Bristol-Myers Squibb

The Financial Times reported on Aug. 2 that Bristol-Myers Squibb and AstraZeneca are in discussions with regard to a possible merger. Astra shares fell 8% and Bristol shares were down about 1% in early trading on Aug. 3.

Why it matters: While smaller acquisitions are very common in biopharma, huge mergers have become much less common. If this deal went through, it would be the biggest in history. With market caps around $260 billion for Astra and $130 billion for Bristol, Astra would be the likely "acquirer" in this deal. The combined company would likely only trail Eli Lilly, Johnson & Johnson, and AbbVie in size. Possible motivators could be complementary timing of patent cliffs, access to specific pipeline programs, and geographic diversification, although the drain from integrating businesses and potential Federal Trade Commission concerns due to the mutual oncology focus are real issues here.

The bottom line: We're not making any changes to our fair value estimates for these wide-moat names ($184/GBX 13,500 for Astra and $70 for Bristol), although we could be somewhat cautious if these plans came to fruition. With Bristol trading near its fair value estimate, we think there is little room for execution missteps. The discussions lead us to wonder if Astra's confidence in its ability to reach $80 billion in revenue by 2030 is faltering (we model $71 billion) and if Bristol is concerned about the risks surrounding its own key pipeline assets like milvexian, Cobenfy, and next-generation oral multiple myeloma therapies. That said, Bristol's massive 2028 patent cliff could fit well with Astra's more limited patent exposure, and Astra could gain access to Bristol/BioNTech's PD-L1/VEGF bispecific pumitamig as well as increased exposure to the US market.

BLANK PAGEBristol saw 69% of revenue from US branded drugs in 2025, as compared to only 42% at Astra. Most Favored Nation pricing for pipeline drugs as part of individual agreements between the Trump Administration and large-cap biopharmas like Astra and Bristol could mean higher international launch prices for some therapies in international markets (to raise the comparator price that determines US pricing), or it could mean that certain international markets are foregone altogether, creating uncertainty in these cash flows.

For more information on the portfolios and pipelines at these two firms, please see our recent in-depth report, "Biopharma Product Pipelines Rise to Meet Steeper Patent Cliffs."

We're maintaining our fair value estimate at $70 per share.

We project compound annual sales declines of nearly 6% over the five years ending in 2030 as newer core drugs like cardiovascular drug Camzyos, cell therapy Breyanzi, anemia drug Reblozyl, and schizophrenia drug Cobenfy partially offset patent pressures, including the recent loss of exclusivity for cancer drugs Revlimid and Pomalyst and upcoming losses for cardiovascular drug Eliquis (by 2028), and cancer drug Opdivo (2028).

We believe the Celgene acquisition created value for Bristol, even though Revlimid and Pomalyst now create growth headwinds as generics enter the market. The acquisition gives Bristol a strong pipeline focused on oncology, including cell therapy Breyanzi and next-generation multiple myeloma therapies in testing. The therapeutic area overlap and $2.5 billion in annual cost synergies (the majority from selling, general, and administrative expense and likely commercial overlap and overhead) made the deal a strategically smart one, in our eyes.

We project that Opdivo will reach peak global sales of more than $11 billion. While sales should begin to see double-digit declines in 2029, we expect some mitigation of declines from sales of combination drug Opdualag ($2 billion-$3 billion in peak sales assumed) and next-generation immunotherapy pumitamig ($3 billion in probability-adjusted sales, accounting for Bristol's share of profits). We assume that Cobenfy sales could grow to $5 billion annually by 2034, with upside to our estimates if additional trials read out positively over the next couple of years.

Longer term, Bristol is developing a strong pipeline to mitigate the patent losses on its top drugs. The pipeline's focus on immunology, oncology, rare diseases, cardiology, and neurology should increase the probability of development success, given the higher level of unmet medical need in these areas.

Under our updated discount-rate framework, we've raised our Bristol WACC estimate to 7.1% from 7.0%. Our beta of 0.6 reflects our view of both biopharma's defensive nature and Bristol's own fundamentals and market returns. The change does not reflect a new view of the business, but a more granular expression of our existing risk assessment.

Based on a wide lineup of patent-protected drugs, an entrenched salesforce, and economies of scale, Bristol holds a wide economic moat. The patent protection allows the firm to price its drugs at levels that translate into superior returns on invested capital compared with its cost (particularly in cancer drugs, an area of focus for Bristol). The patents also provide Bristol with ample time to bring forward the next generation of new drugs. Several of Bristol's currently marketed drugs are biologics, which create additional hurdles for generic firms as the cost of developing and marketing biosimilars is much higher than for typical generic small molecules. Further, because many small drug firms lack a distribution channel, Bristol's entrenched salesforce enables the company to partner with these smaller drug companies to gain access to externally created drugs, augmenting its internal drug-development efforts. Additionally, Bristol's sheer size generates the strong and stable cash flows required to fund the clinical trials needed to bring each new drug to the market.

Bristol faces a significant patent cliff by 2028 for its mature portfolio, including cancer drugs Revlimid and Pomalyst and cardiovascular drug Eliquis. In addition, cancer drug Opdivo (21% of 2025 sales) will see US patents expire on its older intravenous formulation in 2028 and potential Medicare negotiation in 2029, although a newer subcutaneous version (Opdivo Qvantig), combination therapies (Opdualag), and novel cancer immunotherapies (phase 3 drug candidate pumitamig, from a collaboration with BioNTech) should all help mitigate Opdivo patent loss pressure.

We think newer therapies like anemia drug Reblozyl, cancer therapy Breyanzi, cardiovascular drug Camzyos, and neuroscience drug Cobenfy will help soften the impact of Bristol's patent cliff. With probability-weighted sales for the most advanced drug candidates, we forecast adjusted ROICs over the next 10 years in the low teens, still well above its 7% cost of capital. We also think Bristol's pipeline is poised to generate significant data in 2026 that could raise our assumed probabilities of approval and help restore the firm's historically strong ROICs.

We think the company does face environmental, social, and governance risks, particularly related to potential US drug price-related policy reform to increase access by lowering drug prices (close to 70% of sales are generated in the US). Ongoing product governance issues, including litigation related to side effects and patents, also weigh on the company. While we have factored these threats into our analysis, we don't see them as overly material to our moat rating.

Bristol is launching innovative drugs in cardiology and neurology, which should have strong sales trajectories, given the high unmet medical need.

We forecast oncology drug Opdivo will see annual peak sales of more than $11 billion, helping to fuel development costs for the next generation of drugs.

The majority of Bristol's late-stage pipeline focuses on rare diseases, immunology, and cancer, where drug firms hold strong pricing power and the Food and Drug Administration aggressively approves new therapies.

The acquisition of Celgene came shortly before the start of generic competition for that firm's cancer drug Revlimid in 2022, setting up a major growth obstacle over several years, given the planned staggered generic entry.

Bristol faces one of the larger patent cliffs by 2028, when cancer drug Opdivo and cardiovascular drug Eliquis likely face heavy generic competition.

The Celgene acquisition added significant debt that could become challenging to repay if competition strengthens against key drugs or pricing pressures intensify in the US.