Big pharma’s billion-dollar bets

As patents lapse and funding on R&D is cut, big pharma is spending big money on risky takeovers to find the next blockbuster drug. In this animated film, Due Diligence's Arash Massoudi explains how Bristol-Myers Squibb’s $90bn takeover of Celgene has set the stage for more to come in 2019.

As investors have exerted pressure on big pharma to cut back spending on research and development that can result in expensive disappointments, incumbents have been acquiring smaller competitors to replenish drug pipelines.

Nimble start-ups, in contrast, are not weighed down by legacy businesses and can focus on innovation. Many fail but those that succeed, or even show promise by producing just one drug, instantly become takeover targets.

Underpinning these acquisitions is a gamble. Should a big company buy a start-up that has potential but has not proven its worth? Or wait and miss out on a short cut to high returns and new products?

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Rise of the boutique banks

In dealmaking, big used to be better. Banks such as JPMorgan Chase, Deutsche Bank and Citigroup dominated the M&A market.

The financial rewards for the top deal bankers were huge, too. But after the global financial crisis, as the FT’s James Fontanella-Khan explains in this animated film, banks became more strictly regulated and pay and perks more tightly controlled.

This gave bankers a choice. They could either stay at the behemoths and get 15 per cent of overall fees – or leave to set up a small bank where they could earn closer to 40 per cent.

As a result dealmakers began to leave the safety of their jobs on Wall Street or in the City of London to create a new generation of boutique banks. This exodus included top rainmakers such as Paul Taubman, previously at Morgan Stanley, and Gordon Dyal from Goldman Sachs.

The boutique model harked back to an earlier era where senior partners owned and operated the firm, encouraging a more prudent approach. Boutique advisers say they are free of the conflicts of interest that can be found in bigger banks since they do not have other products to sell to their clients. Instead, they offer just one thing: their advice.

A decade since the financial crisis many of these boutiques have come of age. Larger rivals like Goldman Sachs and JPMorgan have survived, but for Europe’s top banks, the extra competition has been more damaging.

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