Latest / Bloomberg Intelligence / Lilly Strikes $3.8 Billion Deal for Psychedelic Drugmaker

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Lilly Strikes $3.8 Billion Deal for Psychedelic Drugmaker · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 1: or watch us live on YouTube.
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  Speaker 2: Let's talk about what's going on in the healthcare space
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  Speaker 2: and pharmaceuticals in particular.
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  Speaker 3: A big deal here by Eli Lilly.
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  Speaker 2: It's made a lot of acquisitions, Paul, I feel like
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  Speaker 2: we're always talking about Eli Lilly making another purchase. Sam
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  Speaker 2: Fazzelli is our Bloomberg Intelligence director of research covering healthcare, defense, industrials,
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  Speaker 2: and autos. He is our drug boss, That's what we
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  Speaker 2: like to call him, and he actually has a jacket.
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  Speaker 3: That says that.
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  Speaker 2: And Sam joins us right now from London. Sam, I
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  Speaker 2: don't know if you're sharing for England, but if so,
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  Speaker 2: our condolences to you. I wanted to start with this
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  Speaker 2: Eli Lilly purchase, buying a tied Beckley for up to
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  Speaker 2: three point eight billion dollars. That valuation strikes me as interesting.
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  Speaker 2: Why for up to three point eight billion dollars are
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  Speaker 2: there incentives along the way here?
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  Speaker 4: Absolutely? Right? So I mean you look at the numbers.
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  Speaker 5: We've got two point eight billion dollars up front cash
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  Speaker 5: and a billion dollars in contingent value rights. So that's
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  Speaker 5: CVRs tied to the lead assets, which are in two forms,
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  Speaker 5: one in internasal the ones in under the tongue buckle
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  Speaker 5: getting through phase three and also getting EA approval. Because
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  Speaker 5: these are psychedelics, the drugs that are quite fashionable these
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  Speaker 5: days in terms of development because of the profound effects
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  Speaker 5: that we're seeing on treatment really resistant depression, on major
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  Speaker 5: depressive disorder, generalized anxiety disorder, that sort of thing. So
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  Speaker 5: there's a resurgers of interest in these psychedelics which are synthetic.
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  Speaker 5: So that's where these extra billion dollars and condision value
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  Speaker 5: rights come from, which is why the stocks trading above
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  Speaker 5: the six dollars seventy five cash offer.
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  Speaker 6: So the psychedelics talk to us about kind of the
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  Speaker 6: that just that part of the therapeutic space there, Sam,
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  Speaker 6: is it a big part of it?
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  Speaker 4: It is? It is.
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  Speaker 5: There are quite a few companies there, wrote a few
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  Speaker 5: names do gh Research, Mindmann, Compass, just naming a few Alto, Cybin.
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  Speaker 4: Realmada, etc. Who are in this.
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  Speaker 5: Space, which is a significant issue for society in terms
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  Speaker 5: of depression.
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  Speaker 4: But also it's the fact that there's psychedelics I think takes.
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  Speaker 5: Away or adds a little bit of I wonder what
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  Speaker 5: they're like, you know, magic mushroom, that sort of stuff.
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  Speaker 4: It's conjured up.
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  Speaker 5: In fact, this particular drug originates from a specific desert toad,
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  Speaker 5: which is one of the major sources of it. But
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  Speaker 5: this is synthetic. The fact is they work on something
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  Speaker 5: specific in the brain, and it's been shown that they
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  Speaker 5: can help you to a degree rewire. Your brain is
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  Speaker 5: a very plastic organ in terms of how it's learning, right,
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  Speaker 5: there's plasticity. We learn new stuff all the time. So
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  Speaker 5: unfortunately in the depressive state or a PTSD state, that's
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  Speaker 5: a learned behavior to a degree. To put it very simply,
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  Speaker 5: So that's where I think there's a lot of interest
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  Speaker 5: to try and treat patients and help patients here.
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  Speaker 7: Sam.
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  Speaker 2: I also want to turn to MRK getting FDA approval
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  Speaker 2: for a new cholesterol pill. It's going to cost thirty
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  Speaker 2: eight hundred dollars a year, which sounds pretty expensive if
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  Speaker 2: it's not covered by insurance. How is this different? This
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  Speaker 2: new medication lipvehendra different from the world's most popular cholesterol
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  Speaker 2: lawing drug, which is libtor.
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  Speaker 4: Yeah. So these are drugs that work via a different mechanism.
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  Speaker 5: It's an inhibitor of something in the in the within
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  Speaker 5: the system called PCSK and nine that are involved in
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  Speaker 5: the in the metabolism uptake production of cholesterol. And there
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  Speaker 5: are other drugs that are under market that do that
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  Speaker 5: work the same way, which would.
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  Speaker 8: Be injectables or ones that interfere with RNA, et cetera.
