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From the U.S. Fed’s own mouth

U.S. Federal Reserve Governor Dr Chris Waller spoke at the UBS Australasia conference here in Sydney recently on Monday 14 November 2022. The financial…



U.S. Federal Reserve Governor Dr Chris Waller spoke at the UBS Australasia conference here in Sydney recently on Monday 14 November 2022. The financial media reported Waller telling attendees “to take a deep breath” after a lower-than-expected inflation print, of 7.7 per cent, the week before, triggered a near-record daily share market move.

But what else did he say? Our very own Dominic Rose was there and reported on Waller’s comments, some of which should be taken at face value and others which clearly fall under the important headline of ‘jawboning’. Much of Waller’s observations about what’s happened, what the response should be and what might happen next, we have discussed and reported on here at the blog over the year. Nevertheless, it’s always helpful to hear it direct from a Fed Governor.

  • The better-than-expected CPI print was but one data point, and while it’s good to see some evidence of inflation easing, the U.S. Federal Reserve will need to see a trend of disinflation before taking its foot off rate hikes. Therefore, there is still some way to go.
  • Importantly, the Fed is less concerned with the pace of hikes and more concerned with where they want rates to end up. The good news of moderation in prices of goods and some services will need to continue.
  • Waller reminded attendees they thought inflation was easing in 2021, instead it exploded and the Fed was caught out. Waller said “a ways to go yet”.
  • The market response is something the Fed is also watching. Equity markets have moved up, and the US dollar down, and the issue for the Fed is that back in July market celebrations led to a loosening of financial conditions which was unhelpful.
  • Investors should remember there is a long way to go – rates will keep going up and stay high until inflation comes down from 7 per cent – it simply won’t happen overnight.
  • Before the pandemic central banks were unable to generate wage inflation – Waller noted how remarkable it is that in a short period of time wage inflation has hit a 40 year high.
  • One way to bring down wage inflation is raising rates to dampen demand – until the Fed sees evidence of it they won’t bring rates down.
  • Unemployment in the U.S. is 3.7 per cent and there are now two job openings for every person unemployed. It’s a very tight market. While Waller sees some softening it’s not enough. Meanwhile, the strong labour market provides some optimism for a soft landing. The Fed is simply not seeing the impacts of policy on the labour market they would have expected.
  • Why so resilient? Inflation is driven by supply and demand – excess savings, then reopening spending surges, and durable demand exploded. Production couldn’t reopen quickly enough causing COVID-related supply shocks. Add fiscal stimulus and loose monetary policy – which should have been tightened earlier, then the Ukraine war blew up energy markets, and here we are..
  • Waller thinks stimulus fades, excess savings fade, supply chain issues fade but he worries about inflation expectations being built in, so it’s critical to get inflation down now.
  • Current inflation expectations show people do expect inflation to come down, which is good. TIPS spreads (Treasury Inflation-Protected Securities) and break evens ­– where people are putting their money – show lower inflation expectations.
  • The big worry is if households and firms start building in 5-6 per cent in their expectations – that’s a big problem. Given the current inflation rate, interest rates are not that high – therefore not that tight. One year-out real rates are only one per cent.
  • Reflecting on Fed policy to date, Waller noted the 75 basis point hikes were needed. They got rates up fast and they have not crashed the economy, nor broken markets. Given rates have quickly arrived at a level acceptable to the Fed, the central bank can now start to think about a slower pace of hikes.
  • If real rates are not yet restrictive then they’re not breaking anything yet. After the first 75 basis point hike, the rest were expected. 400 basis points of hikes in seven months and the economy hasn’t broken.
  • Waller again noted he’d like to see labour market ease. This and the need to get inflation down require higher rates.
  • On the state of the housing market, Waller noted after COVID housing exploded and over two years prices rose 40-45 per cent. At seven per cent mortgage rates even a 15 per cent pullback would have house prices still 30 per cent higher than where they were.
  • Obviously, for those who purchased at the peak with very little deposit/money down there will be some trouble. Waller noted the Fed is starting to see some softening of rents but the housing market will be ok. Seven per cent mortgage rates won’t break the market, because household balance sheets are in good shape, and the labour market is still strong. Waller does not see a GFC-esque 2007-08 market crash.
  • The real rates of about one per cent a year reflect the fact markets are expecting inflation to come down.
  • After the last FOMC meeting there was an initial dovish reaction by investors to the change of pace message. Then Chairman Powell was hawkish at the conference. Jawboning. It is always going to be a challenge to signal a slowdown in the pace of hikes – slowing from 75 basis points to 50 basis points per hike. Investors are being asked to remember rates are still going up by 50 basis points. It’s not a softening in the Fed’s resolve, just moving at a slower pace. The Fed’s hawkishness comes not from the pace, but the level rates need to go to. Investors are being asked to pay attention to the endpoint – until inflation comes down to target the Fed will not be bringing rates down.
  • In terms of Quantitative Tapering (QT) – the Fed has announced the pace and is fulfilling expectations. Eight per cent of GDP in reserves is the number. As the Fed approaches 10 per cent of GDP in Reserves they will slow the pace of QT. They are keeping an eye on it and not looking to cause problems in financial markets. Here at Montgomery, back in August, we reported on the importance of watching the Fed’s balance sheet actions here.
  • Inflation is determining the Fed Funds Terminal Rate. And the Fed will keep doing what’s necessary to get inflation down.
  • The transmission impact on the economy from higher rates is slower in the US because a large number of borrowers have fixed-rate mortgages.
  • While the Fed cares about income equality they have but one blunt instrument – monetary policy. Price stability, max employment and financial stability is the mandate of Congress. So that is the focus.

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide…



Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide Black Lives Matter riots in the summer of 2020, some elite colleges and universities shredded testing requirements for admission. Several years later, the test-optional admission has yet to produce the promising results for racial and class-based equity that many woke academic institutions wished.

The failure of test-optional admission policies has forced Dartmouth College to reinstate standardized test scores for admission starting next year. This should never have been eliminated, as merit will always prevail. 

"Nearly four years later, having studied the role of testing in our admissions process as well as its value as a predictor of student success at Dartmouth, we are removing the extended pause and reactivating the standardized testing requirement for undergraduate admission, effective with the Class of 2029," Dartmouth wrote in a press release Monday morning. 

"For Dartmouth, the evidence supporting our reactivation of a required testing policy is clear. Our bottom line is simple: we believe a standardized testing requirement will improve—not detract from—our ability to bring the most promising and diverse students to our campus," the elite college said. 

Who would've thought eliminating standardized tests for admission because a fringe minority said they were instruments of racism and a biased system was ever a good idea? 

Also, it doesn't take a rocket scientist to figure this out. More from Dartmouth, who commissioned the research: 

They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds.

All the colleges and universities that quickly adopted test-optional admissions in 2020 experienced a surge in applications. Perhaps the push for test-optional was under the guise of woke equality but was nothing more than protecting the bottom line for these institutions. 

A glimpse of sanity returns to woke schools: Admit qualified kids. Next up is corporate America and all tiers of the US government. 

Tyler Durden Mon, 02/05/2024 - 17:20

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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…



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….



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. 

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