Analysts baffled by AstraZeneca’s interest in Bristol Myers Squibb Proactive uses images sourced from Shutterstock
AstraZeneca PLC (LSE:AZN, NASDAQ:AZN) shares fell 6% to 11,872p on Monday, the steepest decline in the FTSE 100, as analysts struggled to explain why Britain’s largest drugmaker would want to buy Bristol-Myers Squibb Co (NYSE:BMY, XETRA:RM, OTC:BMYMP).
Jefferies described the reported talks as more than a ‘head scratcher’.
The broker, which rates the stock ‘buy’ with a 17,500p price target, said it was perplexed by the news given the strength of AstraZeneca’s own growth and innovation profile.
If there is one company that does not need financial engineering, Jefferies said, it is AstraZeneca.
The bank acknowledged a deal would create the broadest oncology portfolio in the industry.
But it argued pipeline assets could be sourced more cheaply elsewhere, as AstraZeneca has been doing in China, and that Bristol’s cardiovascular business would be merely incremental.
Using a large quantity of premium equity to buy a company on a low earnings multiple struck the analysts as drastic.
Bristol trades on roughly 11 times forecast 2027 earnings against AstraZeneca’s 15 times, a discount that reflects looming patent expiries on Eliquis and Opdivo.
Jefferies calculated near-term earnings accretion could reach double digits, but said accretion is rarely a good way to judge a big strategic move.
Its central objection was timing. Bristol’s portfolio would add roughly $30 billion of exclusivity losses that arrive before AstraZeneca’s own patent cliff, which falls after 2030.
UBS, which also rates the stock ‘buy’ with a 17,600p target, said it was surprised by the reports and reached a similar conclusion from a different direction.
The Swiss bank noted that big pharmaceutical mergers have historically damaged research productivity, as staff focus on job security during integration rather than the science.
The industry has since pivoted towards large bolt-on deals, such as AstraZeneca’s purchase of Alexion, which add a new adjacency rather than overlapping operations.
UBS also flagged extensive overlap across solid tumours, blood cancers and cardiovascular medicine, with clear duplication between marketed products including Imfinzi and Opdivo.
That would drive substantial cost savings, but would also invite a deep competition review and probable divestitures.
Jefferies raised a political dimension too, noting AstraZeneca would be a British acquirer of one of America’s large pharmaceutical companies at a time when Washington is preoccupied with domestic manufacturing.
UBS wondered aloud whether the reports might in fact relate to a narrower partnership on a single product or franchise.