Two drugmakers behind the industry’s most prominent responses to the COVID-19 pandemic are looking into the possibility of a combined future as economies emerge from lockdowns.

AstraZeneca Plc, co-developer of one of the fastest-moving experimental coronavirus vaccines, has made a preliminary approach to Gilead Sciences Inc., maker of the only U.S.-approved treatment, according to people familiar with the matter. If they decided to pursue a merger, it would be the biggest deal ever in the sector.

Although the companies aren’t in formal discussions, according to the people, the mere suggestion of a blockbuster pharma merger is a sign that the industry is getting back to something resembling business as usual. Even successful COVID-19 treatments or vaccines are unlikely to be big moneymakers, meaning drugmakers face the return of old pressures to gain scale and boost innovation, or risk becoming targets.

AstraZeneca Chief Executive Officer Pascal Soriot learned that lesson six years ago when Pfizer Inc. launched an unsuccessful bid for the U.K. company that eventually reached US$117 billion in value. Now, Soriot can ponder a deal that would insulate the company against takeovers, making it one of the world’s biggest drugmakers.

AstraZeneca stock fell as much as 2.6 per cent early Monday in London. Gilead rose about three per cent in premarket trading in the U.S., not seeing the kind of surge typical of takeover targets, as some investors question the feasibility of a deal.

Gilead was worth US$96 billion at Friday’s close, while AstraZeneca has a market value of about US$140 billion. The U.K. company’s shares have surged during Soriot’s nearly eight-year tenure as the CEO has mounted an aggressive push into oncology and other profitable areas.

'Success Story'

Since the Pfizer bid, AstraZeneca has “been the biggest success story in large pharma in terms of turning around its R&D productivity,” said Adam Barker, an analyst at Shore Capital Group Ltd. “There’s no doubt when you’re in a position of strength it’s not a bad idea to try and consolidate that.”

Pharma has long been a realm of addition through mergers and acquisitions. AstraZeneca was formed by the 1999 merger of Sweden’s Astra with British Zeneca. Compound names like GlaxoSmithKline Plc and Bristol-Myers Squibb Co. tell similar tales, while Pfizer and Sanofi have been serial acquirers.

Recent dealmaking has focused on companies just below the top tier, including Shire Plc, an innovation-rich firm that was bought in 2018 by Takeda Pharmaceutical Co. in a deal worth US$62 billion. With a post-merger market capitalization of more than US$200 billion, AstraZeneca would join the biggest fish in pharma and seal off the risk of becoming another Celgene. The maker of the blood-cancer therapy Revlimid was snapped up last year by Bristol-Myers for US$88 billion.

To move ahead, Soriot would have to work with Gilead CEO Daniel O’Day, a former colleague at Switzerland’s Roche Holding AG. The U.S. company is not currently interested in selling to or merging with another big pharma player, preferring instead to focus its deal strategy on partnerships and smaller acquisitions, according to the people. A Gilead representative declined to comment, and AstraZeneca said it doesn’t comment on rumors or speculation.

United First Partners analysts Ivan Deryugin and Margaret Bishop noted the connection between O’Day and Soriot in a research note Sunday, and said several Gilead managers are former AstraZeneca colleagues, which could be contributing factors to the situation.

Foster City, California-based Gilead is the most successful maker of antiviral drugs in recent history, and almost a mirror image of AstraZeneca. Founded in 1987, the U.S. company revolutionized HIV therapy in the early 2000s by packing multiple drugs into once-a-day pills. In 2013 it came out with Sovaldi, a breakthrough drug for hepatitis C virus.

Growth Prospects

Once considered among the most imaginative and focused of drugmakers, Gilead has seen questions emerge over its growth prospects since its stock peaked at US$122 in 2015. Today, some medicines that were best-sellers are beyond patent protection and facing competition. A bid to develop treatments for a fatty liver disease called NASH failed last year, leaving the company looking for a second act.

“First and foremost, we’re focused on M&A,” Robin Washington, Gilead’s former chief financial officer, said last year at an industry conference, citing the company’s focus on oncology, inflammation and liver diseases. “We remain optimistic and very engaged at looking at a lot of different opportunities.”

Gilead showed a bit of its old magic with remdesivir, the only treatment shown to benefit COVID-19 patients in a robust clinical trial. While the drug may sell as much as US$7.7 billion, according to SVB Leerink analyst Geoffrey Porges, more than 130 companies -- including AstraZeneca itself -- are designing and testing experimental vaccines that could obviate the need for coronavirus therapies in a matter of months to years.

The pandemic may have suggested a new opportunity in antivirals to AstraZeneca, said John Rountree, a managing partner at London pharmaceutical consulting firm Novasecta Ltd., and companies from around the world have demonstrated a willingness to collaborate on responses.

“Perhaps AstraZeneca has a belief that antivirals are going to be a much more important domain than previously believed, owing to the recent COVID-19 tragedy, and snapping up one of the clear leaders in that field will give it a platform for future growth beyond oncology,” he said.

Cancer Push

While Gilead’s best hope is the inflammation drug filgotinib, it has joined AstraZeneca and many other companies on a search for drugs in the industry’s most lucrative area: oncology. The company’s assets include Yescarta, an immune cancer therapy that hasn’t enjoyed wide use since arriving in a 2017 deal for Kite Pharma. Experimental drugs include magrolimab that came in a US$4.9 billion deal for Forty Seven in March, as well as compounds it will co-develop through a US$1.6 billion April agreement with Arcus Biosciences Inc.

Soriot has been lauded for his remake of AstraZeneca into one of the world’s top makers of cancer drugs, led by Tagrisso with almost US$1 billion in first-quarter sales. Along the way, he has dealt for or partnered up on numerous other winners, including a co-development deal with Merck & Co. on Lynparza and a US$6.9 billion agreement with Japan’s Daiichi Sankyo Co. to collaborate on Enhertu, which just received U.S. approval.

As Soriot has revamped AstraZeneca’s product lineup, weeding out aging therapies near the patent finish line while bolstering innovation, the company has only taken on more luster. Investors who once would have welcomed a US$117 billion Pfizer takeover have changed their minds as AstraZeneca’s shares have gained. For Soriot, who said in February that he doesn’t “plan to retire in the next few months,” a mega-deal would cement his legacy.

Despite the two companies’ involvement in the pandemic, there’s not much overlap, according to Sam Fazeli, a Bloomberg Intelligence analyst. Although AstraZeneca has a proven its ability to find new drugs and capitalize on them, cash-flow remains modest, he said. One way of addressing that quickly would be to acquire a company like Gilead, with a lineup of strong sellers.

“I think it would just be a marriage of one plus one equals two,” he said.

--With assistance from Riley Griffin, Robert Langreth and Dinesh Nair.