AstraZeneca shareholders have raised concerns over the UK pharma group’s potential mega-merger with US rival Bristol Myers Squibb, questioning the value of spending heavily to acquire an industry laggard.
Shares in AstraZeneca fell about 9 per cent in London on Monday after the FT reported on Sunday that it was in talks with BMS to create the world’s fourth-largest drugmaker by market capitalisation, with a combined valuation approaching $400bn.
Chief among the complaints from AstraZeneca investors was that the Anglo-Swedish company would be acquiring a company staring down the loss of almost half its revenues as its patents expire in the coming years.
Evangelos Assimakos, senior investment director at Rathbones, a top 30 AstraZeneca shareholder, described the potential tie-up as a “surprise” given the company was already on track to meet its target of increasing annual revenues to $80bn by 2030 and had a robust pipeline to deliver longer-term growth.
AstraZeneca, which generated revenues of $58.7bn last year, is awaiting clinical data on promising new drugs targeting various cancers as well as obesity and respiratory conditions such as asthma. Chief executive Sir Pascal Soriot told reporters as recently as last month that he did not “need M&A to deliver” on the 2030 target.
The opinion of AstraZeneca shareholders could prove crucial to any deal’s viability. Not only will a potential deal require BMS shareholder approval, if AstraZeneca issues more than a third of its stock, a transaction would also require approval from the British drugmaker’s shareholders, according to MKI Global Partners.
Neither AstraZeneca nor BMS has commented on the deal talks. The exact terms discussed by the companies could not be confirmed, and people familiar with the matter said any deal could yet be delayed or fall apart.
Markus Manns, a portfolio manager at Union Investment, one of Germany’s largest active asset managers and a shareholder in both AstraZeneca and BMS, said the deal “makes neither strategic nor financial sense” and called on the companies to end the talks.
“Many of the mega-mergers of the past have destroyed value, while the R&D performance of the companies involved took years to recover from the ‘merger shocks’,” he said.
In 2014, two years into his tenure with the company, Soriot saw off a near-£70bn takeover bid by Pfizer, turning it into a rallying cry to inspire a turnaround.
Assimakos at Rathbones also highlighted concerns that antitrust regulators could impose restrictions on any deal with BMS, saying that the significant overlap in the companies’ cancer and cardiovascular medicines might require “significant divestments”. Both companies also have rival medicines to Merck’s blockbuster cancer drug Keytruda — AstraZeneca’s Imfinzi and Bristol’s Opdivo — part of a cohort of drugs known as PD-1/PD-L1 inhibitors.
Another AstraZeneca investor said the potential deal raised questions about how much confidence the FTSE 100 company had in its research and development pipeline and “would be a surprise” given that its management had “consistently backed the business to grow organically”.
Some shareholders see potential upsides to a deal, however. They said that both companies’ vast oncology pipelines, comprising in excess of two-fifths of each of their revenues, were complementary, and a deal could yield huge cost savings in R&D and administrative functions.
One top 30 AstraZeneca shareholder said the merger would create a group with “significant US exposure”. Growth in the US, which accounts for almost half of the company’s sales, is essential for the group to hit its revenue targets.
The investor added that while the deal would “be a strategy shift for Astra”, it could help it find a successor to Soriot from within BMS’s ranks.
A move by Soriot to combine with BMS, which has a market capitalisation of about $134bn, would represent a return to Big Pharma mega-mergers, which have fallen out of favour. The deal would be far bigger than Pfizer’s $68bn takeover of Wyeth in 2009, the last big combination in the sector.
Speculation had been rife for months that Soriot, who turned 67 in May, was on the hunt for a legacy-defining deal. An acquisition of BMS would be considerably larger than AstraZeneca’s purchase of rare-disease biotech Alexion for $39bn in 2020, the biggest deal in the company’s history.
BMS itself provides a warning about the pitfalls of industry megadeals: the US company’s $74bn acquisition of biotech Celgene in 2019 has failed to yield the anticipated results. Celgene then, like BMS now, was staring into a patent cliff.
“I just don’t see how the bigger and better company — in this case Astra — doesn’t get hurt by this as Bristol [BMS] did by its own large deal with Celgene,” said one major investor in both companies.
Some investors and analysts have suggested that a deal with BMS could smooth the path for AstraZeneca to shift its primary listing to the US.
The company, the second largest on the London Stock Exchange by market capitalisation, in February completed a direct listing on the New York Stock Exchange, bringing it on a par with its London and Stockholm listings.
Any transaction would probably involve a large amount of stock as payment. BMS shares have risen about 20 per cent since the start of the year, while AstraZeneca has fallen 12 per cent over the same period. Monday’s decline in the UK group’s shares could complicate the deal because the widening gap makes it more expensive for AstraZeneca.
AstraZeneca declined to comment. BMS did not respond to requests for comment.
Additional reporting by Aaron Kirchfeld in London and Florian Müller in Frankfurt
