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Futures Rally Fizzles After Micron’s Downbeat Outlook Saps Sentiment

Futures Rally Fizzles After Micron’s Downbeat Outlook Saps Sentiment

US stock futures reversed gains from earlier in the session and struggled…

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Futures Rally Fizzles After Micron's Downbeat Outlook Saps Sentiment

US stock futures reversed gains from earlier in the session and struggled to hold the momentum that propelled the S&P 500 to its best daily gain in three weeks, as investors assessed whether the world’s biggest economy can skirt worst-case recession scenarios. Contracts on the Nasdaq 100 and the S&P 500 were both 0.3% lower at 7:30 am ET, erasing earlier gains of 0.3%. Both indexes had bounced on Wednesday following better-than-expected earnings from FedEx and Nike as well as a pickup in consumer confidence, but the mood was dampened by memory chipmaker Micron, whose gloomy outlook knocked its shares in US premarket trading and weighed on other chip firms. European semiconductor shares also fell, erasing earlier gains on the Stoxx 600 gauge, though it remains set to break a two-week losing spell. The dollar index was flat while the US 10-year yield dropped to about 3.64%.

Among notable movers in premarket trading, ORIC Pharmaceuticals surged as much as 70% after the company entered into a clinical development collaboration for a potential Phase 2 study of ORIC-533 in multiple myeloma with Pfizer. Micron Technology shares fall 3%, after the chipmaker’s second-quarter revenue forecast was weaker than expected at the midpoint, stoking analyst concerns that demand is faltering and that the downcycle the company is seeing hasn’t yet reached a bottom. Bank stocks were also lower and on track to snap a two-day winning streak. In corporate news, executives at BlackRock discussed buying Carlyle Group earlier this year after the private equity giant pushed out its chief executive, the Financial Times reported. Here are some other notable premarket movers:

  • US-listed Chinese stocks are higher across the board in Thursday’s premarket trading after a report that China is planning to shorten the quarantine period for inbound overseas travelers in January. Alibaba +2.6%, Baidu +2.1%, JD.com +3%, Bilibili +3.9%, Nio +2%, Li Auto +3.2%
  • IsoPlexis climbs 64% after Berkeley Lights agreed to acquire it in an all-stock transaction valued at $57.8 million. Berkeley Lights shares dropped 6.7%
  • Lexicon Pharmaceuticals shares decline 8.4% on low volumes after the company said results of a Phase 2 proof-of-concept study of LX9211 in postherpetic neuralgia didn’t reach statistical significance on the primary endpoint
  • Keep an eye on Getty Images stock as it was rated a new outperform at Wedbush, which notes the firm’s record of strong execution “and a compelling and consistent profit profile.”

US stocks just days away from finishing a year nursing the worst losses since the GFC as an unexpectedly hawkish Federal Reserve and stubbornly high inflation fueled the biggest slump for the S&P 500 since the global financial crisis. Although inflation has started to ease, market strategists are cautious about a recovery next year amid fears of a possible recession and its impact on corporate earnings. So far a Santa rally which some had expected would emerge in the final trading days has been difficult to pin down: December 2022 has been one of the ugliest last months of the year in recent history, and the S&P 500’s large decline this month contrasts with an average 1.5% December gain since 1950, providing sidelined global investors with plenty of “dry powder” to put to work, according to SEB.

"The resilience of the US economy thus continues to impress, and the probability is turned up a mini step for a soft landing,” Stockholm-based analysts at the firm told clients. On the other hand, war, inflation, and monetary policy tightening are pressuring companies’ large order books and profitability, they added.

"Recession is now the base case and US equities aren’t priced for it,” said Skylar Montgomery Koning, senior global macro strategist at TS Lombard. In an interview with Bloomberg TV, she added that stocks weren’t likely to bottom before the onset of the recession or a pivot from the Fed. On other hand, “you may get a slowdown in growth but just because inflation stays high, that means earnings could still stay high,” she said.

Bank of America's iconic strategist Michael Hartnett recommended bonds in the first half of 2023 and said he’s more optimistic about equities in the second half after interest rates have peaked and corporate profits bottomed. Against that backdrop, he expects 60/40 portfolios to generate positive returns in 2023.

