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How AstraZeneca’s $400bn tie-up with US rival Bristol Myers unravelled

A merger between the giant drugmakers would have marked a return to pharma megadeals

AstraZeneca chief Pascal Soriot had repeatedly told investors he did not need a big deal to clinch his $80bn revenue target by the start of the next decade. But behind the scenes, Soriot was chasing a mega-merger.

Soriot had gained little traction in pursuing a transformative tie-up in recent years, with preliminary overtures to top executives at US rivals rebuffed, according to several people familiar with the matter.

In Chris Boerner, chief executive of US-based Bristol Myers Squibb, Soriot found a partner willing to contemplate a bold transatlantic tie-up.

The two companies held talks throughout the spring and summer. By early August, discussions over a mostly share-based deal in which AstraZeneca would buy BMS at a premium had reached a serious stage, some of the people said.

At the end of July, AstraZeneca had a market value of £196bn ($264bn), compared with BMS’s $133bn, underscoring the scale of the proposed transaction.

The two sides were nearing an agreement on price and discussions were under way with large US banks about financing the multibillion-dollar cash component.

Talks were advanced enough that AstraZeneca and BMS were eyeing an announcement date of mid-August, the people said.

Legal and financial advisers were working frantically to deliver on that target date.

But after the FT reported on August 2 that the companies were in talks over a $400bn tie-up that would create the world’s biggest drugmaker by revenues, 67-year-old Soriot’s hopes of sealing the blockbuster transaction unravelled.

By the time London markets opened on Monday August 3, AstraZeneca’s board of directors was already preparing to pull the plug.

News of the deal sent shockwaves through the pharma industry and the UK, where AstraZeneca, the FTSE 100’s second-biggest company, is viewed as a crown jewel of British industry.

Jitters among officials in Whitehall were acute enough that a cross-government team was set up to monitor developments, led by Varun Chandra, the top business adviser to the UK’s prime minister, and his team in Downing Street and the Cabinet Office, some of the people said.

Officials feared AstraZeneca could use a merger to become the latest British company to shift its centre of gravity to the US.

Shares in AstraZeneca slid, closing down 9 per cent on August 3, marking the worst trading day for the British drugmaker since the coronavirus pandemic shook markets in March 2020.

A chorus of investors, puzzled by the idea of AstraZeneca even entertaining a mega-merger, revolted against the potential agreement.

By the evening of August 3, AstraZeneca’s board, led by chair Michel Demaré, had issued the order to terminate the discussions. Neither company has formally commented on the talks.

AstraZeneca and BMS declined to comment for this article.

A deal between the drugmakers would have marked a pivot back to the swashbuckling era of tie-ups between giant drugmakers at the turn of the millennium, which minted many of today’s heavyweights including AstraZeneca, GSK, Merck and Pfizer.

The last wave of consolidation drew to a close at the end of the last decade with BMS’s own $74bn takeover of biotech Celgene, a deal that provoked significant investor backlash and has failed to yield returns some investors hoped for.

“This feels like an idea from a bygone era,” said Kosta Kleyman, a healthcare investor at Columbia Threadneedle, a shareholder in both AstraZeneca and BMS. “Why would AstraZeneca, which is viewed as having impressive growth, want to buy Bristol’s patent cliff when they could be buying promising biotechs?”

The talks have stoked investor fears about AstraZeneca’s confidence in its pipeline, which is among the industry’s deepest with a series of major oncology studies expected to report in the next 12 months.

BMS is also staring down a patent cliff, with nearly half of the company’s revenues under threat from patent expirations as soon as 2028 — which could have further complicated matters for AstraZeneca.

Investors have also raised questions about Soriot’s strategy as he enters his 15th year in the top job.

“In my eyes this would have been a mistake,” said Lukas Leu, a portfolio manager at Zurich-based ATG Healthcare Investments, an AstraZeneca shareholder. “Soriot already has his legacy and he has done really well in the past few years. There’s no need for something big like this.”

On top of political concerns in the UK, the deal faced other obstacles. Investors worried about the antitrust scrutiny a transaction of such a large size would have garnered. The companies both have large, well-regarded oncology divisions.

The deal was also becoming more expensive for AstraZeneca even before the FT’s report on the talks sent its shares falling.

BMS last month reported upbeat second-quarter results, prompting a rise in its share price, while AstraZeneca’s nerve damage drug Wainua did not meet its main goal in a trial on patients with heart disease, hurting its share price.

Despite the investor backlash against the potential BMS deal, Soriot’s tenure has in many ways been defined by large-scale dealmaking.

Less than two years into the top job, Soriot fought off a £69bn takeover offer from US rival Pfizer. The pushback against Pfizer’s swoop became a rallying cry for a turnaround at AstraZeneca, then an industry laggard, with Soriot promising to nearly double revenues to $45bn by 2023.

Thanks to a lucrative partnership with Japan’s Daiichi Sankyo over an important cancer drug and a $39bn acquisition of rare-disease drugmaker Alexion Pharmaceuticals, AstraZeneca breezed past its 2023 target.

A year later, Soriot set a new target of $80bn in sales by 2030, which many analysts expect the company to meet. AstraZeneca generated $58.7bn in revenues last year.

A combination with BMS would have vaulted the combined company to more than $100bn in annual revenues. It also would have further shifted AstraZeneca’s centre of focus towards its biggest market, the US, and away from the UK.

Soriot has been vocal in his criticism about the UK public health system’s reluctance to pay for the best medicines and about investors’ scrutiny of his £17.7mn pay package, despite it being less than many US rivals.

In February, AstraZeneca listed its shares on the New York Stock Exchange, boosting the status of its US listing in a bid to broaden its international investor base even as it retained its UK headquarters.

A merger would likely have been accompanied by a major cost-cutting drive, analysts said. But it also would have left AstraZeneca exposed to BMS’s shrinking revenues from blockbuster drugs, chief among them blood thinner Eliquis, which is set to face generic competition by 2028.

“The financial synergies are relatively easy to model, but history suggests the harder challenge is preserving scientific innovation and research productivity while integrating two organisations of this size,” said Evangelos Assimakos, a senior investment director at Rathbones, an AstraZeneca shareholder.

For one BMS shareholder, who asked not to be named, the logic of a combination with a superior rival was clear. But for the British drugmaker, “it feels like Astra is just trying to get out of England”.