Why Is the Drug Industry in a Deal Frenzy?

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April 24 (Bloomberg) –- Sphera Funds Management Partner Ori Hershkovitz discusses the latest pharmaceutical mergers and acquisitions and what they mean for the industry with Mark Barton on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Landscape of the pharmaceutical industry.

Good morning, sir.

Thank you very much for joining us today.

Good morning.

Thank you for having me on the show.

I think we're going to overlook the earnings just for the time being and focus on events that took place on tuesday, particularly when it comes to novartis.

It is certainly a pharmaceutical industry that has been reshaped.

Is that for the benefit of investors like yourself?

Yes.

Novartis is actually our biggest holding in the fund.

We like it.

We think that the pipeline is grossly overlooked by the industry, and of course the deal that was struck with glaxo, eli lilly, the beginning of that deal, a couple of months ago only adds to our feeling that this is a stock that is going to outperform the market.

As the stock that is doing ok, isn't it?

Shares up 7% in 2014. they reached an intraday record on tuesday.

How much further upside when you're trading on 16 times stimed earnings and you're resting around record highs anyway?

Let me give you an idea how high this stock can go.

About a week ago, they succeeded in a phase three trial in a drug that was completely not numbers of analysts.

It could be a $10 billion drug driving their profits up by 15%. that was completely not in the model.

Another thing that we should take into account is that next year, they are supposed to have their biggest drug lose the patents and the way we see it is it is just not going to happen.

I think there is some legal complexities.

So again, we could see in the next couple of years, profit being restated by up to 20%. we spoke to joseph gimenez, the c.e.o. of novartis right after the deal broke on tuesday.

He said you need to control a narrow market with high growth potential.

You have to be number one number two, number three in your segment.

Is that the news within the pharma industry?

Definitely.

You want to do what you do best.

If you look at novartis, they have been grappling with diagnostics, vaccines and pharmaceuticals for the last couple of years.

They have been unable to bring -- of course animal health.

They have been uneable to bring these industries into profitability and the sensible thing to do was to swap it for an ais the they know how to do best, which is oncology.

They are the second largest oncology company in the world after rarb.

-- rauch.

You have seen an asset swap.

They just don't know how to manage for an asset they know how the manage very well.

It is a win-win for everyone.

Talk to me about the astrazeneca-pfizer talk.

They were in talks, informal talks a month or two ago.

They didn't lead to anything.

Would pfizer come back and make an approach?

Could astra seek to merge with another partner?

Could pfizer end up pursuing somebody else?

Some say bristol meyers squib is more suitable for pfizer.

Potentially we have some m&a that could be taking place soon.

So i think first off you to talk about pfizer.

The things that pfizer are looking at just tells you how much of a problem they have in pipeline.

They virtually have almost no pipeline.

Second, the new astrazeneca c.e.o. did not come to sell the company.

He came to build the company.

You see that by the huge amounts of deals he has been hague.

I would be very surprised to see him sell the company in the next few years.

I don't believe we'll see a deal to sell astrazeneca.

Bristol meyers, they have p.d. one coming.

The most exciting asset in the pharmaceutical industry.

Why would they sell now?

Maybe hope to get a higher price.

I'm afraid i have to say know in both cases.

I don't see that happening.

This text has been automatically generated. It may not be 100% accurate.

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