Big Pharma’s China gamble

0:28Good morning from the Financial Times.

0:34U.S. House Speaker Mike Johnson wants to steer clear of a vote on releasing files related to pedophile financier Jeffrey Epstein. Yesterday, Johnson made the call to start their summer break early to avoid a vote altogether. The controversy over the Epstein case was refueled last week. The Wall Street Journal reported that U.S. President Donald Trump had allegedly sent Epstein a birthday message in 2003 that referred to, quote, secrets. Trump called the journal's story false and sued the newspaper, its parent company, and its owner, Rupert Murdoch. Epstein died by suicide in a jail cell in 2019 when he was awaiting trial on sex trafficking charges of underage girls.

1:14Even though Johnson blocked the vote on the files, several members of his own party are calling for them to be made public.

1:26Nigeria's economy has gotten an upgrade, at least on paper. A new statistical model shows its gross domestic product to be 30 % bigger than earlier calculations. That's because the country's National Bureau of Statistics has updated how it evaluates GDP. Joseph Cottrell is the FT's Emerging Markets Correspondent. He joins me now to talk through what this all means for Nigeria. Hi, Joseph. Hi there. So tell me about these new statistics. How did Nigeria change how it calculates GDP? So firstly, they changed the base year. So previously, they used 2010 as the base year. This time, they've updated it to 2019.

2:06They have done this to take better account of the internet as a factor in Nigeria's economy in particular, because in 2010, the internet and digital services and social media and all those lovely things would not have been very large in Nigeria. But by 2019 and certainly by this year, 2025, they will be quite large. Right, so there's the digital transformation, but 30 % is a huge difference. What else do the new stats take into account? So also things such as pensions, Nigerians are saving more. And the informal sector, so people who are not formally employed but are still trading and so on. But they are not necessarily registered or paying tax.

2:54The informal sector as a share of GDP is now estimated at about 42.5%. Agriculture in Nigeria has turned out to be the largest contributor to national output, which is interesting because we have a picture of Nigeria as an exporter of crude oil. So it's changed what we think of as the drivers of growth in Nigeria as well. So Joseph, does this change Nigeria's approach to its economic and financial situation? It does make the country's debts as a percentage of GDP look healthier. They've gone down to about 40 % compared to about 50 % or so before. Will the government be tempted to borrow lots of money because of that change?

3:42Maybe not because it is still carrying out a lot of big, painful structural economic reform. These reforms and interest rates in Nigeria are extremely high as a result. But if they do plan to sell bonds on the international markets anytime soon, this would probably help their case with investors. Joseph, you cover emerging markets. what should other countries, other emerging markets be thinking if they're considering rebasing their GDP stats based on what they've seen from Nigeria? Well, the fun thing about developing economies and emerging markets is that by and large, they do grow quite quickly.

4:27And this is just something lots of economies have to do now and then, particularly if they are growing especially quickly or have very big kind of populations like Nigeria. So a few countries are coming up for their regular rebasing. A very interesting one at the moment is Senegal, also in West Africa. The interesting thing is that Senegal is currently dealing with the misreporting of debt, which has led to the suspension of an IMF bailout. If the rebasing comes out with a much larger GDP, that would also help Senegal's debt-to-GDP ratio and perhaps get things back on the straight and narrow with the IMF and with bondholders.

5:15That's the FT's Joseph Cotterell. Thanks, Joseph. Thank you very much.

5:25U.S. tariffs are hitting the car industry. General Motors reported yesterday that its adjusted earnings fell 32 % year-on-year. And the carmaker pinned that blame on Donald Trump's 25 % levy on foreign-made vehicles. You know, the company is really exposed to the trade war. GM does a lot of manufacturing in South Korea, Mexico, and Canada for vehicles that are sold in the U.S. Its stock fell 8 % yesterday. Other car companies are also feeling the heat. Stellantis said on Monday it expects a net loss of 2.3 billion euros for the first half of the year. And last week, Volvo reported its first operating loss since 2021.

6:12Big Pharma is becoming increasingly reliant on China. These Western companies have spent a record amount this year on drugs developed there, but it could come back to bite them if U.S. President Donald Trump makes good on his tariff threats for the sector. I'm joined now by the FT's U.S. pharmaceutical correspondent, Patrick Temple-West. Hey, Patrick. Hello, Mark. So tell me more about these licensing agreements with Chinese biotech companies. How do they work? Certainly. Multinational pharmaceutical companies, everyone from AstraZeneca to Pfizer, have been doing these deals where they will pay a Chinese biotech company for exclusivity rights.

6:51So if the China company starts working on a drug, it goes through clinical trials and really shows progress, then the multinational company, which is based either in Europe or the U.S. typically, they have first rights to those drugs to sell them outside of China. These giant pharma companies are always on the hunt for the next big thing, the next blockbuster drug. And because these drugs can be made in China more cheaply, it's become a bit of a shopping ground, a fertile ground for these drug companies to go looking. And these deals have been increasing recently. How long have they been ticking up?

7:30So the past couple of years, they've been elevated. They've been on a pretty steady line up. But the first half of this year, it's really picked up. So China comprises 18 % of these licensing deals globally. And they are also a third of deal value globally came from China. And these are both records already in the first half of the year. Okay, so if I have this right, basically licensing these drugs makes development cheaper for the AstraZeneca's and the Pfizer's of the world. They really need that to boost profits because lower drug prices and a ton of expiring patents are hurting them. Yes, yes.

8:09All right. But to what extent could the strategy actually end up hurting the pharmaceutical companies, you know, given these huge U.S. tariffs coming down the line? Exactly. That's the big unknown and frankly, the big worry for them. When you're developing products in China now, that's part of your supply chain. So historically, drugs have been manufactured in Europe and definitely in the U.S. as well. With this IP being developed in China and the giant pharmaceutical companies increasingly reliant on China development for their next big thing, when tariffs come into play, it just immediately increases their costs.

8:51Now, the tariffs are, it's uncertain. The White House has definitely not finalized anything, but it's a big worry, and the president has talked about it several times since his inauguration. So then, Patrick, how do these companies circle that square, you know, balancing their need for Chinese drugs with the threat of U.S. tariffs? Well, there's plenty of lobbying activity going on in Washington right now. We've seen big news just from AstraZeneca. the other day, they announced a multi-billion dollar investment in the U.S. We're going to be doing R &D in the U.S. The Commerce Secretary was there as part of this rollout.

9:31So the pharmaceutical companies are trying to balance that, yes, we are taking the United States seriously. We are investing in the U.S. to further the president's wishes. But at the same time, they're pouring billions of dollars into China as well as for part of these licensing deals. So that's going to be a difficult path ahead for them. That's the FT's Patrick Temple West. Thanks, Patrick. Thank you, Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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