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  Speaker 8: You know, in terms of trying to here's the first
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  Speaker 8: oral druck that we've got, and that's where I actually
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  Speaker 8: don't think three hundred three thousand, eight hundred dollars.
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  Speaker 4: Is a lot. You know, we're living in a world where.
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  Speaker 5: Rocks come to market at ten twenty thirty fifty thousand
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  Speaker 5: dollars here and here you're having a very profound effect
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  Speaker 5: on LDL.
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  Speaker 6: Hey, switching gears a little bit. Abbot reported some good
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  Speaker 6: number stocks up the most in I don't know a
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  Speaker 6: million years here. What's going on on, Abbot?
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  Speaker 5: Yeah, I mean, look, so, Paul, that's not a space
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  Speaker 5: that I'm particularly familiar with. But I'll tell you something.
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  Speaker 5: What was interesting is yesterday we had Jonathan and Johnson report,
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  Speaker 5: and you know, they have a medical devices business that
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  Speaker 5: they're still ongoing with and that didn't do so well.
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  Speaker 5: That was a bit of a dragon if you remember
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  Speaker 5: where the share price was behaving yesterday. Abbots, of course
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  Speaker 5: in more of a diagno a stake and a different
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  Speaker 5: area of focus. So it's quite nice to see that working.
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  Speaker 5: And there's a lot of interest in diagnostics and the
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  Speaker 5: quality diagnostics, especially when they're married with therapeutics.
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  Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
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  Speaker 6: Abbott Laboratories stock is soaring today, the most since two
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  Speaker 6: thousand and two. I guess the street liked their earnings
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  Speaker 6: for the second quarter and probably more importantly, their guidance
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  Speaker 6: going forward. Let's check in with the analyst that covers ABT,
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  Speaker 6: Matt Hendrickson, Senior equity analyst from Bloomberg Intelligence. Matt talk
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  Speaker 6: to us about it. Abbot Laboratories and what they disclose
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  Speaker 6: here when their earnings released.
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  Speaker 9: Yeah, this earnings was a huge cyber relief for investors.
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  Speaker 9: They went into the call some headwinds were or some
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  Speaker 9: headnt wind risks were in the nutrition segment and that
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  Speaker 9: was going to be diluted to the overall growth. There
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  Speaker 9: was also questions about the CGM market, which is their
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  Speaker 9: core growth driver, continuous glucose monitors.
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  Speaker 6: Oh, that's the I see on people's arms.
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  Speaker 9: Yeah, exactly. So it's at a little like the size
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  Speaker 9: of a quarter on the army. That's a ten billion
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  Speaker 9: dollar revenue run rate for the company. There were some
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  Speaker 9: concerns that it was decelerating growth from kind of the
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  Speaker 9: mid teens high teens from last year to below high
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  Speaker 9: single digits this year. Basically, their results kind of calmed
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  Speaker 9: all those nerves. Nutrition is recovering nicely after they implemented
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  Speaker 9: new pricing mechanics into their their business model. The CGM business, uh,
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  Speaker 9: you know, growing at nine point five percent, kind of
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  Speaker 9: slightly below the double digit expectations that management had, but overall,
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  Speaker 9: you know, it wasn't worse than what was expected, so
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  Speaker 9: we eliminated that worst case scenario.
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  Speaker 3: Okay, why was there so much concern.
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  Speaker 2: I think about healthcare, and I think about United Health
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  Speaker 2: in particular and some of the issues it's had with
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  Speaker 2: Medicare reimbursement and government changes to reimbursement plans overall. Is
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  Speaker 2: that a concern for a company like Abbot.
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  Speaker 7: It's always going to be an overhang, and we saw
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  Speaker 7: that earlier this week when h HCA reported and they
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  Speaker 7: highlighted some headwinds from ACA related insurance patients.
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  Speaker 9: We have not seen that yet in the medtech side
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  Speaker 9: so far. In the second quarter.
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  Speaker 10: J and J.
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  Speaker 9: Talked about stable procedure volumes. Abbot talked about the same
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  Speaker 9: procedure volume stability. One of the reasons I think is
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  Speaker 9: that your Abbot and j J they're focusing on those
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  Speaker 9: more high acuity cases more. You know, these patients need
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  Speaker 9: to be treated regardless of what their insurance coverage is,
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  Speaker 9: and so the hospitals almost have an obligation to treat
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  Speaker 9: those patients, where some of those low acuity cases will
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  Speaker 9: be deferred the longer term.
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  Speaker 6: I'm looking at the PGO function on the Bloomberg terminals
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  Speaker 6: shows me kind of where they get their revenue. There's
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  Speaker 6: a lot of places where they get their revenue it's
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  Speaker 6: highly diversified. It is highly diversified medical device company. What
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  Speaker 6: is the street focus on is are there two or
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  Speaker 6: three business lines that Yeah, because even with the stock
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  Speaker 6: up today eleven percent is still down twenty percent year
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  Speaker 6: to date. So what's kind of the investment call on
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  Speaker 6: this name.
