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Companies In UK Are Hitting The Wall At Fastest Rate Since Global Financial Crisis

Companies In UK Are Hitting The Wall At Fastest Rate Since Global Financial Crisis

Authored by Nick Corbishley via NakedCapitalism.com,

As…

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Companies In UK Are Hitting The Wall At Fastest Rate Since Global Financial Crisis

Authored by Nick Corbishley via NakedCapitalism.com,

As the price of everything, including debt, continues to soar, life is getting harder and harder for the UK’s heavily indebted businesses...

Business insolvencies in the UK surged by 57% in 2022, to 22,109, according to the latest data from the Insolvency Service, a UK government agency that deals with bankruptcies and companies in liquidation. It is the highest number of insolvencies registered annually since 2009, at the height of the Global Financial Crisis.

Last year “was the year the insolvency dam burst,” said Christina Fitzgerald, the president of R3, the insolvency and restructuring trade body. Insolvencies peaked in the fourth quarter, underscoring the compounding pressures on companies grappling with surging costs and rapidly slowing economic activity.

“Supply-chain pressures, rising inflation and high energy prices have created a ‘trilemma’ of headwinds which many management teams will be experiencing simultaneously for the first time,” Samantha Keen, UK turnround and restructuring strategy partner at EY-Parthenon and president of the Insolvency Practitioners Association (IPA), told the Financial Times. “This stress is now deepening and spreading to all sectors of the economy as falling confidence affects investment decisions, contract renewals and access to credit.”

Other headwinds include soaring interest rates, falling consumer demand, nationwide strikes, lingering Brexit-induced supply chain issues, an epidemic of quiet quitting and both chronic and acutely bad government.

Closest to the Edge

None of this, of course, should come as a surprise. Of all the large economies in Europe, the UK’s is arguably closest to the cliff edge. As newspaper headlines trumpeted this week, the UK economy this year will probably fare worse than Russia’s sanction-hit economy, according to the IMF’s latest forecasts. But then the same could be said of many other European economies, including Germany and Italy.

Stagflation is gradually settling in across the continent. With energy prices still high (though not as high as feared some months ago), the specter of deindustrialization continues to loom over the EU’s industrial powerhouses, Germany and Italy. And the frantic efforts of central banks to bring inflation back under some semblance of control risks triggering not just an economic crash but also a financial one, as Nouriel Roubini warned in October:

It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%). And if a hard landing is the baseline for the United States, it is even more likely in Europe, owing to the Russian energy shock, China’s slowdown, and the ECB falling even further behind the curve relative to the Fed.

As economic conditions deteriorate, life gets harder and harder for Europe’s heavily indebted households and businesses. As I cautioned in late August, Europe’s entirely self-inflicted energy crisis risks tipping legions of small businesses over the edge. In the UK, as just about everywhere else, many small in-person businesses only managed to weather the lockdowns of 2020-21 by taking on huge amounts of debt:

[In the UK] the only way the debt gets cancelled is if the business in question goes into insolvency. According to research published by the Bank of England in November 2021, 33% of small businesses [had] a level of debt more than 10 times their cash in the bank, versus 14% before the pandemic. Many of those businesses had never borrowed before and some would probably not have met pre-pandemic lending criteria.

In total, £73.8 billion has been lent under the UK’s coronavirus emergency lending programs — the equivalent of 3.5% of GDP. Almost two thirds of that money — £47 billion — went to 1.26 million small businesses — in a country of roughly 5 million businesses. Through the Bounce Back Loan program SMEs were able to borrow up to 25% of their revenues to a maximum of £50,000. The loans, interest-free for 12 months, are administrated by private-sector banks, but are 100% backed by the government.

Companies now have to pay off that debt, against the backdrop of one of the most hostile business environments of living memory. As an op-ed in The Times (of London) pointed out on Wednesday, Britain is reeling from a particularly nasty combination of supply-chain shocks:

The energy crisis has hit the country particularly hard given the extent of its reliance on gas in its energy mix. The workforce is shrinking as a result of rising inactivity due to post-pandemic ill health and early retirement as well as post-Brexit shortages of low-skilled workers in some sectors. Trade has recovered from lockdowns more slowly than comparable countries, held back by post-Brexit border controls. Investment has flatlined since 2016 with dire consequences for productivity growth.   

