The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Corrects second paragraph to state that Novo Nordisk is offering to pay its full initial $6.5 billion cash offer up front, not half as previously stated.

By Aimee Donnellan

DUBLIN, Oct 30 (Reuters Breakingviews) - The obesity market’s feeding trough is getting crowded. That’s the message from Novo Nordisk’s NOVOb.CO decision to muscle in on Pfizer's PFE.N agreed tie-up with U.S. biotech Metsera MTSR.O. The complexity of the deal and the bulky price suggest drugmakers are getting a steelier stomach for risk.

In September Pfizer offered to buy Metsera for $5 billion when the deal closes, and up to $7 billion if certain milestones were met. But a month later Novo Nordisk has crashed the buffet with a novel structure aimed at securing the target as quickly as possible. It is offering $6.5 billion in cash, and a further $2.5 billion if Metsera's drugs are approved. But, in a twist, it is prepared to pay the initial $6.5 billion straight away, in exchange for a chunk of non-voting shares. For Metsera shareholders, the Novo Nordisk offer is superior on two fronts: they get more money and sooner, whereas with Pfizer’s bid they wouldn’t receive a dime until the deal closes next year.

Still, Novo Nordisk's approach looks risky. To start, Metsera has no commercially viable products, it is expected to be loss-making until 2030, as per Visible Alpha forecasts. And, if trustbusters were to block the deal, the Danish group could get stuck with a 50% stake in a company and no voting rights. Pfizer has argued that the deal would damage competition.

Novo Nordisk CEO Mike Doustdar may reckon it’s a risk worth taking. The $226 billion Danish drugmaker’s star weight loss treatment is coming off patent in 2031 in the U.S. market, just as rivals like Roche ROG.S, AstraZeneca AZN.L, Amgen AMGN.O and others get ready to launch their own weight-loss treatments. Novo Nordisk has already fallen behind Eli Lilly LLY.N in the market that it once dominated, leaving Doustdar will little choice but to do deals.

He also has a path to making a decent return. Factor in cash and Doustdar is paying up to $8.5 billion for Metsera. Assume the biotech can turn a $610 million operating profit by 2030, as per Visible Alpha estimates, and the Danish group can cut out costs equivalent to 3% of sales, or $47 million, by streamlining manufacturing and sales. Take off tax at 21%, and the deal would deliver a near 8% return on invested capital. That more than covers the Danish group’s 7.5% cost of equity, according to Morningstar.

But Metsera is expected to rack up some $1.6 billion of red ink before 2030, according to Visible Alpha estimates. Doustdar may be able to reduce those losses if Metsera can get drugs approved more quickly once part of Novo Nordisk. He will also need to get sign off from the Trump administration, which may be receptive to Pfizer's complaints. The U.S. drugmaker accused Novo Nordisk of abusing its dominant position by trying to take over an “emerging American challenger”. An expensive deal, complex structure and side order of political risk could all make for a bad case of indigestion.

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CONTEXT NEWS

Denmark's Novo Nordisk said on October 30 it made an unsolicited bid for U.S. drugmaker Metsera, after Pfizer made an offer for the company in September.

Novo Nordisk said it had offered $56.50 per share in cash for Metsera, corresponding to an enterprise value of $6 billion, while Pfizer in September said it would pay $47.50 per share in cash, representing $4.9 billion in enterprise value.

Both Novo Nordisk and Metsera also offered contingent value rights (CVRs) that could add several billion dollars to the purchase price, based on the achievement of clinical and regulatory milestones.

Shares in Novo Nordisk were down 2.49% by 0936 GMT on October 30.

(Editing by Neil Unmack; Production by Streisand Neto, Pranav Kiran)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))