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From Container Prices To Inflation Expectations And The Yield Curve, They All Dwell On October

This thing, this massive supply disruption is a perfect example of a positive feedback loop. It began with government (over)reaction to COVID, as noted…

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This thing, this massive supply disruption is a perfect example of a positive feedback loop. It began with government (over)reaction to COVID, as noted here impacting both supply and demand. Those two curves have behaved in classic fashion, inelastic supply unable to efficiently respond to an artificial outward shift in demand. The resulting impact price-wise as pure economics (small “e”).

A huge piece of inelastic supply, though, came to be tied to – or tied up in – the general conveyance of goods moving through the supply chain. It may have been difficult for producers to initially crank their efforts back up, yet they managed to do so at any rate. As they did, however, the initial imbalance completely changed the dynamics insofar as shipping goods especially into the US via its West Coast operations.

As the demand for goods came back, quite naturally the demand for shipping goods rose, too. The price of shipping like those for goods responded positively, particularly the rate paid to use containers. At some point rather early on last year, the container price soared enough to cause some shippers to rethink their activities – and not in a good way, systemically speaking.

Typically, their big boats offload cargo coming in from China and Asia but then wait around to take back with them some US exports along with a whole bunch of empties. With backups plaguing these same facilities, and with container prices exploding, carriers began to sail out of LA or Long Beach without waiting around.

Given how high shipping rates had gone, you could understand why ship owners weren’t too interested in having their ships sit in port waiting around for empties to be loaded – and no real idea how long this would take. Rather than wait, leave port as soon as possible so as to squeeze another sailing from China back to the US taking full advantage of such high shipping and container prices.

Freightos Global Container Index (FBX) https://fbx.freightos.com/


The economics practically demanded this positive feedback loop.

These so-called blank sailings caused more empty containers to pile up, adding to the difficulties Chinese exporters were experiencing in order to obtain them. Prices for containers skyrocketed even more, adding to the already-fat incentives for shippers to conduct blank sailings, stranding thousands upon thousands of additional empty containers around the LA region.

The more the empties piled up, the higher the delays (and not just for boats, also trucks and railroad cars who had to offload an empty in order to then take a full one coming in), adding to the self-reinforcing cycle of blank sailings.

“Our biggest problem by far is empty shipping containers,” Matt Schrap, CEO of the Harbor Trucking Association, a coalition of intermodal carriers serving America’s West Coast ports, told Xinhua. “They are the bottleneck that is sinking the global supply chain.”

With Christmas “forced” to come early, anyone and everyone convinced to get holiday business done well in advance to ensure some level of availability for rabid US consumers, it all came to a climax around late October.

It was around that same time authorities decided action was needed to do something about the container imbalance. LA’s Harbor Commission unanimously voted to implement a “dwell fee”, announced on October 25.

For any container moved by truck, after “dwelling” idle for nine days authorities would impose this $100 fee (six days for containers going by rail). For every additional dwell day, the cost goes up another $100 per.

However, though it was approved months ago, the Commission’s escalating surcharge scheme has never been implemented. Each time the topic comes up, it gets pushed back and held back as a threat. For one thing, dating back to late October, the number of empties has substantially declined and so have stranded cargoes.

The so-called dwell time a container sits around on average before it gets picked up has fallen by more than half from late October and there are no longer dozens of ships at anchor outside the ports waiting for weeks before they can berth and offload their cargo.

While some of the reduction in the logjam of boats lazing off the West Coast can be attributed to better traffic management (having inbound vessels slow down and take slightly longer in transit), the knock-on effects have been widespread.

Going back to when the fee was initially rolled out on October 25, POLA [Port of LA] and POLB [Port of Long Beach] said that the ports have seen a cumulative 62% decline in the amount of aging cargo on their docks, a tally which has trended up going back to the initial announcement of this fee.

And the estimated number of vacant containers at LA alone has been cut from 90,000 down to around 72,000 as of mid-January.

The trend in container prices has confirmed the general outlines of this West Coast case. And all of this was predicted by one shipping insider interviewed by the Financial Times’ John Dizard all the way back…in October.

“Lars Jensen, a container specialist with Vespucci Maritime in Copenhagen, did very well during the pandemic. I caught him in Kenya just as he was disconnecting from the grid for a long anticipated safari. ‘I would agree with you that it’s over,’ he said.”

There remains a long way to go in more completely untangling this mess (and this is only part of it, a big part, sure, though far from the whole problem). To that end, one expert I spoke to today said to expect the dwell fee to be imposed in the near future. And if it does get activated, presume even more diligence on the part of domestic parties.

With shipping contributing so much to last year’s “inflation” (supply shock, not money) via inelasticity and the self-reinforcing cost(s) spiral, so many indications pointing to October as a possible apex in this harmful trend, could the slowly emerging downside thereby explain all of these:


After all, the higher oil prices kept going since December, the more you’d otherwise expect TIPS market inflation expectations to track closely with them. They’ve gone the other way.

There’s also more than a tiny hint of demand behind the thus far limited though clear improvement in the supply situation. It’s not just market-based inflation expectations which have correlated with the favorable macro trend in container prices, blank sails, and fewer empties; the flattening yield curve would also suggest the potential for softer demand to contribute its own to the probabilities for lower and transitory “inflation.”

All of which risks leaving Jay Powell out in the dark, cold night of a what he today worries is an overheating economy. Even the market reaction to last week’s payroll report nicely fits in with all these factors; the mess of labor market data will only encourage the FOMC’s rate hikes while at the same time many points in the real economy aren’t at all following along that interpretation. Including payrolls. 

The net result is flat and then flat some more. 

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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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