Tue, Jun 09, 2020 page10

• AstraZeneca eyeing Gilead merger

  • Bloomberg
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  Two drugmakers behind the industry’s most prominent responses to the COVID-19 pandemic are looking into the possibility of a combined future as economies emerge from lockdowns.

  AstraZeneca PLC, codeveloper of one of the fastest-moving experimental novel coronavirus vaccines, has made a preliminary approach to Gilead Sciences Inc, maker of the only US-approved treatment, people familiar with the matter said.

  If they decided to pursue a merger, it would be the biggest deal ever in the sector.

  

  A man walks past signage outside an AstraZeneca PLC research and development facility in Shanghai, China, yesterday.

  Photo: Bloomberg

  Although the companies are not in formal discussions, the people said, the mere suggestion of a blockbuster pharma merger is a sign that the industry is getting back to something resembling business as usual.

  Even successful COVID-19 treatments or vaccines are unlikely to be big moneymakers, meaning drugmakers face the return of old pressures to gain scale and boost innovation, or risk becoming targets.

  AstraZeneca chief executive officer Pascal Soriot learned that lesson six years ago when Pfizer Inc launched an unsuccessful bid for the UK company that eventually reached US$117 billion in value. Now, Soriot can ponder a deal that would insulate the company against takeovers, making it one of the world’s biggest drugmakers.

  Gilead was worth US$96 billion at Friday’s close, while AstraZeneca has a market value of about US$140 billion.

  Since the Pfizer bid, AstraZeneca has “been the biggest success story in large pharma in terms of turning around its [research and development] productivity,” Shore Capital Group Ltd analyst Adam Barker said. “There’s no doubt when you’re in a position of strength it’s not a bad idea to try and consolidate that.”

  Pharma has long been a realm of addition through mergers and acquisitions. AstraZeneca was formed by the 1999 merger of Sweden’s Astra with British Zeneca. Compound names such as GlaxoSmithKline PLC and Bristol-Myers Squibb Co tell similar tales, while Pfizer and Sanofi have been serial acquirers.

  Recent dealmaking has focused on companies just below the top tier, including Shire PLC, an innovation-rich firm that was bought in 2018 by Takeda Pharmaceutical Co in a deal worth US$62 billion.

  With a post-merger market capitalization of more than US$200 billion, AstraZeneca would join the biggest fish in pharma and seal off the risk of becoming another Celgene. The maker of the blood-cancer therapy Revlimid was snapped up last year by Bristol-Myers for US$88 billion.

  To move ahead, Soriot would have to work with Gilead chief executive officer Daniel O’Day, a former colleague at Switzerland’s Roche Holding AG.

  Gilead is not interested in selling to or merging with another Big Pharma player, preferring instead to focus its deal strategy on partnerships and smaller acquisitions, the people said.

  A Gilead representative declined to comment, and AstraZeneca said that it does not comment on rumors or speculation.

  Gilead is the most successful maker of antiviral drugs in recent history, and almost a mirror image of AstraZeneca.

  The firm’s remdesivir is the only treatment shown to benefit COVID-19 patients in a robust clinical trial.

  The drug might sell as much as US$7.7 billion, SVB Leerink analyst Geoffrey Porges said, but more than 130 companies — including AstraZeneca — are designing and testing vaccines that could obviate the need for coronavirus therapies in a matter of months or years.

  Despite the two companies’ involvement in the pandemic, there is not much overlap, Bloomberg Intelligence analyst Sam Fazeli said.

  Although AstraZeneca has proven its ability to find new drugs and capitalize on them, cash flow remains modest, he said.

  One way of addressing that quickly would be to acquire a company such as Gilead, with a lineup of strong sellers.

  “I think it would just be a marriage of one plus one equals two,” he said.
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