A potential acquisition and merger was in the talks between AstraZeneca (AZN) and Gilead (GILD). AstraZeneca has approached rival drugmaker Gilead about a potential merger.
Neither company responded to requests for comment on Monday, but if the transaction were to take place, it would unite two of the leading players in the fight against coronavirus in the biggest health care deal on record. AstraZeneca has secured production capacity to make 2 billion doses of a potential vaccine, while the experimental Gilead drug remdesivir has been approved by the US government to treat hospitalized patients with severe Covid-19.Shares in AstraZeneca dropped by more than 2% in London even as the FTSE 100 (UKX) index rose after Bloomberg reported the UK-based company made a preliminary approach last month to US firm Gilead. The two companies have a combined stock market value of nearly $140 billion.
Analysts said the rationale for the potential deal was not immediately obvious. According to UBS, AstraZeneca and its smaller rival have little in common when it comes to products and strategy. Still, Gilead does have something AstraZeneca does not — plenty of cash.UBS analysts said that AstraZeneca could see Gilead’s cash as a way to fund dividend payments. A merger would also unite the two companies in the fight against coronavirus.Both companies have performed well over the past year. Shares in AstraZeneca have increased by roughly a third since June 2019, while Gilead’s stock has risen by more than 15% over the same time period. Shares in Gilead were up more than 3% in US premarket trade on Monday.
The U.K.-based firm informally contacted Gilead last month to gauge its interest in a possible tie-up, the people said, asking not to be identified because the details are private. AstraZeneca didn’t specify terms for any transaction, they said. While Gilead has discussed the idea with advisers, no decisions have been made on how to proceed and the companies aren’t in formal talks, the people added.
AstraZeneca, valued at $140 billion, is the U.K.’s biggest drugmaker by market capitalization and has developed treatments for conditions from cancer to cardiovascular disease. Gilead, worth $96 billion at Friday’s close, is the creator of a drug that’s received U.S. approval for use with coronavirus patients.
Gilead is 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, the people said. A representative for Gilead declined to comment. A spokesman for AstraZeneca said the company doesn’t comment on “rumors or speculation.”
The overtures show how the pharmaceutical industry landscape could shift at a time when drugmakers are racing to find effective treatments for Covid-19. If a deal goes ahead, it would surpass Bristol-Myers Squibb Co.’s $74 billion takeover of Celgene Corp. last year as the biggest-ever health-care acquisition, according to data compiled by Bloomberg. It would also rank among the 10 biggest M&A transactions of all time.
Shares of AstraZeneca have risen about 41% over the past 12 months, making it the best performer on a Bloomberg Intelligence index of major Western pharmaceutical companies. Shares of Gilead gained about 19% over the period.
AstraZeneca (AZN) & Gilead (GILD): The Tamiflu Developer
Gilead has been dispensing early rounds of the drug for free, leading some investors to question how the company plans to make money from it in the future. Chief Executive Officer Daniel O’Day has said the company may spend $1 billion on the treatment this year alone.
AstraZeneca is helping to manufacture a Covid vaccine developed at the University of Oxford. The U.S. has pledged as much as $1.2 billion to support the efforts as part of Operation Warp Speed, a push to secure vaccines for America. The shot is expected to enter final-stage clinical trials in June.
Gilead was founded in 1987 by Michael Riordan, a doctor with a Harvard MBA who aimed to discover treatments for viral infections after a bout with dengue fever acquired in southeast Asia. The company’s best-known successes include Tamiflu, the influenza treatment it helped develop.
The company also makes Truvada, a medicine that can help prevent HIV, as well as drugs for liver disease and inflammation. Gilead employs about 12,000 people, according to its website.
AstraZeneca is no stranger to large-scale, politically sensitive M&A. In 2014 it fended off a $117 billion approach from Pfizer Inc., a deal that attracted attention from U.S. lawmakers as it would have allowed New York-based Pfizer to lower its tax bill by redomiciling in the U.K.
AstraZeneca (AZN) & Gilead (GILD): The Deal
According to our analysts the deal may or may not come to fruition, health-care dealmaking has been a rare bright spot as the global pandemic and resulting lockdowns have doused the market for mergers and acquisitions. Global M&A volumes are down about 45% this year, according to data compiled by our analysts, and announced deals have been falling apart at a steady pace.