The result, notes the article, is that the UK is now grappling with higher and stickier inflation than most other major economies. In December, consumer price inflation (CPI) was 10.5%, just slightly below the record high of 11.1% registered in October. In January, food price inflation hit a fresh record high of 16.7%.

The Bank of England’s response was to hike interest rates for the 10th time in a row, perhaps in the deluded hope that a hard landing can still be avoided. Or perhaps the BoE just wants to bring the whole damn edifice down. Rates are now at 4%, their highest level since the topsy-turvy days of October 2008. And with each fresh hike, it becomes harder for struggling companies to service their expanding debts. This is the result:

Last year, creditors’ voluntary liquidations (CVLs) hit their highest point in the time series since records began in 1960. This is largely because the relative proportions of insolvency types, between CVLs, compulsory liquidations and other types of insolvencies, have changed in recent years. In 2020 and 2021, CVL numbers were significantly lower due to the emergency support measures provided by government, such as the furlough program, emergency loan schemes and debt moratoriums.

But that support ended some time ago and for many businesses the time has now come to start paying back the 100% debt they accrued.

The government’s Bounce Back Loans scheme was first launched in May 2020. Over the next 18 months, more than a million small companies, some of them fronts for criminal shysters, took advantage of the scheme. On signing the loan, companies were given the chance to defer their payments for the first six months. When that six months was up, they were given another chance. And then another. But at the end of the third deferment period — i.e. 18 months after the loan was first issued — crunch time arrived.

For companies that took out a loan in December 2020, that moment will have arrived in June 2022. This is one of the main reasons why the number of insolvencies has surged over the past year. And the trend is likely to continue, if not intensify, in the coming months.

An Example from Close to Home

A company not set to bounce back anytime soon is a small, niche language school run by my father. The firm specialized in providing 3-4 week work experience placements in the West Midlands for EU students aged 17-20, predominantly from Germany. The company, which was set up in 1979, thrived in the period 2010-15 with many new further education colleges in Northern Germany coming on board, but that all changed once the Brexit referendum result was known.

Between 2015-19 the prevailing uncertainty – hard Brexit, soft Brexit, Norwegian- or Swiss-style future – meant the sale potential of the company was put indefinitely on hold. Then came Covid and the cancellation of all courses in 2020 and 2021 when not one single student applied for a placement.

Funds were running low, so my father took up the opportunity of applying for a £15,000 Bounce Back Loan (BBL) in August 2020. Repayment at a modest 2.5% could be shelved for 6 months, by which time a hard Brexit had been signed off. But for the company, the sucker punch was Johnson’s decision in early 2021, in another sop to the vitriolic right-wing European Research Group, to pull the UK out of Erasmus Plus, which provided financial support to young people across the EU and beyond pursuing educational and work experience opportunities in other countries.

In 2022, the loan repayment holiday was extended to 12, then finally to 18 months. Crunch time is in two weeks’ time, but the decision has been made. The pre-referendum sales potential of £100,000 has totally disappeared, the company is insolvent and has ceased trading. The liquidation process has begun, and the company cannot repay the loan.

Similar things are now happening to small and medium-size companies across the UK, particularly in the hospitality, retail and construction sectors. And it is also likely to begin happening, if it hasn’t already, across other parts of Europe as companies, particularly small and medium-sized ones, buckle under the combined weight of excessive debt, surging costs and plunging demand.

This is already happening in my country of residence, Spain, where some €23 billion of emergency loans (out of a grand total of €122 billion) — 80% of which are government guaranteed — are at risk of default and banks face an avalanche of lawsuits for misselling the loans. It would be interesting to hear from readers in other parts of Europe about the state of play with business bankruptcies in their own respective countries.

As I noted in my previous article, Europe’s Energy Crisis Is Tipping Legions of Small Businesses Over the Edge, if small business begin failing en masse, the effect on the economy is likely to be colossal. After all, small and micro companies make up the vast majority of businesses worldwide, representing around 90% of businesses and around half of employment globally. A mass extinction event could also trigger another crisis for Europe’s ever-fragile and fragmented banking system while also turbo charging wealth disparities.

Just as importantly, as I note in my book Scanned, “small businesses are the cornerstone of local communities, providing basic products and services, creating jobs, allowing local economies to flourish, and providing spaces and places for people to meet and engage with each other.” A world without them will be a much poorer one. It will also be a world even more dominated and controlled by corporations.

Tyler Durden Sat, 02/04/2023 - 08:10

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

More Travel:

With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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