Six years ago, AstraZeneca fended off Pfizer’s $118 billion takeover attempt. Now, the shoe is on the other foot as AstraZeneca is reportedly on the offensive, pursuing a merger of similar magnitude.
Rumors of a record deal in the global health-care industry are creating a positive reaction and reigniting confidence that mergers and acquisitions activity will bounce back after the impact of the COVID-19 pandemic.
Last month, British pharmaceutical company AstraZeneca Plc made an initial inquiry to its American rival Gilead Sciences Inc. about a potential merger, according to Bloomberg News. If the two companies move forward with a deal, it would be the largest healthcare deal ever. It also would send a strong signal that the global economy will rebound.
Gilead stock price has shot up roughly 17%, primarily based on the news that its drug Remdesivir can help cure the novel coronavirus. The company’s stock was worth $96 billion at last Friday’s close. Remdesivir is an experimental drug that currently has no established safety or efficacy for the treatment of any condition. Gilead is conducting two Phase 3 clinical studies to evaluate the safety and efficacy of a 5-day and a 10-day dose of Remdesivir to treat adults diagnosed with COVID-19.
Likewise, AstraZeneca has been working on a University of Oxford COVID-19 vaccine project. The company comes with a market cap of about $140 billion. At the current value, a completed deal would set a new record for pharma M&A, besting Bristol Myers Squibb’s 2019 $74 billion acquisition of Celgene.
The merger of AstraZeneca and Gilead would create a COVID-19 pharma giant, with both companies leading the race to create a coronavirus vaccine. However, some say the deal may never happen. A major reason for skepticism is the size of any potential deal. AstraZeneca would almost certainly be required to pay at least $130 billion to acquire Gilead. As a result, AstraZeneca would need to add a large amount of debt because its cash position currently stands at approximately $4.2 billion.
Gilead is headquartered in Foster City, California, with six other locations in the state, plus Miami, Florida and Seattle, Washington offices. AstraZeneca is headquartered in Cambridge, England, UK. It has R&D offices in Cambridge, as well as Gaithersburg, Maryland, and Mölndal, Sweden.
AstraZeneca has three primary franchises: oncology, CVRM (cardiovascular, renal, and metabolism), and respiratory and immunology. Gilead’s current drugs are primarily focused on HIV, hepatitis C, and oncology.
Two-Month M&A Volume Hits a 22-Year Low
The potential for an AstraZeneca-Gilead comes at an opportune time as global M&A volumes have nearly been cut in half so far in 2020. Companies have been forced to spend their resources trying to survive the economic effects of the coronavirus pandemic.
The value of announced M&A, without minority investments, was just over $100 billion in April and May combined. That’s the lowest two-month period in 22 years.
More than $15 billion of transactions have been scrapped by mutual agreement due to the impact of COVID-19; however, advisers now believe that deal discussions that have been placed on hold are resuming with many corporate boards reacting to the reopening of economies and debt markets, along with robust central bank support.
Citigroup Inc. and UBS Group AG analysts predict a surge of post-COVID-19 consolidation in Europe in key sectors like financial services. As mentioned previously, the private equity industry is also starting to signal activity and a willingness to spend money. One sign of an economic restoration is news that buyout firm Bridgepoint is restarting the sale process of Iberian agrochemical company Rovensa in an acquisition that could be worth more than $1.3 billion, according to industry insiders. Plus, multinational companies in Europe and Asia, where many countries are at later stages of recovery from the pandemic, are beginning to again examine target companies in the United States.
The health-care and technology industries are said to be prime areas because they appear to have withstood the pandemic very well. Some have even emerged stronger from the crisis.
Total Recovery Still Somewhat Unlikely Even With AstraZeneca / Gilead Merger
Even with a potential record-setting merger between AstraZeneca and Gilead, a full recovery in 2020 is unlikely to bring the year back to the levels of 2019. That mark was over $3 trillion.
It is expected that merger and acquisition activity in the second half of the year will still be impacted by the uncertainty surrounding a COVID-19 vaccine and the U.S. presidential election this fall.