TheChek News Flow

Drugmaker releases promising trial results for a pill and expects to enter China this year

Novo Nordisk is seeking deals to cement its global lead in weight loss after outlining promising trial results for anti-obesity pills that would extend the Danish drugmaker’s portfolio beyond its injectable Wegovy and Ozempic bestsellers.

Speaking at the company’s headquarters in Bagsværd on the outskirts of Copenhagen, chief executive Lars Fruergaard Jørgensen said potential targets for acquisitions or partnerships included biotech companies with assets in mid-stage trials.

“You can assume that we look at everything or at least most of it,” he said.

David Moore, vice-president for corporate development, added that the company would focus on acquisitions in diabetes and obesity, ideally in the early stage of development.

“Valuations have gone up . . . it’s about making the investments that we believe are going to serve a patient population in the future. The later it is in development, the higher the valuation will be,” said Moore.

The comments came after Novo Nordisk shares hit a record on Thursday, when the Danish group revealed early stage results for an experimental new weight loss pill that appeared to offer better results than its blockbuster Wegovy. Europe’s most valuable company with a market capitalisation of DKr4.1tn ($602.7bn) also said it expected China to approve Wegovy for sale later in 2024.

Investors and analysts are looking for the next producer of “small molecule” drugs — synthetic drugs that are easily reproducible as pills — rather than the complex and usually injectable drugs made from living cells, such as Novo Nordisk’s Wegovy, which imitates a hormone called GLP-1.

Fruergaard Jørgensen said that a tablet product from the acquisition last year of a Canadian biotech, Inversago, could be a scalable weight-loss pill and alternative to the popular GLP-1-based drugs.

“It’s interesting how much interest there is in small molecule GLP-1s. If something has a different name, different combination of letters, by default the interest is lower but we think it’s actually more exciting,” said Fruergaard Jørgensen.

The company is aiming to develop a wide range of drugs and use its manufacturing scale to stay ahead of pharmaceutical rivals seeking to profit from consumer “hype” for weight loss products, he added.

Companies including UK’s AstraZeneca and Swiss group Roche have recently acquired or licensed weight-loss drugs in an effort to enter a market that analysts expected would exceed $100bn by 2030.

But the companies do not have a history of protein manufacturing used by Novo Nordisk and its US rival Eli Lilly to make their diabetes and weight-loss products.

Fruergaard Jørgensen warned that new entrants faced a long road to catch up with Novo Nordisk and its US rival Eli Lilly, because of the innovation required to develop safe, effective products and the manufacturing power needed to market them.

“There are many companies that can build space over time. They might not go as wide or as broad as the two companies that have been in this for 100 years,” he said.

“For a new entrant . . . getting a small space of this in the low end of the market is better than not being there,” he added.

The company has struggled with its own supply issues. It recently acquired three sites from contract manufacturer Catalent for $11bn to enhance its ability to fill injection pens, as part of a three-way deal led by its controlling shareholder Novo Holdings.

Fruergaard Jorgensen also said that Novo Nordisk’s efforts to develop some of its oral drugs would require much more active pharmaceutical ingredient than injectables. The company also believes some users would prefer once weekly injections to daily pills.

“If you look at how we are scaling up API capacity, we’re scaling to serve many more patients,” he said. “The more we go oral, the less we can give injectables.”

Andreessen Horowitz, known for early bets on then-startups such as Facebook, Instagram and Airbnb, is reportedly “weeks away” from closing on as much as $7 billion in new funds.

A16z is targeting $6.9 billion for a “master feeder fund,” per the report in Axios. The firm expects a final close in early April on between $6.5 billion and $7 billion.

Per the report, half of the raise — as much as $3.5 billion — would go to the firm’s fourth growth fund. A16z announced its last growth fund in early 2022 at $5 billion, so the new growth fund would be significantly less.

The firm also is not raising dedicated early-stage or seed-stage funds, but instead splitting money by subsector. That will include 15% for an AI infrastructure fund and an AI apps fund, and also 10% for an “American dynamism” fund which would support national interests such as aerospace, defense, public safety, education, housing, supply chain, industrials and manufacturing.

There also will be a 10% allocation for a gaming fund.

The new venture market

It was just late last year when firm founder Marc Andreessen penned his “The Techno-Optimist Manifesto.” The 5,000-word “manifesto” basically says technology is the cure for — not the cause of — the world’s ills and comes complete with an enemy list and even a “meaning of life” entry.

Despite the optimism, a16z has actually seen its deal flow fall every quarter since Q1 2023, per Crunchbase data. However, it should stop that streak this quarter.

News of the new funds come as venture firms are still struggling with the downturn in the industry. Earlier in the week, The Information reported Boston-based OpenView Venture Partners plans to return 75% of a $571 million fund it raised a year ago to its limited partners. Late last year the firm decided to wind down.

There have been reports that other firms have had trouble raising new funds after struggling to give LPs significant returns after the salad days of 2021. ​​Even some large, well-established firms had to change fundraising plans last year to adjust to the evolving market this year, as both San Francisco-based Founders Fund and New York-based Tiger Global announced cuts to their new funds.

For venture-backed startups, it’s historically rather common to wind up selling to another startup. Lately, however, the pace of these deals has been slowing down.

In all of 2023, just over 650 funded startups globally were acquired by other funded startups, per Crunchbase data, the lowest total in three years. This year, meanwhile, is off to a similarly slow start, as charted below:

Disclosed deal sizes have also been skewing smaller. True, there are exceptions, like Databricks’ $1.3 billion purchase of MosaicML last summer. But overall, the median disclosed-size deal in 2023 was around $30 million, down from about $40 million in 2022.

