AstraZeneca Wants to Buy Bristol-Myers: Why the Market Disapproves

AstraZeneca is in negotiations to acquire the American company Bristol-Myers Squibb (BMS), according to a report by the Financial Times. If completed, the transaction would unite two of the largest pharmaceutical companies in the world, creating a company with a market value close to $400 billion and a dominant presence in both the United States and the United Kingdom.

However, the market reacted with skepticism. AstraZeneca's shares fell 7% on the London Stock Exchange shortly after the announcement of the negotiations, while BMS's shares rose 3% in pre-market trading in New York. This divergence says a lot about who stands to gain and who stands to lose in this equation.

The main problem lies in the overlap of portfolios. Both companies compete directly in the oncology segment, the most profitable in the global pharmaceutical industry. BMS's Opdivo and AstraZeneca's Imfinzi target the same type of lung cancer, which reduces the potential synergies of a merger.

According to analysts at BMO Capital Markets, this overlap would make it difficult to justify the acquisition premium. In pharmaceutical mergers, value typically lies in the complementarity of pipelines. When two portfolios overlap, the result tends to be internal cannibalization, not accelerated growth.

There is also the issue of operational timing. While AstraZeneca projects profit growth of over 10% per year for the next five years, BMS is heading in the opposite direction. Analysts at Mizuho estimate that the American company's profits could shrink over the remainder of the decade, pressured by the loss of important patents.

Bristol-Myers faces a structural challenge that every pharmaceutical investor in the financial market knows well: the so-called "patent cliff," when blockbuster drugs lose exclusivity and make way for generics.

Two of BMS's main drugs are in this situation. Opdivo, its flagship oncology product, and Eliquis, an anticoagulant that ranks among the world's best-selling medications, will have their patents expire in the coming years. Together, these two products represent a substantial portion of the company's revenue.

Additionally, the acquisition of biotech Celgene for $74 billion in 2019 has never delivered the expected return. The deal was one of the largest in the history of the pharmaceutical sector and is still viewed by the market as a case of shareholder value destruction.

It is true that BMS's last quarter brought strong numbers. The company reported record revenue of $13 billion, driven by newly launched products like Opdualag (melanoma), Camzyos (heart failure), and Breyanzi (lymphoma). However, these new drugs still need to prove they can offset the revenue erosion from the blockbusters losing patent protection.

To understand the logic behind the negotiation, one must look at AstraZeneca's recent trajectory under CEO Pascal Soriot. When he took over in 2012, Soriot faced a hostile takeover attempt by Pfizer, which he rejected. The decision was controversial at the time but proved to be the right one.

Under his leadership, the company repositioned its focus on oncology and immunology, segments that have consistently driven revenue growth. In the last fiscal year, AstraZeneca reported sales of $58.7 billion, with half of that coming from the United States. The stated goal is to reach $80 billion annually by 2030.

The company also recently completed its direct listing on the NYSE, reinforcing its approach to the American market. In 2021, it acquired biotech Alexion for $39 billion, expanding its reach into rare diseases. And now it is preparing to enter the weight loss drug market, a segment that has transformed the pharmaceutical industry in recent years with the success of drugs like Ozempic.

The purchase of BMS would be the boldest move in this expansion strategy. AstraZeneca is currently valued at around £181 billion on the London Stock Exchange. BMS is valued at $133 billion.

Even if both parties reach an agreement on price, the deal would face significant regulatory scrutiny. The overlap in oncology virtually guarantees that competition authorities in the U.S., Europe, and the UK would examine the deal closely.

There is an additional geopolitical component. The UK has shown increasing interest in retaining its large companies, especially after Brexit. The possibility of AstraZeneca, one of the largest British companies, shifting its center of gravity to the U.S. would not be well received in London.

On the other side of the Atlantic, the American regulatory environment remains unpredictable. The Trump administration's stance on major international mergers adds an extra layer of uncertainty for any transaction of this magnitude.

The market's reaction to the first signs of these negotiations reveals an important point: investors are willing to pay a premium for AstraZeneca's organic growth but do not want to see that value diluted by the acquisition of a slowing company.

The 7% drop in AstraZeneca's shares equates to a destruction of over $15 billion in market value in a single day. The market is pricing in that the risks outweigh the potential benefits.

Historically, megamergers in the pharmaceutical industry have a mixed track record. The very acquisition of Celgene by BMS serves as a recent warning. For AstraZeneca's shareholders, the best news may be that the terms of the deal have not yet been defined and that the likelihood of completion remains uncertain.

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