Potential Megamerger: AstraZeneca approaches Gilead about possible tie-up

New Delhi: AstraZeneca Plc has approached rival drugmaker Gilead Sciences Inc. about a potential merger, according to people familiar with the matter, in what would be the biggest health-care deal on record.

The U.K.-based firm contacted Gilead last month about a possible tie-up, the people said, asking not to be identified because the details are private. AstraZeneca didn't specify terms for any transaction, they said. While Gilead has discussed the idea with advisers, no decisions have been made on how to proceed and the companies aren't in formal talks, the people added.

AstraZeneca, valued at $140 billion, is the U.K.'s biggest drugmaker by market capitalization and has developed treatments for conditions from cancer to cardiovascular disease. Gilead, worth $96 billion at Friday's close, is the creator of a drug that's received U.S. approval for use with coronavirus patients.

Gilead is not currently interested in selling to or merging with another big pharmaceutical company, preferring instead to focus its deal strategy on partnerships and smaller acquisitions, the people said.

A representative for Gilead couldn't be reached for comment outside of regular business hours. A spokesman for AstraZeneca said the company doesn't comment on "rumors or speculation."

Coronavirus treatment

Gilead's share price has climbed 18% this year as its antiviral drug for Covid-19, remdesivir, worked its way through clinical trials. The stock is still more than a third lower than its 2015 highs. The Foster City, California-based company has seen a steady decline in sales in its hepatitis C franchise and is trying to reinvigorate its drug-development pipeline.

Remdesivir, which has an emergency use authorization from the U.S. Food and Drug Administration, has been shown in some early studies to shorten hospital stays for people with Covid-19. SVB Leerink recently forecast that sales of the drug may reach $7.7 billion in 2022.

Gilead has been dispensing early rounds of the drug for free, leading some investors to question how the company plans to make money from it in the future. Chief Executive Officer Daniel O'Day has said the company may spend $1 billion on the treatment this year alone.

AstraZeneca, led by CEO Pascal Soriot, is helping to manufacture a Covid vaccine developed at the University of Oxford. The U.S. has pledged as much as $1.2 billion to support the efforts as part of Operation Warp Speed, a push to secure vaccines for America. The shot is expected to enter phase III clinical trials in June.

Deal slump

Health-care dealmaking has been a rare bright spot as the global pandemic and resulting lockdowns have doused the market for mergers and acquisitions. Global M&A volumes are down about 45% this year, according to data compiled by Bloomberg, and announced deals have been falling apart at a steady pace.

Excluding minority investments, dealmaking in April and May barely topped $100 billion in total, the data show, the lowest two-month period in at least 22 years.

AstraZeneca is no stranger to large-scale, politically sensitive M&A. In 2014 it fended off a $117 billion approach from Pfizer Inc., a deal that attracted attention from U.S. lawmakers as it would have allowed New York-based Pfizer to lower its tax bill by redomiciling in the U.K.

Its shares are up 11% since the start of the year, boosted by positive data from trials of its blockbuster lung cancer drug Tagrisso.

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