European stocks also reversed earlier gains and at last check, the Stoxx 600 traded down 0.2%. Autos, tech and consumer products are the worst performing sectors, while energy stocks are the best-performing sector as oil holds on to gains made over the last three days, with traders weighing the effects of lower US inventories and a weaker dollar against concerns over Chinese demand. Here are the biggest European movers:

Earlier in the session, equities in the Asia Pacific region rose, headed for their first gain in six sessions, as investors returned to Chinese stocks on positive policy signals, Japanese shares snapped a three-day losing streak while Hong Kong gained almost 3%. The MSCI Asia Pacific Index climbed as much as 1.3%, with benchmarks in Hong Kong jumping more than 2.7%. Investors cheered as Chinese officials urged the implementation of policies that will support the economy. “After much of the profit-taking is out of the way, and with a subsiding of fear over the surge in Covid cases at the initial stage of reopening, the Hong Kong and China market may do a bit better,” said Redmond Wong, a strategist at Saxo Capital Markets.

Japanese equities rebounded after falling for five days as improving consumer confidence in the US and strong earnings by some companies boosted investor sentiment.  The Topix Index rose 0.8% to 1,908.17 as of market close Tokyo time, while the Nikkei advanced 0.5% to 26,507.87. Toyota Motor Corp. contributed the most to the Topix Index gain, increasing 1.8%. Out of 2,163 stocks in the index, 1,650 rose and 402 fell, while 111 were unchanged. “The rise in Japanese stocks mirrors the US stocks rise from good earnings performances by some companies and the fact that it reflected the upswing in consumer confidence,” said Takeru Ogihara, chief strategist at Asset Management One. “However, the Bank of Japan’s policy revisions have not been fully digested in yet.”

India stocks fell, as minutes of the central bank’s latest policy meeting indicated more rate hikes. Other regional gauges were broadly higher, supported by a greater-than-expected increase in US consumer confidence.  Asian stocks had pulled back in recent sessions as the BOJ surprised with its decision Tuesday that may lead to higher borrowing costs, just as major cities in China struggle to cope with the spread of the coronavirus. The MSCI Asian gauge is down 18% this year, in line with the S&P 500 Index.

In FX, the yen resumed its rise while the dollar slipped against a group of currency peers, headed for a third month of losses. The Bloomberg Dollar Spot Index dropped 0.2% as the greenback was steady or weaker against all of its Group-of-10 peers. Risk- sensitive Scandinavian currencies and the Australian dollar were the best performers.  Incremental shifts in capital flows and interest rate was key for the greenback, Jefferies analyst Brad Bechtel noted, adding “the Fed is close to done hiking, which means that real rates in the US are done rising and will moderate a bit, taking pressure off of the dollar.”

  • The euro advanced, yet stayed within recent ranges against the greenback. Bunds and Italian bonds were little changed
  • The pound fell against both the dollar and the euro. Data showed the UK economy shrank more than expected last quarter while UK household incomes fell for a fourth straight quarter.
  • The yen strengthened on the back of a broadly weaker dollar
  • Australian dollar climbed as details of a meeting between Chinese agencies held to discuss support measures to counter the effects of Covid outbreaks spurred risk-on sentiment
  • Chinese authorities ramped up their calls to prioritize growth next year and help the property sector recover from its worst slump on record, in further signs the economy will be top of mind in 2023

In rates, yields on Treasuries and euro zone bonds slipped but concerns remain that Japanese investors could now be persuaded to bring home some of the trillions of dollars they have stashed in foreign stocks and bonds. That could further lift global borrowing costs and drag on already cooling economic growth. Treasuries were slightly richer across the curve with gains led by belly, extending 5s30s steepening move back toward Wednesday session highs. US 10-year yields around 3.64% and richer by 2bp on the day, outperforming bunds and gilts by 3bp in the sector; belly-led gains steepens 5s30s spread by 1.5bp on the day to -4bp, reached -0.55bp Wednesday. Gilts, bunds trade cheaper on the day, lagging gains in Treasuries. US session focus includes GDP and a 5-year TIPS auction at 1pm New York. Japan’s 10-year yield fell after the BOJ conducted an additional debt-purchase operation to halt this week’s selloff.

