“They make money the old fashioned way. They earn it.“–Houseman, J., Barney, S. 1979
The news that AbbVie is pulling out of its arranged marriage with Shire Pharmaceuticals (because tax law revisions are changing the value of inversion deals) broke yesterday, much to the consternation of the hedge funds that had piled in, seeing this as an easy, indeed lazy route to riches. Similar to the thinking of the principals, whose corporate strategizing was oriented to loopholes rather than the generation of true value.
Good. Having been unable to muster much in the way of corporate creativity or courage on a voluntary basis, both companies, but particularly Shire, will have to find some in the wake of this change of plan. Reportedly, AbbVie has to pay a breakup fee of US$1.6 billion to Shire for having called off the nuptials. After Shire pays off its legal and banking advisors, that should leave at least a couple hundred million that they could invest in something useful, like drug discovery and development. Having made a fortune in psychiatry via its ADHD franchise (Vyvanse, Adderall, Intuniv), Shire had subsequently built absolutely nothing of value in CNS, indeed they had retreated and regressed. Now, Shire has another shot, using AbbVie’s money. Via licensing/acquisitions, they have the opportunity to make money the old fashioned way–they can earn it.