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Sir Pascal Soriot, chief executive of AstraZeneca, starts with huge credit in the bank, obviously. His long tenure has been a triumph, starting with the against-the-odds victory over Pfizer’s charmless accountants in 2014.
The $39bn (£29bn) purchase of Alexion in 2021 looked a little over-priced at the time, but you could see how it sat well with Soriot’s sermons on the importance of backing science. The deal got AZ into the field of medicines for rare diseases, which should offer decades of growth.
A flirtation with a grand combo with US group Bristol Myers Squibb (BMS), by contrast, looks baffling. What’s the big idea here? Why bet the farm on a $400bn (£300bn) mega-merger? The first challenge would be how to rip out a few billions-worth of costs to justify the takeover premium. Soriot has normally viewed such corporate exercises as anti-patient. And why do it now?
In the absence of a statement by AZ – not even to confirm the basic accuracy of the FT’s initial report of talks with BMS – one must assume we’re in the territory of discussions that could end up being quietly ditched. One hopes that will be the outcome because the 67-year-old Soriot risks spoiling his legacy if a high-risk financial adventure goes wrong.
A calamity must be a possibility since the acquisition of a $133bn (£99bn) rival would inevitably come with a large helping of debt. “If there is one company that doesn’t need financial engineering it’s AZ in our view,” commented Jefferies’ analyst. Quite.
The only guarantee in buying BMS is that AZ would inherit the target’s patent cliff challenge that will see sales of its blockbuster Opdivo cancer treatment plunge between now and 2030. Expiries of major drugs can feel smaller if shared within a bigger group, so you can see why BMS would be minded to seek shelter, but it’s hard to understand why AZ would volunteer to pay for the umbrella.
The theoretical appeal, perhaps, is the prospect of building a market-beating global colossus in oncology, the field that is also AZ’s greatest strength. But Soriot’s strategy of supplementing AZ’s own development drugs with smart licensing and partnerships, especially in China, is a proven winner. Why mess with the formula? US competition regulators may also have something to say about two leading oncology franchises being welded into one. Approval would be a long, and probably distracting, process.
Plan A, by contrast, has the virtue of simplicity. It was only last week that Soriot said he was “absolutely confident” of hitting AZ’s 2030 target for annual revenues of $80bn despite the failure of a heart disease drug in late-stage trials. He gave a typically bullish performance: investors should know the drug business involves the odd hiccup in the labs, so put one blemish in the context of the “20 high-value readouts due over the next 18 months”.
The worry in the background is that Soriot’s enthusiasm for US risk-taking and innovation has somehow led to the conclusion that AZ needs to join the pharmaceutical establishment in the world’s largest market, never mind the fact that it is already investing $50bn in US research and development and manufacturing.
Last autumn AZ “harmonised” its listing on the New York Stock Exchange to give it equal status with the ones in London and Stockholm. “A global listing for global investors in a global company,” the corporate spin declared, but you didn’t have to be overly cynical to see how a new listing structure would make US deal-making simpler.
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But not all US deals are alike. The thumping near-9% fall in AZ’s share price on Monday spoke volumes: shareholders of all stripes struggled to see the sense in a mega-deal with BMS.
Viewed through patriotic British eyes, one can worry about AZ’s transatlantic drift or applaud the unusual sight of a UK-based company (for now, at least) being in the driver’s seat. Either way, though, the commercial logic has to add up. This idea just looks wholly out of character for AZ. It is best dropped.
