AstraZeneca investors punished the drugmaker on Monday over reports of merger talks with US rival Bristol Myers Squibb about forming what would become one of the world's biggest pharmaceutical firms with a combined value of nearly $400bn.
Shares in AstraZeneca were down some 6%, the second-biggest drop on the FTSE 100 index, as investors and analysts said Britain's biggest drugmaker had little need for a transformative acquisition despite potential cost benefits. Bristol Myers shares were up about 5% in US pre-market trading.
A potential deal, as yet unconfirmed by either firm, would create the world's fourth-largest drugmaker by market capitalisation and the largest by revenue, in potentially one of the biggest M&A deals ever, combining a top European pharmaceutical firm with a major US rival.
"The only advantage for AstraZeneca in this rumoured combination with BMS seems to be to accelerate its US footprint and sales," said Lucy Coutts, investment director at JM Finn, an AstraZeneca shareholder.
"On balance, BMS shareholders would be the winners of any combination with AZN and so this news will undoubtedly be received coolly by AZN shareholders."
A person familiar with the matter told Reuters that AstraZeneca and Bristol had held talks, confirming an earlier Financial Times report. On Friday, the two had a combined market capitalisation of nearly $400bn, with AstraZeneca valued at $264bn and Bristol Myers at $133bn.
An AstraZeneca spokesperson declined to comment on Monday. Bristol Myers, which is headquartered in New Jersey, did not respond to a request for comment on Sunday.
Analysts and investors questioned the logic of a deal for AstraZeneca, which has been one of the most successful companies in the sector under CEO Pascal Soriot's 14 years at the helm.
Markus Manns, portfolio manager at Union Investment, an AstraZeneca shareholder, said a deal "does not make strategic or financial sense" and that it would disrupt a "well-run company with a full pipeline."
"If the merger rumours prove to be true, this would represent the pharmaceutical industry's equivalent of the FIFA privatisation moment," added Manns, referring to FIFA's now abandoned plans to sell off a World Cup stake. "(That is to say a) poorly conceived proposal that would be met with considerable bewilderment by many market participants."
Lukas Leu, portfolio manager at AstraZeneca shareholder ATG Healthcare, said a deal could boost margins through cost synergies and expand reach in neuroscience and cell therapy, but questioned how a combined firm would position competing drugs.
"I am not a big fan of mega-mergers, it kills innovation and agility, and would be growth-dilutive for AstraZeneca in the near term," he said.
One attraction for AstraZeneca could be further expanding its presence in the United States, already its biggest market.
AstraZeneca this year completed a direct listing on the New York Stock Exchange, and a Bristol Myers deal would effectively mean a British company buying a major US pharmaceutical champion.
Bristol Myers derives the majority of its revenue from the US, where it has one of the largest commercial footprints.
A portfolio manager at a top-20 AstraZeneca shareholder, who commented on condition of anonymity, said that while "there may be an appeal to increasing US exposure", such a deal "would be a surprise given Astra management has consistently backed the business to grow organically through R&D delivery".
"Consensus is that Astra has a stronger pipeline and less patent expiry pressure than BMS, so why dilute that and reduce the growth outlook?"
Since President Donald Trump returned to office, AstraZeneca has invested tens of billions of dollars in US manufacturing and cultivated close ties with the administration as the company pursues an ambitious goal of generating half of its targeted $80bn in annual revenue by 2030 from the US market.
It generated about $59bn in revenue last year.
Sean Conroy, an analyst at Shore Capital, said a deal could also help AstraZeneca address the patent cliff it faces after 2030 and strengthen its oncology business, although he cautioned that investors were "not often fans of mega mergers of this ilk".
He added that overlap between Bristol Myers' Opdivo and AstraZeneca's Imfinzi, which are the same type of cancer immunotherapy drugs, could attract antitrust scrutiny.
