AstraZeneca shares slide while Gilead Sciences soar amid merger rumours

Shares in Gilead Sciences climbed 3% higher in early morning trading on Monday, while AstraZeneca stock closed 2% lower after reports of a possible merger between the two companies surfaced.

Gilead Services share price rally was short-lived, however, with the stock trading flat at $77 at the time of publication, while AstraZeneca closed at £82 per share on Monday.

AstraZeneca-Gilead Sciences negotiations fall flat

Last month, the British drug maker AstraZeneca approached the biotechnology company, which is trailing its drug remdesivir as a potential treatment for the Covid-19 virus, only to have its merger proposal shot down.

AstraZeneca’s shares took a tumble in the wake of the deal rumours, with investors left scratching their heads as to why the British drug maker would entertain a deal with such a poor rationale and require a significant amount of capital to complete.

If the merger did go ahead it would combine the two companies efforts in finding a cure for the coronavirus. However, it would likely create a politically sensitive situation whereby each company’s government’s would seek control over any potential vaccine or treatment created by the pair.

‘[Gilead] may be on the verge of having one of the fastest growing products in the industry, if they can successfully establish profitable commercial pricing for remdesivir,’ SVB Leerink analyst Geoffrey Porges told Reuters.

AstraZeneca: JP Morgan reiterates ‘overweight’ rating

Analysts at JP Morgan remain optimistic about AstraZeneca, with the US-based investment bank reiterating its ‘overweight’ rating for the stock and issuing a target price of £84.27 per share, implying a potential upside of 2.7%.

JP Morgan said that there was a ‘low probability’ of a merger between AstraZeneca and Gilead Sciences, with the US government likely resistant to the company being acquired by a foreign drug maker.

However, the investment bank did concede that if the deal were to go ahead it would support AstraZeneca’s earnings.

‘We calculate this would be highly accretive to Astra earnings in the medium-term, with around 50% core EPS accretion in 2021, 40% accretion in 2022, accretion in the 20s in 2023-25,’ JP Morgan said.

‘In addition, to the EPS accretion, depending on the offer structure, the deal could also allow Astra to de-lever, which in turn could provide more room for pipeline in-licensing.’

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