Smith & Nephew and Swiss biotech group Actelion, two other perennial targets of bid speculation, also fell around 3 percent.
Investors had been expecting some action from the Obama administration to clamp down on tax-avoidance inversions but the steps announced on Monday were more far-reaching than anticipated, analysts at Deutsche Bank said.
The new rules, effective immediately, will make new inversions more difficult to do and less potentially rewarding.
The action follows months of political debate, with Democrats urging prompt legislative action and Republicans pushing to address the problem later, perhaps in 2015, as part of a broader overhaul of the loophole-riddled federal tax code.
Read MoreCapital pains tax: Medtronic inversion ires investors
"Inversion deals now are clearly going to be very difficult to pull off," Navid Malik, head of life sciences research at Cenkos Securities, said.
That could kill off prospects of Pfizer returning to bid for AstraZeneca at the end of November, when a six-month cooling-off period imposed by British takeover rules comes to an end and the U.S. company has a free hand to publicly launch a new offer.
The Shire deal, however, may still go ahead, since it is already in train, although AbbVie will lose upside from planned tax savings, making the picture uncertain. The transaction is due to be completed in the fourth quarter of 2014.