The disclosed numbers provide a very limited view, however. That’s because in the vast majority of these deals, buyers don’t reveal what they paid.

Even so, it’s likely few are home-run exits. Generally speaking, when a startup buys another startup during a tough fundraising environment, the acquired company’s founders and investors aren’t getting a huge return on their investment, observed Healy Jones, vice president of financial strategy at startup advisory firm Kruze Consulting.

Rather, in an environment of falling startup valuations across many sectors, the goal for a sale tends to be more modest. If an acquisition can make investors whole, generate some return for founders, and provide employees with good jobs going forward, it’s commonly considered worth pursuing.

Given that overall M&A activity is down, the actual share of startup acquisitions where the acquirer is another startup remains pretty high.

Since the beginning of last year, for instance, more than 80% of acquired startups — roughly 766 companies — sold to another startup, per Crunchbase data. Just 142 startups sold to public companies.

Large-cap technology companies, in particular, have not been active startup buyers in recent quarters. Selling to one of the “Big Five” most valuable U.S. tech companies — Apple, Microsoft, Google, Amazon and Nvidia — is no longer a realistic avenue to exit.

While they don’t lack cash, antitrust concerns are a big worry for large-cap acquirers these days. Even when they do announce large purchases — like Adobe’s planned acquisition of Figma — there’s a risk that regulators will object. Startups, by contrast, are far less likely to attract regulatory scrutiny for their M&A forays.

Large-cap acquirers also have other reasons for holding back on M&A dealmaking, Healy observed. Taxes are a big issue, as large companies don’t want to open themselves up to new avenues of taxation. “There’s a reason Apple is one of the most profitable companies in the world and they pay very little in taxes,” he said.

Because public company valuations are so dependent on meeting or exceeding analyst expectations, there’s also reticence to make M&A moves that could jeopardize earnings predictability.

Just like a game of musical chairs, startups looking for a partner have limited options. When cash is running low, and an acquisition looks like the most promising strategy, another startup may be the only willing and available buyer.

While they’re probably not paying top dollar, one upside is that there’s still opportunity for the acquiree to see its technology and products scale — albeit maybe under a new name.

In the latest blow to the luxury e-commerce sector, the embattled Matches is closing down just over two months after being acquired by Frasers Group as relationships with brands have reportedly soured.

Frasers Group is putting Matchesfashion into administration, just over two months after the retail giant acquired the struggling luxury e-tailer for £52 million ($66.6 million), The Business of Fashion has confirmed.

Frasers Group originally bought Matchesfashion (which rebranded to Matches late last year) to increase its position in luxury, but brands have begun to sever ties with Matches as some of them have not received payments for months, according to a report in Sky News.

“Whilst Matches’ management team has tried to find a way to stabilise the business, it has become clear that too much change would be required to restructure it, and the continued funding requirements would be far in excess of amounts that the Group considers to be viable,” Frasers Group said in a statement. “In light of this, Frasers has been informed that the directors of Matches have taken the decision to put the Matches group into administration. Frasers remains committed to the luxury market and its brand partners.”

It’s an unfortunate conclusion that was once inconceivable for Matches. Founded in the late 1980s by Tom and Ruth Chapman as a brick-and-mortar store in London, Matches was once a profitable company renowned for its curated selection of emerging brands. It eventually went online in 2007, launching a storefront and app that grew to carry more than 500 top luxury brands, including Balenciaga and Gucci.

In 2017, private-equity firm Apax Partners acquired Matches at a reported $1 billion valuation, and by 2019, the company’s sales peaked at £431 million. But once the pandemic hit in 2020, Matches’ losses soon began to mount: It struggled to navigate lockdown restrictions as competition from e-commerce rivals such as Farfetch, Net-a-Porter and Mytheresa ramped up. Apax Partners also pumped millions in improving Matches’ backend operations and the user experience on the site.

Matches shuffled through four chief executives in four years before hiring former ASOS CEO Nick Beighton in 2022 to grow the business. Beighton overhauled the executive team, installing industry veterans from Farfetch and Frasers Group as chief commercial officer, chief financial officer and chief operating officer. He also increased the number of brands offered on the platform and introduced a rental service.

But those initiatives did little to improve the company’s fortunes. Matches ended fiscal 2023 with £40 million in losses on the basis of earnings before interest, taxes, depreciation and amortisation, up from £25 million in the previous year. Its sales also dropped to £380 million during the same period.

Matches’ grim ending is the most severe outcome so far of the ailing luxury e-commerce sector’s continuing woes. Retailers including Farfetch and Net-a-Porter went from industry darlings to cautionary tales as digital customer-acquisition costs ballooned and pressure to discount crippled margins. Perhaps most consequentially, luxury brands have increasingly reduced their wholesale presence as they’ve encouraged consumers to buy directly on their own e-commerce sites, putting the brands themselves in direct competition with platforms like Matches.

London-based Farfetch, which connects luxury boutiques to its marketplace and provides e-commerce software for brands and retailers, narrowly escaped bankruptcy when it was acquired by South Korean e-commerce giant Coupang last December. In February, the company’s founder, José Neves, and a cadre of other top executives exited the business. Crucial brand partners like Gucci have stopped selling on its marketplace, validating fears that Farfetch will lose value under Coupang’s ownership.

Frasers Group’s decision to shutter Matches also highlights growing impatience among investors that were once eager to pump money into luxury e-commerce. Other pioneering luxury e-tailers are at risk of suffering the same fate. Swiss luxury conglomerate Richemont attempted to sell Yoox-Net-a-Porter to Farfetch before the platform landed in its own financial troubles. The fate of YNAP, which continues to be a loss leader for Richemont, also hangs in the balance as the company continues to seek a buyer.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments: