The industry was buzzing this week about reported megamerger talks between Bristol Myers Squibb and AstraZeneca that would have created one of the largest pharmaceutical companies in the world, with a combined market value of around $400 billion.
For now, the talks appear to be off. But the hoopla raised critical questions about why large pharmas would come to the table for such a deal in the first place. This is especially true for AstraZeneca, which has seen its value rise steadily over the last decade, backed by a strong pipeline and rising sales that could reach $80 billion by 2030.
Investors appeared skeptical, and AstraZeneca’s London-listed shares closed down nearly 9% Monday after the Financial Times first reported the companies were in talks. The rumored megamerger also triggered concerns about the potential impact such a large deal could have on innovation.
For a company like BMS, talk of a merger makes more sense, according to Michael Abrams, managing partner at Numerof & Associates.
“BMS has not done a great job of planning out its portfolio so that they have products in the pipeline to replace the products that are [losing exclusivity] when they need them,” he said. “That puts them at a bit of a disadvantage.”
The pharma giant is bracing for patent expirations on two of its top-earning drugs: the blockbuster blood thinner Eliquis and cancer immunotherapy Opdivo. This will leave the company with the largest growth gap among its Big Pharma peers, at around $38 billion, according to an Evaluate report.
While a company in AstraZeneca’s position wouldn’t be poised to gain as much from a merger as BMS, Abrams said it would bring some benefits.
“One of the things that would have appeal would be AZ would be acquiring the R&D operation of BMS,” Abrams said, pointing out that together, the R&D operations could create one of the industry’s deepest and strongest teams, particularly in oncology. “And if you think that the future is all about cancer, well, then that makes sense,” he said.
Another advantage for both companies would be broader patient reach across oncology, cardiovascular disease and neuroscience, as well as opportunities for cost savings.
“From a conventional M&A point of view, it would eliminate redundancies in clinical sites and the management of clinical trials, the consolidation of research sites, and the elimination of me-too products on both sides,” Abrams said.
It would also increase their leverage with providers and payers, potentially giving them the ability to negotiate across entire cancer treatment pathways, rather than individual drugs.
If two large companies did succeed in pulling off a megamerger, it could signal a shift from the industry’s recent approach to dealmaking. While sectors such as insurance and healthcare delivery have consolidated into markets dominated by a handful of companies, many drugmakers have favored smaller bolt-on deals to bolster their pipelines rather than combinations of large drugmakers, Abrams noted.
“If it could be shown that a major merger like this actually paid off in terms of innovation or in other ways, then other companies would have to reassess their strategies,” Abrams said.
Would the FTC get on board?
Even if the AstraZeneca-BMS rumors suggested that large drugmakers might be more open to pursuing megamergers, it’s unlikely a deal of that size would clear a Federal Trade Commission review, at least without major concessions, Abrams said. Most concerns would center on overlaps between the companies’ portfolios. If AstraZeneca and BMS combined, for example, the merger would have created a massive organization with a large range of oncology products — from drugs to diagnostics.
“That’s a pretty big portfolio, and it covers prevention, diagnostics, biomarker testing, targeted therapies, checkpoint inhibitors, ADCs, cell therapy, radiopharmaceuticals — it covers the entire waterfront if they were allowed to keep it all,” Abrams said.
The FTC would likely require them to divest some of those assets.
“That would obviously be a big factor too, whether they want to move forward, once they know what kind of hoops they have to jump through to make it possible,” Abrams said.
FTC chair Andrew Ferguson has signaled greater openness to negotiated merger settlements than Biden-era enforcers, while keeping the 2023 Merger Guidelines in place. How the FTC would view a pharma megamerger remains unclear.
“The [FTC during the Biden administration] was appropriately sensitive to overlapping portfolios and having a kind of a lock on any one therapeutic area. That may be the case here, but I don’t know just how sensitive the current FTC would be to that situation,” Abrams said
