Big deals in Big Pharma

Rob Armstrong (0:06)

Pushkin. 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. But sometimes mergers are a sign of strength for an industry, and sometimes they are a sign of weakness. Today on the show, drugs, politics and deal making This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, US. Finance commentator at the Financial Times, coming to you from a chilly and wintery New York City and joined in person by James Fontanella-Khan, our US. Finance editor. James, as an Italian, how are you bearing up under all this chilly weather?

James Fontanella-Khan (1:06)

I'm freezing, not liking it at all, but hello, everyone.

Rob Armstrong (1:09)

Okay. Cold, warm or in between, what is going on with the US pharma industry?

James Fontanella-Khan (1:16)

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. I didn't put a lot of faith last time I was on the show about this deal boom.

Rob Armstrong (1:34)

Yeah, you were short the deal boom and it's keeping on booming.

James Fontanella-Khan (1:38)

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

Rob Armstrong (1:42)

Oliver Barnes was on too and he was long the deal boom and he looks right and you look wrong for now.

James Fontanella-Khan (1:48)

That's why he's been breaking all these stories because it's like he's trying to make it happen. He's been on fire. So why are we having so many deals, particularly in the pharmaceutical industry? Well, it's the same old story. 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. So that has been outsourced to a bunch of VCs backing the next-

Rob Armstrong (2:19)

The smaller companies.

James Fontanella-Khan (2:20)

Exactly.

Rob Armstrong (2:22)

So it's a patent thing as always.

James Fontanella-Khan (2:23)

It's a patent thing.

Rob Armstrong (2:24)

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.

James Fontanella-Khan (2:32)

Exactly. So you've got a lot of guys running out of their top drugs which are protected before they become generics. And so yes, this being a friend, what is phenomenal is there's a lot of these assets out there. Maybe they're approaching the last stage of clinical trials. 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%.

Rob Armstrong (3:04)

Yeah, Sidara was an amazing story. Walk us through that one.

James Fontanella-Khan (3:08)

So, Oli called me a couple of days before the deal got announced.

Rob Armstrong (3:12)

Oliver Barnes.

James Fontanella-Khan (3:13)

Yeah, Oliver Barnes, our M&A reporter. And he had a tip and we started chasing it. And we're trying to confirm it. 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, you know, 40, 50% for these assets. So maybe it'll go up to $4 or $5 billion. And suddenly he's hearing, it's a three-way horse race. And he said, JFK, I think it's like going for $9 billion. And I say, you must go, your sources are a little weak. Like, just go back to your guy. And I say, honestly, it's $9 billion. And we waited, we waited, we got all the confirmations that we needed. We put out the story, and surely next day, the Sidara deal is confirmed. Merck bought it. And yeah, it was like astonishing. A few days later, similar thing with another company called Halda. So Sidara kind of has a flu vaccine. Halda, it said it has a kind of a cancer drug. And again, went for $3 billion as a private company. Nobody had really heard much about it. And J&J beat a bunch of other big guys out there.

And then the mother of all crazy deals was the sale of Metsera.

Rob Armstrong (4:27)

Yeah, I want to get to Metsera in a second. But first, let me give you some context. 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. I mean, when I first started working in finance, pharma was kind of where tech is now.