Big deals in Big Pharma

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Speaker 2 Pushkin

Speaker 2 There has been a wild and hectic series of M ⁇ A deals in the pharmaceuticals industry. We are now headed for a record year for pharma M ⁇ A, in fact.

Speaker 2 But sometimes...

Speaker 2 Mergers are a sign of strength for an industry and sometimes they are a sign of weakness. Today on the show,

Speaker 2 drugs, politics, and deal making.

Speaker 2 This is Unhedged, the Markets and Finance Podcast from the Financial Times and Pushkin. I am Rob Armstrong, U.S.
finance commentator at the Financial Times, coming to you.

Speaker 2 from a chilly and wintry New York City and joined in person by James Fontanella Khan, our U.S. finance editor.
James, as an Italian, how are you bearing up under all this chilly weather?

Speaker 2 I'm freezing, not liking it at all. But hello, everyone.
Okay, cold, warm, or in between. What is going on with the U.S.
pharma industry?

Speaker 2 Well, the pharma industry on the M ⁇ A side of things is bloody hot right now. I'll tell you that.
We've seen a crazy wave of deals. We're on track for a record year and a lot is happening.

Speaker 2 I didn't put a lot of faith last time I was on the show about this deal boom being sustained. You were short the deal boom, and it's keeping on booming.

Speaker 2 Is there a video here? No, otherwise, I'd be eating my hat.

Speaker 2 Oliver Barnes was on too. Yeah.
And he was long the deal boom, and he looks right, and you look wrong for now.

Speaker 2 That's why he's been breaking all these stories because it's like he's trying to make it happen.

Speaker 2 He's been on fire.

Speaker 2 So, why are we having so many deals, particularly in the pharmaceutical industry? Well, it's the same old story.

Speaker 2 Like big pharma has to hunt for new assets because these days a lot of these big guys don't do the same amount of R D that they used to.

Speaker 2 So that has been outsourced to a bunch of VCs backing the next smaller companies. Exactly.
And so it's a patent thing. It's always a patent thing.

Speaker 2 The old drugs go off patent and they have to be replaced and you used to replace them in-house, but now you have to hunt them down and kill them. Exactly.

Speaker 2 So you've got a lot of guys running out of their top drugs, which are protected before they become generics. And so yes, there's been a frenzy.

Speaker 2 And what is phenomenal is there's a lot of these assets out there. Maybe they're approaching

Speaker 2 the last stage of clinical trials.

Speaker 2 And maybe there's one or two players looking at an asset. But here we have often like four, five, six big pharma companies going after the same asset.
And you see premiums of like 300%.

Speaker 2 Yeah, Sidara was an amazing story. Walk us through.

Speaker 2 So Ollie calls me a couple of days before the deal got announced. Oliver Barnes.
Yeah, Oliver Barnes, our MA reporter. And he had a tip, and we started chasing it.
And we're trying to confirm it.

Speaker 2 And as he's going, he's like, oh, the asset is worth about $3 billion. So, you know, go for the usual premium of maybe

Speaker 2 40, 50% for these assets. So maybe it'll go up to $4 or $5 billion.
billion dollars. And suddenly he's hearing it's a three-way horse race.
And he said,

Speaker 2 JFK, I think it's like going for $9 billion.

Speaker 2 And they say,

Speaker 2 you must go,

Speaker 2 your sources are a little weak.

Speaker 2 Just go back to your guy. And I said, honestly, it's $9 billion.

Speaker 2 And we waited, we waited, we got all the confirmations that we needed. We put out the story, and surely next day,

Speaker 2 the Sedara deal is confirmed. Merck bought it.
And yeah, it was like astonishing. A few days later, similar thing with another company called Halda.
So Sedara is kind of as a flu vaccine.

Speaker 2 Halda is said to have a kind of a cancer drug.

Speaker 2 And again, went for $3 billion. It's a private company.
Nobody had really heard much about it. And JJ beat a bunch of other big guys out there.

Speaker 2 And then the mother of all crazy deals was the sale of Metzera. Yeah, I want to get to Metzera in a a second.

Speaker 2 But first, let me give you some context.

Speaker 2 The pharma industry in particular, and I should say the healthcare sector generally, has been underperforming the market pretty hard over the last five or 10 years.

