What to Make of Astra Zeneca-Gilead Merger Reports

Bloomberg reported over the weekend that AstraZeneca AZN informally approached Gilead Sciences GILD about a potential merger last month, but we're not making any changes to our Astra or Gilead fair value estimates or moat ratings based on the unconfirmed discussions. Combining a $140 billion market cap Astra with a $100 billion Gilead would be a record-breaking merger in healthcare (Bristol-Myers Squibb's Celgene acquisition in 2019 was valued at $74 billion), although there is no confirmation that the firms are still considering such a move, and it would be a clear break from Gilead's strategy to focus on small deals. Also, Astra fought off an offer from Pfizer in 2014 and is on a strong growth trajectory, without the need to supplement cash flows to this extent.

That said, given the size of both Astra and Gilead, we think there could be a surprising amount of overlap in strategy without the need for significant divestments, if such a deal were legitimately in the works. For example, Astra's strong oncology portfolio has minimal direct overlap with Gilead's mostly development-stage oncology pipeline. In immunology, Astra's newer asthma biologics--like Fasenra and phase 3 drug tezepelumab--could be joined by pipeline drugs for pulmonary fibrosis in the Gilead/Galapagos collaboration. COVID-19 exposure is also complementary; Gilead's antiviral treatment remdesivir is already being used following solid phase 3 results, and Astra/Oxford's leading vaccine program (poised to enter phase 3 in the United States next month) and Astra's antibody program (to enter testing this summer) would round out their collective coverage of key treatment and prevention strategies. Also, Astra CEO Pascal Soriot and Gilead CEO Daniel O'Day served together at Roche in the late 2000s; Soriot arrived in 2006 from Sanofi-Aventis just as O'Day moved from Roche Pharma to the diagnostics side of the business.

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