Pharma investors reeled this week from reports that AstraZeneca held merger talks with U.S. rival Bristol Myers Squibb, a move that would break from Big Pharma’s decade-long strategy of acquiring smaller companies.
The Financial Times and Reuters reported earlier this week that there had been preliminary talks between the U.K. pharma giant and the U.S. company. CNBC has not independently confirmed the talks.
AstraZeneca’s shares slid on Monday but recovered slightly after Reuters quoted a “senior source” on Wednesday denying there had been talks. The stock is up nearly 9% over the past 12 months.
A merger appears unlikely due to antitrust issues and significant business overlap, according to a flurry of analysts who reviewed the reported deal talks in notes to clients on Monday. But the reports had the industry thinking about a kind of dealmaking it has avoided for more than a decade.
A merger would be among the pharmacy industry’s biggest-ever deals and create a company valued at roughly $400 billion. It’d give AstraZeneca, the U.K.’s largest drugmaker, something years of smaller deals couldn’t easily provide: scale in the U.S., deeper commercial operations and access to Bristol Myers‘ oncology, hematology and neuroscience franchises.
But it would also expose AstraZeneca to one of the industry’s largest patent cliffs, enormous integration challenges and the risk of diluting one of pharma’s strongest growth stories.
AstraZeneca declined to comment to CNBC. Bristol Myers didn’t respond to a request to comment.
A return to an old playbook?
Following a wave of mega-mergers in the 2000s, the industry shifted toward licensing deals and targeted “bolt-on” acquisitions that gave bigger companies promising technologies and drug candidates without the disruption that can accompany full-scale mergers.
Pharma’s previous mega-merger wave was largely a response to patent cliffs and weak pipeline replacement, with companies relying on cost cuts to protect earnings.
“If there were ever a time where we could see these mega mergers in pharma, it would be now,” Mizuho analyst Jared Holz told CNBC’s “Squawk Box” on Monday, noting U.S. President Donald Trump administration’s pro-deal agenda.
UBS wrote in a note on Monday that the shift to smaller deals reflected concerns that earlier mega-mergers, while generating cost savings, often interfere with research productivity during lengthy integrations. Instead, companies increasingly bought businesses focused on particular areas that could continue operating with more independence after being acquired.
Pharmaceutical companies have spent years concentrating on fewer therapeutic areas, buying smaller companies with defined pipelines, Daniel Chancellor, vice president of thought leadership at pharma intelligence firm Norstella, told CNBC.
But Chancellor said that, after years of specialization, the industry could eventually swing back toward mergers that create scale.
Companies can only specialize for so long, he said, adding: “Eventually that cycle will flip.”
Buying U.S. scale in one big move
For AstraZeneca, the clearest benefit of absorbing its lower-value peer could be speed to the key U.S. market.
It has steadily expanded its U.S. presence and committed billions to manufacturing and research there as it pursues its target of $80 billion in annual revenue by 2030.
Taking on Bristol Myers’ business “would tick off quite a lot of those commitments,” Chancellor said, noting it is a highly profitable, U.S. centric business.
Alex Torgerson, M&A partner at consulting firm West Monroe, said AstraZeneca could likely achieve many of the same strategic objectives through a series of smaller acquisitions, but not nearly as quickly.
“What Bristol Myers provides is a major U.S. commercial organization, established franchises, significant cash flow and a broad late-stage pipeline, all in a single transaction,” he told CNBC.
The question, he added, is whether those assets justify buying the entire company.
The companies also face different patent cycles. Bristol Myers is entering a reset as its two biggest medicines, blood thinner Eliquis and cancer therapy Opdivo, approach loss of exclusivity. AstraZeneca’s most significant patent expiries are expected later, around 2031 to 2033.
Chancellor said those timelines were potentially complementary, adding AstraZeneca’s stronger near-term growth could absorb any potential financial hit from Bristol Myers’ transition.
UBS was more cautious, questioning whether merger synergies delivered around 2030 would be sufficient to offset AstraZeneca’s own later patent expiries, analysts said in a Monday note to clients.
The timing is further complicated by Bristol Myers’ upcoming late-stage clinical readouts for experimental drugs, which could materially change the company’s value.
“Waiting would likely reduce uncertainty, but it could also make Bristol Myers more expensive,” Torgerson said. “Moving now only makes sense if AstraZeneca is paying a risk-adjusted price for pipeline success that hasn’t happened yet.”
Scale versus growth
Norstella estimates AstraZeneca could grow at about 5% annually through 2032 based on current consensus forecasts, while a combined company would grow closer to 1%, assuming no major divestitures or other changes.
West Monroe’s Torgerson said of a potential merger: “Based on what’s publicly known today, the benefits don’t clearly outweigh the integration challenges.”
Greater scale, a broader mix of businesses and lower costs may form part of the strategic rationale, he said, but added: “The burden of proof is entirely on AstraZeneca, and it hasn’t been met yet.”
The strategic fit is also more nuanced than it first appears, he added.
AstraZeneca and Bristol Myers already compete in oncology, meaning potential regulatory scrutiny on antitrust grounds. Their pipelines, however, are more complementary, with AstraZeneca stronger in solid tumors and Bristol Myers in blood cancers and cell therapies.
Innovation and regulatory hurdles
Mega-mergers can create value by cutting duplication, consolidating operations, and increasing purchasing power, but can weaken innovation by cutting research, losing talent, and slowing decisions, industry watchers told CNBC.
A study prepared for the European Commission, which examined 149 pharmaceutical mergers between 2010 and 2013, found that acquisitions accelerated some early-stage drug development but led to 53% more discontinued drug development programs than comparable companies that didn’t pursue deals.
Where the buyer and target were developing drugs to treat the same condition, the early-stage benefits disappeared while discontinuations increased further, per the study.
That could prove particularly relevant for AstraZeneca and Bristol Myers, whose oncology portfolios overlap in several areas even as their broader pipelines are complementary.
Torgerson said a deal “won’t flip the industry’s default overnight, but it could meaningfully shift where boards think the line is between an ambitious deal and an achievable one.”