In commodities, West Texas Intermediate crude futures held above $78 a barrel, extending their gain into a fourth day, benefiting from a decline in US inventories and the consumer confidence uptick. Growth-sensitive copper prices also rose for the fourth straight day. Oil prices were poised to end an extraordinarily volatile year modestly higher.  Spot gold has been unable to benefit from the Dollar’s downside and remains towards the lower-end of tight $1813-1820/oz parameters while silver has slipped slightly to below the $24/oz mark. Despite the move in crude, base metals have been unable to benefit from the COVID update, with LME Copper modestly softer on the session.

Looking at the day ahead now, and data releases from the US include the third estimate of Q3 GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing index for December. Otherwise, we’ll also get decisions from a couple of G20 central banks, with those in Indonesia and Turkey deciding on rates.

Market Snapshot

  • S&P 500 futures up 0.1% to 3,909.75
  • STOXX Europe 600 up 0.3% to 432.64
  • MXAP up 1.2% to 157.28
  • MXAPJ up 1.4% to 510.18
  • Nikkei up 0.5% to 26,507.87
  • Topix up 0.8% to 1,908.17
  • Hang Seng Index up 2.7% to 19,679.22
  • Shanghai Composite down 0.5% to 3,054.43
  • Sensex down 0.3% to 60,860.99
  • Australia S&P/ASX 200 up 0.5% to 7,152.50
  • Kospi up 1.2% to 2,356.73
  • German 10Y yield little changed at 2.31%
  • Euro up 0.3% to $1.0636
  • Brent Futures up 1.1% to $83.11/bbl
  • Gold spot up 0.1% to $1,815.96
  • U.S. Dollar Index down 0.19% to 103.97

Top Overnight News from Bloomberg

  • ECB Vice President Luis de Guindos said interest-rate hikes like the half-point move seen at this month’s meeting may become the standard as officials maintain their fight with soaring inflation
  • Mild weather is expected to remain over most of Europe during the holidays, dimming the chances of a white Christmas but easing pressure on the region’s power grids
  • China plans to cut quarantine requirements for overseas travelers in January, according to people familiar with the matter, as the country dismantles the last vestiges of its Covid Zero policy
  • China is likely experiencing 1 million Covid infections and 5,000 virus deaths every day as it grapples with what is expected to be the biggest outbreak the world has ever seen, according to a new analysis
  • Traffic in China’s biggest cities has dropped to the lowest since the Lunar New Year break in the early part of the year as the country’s abrupt end to Covid Zero sparks outbreaks nationwide
  • Japan’s government expects price gains including fresh food to be 1.7% in the fiscal year 2023, unchanged from its mid- year estimate, according to Cabinet Office forecasts released Thursday
  • Kazakh financial firms have been buying Russian government debt at a steep discount from investors unable to exit the market because of sanctions and other restrictions imposed after the invasion of Ukraine, according to people familiar with the matter
  • Turkey’s central bank is poised to move past its cycle of interest-rate cuts at the final meeting of a year when inflation reached near a quarter-century high

A more detailed look at global markets courtesy of Newsquawk

Asian stocks traded with gains across the board following the positive lead from Wall Street. ASX 200 saw gains across almost all of its sectors aside from Material names and gold miners. Nikkei 225 eked gains as Real Estate names led the charge, but with gains capped as the JPY held onto most of its recent strength. Hang Seng and Shanghai Comp were firmer with the former opening with gains north of 2% as property names cheered reports via state media that China is to push the construction of major projects and equipment upgrades. The mainland meanwhile coattailed on the broader modest risk appetite seen after the US performance.

