Analysts baffled by AstraZeneca's interest in Bristol Myers Squibb

Analysts baffled by AstraZeneca's interest in Bristol Myers Squibb

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 h...