How Will The Merger Rumour Affect Both Gilead and AstraZeneca?
With most of the world still paralyzed by the novel coronavirus, people have been looking for biotech stocks to buy. The biotech stocks, both large-cap and small-cap are all racing to find a safe and effective vaccine to restore the world order. AstraZeneca (AZN Stock Report), the UK’s largest pharmaceutical firm approached its US competitor Gilead Sciences (GILD Stock Report) to discuss a merger. If this potential merger really goes ahead as discussed, it would be the biggest healthcare deal on record. And if completed, it will surpass the value of Bristol-Myers Squibb’s purchase of Celgene for $88 billion last year.
However, Gilead is not currently interested in selling to or merging with another pharmaceutical giant. Instead, the US pharmaceutical company prefers its strategy of partnerships and smaller acquisitions.
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Race For Coronavirus Treatment Put Biotech Stocks On The Radar
The overtures show how the pharmaceutical industry landscape could shift at a time when drugmakers are racing to find treatments for Covid-19. This merger talk is still at an early stage. No decisions have been made yet on how to proceed, and most importantly the companies aren’t in formal talks. But the question here is, how would it affect the share prices today? Could this speculation drive both GILD stock and AZN stock higher? When the stock market opened in London today, AZN stock slid over 2%.
Shares of AstraZeneca have risen more than 40% since its March low and are up around 7% year to date. The company now has the capacity to manufacture 2 billion doses of its Covid-19 vaccine candidate. On the other hand, shares of Gilead Sciences are climbing consistently this year. They are up nearly 18% year to date. Both companies have strong pipelines of drugs under their belt. However, what really caught investors’ interests are the potential treatments and vaccines from both Gilead and AstraZeneca respectively. If the merger deal is going to proceed, it would potentially create a powerhouse in coronavirus treatments. After all, Gilead makes remdesivir, while AstraZeneca is working on a vaccine.
Is The Merger Between AstraZeneca and Gilead The Way Forward?
Let’s look at this potential deal strategically. The benefits of this deal to AstraZeneca aren’t that obvious. The British drugmaker already has a strong pipeline of drugs in oncology, cardiovascular and respiratory diseases. Not to mention it has presented the most impressive data at the American Society of Clinical Oncology’s latest conference. Also, Astra is collaborating with Oxford University in developing a coronavirus vaccine.
In contrast to AstraZeneca, Gilead’s pipeline isn’t that strong. Its best hope to be a major player in the immunology market will enter the market behind several competitors. The slow start in this area could hurt Gilead’s profitability as it loses the first mover’s advantage. The partnership and acquisitions from Gilead in cancer cell therapy will take some time to bear fruit. That said, Gilead still remains a juggernaut in both HIV and HCV. Gilead’s remdesivir drug received emergency approval as a treatment for Covid-19 and has caught investor’s attention. But the ability of the company to monetize the drug remains uncertain at its best. After all, nobody wants to be seen as profiteering off a pandemic.
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There’s some logic to this merger, but it’s not clear that either party wants this deal enough to proceed. Some suggest it is with the intention to create a powerhouse for coronavirus treatments. If that’s the case, a partnership would be sufficient at this stage. The chances of merging both companies to form a new undisputed player in the pharmaceutical industry remains low if you ask me.