AstraZeneca may buck a decade of pharma strategy to buy U.S. scale

Reported talks of a tie-up between two industry giants could deliver instant U.S. scale for AstraZeneca through Bristol Myers Squibb's U.S.-centric business, but at the cost of slower growth and integration risk. The reports had the industry thinking about a kind of dealmaking it has avoided for more than a decade. Experts see major antitrust and R&D hurdles, making a deal far from certain. Pharma investors reeled this week from reports that AstraZeneca held merger talks with U.S. rival Bristol Myers Squibb, a move that would break from Big Pharma's decade-long strategy of acquiring smaller companies. The Financial Times and Reuters reported earlier this week that there had been preliminary talks between the U.K. pharma giant and the U.S. company. CNBC has not independently confirmed the talks. AstraZeneca's shares slid on Monday but recovered slightly after Reuters quoted a "senior source" on Wednesday denying there had been talks. The stock is up nearly 9% over the past 12 months. A merger appears unlikely due to antitrust issues and significant business overlap, according to a flurry of analysts who reviewed the reported deal talks in notes to clients on Monday. But the reports had the industry thinking about a kind of dealmaking it has avoided for more than a decade. A merger would be among the pharmacy industry's biggest-ever deals and create a company valued at roughly $400 billion. It'd give AstraZeneca, the U.K.'s largest drugmaker, something years of smaller deals couldn't easily provide: scale in the U.S., deeper commercial operations and access to Bristol Myers' oncology, hematology and neuroscience franchises. But it would also expose AstraZeneca to one of the industry's largest patent cliffs, enormous integration challenges and the risk of diluting one of pharma's strongest growth stories. AstraZeneca declined to comment to CNBC. Bristol Myers didn't respond to a request to comment. Following a wave of mega-mergers in the 2000s, the industry shifted toward licensing deals and targeted "bolt-on" acquisitions that gave bigger companies promising technologies and drug candidates without the disruption that can accompany full-scale mergers. Pharma's previous mega-merger wave was largely a response to patent cliffs and weak pipeline replacement, with companies relying on cost cuts to protect earnings. "If there were ever a time where we could see these mega mergers in pharma, it would be now," Mizuho analyst Jared Holz told CNBC's "Squawk Box" on Monday, noting U.S. President Donald Trump administration's pro-deal agenda. UBS wrote in a note on Monday that the shift to smaller deals reflected concerns that earlier mega-mergers, while generating cost savings, often interfere with research productivity during lengthy integrations. Instead, companies increasingly bought businesses focused on particular areas that could continue operating with more independence after being acquired. Pharmaceutical companies have spent years concentrating on fewer therapeutic areas, buying smaller companies with defined pipelines, Daniel Chancellor, vice president of thought leadership at pharma intelligence firm Norstella, told CNBC. But Chancellor said that, after years of specialization, the industry could eventually swing back toward mergers that create scale. Companies can only specialize for so long, he said, adding: "Eventually that cycle will flip." Buying U.S. scale in one big move For AstraZeneca, the clearest benefit of absorbing its lower-value peer could be speed to the key U.S. market. It has steadily expanded its U.S. presence and committed billions to manufacturing and research.