Top Asian News

  • China reports zero new COVID deaths in the mainland on Dec 21st vs zero a day earlier, according to Reuters.
  • China to cut quarantine for overseas travellers as of January, via Bloomberg.
  • PBoC injected CNY 4bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 153bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 155bln.
  • Japanese government raises FY23 GDP growth forecast to 1.5% (from 1.1% in July); maintains FY23 Overall CPI forecast at 1.7%; cuts FY22 GDP growth forecast to 1.7% (from 2.0% in July), according to Reuters.
  • Japanese PM Kishida said he wants Japanese industries to carry out investments of JPY 100tln as early as possible, according to Reuters.
  • Tokyo will raise COVID-19 medical alert to the highest level, according to NHK.

European bourses are under modest pressure, Euro Stoxx 50 -0.2%, in what has been a very contained session with benchmarks making limited ground either side of the unch. mark. Sectors, are similarly mixed/contained; though, Energy outperforms given benchmark pricing while Real Estate has once again succumbed to yield action. Stateside, futures are in-fitting with their European counterparts, ES -0.1%, with Micron -2.5% in the pre-market post-earnings. TikTok's latest proposal to the US government for a security deal includes an independent board to oversee its data security operations, according to Reuters sources.

Top European News

  • ECB's de Guindos says, "the steps we have taken so far are going to have an impact on inflation, but we still need to do more".
  • Zelenskiy Wins Applause, Aid in Half-Day Dash Through Washington
  • European Gas Falls Further Amid Mild Weather and Ample Supplies
  • Oil Steadies as Traders Weigh China Demand Against US Stockpiles
  • Europe’s Mild Christmas and New Year to Ease Power Grid Stress

FX

  • Aussie underpinned by base metals, but off best levels as broader risk sentiment wanes, AUD/USD peaks above 0.6750 and AUD/NZD near 1.0700
  • DXY still straddling 104.000, but within slightly lower range to the benefit of Euro, Yen and Franc; EUR/USD retests 1.0650, USD/JPY probes 132.00 and USD/CHF pivots 0.9250.
  • Pound lags to circa. 1.2100 after sub-consensus UK Q3 GDP data.
  • PBoC set USD/CNY mid-point at 6.9713 vs exp. 6.9702 (prev. 6.9650)

Commodities

  • WTI and Brent Feb’23 have managed to claw out incremental WTD peaks at USD 79.77/bbl and USD 83.66/bbl respectively, as the DXY continues to languish around and below 104.00, with the complex also benefitting from the limited macro updates re. COVID.
  • Governor of Canada has determined the significant adverse effects of the Sukunka coal mine cannot be mitigated, and therefore the coal mine project cannot proceed, via Reuters.
  • Brazil is to impose 14.88-14.93% countervailing duties on China's aluminium sheet products from March 31st 2023, according to the Chinese Commerce Ministry.
  • Spot gold has been unable to benefit from the Dollar’s downside and remains towards the lower-end of tight USD 1813-1820/oz parameters while silver has slipped slightly to below the USD 24/oz mark.
  • Despite the move in crude, base metals have been unable to benefit from the COVID update, with LME Copper modestly softer on the session.

Geopolitical

  • Russian State Nuclear Energy Corporation says discussions with the IAEA brought together views on the establishment of a buffer zone around Zaporizhzhia, according to Sky News Arabia.

US Event Calendar

  • 08:30: Dec. Initial Jobless Claims, est. 222,000, prior 211,000
    • Continuing Claims, est. 1.68m, prior 1.67m
  • 08:30: 3Q GDP Annualized QoQ, est. 2.9%, prior 2.9%
    • Personal Consumption, est. 1.7%, prior 1.7%
    • GDP Price Index, est. 4.3%, prior 4.3%
    • PCE Core QoQ, est. 4.6%, prior 4.6%
  • 10:00: Nov. Leading Index, est. -0.5%, prior -0.8%
  • 11:00: Dec. Kansas City Fed Manf. Activity, est. -6, prior -6

DB's Jim Reid concludes the overnight wrap with his last Early Morning Reid note of 2022

