A new pharma king? AstraZeneca approaches Gilead about potential merger: report

Coronavirus treatment

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’s $US74 billion takeover of Celgene 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 per cent 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 per cent over the period.

Gilead has attracted investor interest as its antiviral drug for COVID-19, remdesivir, worked its way through clinical trials in recent months. The stock is still more than a third lower than its 2015 highs. The California-based company has seen a steady decline in sales in its hepatitis C franchise and is trying to reinvigorate its drug-development pipeline.

Remdesivir, which has an emergency use authorisation from the US Food and Drug Administration, has been shown in some early studies to shorten hospital stays for people with COVID-19. SVB Leerink recently forecast that sales of the drug may reach $US7.7 billion in 2022.

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 $US1 billion on the treatment this year alone.

AstraZeneca CEO Pascal Soriot, a former executive at oncology specialist Roche Holding AG, has transformed the company since taking the helm nearly eight years ago.Credit:Kate Geraghty

AstraZeneca is helping to manufacture a COVID vaccine developed at the University of Oxford. The US has pledged as much as $US1.2 billion to support the efforts as part of Operation Warp Speed, a push to secure vaccines for America. The shot is expected to enter phase III 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 $US117 billion approach from Pfizer, a deal that attracted attention from US lawmakers as it would have allowed New York-based Pfizer to lower its tax bill by redomiciling in the U.K.

Deal slump

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 per cent this year, according to data compiled by Bloomberg, and announced deals have been falling apart at a steady pace.

Excluding minority investments, dealmaking in April and May barely topped $US100 billion in total, the data show, the lowest two-month period in at least 22 years.

AstraZeneca CEO Pascal Soriot, a former executive at oncology specialist Roche, has transformed the company since taking the helm nearly eight years ago. At the time, it was struggling with an aging stable of drugs and a shortage of innovation.

Shares of AstraZeneca have risen about 41 per cent over the past 12 months

Shares of AstraZeneca have risen about 41 per cent over the past 12 monthsCredit:AP

He’s championed the development of Lynparza, which was initially approved for ovarian cancer but has also proved useful for treating other forms of the disease. AstraZeneca has since overtaken UK rival GlaxoSmithKline in market value.

Last year, AstraZeneca sealed its biggest transaction in more than a decade, agreeing to pay as much as $US6.9 billion to buy into a promising breast cancer treatment developed by Japanese drugmaker Daiichi Sankyo Co. The UK company reached a deal this month with Accent Therapeutics to potentially spend more than $US1.1 billion collaborating on novel oncology therapies.

AstraZeneca shares have also been boosted by positive data from trials of its blockbuster lung cancer drug Tagrisso.

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