At the start of the year, it looked like the pharmaceuticals mergers and acquisitions (M&A) market would get an adrenaline injection – but now, it looks more like it's taken a sleeping pill.
Until the AbbVie board announced that it was reconsidering what seemed to be a done deal to acquire Ireland-listed specialty pharma company Shire late Tuesday, many bankers and investors in the pharma sector had believed that recent U.S. Treasury rule changes targeted at "tax inversions" wouldn't affect deals already in the pipeline. That belief now seems naïve.
Tax inversions involve a company taking over another which is headquartered in a different country, but moving its headquarters there for tax purposes, to use overseas cash which would be taxed twice if it was brought back to the U.S.
The potential for a Pfizer-AstraZeneca mega-merger also looks diminished, with sources close to the situation saying the chances of a new $116 billion plus bid at the end of November, when Pfizer can submit a new bid under U.K. Takeover Panel rules, have lessened. This would have been the biggest ever acquisition in the sector.
"We've had a real shock to boardrooms in terms of their confidence about whether they want to do a deal in the last week," Scott Moeller, director of the M&A research centre at Cass Business School, told CNBC.
"This (the Shire-AbbVie deal) is clearly a win for the Treasury department, and it's going to put a lot of cold water on the tax inversion market. We might not see other companies doing the same thing."
Deals worth $590.9 billion have been pulled this year, which is shaping up to be the worst year for withdrawn deals since 2008, when $640 billion worth of deals didn't complete, according to Dealogic. Back then, the financial crisis was at its zenith, whereas this year the global economy and markets look much healthier.
Yet the long-term drivers for deals in the pharmaceutical sectors are still there, according to some analysts.
"The pharma sector remains very attractive for deals and it still needs consolidation," Moeller said. "Roche should be poised to do some deals, some of the U.S. companies who see a strategic benefit will still want to do deals. Companies need to focus on what they see as core, and that means getting out of some of the things that aren't so core."
- By CNBC's Catherine Boyle
Clarification: This article has been changed since its first publication to include updated data from Dealogic.