Imagine potentially life-saving drugs being bought and sold like baseball cards – that's the whirlwind reality of pharmaceutical mergers and acquisitions (M&A) right now. We're talking about a potential record-breaking year for Big Pharma deals, but is this a sign of strength, or a desperate scramble for survival? This podcast transcript dives deep into the high-stakes world where drugs, politics, and deal-making collide.
Welcome to a rewritten exploration of the Unhedged podcast episode 'Big Deals in Big Pharma,' where we unpack the forces driving this M&A frenzy.
Robert Armstrong, US finance commentator at the Financial Times, kicks things off from a "chilly and wintry New York City," joined by James Fontanella-Khan, the US finance editor. Even James, with his Italian roots, admits he's feeling the cold!
So, what's the temperature of the US pharma industry? According to James, on the M&A side, it's "bloody hot right now!" A crazy wave of deals is underway, and they're on track for a record year. Just a short time ago, James was skeptical of this deal boom, but it's proving him wrong.
Robert jokingly points out that Oliver Barnes, the M&A reporter, looks right, and James looks wrong for now.
Why this surge in pharmaceutical deals? The core issue, according to James, is that Big Pharma increasingly relies on external sources for innovation. They've largely outsourced Research & Development (R&D) to venture capitalists (VCs) who fund smaller, cutting-edge companies.
Robert chimes in: "So it’s a patent thing, as always."
James confirms: "It’s a patent thing."
The expiration of patents on blockbuster drugs forces these giants to hunt for new assets to replace lost revenue. In the past, they would have developed these replacements in-house, but now the strategy is to acquire smaller companies with promising drugs in their pipelines.
"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 [acquire the companies]," Robert explains.
And this is the part most people miss: It's not just about finding any new asset. It's about finding the right asset, often leading to intense bidding wars. James notes that many of these assets are in late-stage clinical trials, attracting interest from multiple Big Pharma players. The result? Premiums of 300 percent are not unheard of.
Robert mentions the "amazing story" of Cidara as an example. James recounts how Oliver Barnes tipped him off about the deal. Initially, the asset was valued at around $3 billion, with a potential premium bringing it to $4-5 billion. But as the deal progressed, it turned into a three-way race, with whispers of a $9 billion price tag. James was skeptical, but Oliver insisted, and ultimately, Merck acquired Cidara in a deal that defied expectations.
Similarly, Halda, a private company with a promising cancer drug, was acquired by Johnson & Johnson for $3 billion after a competitive bidding process. But these were just appetizers before the main course: the sale of Metsera.
Before diving into Metsera, Robert provides crucial context. The pharma and healthcare sectors have been underperforming the market for the past 5-10 years. Pharma, once the darling of investors, has become a low-growth industry, overshadowed by tech. This raises the question: is this M&A activity a sign of strength or weakness?
James believes it's mostly a sign of weakness – a reflection of dwindling options and the need to restock pipelines defensively. Many of these deals, especially Metsera, are about preventing rivals from acquiring potentially game-changing drugs.
Metsera is particularly interesting because it's focused on the hottest area in pharma: weight loss. Its GLP-1 drug offers a significant advantage: a single monthly dose provides similar results to weekly injections like Ozempic.
"So the thing that makes Metsera different from the others is the fact that it can, with one dosage over a month, instead of every week, it can give you the same kind of results that an Ozempic gives you right now. Allegedly. I mean, there’s still . . ." James clarifies.
Robert adds, "Yeah, you know, a lot of game to play...Clinically."
Novo Nordisk, the Danish company behind Ozempic and Wegovy, pioneered the weight-loss drug market. Eli Lilly entered the fray with Zepbound, becoming a major player. Interestingly, Novo's stock, once the darling of Europe, has fallen significantly since mid-2024.
Robert draws a parallel to Nvidia, suggesting that market dominance can be fleeting. He uses the example to highlight how quickly perceptions of market dominance can shift.
"You know what I think about when I look at Novo’s chart? Nvidia. Because, you know, everybody was like, Novo is the only company that can do this thing, this weight-loss drug, which is revolutionising everything. Nobody ever will ever catch up. 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. I’m just throwing that out there as chum. Now, back to our regularly scheduled programme." Robert explains, and then lightheartedly saying he is shorting Nvidia on the side.
So, with Lilly thriving and Novo struggling, other companies are eager to enter the weight-loss market. This is where Metsera comes in.
James provides a "TikTok," a sequential account, of how the Metsera deal unfolded. In September, Pfizer struck a deal to acquire Metsera for around $7 billion. However, in late October, Novo Nordisk made a higher bid. The board of Metsera deemed Novo's bid superior, creating a bidding war.
Robert notes the "staircase to heaven" trajectory of Metsera's stock price.
But here's where it gets controversial: Metsera's advisors had initially recommended Pfizer's lower bid due to antitrust concerns. They feared that the FTC would block a deal with Novo, given its existing presence in the weight-loss drug market.
Robert asks a pointed question: "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? In other words, Trump being president, does that tip the scales towards the American bidder?"
James replies that Pfizer leaned heavily on its American identity in its communications, framing Novo as a European company trying to acquire an American asset.
Robert quotes Mike Doustdar, the new CEO of Novo Nordisk, who expressed frustration, saying, "I felt not in America where there is free market advocacy, shareholder value creation, and there’s just something unfair."
James adds that Pfizer's CEO, Albert Bourla, had cultivated a close relationship with then-President Trump, potentially influencing the outcome.
James continues the account, describing the intense back-stabbing and lawsuits that ensued. Pfizer attempted to block Novo's bid in Delaware court, but the court sided with shareholder interests, allowing the bidding war to continue.
An unusual letter from the FTC leaked to the press, suggesting that a deal with Novo would face significant antitrust hurdles. Ultimately, Pfizer matched Novo's final bid, and Metsera chose to accept Pfizer's offer, citing concerns raised by the FTC.
Robert points out that President Trump had recently announced a program called TrumpRx, aimed at lowering drug prices. This raises the question: are these M&A deals a response to pressure from the government to lower drug prices?
James agrees, noting that pricing pressure has been a constant concern for Big Pharma CEOs.
Robert asks if the conditions are in place for a wave of big-to-big mergers, similar to those seen in 2009. James believes they are, arguing that companies may be able to convince the administration that such mergers would ultimately lower drug prices.
What do you think? Did the political climate and Trump's relationship with Pfizer influence the outcome of the Metsera deal? Are big pharma mergers a sign of strength, or a desperate attempt to stay afloat? Share your thoughts in the comments below!
The podcast then transitions to a Long/Short segment, where Robert and James speculate on the future of the Nasdaq. James is long, believing in a buying opportunity, while Robert is short, predicting a correction.
The episode concludes with production credits and a promotion for the Unhedged newsletter.