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  Speaker 9: Yeah, So the first one goes back to that to
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  Speaker 9: the cgms. That being that you know, kind of ten
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  Speaker 9: billion revenue run rate. If you're looking at it being
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  Speaker 9: back to that double digit revenue growth, that's going to
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  Speaker 9: be a promising growth driver for them. That nutrition recovery,
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  Speaker 9: because that is still almost twenty five percent of their sales.
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  Speaker 9: If they can get that back to growth, that's going
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  Speaker 9: to be a good contributor for them. And the newest
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  Speaker 9: growth driver actually is the Exact Science acquisition that they made.
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  Speaker 9: So when you think about you see those TV commercials
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  Speaker 9: for Coli Guard, that's Exact Sciences. So now Abbott has
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  Speaker 9: entered that cancer diagnostic segment and that's a business that's
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  Speaker 9: they were expecting it to be mid teens growth this
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  Speaker 9: year for that cancer diagnostic segment, and so if they
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  Speaker 9: are able to deliver that throughout the full year, they've
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  Speaker 9: grown at thirteen percent so far in the first half.
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  Speaker 9: That will be a creative to kind of their six
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  Speaker 9: and a half to seven and a half growth guidance.
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  Speaker 2: Is there any talk about M and A when it
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  Speaker 2: comes to Abbot, whether it's maybe going to divest some
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  Speaker 2: businesses so that can get a higher share price, or
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  Speaker 2: you know, maybe even add on because it has.
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  Speaker 3: Done a pretty good job with diversification.
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  Speaker 9: Yeah, let's let's I'll serve with the add ons first.
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  Speaker 9: So that Exact Science deal closed early early in the
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  Speaker 9: first quarter, and so that was a twenty three billion
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  Speaker 9: dollar deal that they have to digest that deal. They
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  Speaker 9: have they degraded, They raised twenty billion in debt, so
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  Speaker 9: they have they had the free cash lit just pay
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  Speaker 9: down that debt. That's the first step. Divestitures, I mean,
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  Speaker 9: there's always because they're so diverse, there are some you know,
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  Speaker 9: probably differentiated features like nutrition that could be able to
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  Speaker 9: potentially divest in the future.
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  Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
• 10:24
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 10:28
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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• 10:34
  Speaker 1: you get your podcasts or watch us live on YouTube.
• 10:38
  Speaker 6: Right now, let's check out the man Deep saying he
• 10:39
  Speaker 6: joins us year in our Bloomberg Interactive Broker's studio. He
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  Speaker 6: covers all the technology stuff there for us. I want
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  Speaker 6: to start with TSMC, the chip maker. What did they
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  Speaker 6: what did we learn with their earnings?
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  Speaker 10: And Deep, I mean again very solid print raised their
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  Speaker 10: guidance for about five percentage points for the folly year,
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  Speaker 10: so and top line growth if you had to find faults.
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  Speaker 10: The only thing that they didn't show, which you saw
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  Speaker 10: with the memory names is pricing. So pricing growth for
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  Speaker 10: memory was off the charts. We were talking about, you know,
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  Speaker 10: forty percent quarter over quarter pricing growth. That doesn't seem
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  Speaker 10: to be the case with TSMC, partly because of how
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  Speaker 10: they run their business. And I feel all these companies
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  Speaker 10: are still reluctant to expand their supply, even though TSMC
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  Speaker 10: raised their capex but twelve percent for the full year,
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  Speaker 10: but given the supply demand mismatch, to my mind, they're
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  Speaker 10: leaving a lot of revenue at the table because they
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  Speaker 10: don't want to expand supply.
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  Speaker 3: Why do you think that is?
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  Speaker 2: Is it just they've been burned in the past when
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  Speaker 2: the cycle turned against them.
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  Speaker 10: It's the management teams are very conservative. They don't want
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  Speaker 10: to take a chance where they double their supply in
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  Speaker 10: a year and guess what, something happens on glut and
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  Speaker 10: they don't want to be in that situation. But to
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  Speaker 10: my mind, the reason why Intel has a shot now
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  Speaker 10: is because TSMC is conservative and expanding supply.
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  Speaker 2: Just clarify for us CSMC makes chips for in video,
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  Speaker 2: so we're talking the super high end AI chips.
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  Speaker 3: Does it make memory chips?