Speaker 2 I mean, when I first started working in finance, pharma was kind of where tech is now. You know, this is 20 years ago or whatever.

Speaker 2 And it was like these companies were huge and they grew fast and they did a lot of deals and so forth, but they were like top of the world.

Speaker 2 And now they're kind of low growth and a bit beat up.

Speaker 2 And so I think we have to acknowledge that in the background, that this is an industry that's kind of looking for its soul while tech is everything and pharma is kind of languishing in some way.

Speaker 2 You started the show saying, is it a sign of strength or a sign of weakness? Yes.

Speaker 2 And I think in most cases, it is a sign of weakness. In the sense that you're running out of options and you got to restock.
You've got to find.

Speaker 2 And a lot of these deals, we can get into it, especially with the Metzera situation, they're defensive. You're trying to get hold of a drug essentially snatched away from one of your rivals.

Speaker 2 Now, let's turn to Metzera. What makes this deal particularly interesting, of course, is that it's in the hottest area of pharma, which is, of course, weight loss.
Indeed.

Speaker 2 How is its GLP1 drug different from the others?

Speaker 2 So the thing that makes Metzera different from the others is the fact that it can,

Speaker 2 with one dosage over a month instead of every week, it can give you the same kind of results that an Azempic gives you right now. Allegedly.
I mean, there's still

Speaker 2 a lot of game to play. Exactly.
Clinically. Fundamentally, this is the big innovation, amongst others, and then there's various ways that you can consume it.
Okay. Bidding war.

Speaker 2 Well, we know in the world is the kind of the original, the OG of weight loss drugs is Novo Novo Nordisk. Nordisk, which essentially this the Danish company that kind of discovered opened the market.

Speaker 2 Yeah, well, they discovered their diabetes drug was actually the magic drug for the thing everybody loves, is like to look lean and mean. And it exploded.

Speaker 2 So that was Ozempic and then Wegavi were their drugs. Exactly.
And then Lily, Eli Lilly, came up with a rival drug

Speaker 2 and it's been amazing. Sep bound.
Exactly. And like, and Eli Lilly has literally exploded.
So now it's way bigger than Novo.

Speaker 2 And interestingly, Novo, which just two years ago was the biggest stock in Europe and was the stock on everyone's lips and everybody was overweight this stock. Since I'm looking at

Speaker 2 the chart here.

Speaker 2 Since the middle of 2024, that stock has fallen by two-thirds. Correct.
And if I can just put a total tangent into our conversation, you know what I think about when I look at Novo's chart? Mm-hmm.

Speaker 2 NVIDIA.

Speaker 2 Oh.

Speaker 2 Because, you know, everybody was like, Novo is the only company that can do this thing, this weight loss drug, which is revolutionizing everything. Nobody ever will ever catch up.

Speaker 2 La la la la la la la. And now it's down two-thirds.
It just rhymes to me with how everybody talks about no one will ever catch up with NVIDIA in GPUs.

Speaker 2 I'm just throwing that out there as chum, now back to our regularly scheduled program. Love it.
But

Speaker 2 a little short from Rob Armstrong on the side.

Speaker 2 Okay, but so now we have Lily, which is killing it and waiting for the money. Absolutely.
So Novo, which is struggling. Correct.

Speaker 2 And everybody else in the industry kind of looking along from the sidelines, like, how can I get a piece of this action? A hundred percent. Right.
So, and here's this biotech that has a technology.

Speaker 2 Let's do a little TikTok. We love the TikTok.
So that is a journalistic term for our listeners at home.

Speaker 2 Thank you for that story

Speaker 2 for a story that lays out in sequential order how a deal went down. So in September, Pfizer

Speaker 2 strikes a deal with Metzera, another scoop brought to you by Ollie Barnes. So that deal is really Pfizer's opportunity to make inroads in the weight loss category.
Yes. All is good.

Speaker 2 They pay about $7 billion.

Speaker 2 a bit of money up front and a little later. All seems good.
We're in September. We knew that there were a lot of companies looking at this.

Speaker 2 Usually, after a deal happens, you get a proxy filing where you can see all the kind of companies, A, B, C, D.

Speaker 2 There were a lot of companies kind of fighting for Metzera. It's done.
Everybody goes back to their normal life. And then late in October, out of the blue, Novo makes a comeback.
Oh, yeah.

