators, AbbVie chief executive Richard A. Gonzalez said in a conference call with stock analysts. Those experimental treatments target everything from liver disease to cancers.

“We anticipate multiple product launches from both the AbbVie and the Shire pipeline,” Gonzalez said.

Shire, which rejected at least three prior takeover offers from AbbVie, may be best known for Adderall XR and other medications to treat attention deficit hyperactivity disorder.

Its biggest research labs and about 1,500 employees, including the company’s chief executive, are in Lexington, where it also makes enzyme replacement drugs to treat Gaucher and Fabry diseases, both rare genetic disorders. But its headquarters is in Dublin, where the corporate tax rate is 12.5 percent, compared with 35 percent in the United States.

AbbVie plans to structure the Shire takeover as an “inversion,” allowing the company to switch its own corporate base to the United Kingdom and cut its US tax obligations. The move is expected to drop AbbVie’s effective tax rate to about 13 percent by 2016, the company said.

A recent spinoff from Abbott Laboratories, AbbVie has 700 employees and a biologics manufacturing plant in Worcester, where it partly developed the arthritis drug Humira. But analysts said Humira could soon face competition from lower-cost generics.

“AbbVie’s dependency on Humira, combined with the decline of its rapidly maturing US drug business, is cause for concern,” said Joshua Owide, director of health care industry dynamics for London consulting firm GlobalData. “With this acquisition, AbbVie has taken a big step towards diversifying its portfolio and reducing its dependency on Humira.”

AbbVie also collaborates with Watertown biotech Enanta Pharmaceuticals Inc., which co-developed a drug compound that is part of an AbbVie experimental hepatitis C regimen granted priority review by the Food and Drug Administration last month. That four-drug cocktail, if approved by regulators, would compete with Gilead Science Inc.’s hepatitis C pill Sovaldi, one of the fastest-selling drugs in history.

Shares of Shire rose $3.62 to $257.06 in Friday trading, a gain of 1.4 percent on the Nasdaq stock exchange. AbbVie shares climbed $1.42, or 2.6 percent, to $54.94 on the New York Stock Exchange.

Gonzalez said management at the combined company would be located worldwide, including in the United States and United Kingdom. He said the company would maintain a strong presence in the Chicago area, but did not mention Massachusetts.

Shire executives, who until recently had said the company would be better off operating independently, did not participate in the conference call. But Gonzalez said Shire’s chief executive, Flemming Ornskov, had agreed to join AbbVie after the merger — reporting to Gonzalez — and to lead the transition from a new office in Switzerland. Two Shire directors, Susan Kilsby and Dominic Blakemore, will also be joining the AbbVie board.

AbbVie executives would not specify how much of Shire’s operations in Lexington — or how many of its employees — will be retained.

Ornskov was not available to discuss the acquisition Friday, Shire spokeswoman Stephanie Fagan said. She said it was too soon to say how the alliance will affect Shire’s business in Massachusetts.

AbbVie vice president Angela Sekston said Gonzalez also would not talk about the post-merger plans. “We can’t speak to management and employees at specific sites,” she said, citing a British regulation governing takeovers.

The deal comes only weeks after Minneapolis medical device maker Medtronic Inc. agreed to buy Mansfield health care supplies company Covidien PLC — also based in Dublin — for $42.9 billion. The two transactions are among the largest of the more than 40 tax inversion deals struck over the past decade, even as federal lawmakers and White House officials have been working to stem the flight of US-based companies.

In his conference call, Gonzalez said the issue of US companies reincorporating overseas could be solved through tax reform.

Corvino, of Decision Resources, said Democrats and Republicans in Congress have been unable to agree how to reverse the tide of US companies chasing overseas addresses for tax purposes.

“There’s clearly a lot of political outcry against this,” said Corvino. “The question is whether this, coming on the heels of the Covidien deal, will be enough of a catalyst for them to get bipartisan support for tax reform.”

Democrat-sponsored bills on Capitol Hill call for a two-year moratorium on tax inversions. Senator Carl Levin, a Michigan Democrat, the Senate bill’s primary sponsor, describes them as “tax avoidance, plain and simple.” The legislation would also prohibit companies from shifting tax addresses overseas if management and significant business operations remain in the United States. Republicans, who have not signed on to the bills, say it makes more sense to cut US corporate tax rates.

If the Shire deal goes through, it would be the third largest in state history, behind the $58.6 billion sale of Gillette to Procter & Gamble in 2005 and Bank of America’s $53.7 billion purchase of FleetBoston in 2004.

The boards of both companies have endorsed the merger, which is still subject to regulatory approval. AbbVie executives said they expect to complete the transaction in the fourth quarter.

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.
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