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  Speaker 10: No, So all the memory guys have their own fabs
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  Speaker 10: and they make their own chips. So TSMC does have
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  Speaker 10: a very broad set of clients it served, so not
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  Speaker 10: just in Vidia, but also your AMDs, squall cooms, Apple,
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  Speaker 10: Apple used to be their biggest customers, so they've pivoted
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  Speaker 10: from smartphone chips to more data center chips. But at
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  Speaker 10: the end of the day, they have the best process notes,
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  Speaker 10: the best manufacturing capabilities. If they wanted to do the
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  Speaker 10: memory chips, they could do potentially, but they've just been
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  Speaker 10: conservative when it comes to expanding their supply. And we
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  Speaker 10: know the concentration in Taiwan. They've talked about adding new
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  Speaker 10: factor is here in the US. But when you are
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  Speaker 10: a company with's literally a monopoly and the balance sheet
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  Speaker 10: to expand at the pace you want, why would you
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  Speaker 10: not be aggressive here? And I just don't get it,
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  Speaker 10: all right.
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  Speaker 6: So the very little I know about the semiconductor business
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  Speaker 6: I learned from honest Shreene Boston. He told me everything.
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  Speaker 6: But the first thing you taught me is it's a
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  Speaker 6: cyclical business.
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  Speaker 4: Dude.
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  Speaker 6: If you get it wrong, you're gonna get crushed. So
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  Speaker 6: the question I've been asking you guys, is is it
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  Speaker 6: less cyclical and maybe materially less cyclical now with this
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  Speaker 6: whole AI transformation, and what I think the management team
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  Speaker 6: of TSMC is saying, we're not convinced to that.
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  Speaker 10: Yeah, no one is convinced, But you get you know,
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  Speaker 10: technology shifts like this in maybe two or three decades,
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  Speaker 10: and this is a very big technology shift, and it's
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  Speaker 10: evidenced by the fact that you have a big supply
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  Speaker 10: demand mismatch that continues to carry through. And the biggest
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  Speaker 10: chip maker who's exposed to the trend, Nvidia, is telling
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  Speaker 10: you they have visibility to a trillion dollars in revenue.
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  Speaker 10: So why would you not believe in Nvidia? If you're
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  Speaker 10: a big supplier to Nvidia, is TSMC.
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  Speaker 2: Is, or you're in a really good position and you
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  Speaker 2: want to stay in a really good position barring Intel
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  Speaker 2: coming in into taking some of that business. You mentioned
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  Speaker 2: that TSMC has been looking to build production capabilities in
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  Speaker 2: the US.
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  Speaker 3: We know, I believe, I think it's.
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  Speaker 2: Arizona where they've done that. How's that going? How's that
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  Speaker 2: effort going? Because for a while there was an issue
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  Speaker 2: with talent shortage right.
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  Speaker 10: There is and look, they've been actually adding to their
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  Speaker 10: capex for expansion here. So a lot of these fabs
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  Speaker 10: take up to two years just for that initial factory
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  Speaker 10: to start producing chips, and they may not be at
• 14:50
  Speaker 10: the leading notes like your three nanometers, so it would
• 14:53
  Speaker 10: be more like five six nanometer chips before they can
• 14:56
  Speaker 10: get to three nanometers. Partly because of the talent shortage,
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  Speaker 10: they need those kind of people who can do things
• 15:04
  Speaker 10: at the leading note. But all of this combines with
• 15:07
  Speaker 10: the fact that the lead times are very long to
• 15:11
  Speaker 10: set these up.
• 15:11
  Speaker 2: The reason I asked about the talent issue is because
• 15:14
  Speaker 2: we're not making it easy for companies to bring in
• 15:17
  Speaker 2: engineers and folks with the capabilities from overseas. If that
• 15:22
  Speaker 2: talent is not available in the US.
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  Speaker 10: Absolutely, And look, I think even when it comes to
• 15:27
  Speaker 10: getting permits, getting the resources, water and you know, all
• 15:32
  Speaker 10: the kind of supplies you need to set up a
• 15:35
  Speaker 10: leading semiconductor fab, it takes a lot more time here
• 15:38
  Speaker 10: than if it probably takes anywhere.
• 15:41
  Speaker 6: Else thirty seconds. Uber bought delivery Hero for close to
• 15:44
  Speaker 6: fifteen billion. What is delivery Hero wants to do for Uber?
• 15:48
  Speaker 10: I mean the playbook with all marketplaces is consolidation. Uber
• 15:53
  Speaker 10: Ceo did that back in the day with Expedia. He's
• 15:56
  Speaker 10: doing the same. And the big thread for a company
• 16:00
  Speaker 10: Koober is autonomous rides. So this for them is a
• 16:03
  Speaker 10: way to diversify that I kind of expand to now
• 16:07
  Speaker 10: one hundred countries. Autonomous is not going to be there
• 16:09
  Speaker 10: in one hundred countries, So from that perspective, there's a
• 16:12
  Speaker 10: question here.
• 16:14
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