Key Takeaways

  • Bloomberg reports of possible merger between AstraZeneca and Gilead
  • It would be biggest pharma deal of all time
  • Both drugmakers working on COVID-19 treatments

British pharma giant AstraZeneca has made a preliminary approach to rival drugmaker Gilead Sciences about a potential merger, Bloomberg reported over the weekend. Unnamed sources said Gilead was informally contacted about a possible tie-up and the terms were not specified. The California-based firm has discussed the proposal with advisers, but it is reportedly "not currently interested in selling to or merging with another big pharmaceutical company, preferring instead to focus its deal strategy on partnerships and smaller acquisitions." Analysts are skeptical the deal will happen, and Gilead's CEO Daniel O’Day just took the job 15 months ago. Regardless, AstraZeneca stock is falling and Gilead shares are rising this morning as investors digest the news.

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AstraZeneca currently has a market cap of over $140 billion, and Gilead is valued at $96 billion. The merger of the two would be the biggest health care or pharma deal in history. The biggest so far is Bristol-Myers Squibb's $74 billion acquisition ($88 billion including debt) of Celgene in 2019. Both AstraZeneca and Gilead are among the top 20 pharma firms in the world in terms of 2019 revenue. Both are also working on solutions to the COVID-19 pandemic. AstraZeneca is preparing to manufacture and distribute billions of doses of the University of Oxford's vaccine, one of 10 candidates in the clinical evaluation stage. Its antiviral drug calquence reduced markers of inflammation and improved clinical outcomes of patients with severe COVID-19 disease, according to a new study. It's also working on finding antibodies to treat the infection. Gilead's antiviral drug remdesivir is currently being studied in various clinical trials around the world on patients with the disease.

The pharma sector sees high levels of M&A activity each year, and most of the giants we know today are products of it. Mergers are driven by the need for innovative new products, business-model transformations and consolidation amid challenging market conditions, tech disruption and low interest rates. Big Pharma is currently dealing with upcoming patent expiries/generics, downward pricing pressure and a growing number of regulations. Cancer and gene therapies have been the focus of merger and acquisition activity in the sector, but the pandemic could cause a shift. John Rountree of pharmaceutical consulting firm Novasecta says it's possible Astra sees a big future for antivirals in the post-COVID era. "Snapping up one of the clear leaders in that field will give it a platform for future growth beyond oncology," he told Bloomberg. UBS analysts also speculated that Astra could be after Gilead's large cash pile to fund its dividend payments, according to CNN.