ALEX BRUMMER: Pharmaceutical analysts in overdrive at prospect of mega-merger between Astrazeneca and Gilead
Nothing gets the blood running in the investment community like the prospect of a mega-merger. So the possibility of Astrazeneca and America’s Gilead, two big players in combating Covid-19, coming together to create a transatlantic behemoth has the pharma analysts in overdrive.
The thinking behind such an alliance is that Astrazeneca, the UK’s most valuable company, is in a good position to effect a merger because of its strong share price which might allow an all-paper transaction.
Gilead is attractive not just because of its expertise in treatments for retroviruses, which target the DNA, but because it also has a strong balance sheet.
In charge: Pharmaceutical giant Astrazeneca’s chief executive is Pascal Soriot (pictured)
In the first quarter, it was cash rich with £18.9billion sitting there waiting to be spent.
In contrast, AZ is seen as less well-endowed for a group with at least five of the best big drugs in the pipeline of any pharma company in the world.
Chief executive Pascal Soriot has also shown his willingness to divert the company’s resources and reputation into linking up with Oxford University to gear up production of a coronavirus vaccine in record time. Cynics suggest that a merger could also potentially be a way of satisfying Soriot’s ambitions to put a Bunsen burner under his personal rewards. A pandemic may not be the best moment for that.
As always, it is possible to construct a golden scenario of cost savings from such a merger, with most cuts falling on Gilead because it lacks an equivalent pipeline to AZ.
But as with any explored mega-merger, one should never underestimate the time scale and management effort in making it work. Former Glaxo boss Jean-Pierre Garnier regarded having to manage the merger with Smith Kline Beecham two decades ago as a big distraction from core work on discovering new compounds. It was as a consequence of that transaction that GSK emerged as a global vaccine champion with treatments such as Cervarix for cervical cancer and current blockbuster Shingrix for shingles.
The regulatory obstacles to any deal at present would likely kill it anyway. The Trump White House would seek to repulse efforts to take out drugs champion Gilead in the midst of a pandemic. That may be why early approaches ground to a halt.
Nevertheless, closer co-operation and ties among big pharma companies are not unusual. It is possible that something less than a full merger – perhaps an alliance, backed up by an exchange of equity stakes – could be a way forward.
Green shoot
Among the big advantages the UK economy has over most other advanced economies is the flexibility of its labour market.
The tide can turn for jobs at speed when hiring and firing is relatively simple. This was demonstrated in the United States last week when Covid-19 jobless claims, which had been running at up to 6m a week, tumbled to 2m.
Latest data from Manpower Group shows the outlook for jobs in the third quarter is the worst since it began surveying in 1992.
It is not all gloom, though, as 57 per cent of employers expect a return to normal hiring levels in 2021. Managing director Mark Cahill notes that lockdown has shown how adaptable the UK workforce is and how using online training tools can quickly re-equip people for new jobs, whether it be tracing and tracking Covid-19 contacts or logistics.
Among the biggest concerns is that the virus will leave behind a layer of 18 to 24- year-old entrants to the jobs market without necessary skills. A reformed apprentice system, which focuses on in-house and online training, rather than a statutory one day out at a technology college, could make a difference. It is critical to get on with reforms now so the system is fit for purpose when recovery arrives.
Oil blowout
Bernard Looney’s decision to slash the BP workforce by 10,000 (including around 3,000 in Britain) by the end of the year shows how deep the scarring of Covid-19 will be despite Manpower’s optimism.
Looney and BP’s senior staff will not be getting any bonuses this year. But there rightly will be squeals from the workforce about the decision to keep paying dividends while dispensing with layers of management.
As important as dividends are to the nation’s savings, sacrifice in crisis should be shared by all.