Speaker 2 And essentially, Novo made an offer which was higher than the one that Pfizer made.

Speaker 2 And the board of Metzera said that after reviewing Novo's bid, they thought it was superior to Pfizer's bid. Now, interestingly,

Speaker 2 back in that. We're in October now.
Exactly.

Speaker 2 I'm looking at the stock price of Metzera, which you can look up at home, and it's like a staircase going up.

Speaker 2 It's a staircase to heaven. Yeah, exactly.
For its VC backers. Yeah, yeah.

Speaker 2 But interestingly, Metzera's advisers said to Metzera that they should go with Pfizer back in September, despite the fact that at the time, Novo had already made a bid, which was higher in dollar values to Pfizer.

Speaker 2 The reason they went with Pfizer then for a lower price was because they deemed Pfizer's bid safer from an antitrust perspective, i.e.,

Speaker 2 that means when you need to get regulatory approval, they were concerned that the FTC, which would be the agency looking into this, would have determined that, like, well, Novo already has a Zen pay.

Speaker 2 They're going to corner the market in some way. It's too much market power.
It's a bit anti-competitive. And we already know that Trump is unhappy with the very high price.

Speaker 2 Okay, now I'm going to stop you right there because as a paranoid person, I have to ask, in your opinion, and of course we can only speculate here, but let's speculate together.

Speaker 2 Did the mere fact that Pfizer was an American company play in that calculation? Or was it really just about the portfolios of the two companies and the competitive concerns?

Speaker 2 In other words, Trump being president, does that tip the scales towards the American bidder?

Speaker 2 I'll bring you the facts that I am aware of, and then we can use them to kind of answer that question.

Speaker 2 The immediate reaction from the Pfizer side when Novo kind of gate crashed the deal in October. So in September, Pfizer had an agreed deal with Met Metzera.

Speaker 2 In October, Novo gate crashes the deal with a higher bid. So the reaction of Pfizer immediately is, this is a European company going after an American asset at a time when it already has a drug.

Speaker 2 We want to bring down the cost of this drug for Americans. In all of their communication, the word America, America, America first

Speaker 2 was very prevalent. It was very clear that they were leaning on the fact that like regulators had to support this deal because it was an American deal and they had to oppose the European evil company.

Speaker 2 Now here's some words from Mike Deustar. Am I saying that correct? That's the new CEO of Novo Nordisk who got the job after the last guy got sacked because

Speaker 2 share prices falling through the floor. This is him talking to the FT.
It became evident that Pfizer won this at a lower bidding price than we place forward. That's when I got very upset.

Speaker 2 I felt not in America where there is free market advocacy, shareholder value creation, and there's just something unfair.

Speaker 2 So, you know, he's putting some aspersions on the process there. 100%, I would say.

Speaker 2 And it's important to, again, to bear in mind that Albert Burler, the CEO of Pfizer,

Speaker 2 soon after Trump won the election, made it a priority to spend time with the president and to get close to the president. He spent a lot of time in Mar-a-Lago.
Yes.

Speaker 2 He cut a deal with Trump on kind of the cost of some drugs. Yes.
And so this was his chance to see if that investment.

Speaker 2 Yeah, come back to him. So did we get to the end with Matsura? Did we get it sold at the final price? Did we finish the TikTok? No,

Speaker 2 keep going, keep going. So I've been covering this for over a decade.
I cannot remember anything so insane.

Speaker 2 The backstabbing, the press releases accusing the others of like committing, because they started suing the crap out of each other. It was like hilarious.
I didn't know there was lawsuits.

Speaker 2 No, no, it's like it's like because essentially Pfizer was trying to get Delaware to throw out Novo's bid, arguing that we have an agreed bid, they cannot just kind of gate crash.

Speaker 2 And Delaware said, we are here to represent essentially shareholder interests. And if somebody comes with a higher bid, you got to let the bidding war go on.
Yes. The show must go on.
Hurrah for that.

Speaker 2 And so Delaware really did a solid to the Metzera shareholders. At some point, there's a letter from the FTC that manages to make its way into the press.

Speaker 2 And essentially,

Speaker 2 the FTC

Speaker 2 says

Speaker 2 there's no way Novo can get this deal done without going through us, point number one.

