AstraZeneca shares drop on reported merger talks with Bristol Myers Squibb

AstraZeneca shares dropped as much as 7% on Monday after reports that the company had discussed a potential mega-merger with Bristol Myers Squibb, a deal that analysts said would be a surprising strategic move for one of the pharmaceutical industry's strongest growth stories.

If completed, a deal could value the companies at roughly $400 billion, and rank among the largest pharmaceutical tie-ups ever.

Neither company confirmed the report. AstraZeneca declined to comment, while Bristol Myers Squibb did not immediately respond to CNBC's request for comment outside normal U.S. business hours.

While details of the talks remain scarce and sources told the FT that a deal may never materialize, analysts questioned why AstraZeneca — whose market value has surged under CEO Pascal Soriot on the back of a strong drug pipeline — would pursue such a transaction.

AstraZeneca's London-listed shares were last seen trading 4.7% lower, weighing on the U.K.'s blue-chip index FTSE 100, which was largely flat.

Shares of Bristol Myers rose 6% in U.S. premarket trading.

Coming into Monday trading, AstraZeneca had a market cap of $264 billion. That number has risen steadily over the past decade and since CEO Pascal Soriot took the reins in 2012 as the company has developed a solid pipeline of new drugs. It is targeting $80 billion in sales by 2030, up from $58.7 billion last year.

Bristol Myers' market cap is roughly $133 billion, and the company is facing loss of exclusivity for multiple drugs. It's expected to see declining growth from next year as patents expire and top-selling drugs like its blood thinner Eliquis and cancer medicine Opdivo will start to face generic competition.

Analysts were puzzled by both the news itself, as well as the timing of it.

"Given the strength of AZ's growth and innovation profile, we are a bit perplexed," Jefferies analysts wrote Monday morning. "Of course financial accretion can look good and maybe more cash generation would allow for more R&D. But if there is one company that doesn't need financial engineering, it's AZ."

It also comes as Bristol Myers has major trial readouts looming for its newer blood thinner medication milvexian and the expansion of the label for its schizophrenia drug Cobenfy, making pipeline synergies between the two companies uncertain, noted RBC Capital Markets analysts.

The focus will likely be on the potential to establish an even bigger oncology powerhouse, with AstraZeneca's and Bristol Myers' combined portfolio of cancer drugs likely being the broadest in the industry, potentially attracting antitrust scrutiny, Jefferies said.

While the companies overlap in oncology, cardiovascular disease and immunology, their pipelines are largely complementary, with AstraZeneca stronger in solid tumors and Bristol Myers Squibb more focused on blood cancers and cell therapies.

Citi analysts said that if the merger talks report were true, it would be a "surprise" given AstraZeneca's "best-in-class pipeline."

AstraZeneca did, however, report a rare setback when a late-stage clinical trial for a heart disease drug failed to meet its target earlier this month. It raised some questions around management's credibility, given the confidence they had communicated coming into the results. Even so, most analysts still considered the $80 billion sales target achievable by the end of the decade.