AstraZeneca merger falls apart

AstraZeneca, a leading UK biopharmaceutical company, just had a megadeal fall apart within a day. For months, AstraZeneca had been secretly pursuing a merger with a US pharma giant called Bristol Myers Squibb which would have elevated AstraZeneca into becoming one of the world’s largest drugmakers by revenue.

However, within hours of the deal’s existence being publicly reported on, AstraZeneca's shares fell by 9% (its worst single trading day since the pandemic). By that very evening, AstraZeneca’s board terminated deal discussions, with this investor reaction being cited as the decisive factor.

Analysis

What is striking about this event is how quick the deal fell apart. The public report was less than 24 hours before the board terminated the deal. This goes to show the speed with which investors expressed their opposition, and the speed with which this signal was picked up on by AstraZeneca’s management.

The investors logic in their opposition is straightforward: AstraZeneca had built its current standing through targeted acquisitions and organic growth. By comparison, Bristol Myers Squibb was facing a patent cliff (where exclusive legal rights over leading products are about to expire).

What does this mean for the sector?

• The deal’s collapse signals to the wider market that pharma mega-mergers are firmly undesired by investors, who prefer organic growth and smaller targeted acquisitions
• Bristol Myers Squibb is left particularly exposed as its patent cliff approaches with several patents (exclusive legal rights over selling an invention) expiring from 2028 onwards
• A cross-government team was set up by the UK government to monitor this deal given the prospects of a leading pharma company shifting operations to the US