Speaker 2 And point number two, this deal, if it goes with Novo, looks somewhat anti-competitive.

Speaker 2 So at this point, no, the FTC can make a final judgment, but it's just like putting some vibes out there. Yeah, pretty strong again.

Speaker 2 It's very unusual for that kind of letter to leak out to the press. But a few hours later, maybe I think the day after, there was a final kind of rally of like bids.

Speaker 2 And essentially, Novo had put the highest bid of the just, I think, $83, a little higher than $80.

Speaker 2 Pfizer matches the Novo bid.

Speaker 2 And essentially, the Metzera guys decided we've been greedy enough. We went from $7 billion to $10 billion.

Speaker 2 We made $3 billion in a couple of days. We'll hit the Pfizer bid, which is the safer one.
Exactly.

Speaker 2 And they mentioned that, you know, following the letter from the FTC, we've determined that we should go with Pfizer.

Speaker 2 Okay, so earlier this month, we had the president coming out with a big announcement. He has this thing called, is it Trump RX? Correct.

Speaker 2 Which is this program through which people can buy drugs at discounted rates.

Speaker 2 He had a great big announcement, which you can look up on the internet, about how he's going to make obesity drugs radically cheaper.

Speaker 2 Clearly, he has zeroed in, and the administration has zeroed in, on drug prices as something the American people are sensitive to.

Speaker 2 And if you're sitting there in the coroner office at one of these big drug companies,

Speaker 2 this has got to make you sweat a little bit. And I wonder if this wave of deals is a way to say we're under pressure, we need to get bigger and stronger.

Speaker 2 Does that story of the case make sense to you, JFK? 100%.

Speaker 2 I mean, there's no doubt that like

Speaker 2 every

Speaker 2 CEO of a big pharma company is

Speaker 2 under pressure right now on pricing. And you know, pricing has been an issue for every administration.
Let's not forget like Obama, Biden.

Speaker 2 Nobody likes crazy prices for crazy drugs. No.
Trump has been effective at scaring the living hell out of a lot of these people. They're all bending the knee.
Yeah, yeah.

Speaker 2 No, it's and the pharma guys have done the same. I mean, you made the point that, you know, there's a broader distribution of these drugs, so it kind of makes up for the discount.
Yeah.

Speaker 2 But that's fine.

Speaker 2 That's a win for Trump, essentially. Yes.
And so that pressure is going to keep being at them. Final question before we go to the break and then to long and short.

Speaker 2 The last time we had a major wave of big pharma to big pharma mergers, major companies buying each other, was Year of Our Lord 2009, when we had Roshan Genentech, Pfizer and Wyeth, Merck and Shearing Plow.

Speaker 2 These were enormous deals. I wasn't even covering deals then.

Speaker 2 I know it was a long time ago. You gave me a big pharma to big pharma deal.
And we haven't seen that yet. Are the conditions in place for a wave of not big to small consolidation, but big to big?

Speaker 2 Yes, the conditions have never been better.

Speaker 2 And it goes back to the point you were making earlier about these executives being under pressure by the current executive to lower drug prices.

Speaker 2 And under pressure from the market because their share prices are not in great shape. And so going back to the original question, is it a good sign, a bad sign, defensive or offensive?

Speaker 2 I think if they can make an argument to the administration that by allowing big

Speaker 2 pharma to big pharma M ⁇ A, so bringing together two giants, will lower the price of drugs, cha-ching, the deal will go through.

Speaker 2 We'll be right back with long and short.

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Speaker 2 Listeners, welcome back. Today we have a very special edition of Long and Short with extra speculative elements.
The NASDAQ is down 7% from its highs of late October.

Speaker 2 And what we are all wondering here at Unhedged World Headquarters is whether the AI bubble is popping while we speak.

Speaker 2 So,

Speaker 2 James, rest of the year, are you long or short the NASDAQ?

Speaker 2 I'm going long. Woo!

Speaker 2 That's why we bring you on the show, James. Guns blazing.
And the reason I'm long is because this is a rare opportunity to buy a bit of that dip and it will sell back up to the top.

Speaker 2 I will preface my answer by saying nobody can predict stock prices over a six-week period, but that won't stop me from predicting them. And I am short.

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Speaker 2 Listeners, we will be back in your ears with more guesses this Thursday.

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