This is the last EMR of 2022. Many thanks for all the interactions and support this year. As I mentioned yesterday in CoTD, we were very pleased with the Global II poll results last week and couldn’t have done it without your votes. So thanks. Many thanks also for the hundreds and hundreds of emails yesterday after my Xmas miracle story. It was very touching. If you missed it you can recap it here. No-one has asked for it but in the last EMR of the year I always list my favourite TV series/box sets of the last 12 months. If you want to see that skip to the end. I don’t have much free time with work and the kids but my wife and I try to carve out an hour each evening when I’m not travelling to watch a series. It’s a form of bonding that ensures we don’t run out of conversation too early in our marriage. It’s a tactic that has worked so far nearly 10 years on. So see if you agree or disagree with the choices at the end. As a final offering that you didn’t ask for, you may remember that on a flight to New York in early November the Wi-Fi didn’t work. Given I had nothing downloaded to do, I started writing a Xmas song for my family on my iPad. I surprised them with it last weekend and have posted the video online. If you want something to put you off all Christmases for the rest of your life please see the link on my Bloomberg header or search “It’s Xmas time at the Reids” online. It probably won’t make next year’s poll of best Xmas songs but could Mariah Carey do macro strategy? Well maybe she could.

So one last time for 2023 and we end on a relative high note in what has been a tumultuous 2022 as for the first time in over a week, yesterday saw a very strong performance for financial markets as investors focused on more positive news from various economic data and earnings releases. That led to a major cross-asset rally, with gains across equities, bonds, credit and commodities, which marks something of a change from what we’ve been used to seeing across the rest of 2022. Indeed, the S&P 500 (+1.49%) put in its strongest performance so far this month.

To be frank, there hasn’t been a great deal of newsflow for markets as things wind down for the Christmas holidays, but there was a strong round of US consumer confidence data from the Conference Board’s latest release. The main headline was that confidence rose to an 8-month high of 108.3 in December (vs. 101.0 expected), adding to hopes that the US economy might be able to achieve a softer landing than many (including us) fear. That included gains in both the present situation and the expectations component, with the latter hitting an 11-month high of 82.4. And there were even promising signals on the labour market, with the proportion of consumers saying that jobs were “plentiful” moving up, whilst the share saying they were “hard to get” fell back.

Against that backdrop, equities put in a very strong performance on both sides of the Atlantic, with sizeable gains for all the major indices. Those were very broad-based, with every individual industry group in the S&P 500 rising on the day, as did 469 of the companies in the index. The largest gains were seen among megacap tech stocks, with the FANG+ index advancing +2.21% after a run of 5 consecutive declines. The stronger economic data in the US led to cyclicals outperforming with Energy (+1.89%) and Industrials (+1.85%) seeing large gains. And over in Europe, the STOXX 600 (+1.23%) put in its best performance in over a month.

Whilst equities made gains, sovereign bonds also managed to stabilise following the recent moves higher in yields, with those on 10yr Treasuries falling -2.0bps yesterday to 3.662%. They are another -1.5bps lower this morning in Asia. And in keeping with the pattern of recent days, yield curves continued to steepen, with the 2s10s up +2.0bps to -55.7bps, which is its steepest level in over a month. Meanwhile in Europe, the relentless sell-off in sovereign bonds over the last week also paused for breath yesterday. Yields on 10yr bunds did increase for a 6th successive day, but only by a small amount, just as those on OATs (+0.4bps) were almost unchanged and BTPs (-3.9bps) fell back. This follows the third worst week for European bonds this century as we showed in yesterday's CoTD.

Elsewhere, some of the most important headlines yesterday came on the geopolitical front, as Ukrainian President Zelensky visited US President Biden in Washington, which marks his first trip outside of Ukraine since Russia’s invasion began in February. President Biden’s administration announced $1.85bn of additional military funding for Ukraine, including the first transfer of the Patriot Air Defence system. According to the US State Department, the US has spent $20bn of security assistance to Ukraine. President Zelensky also addressed Congress last night, pressing for further aid and additional sanctions on Russia. Meanwhile in Russia, there were no signs that the government was looking for an exit path from the conflict, with President Putin saying that there were “no limitations” on military spending for Ukraine.

Asian equity markets are higher with the Hang Seng (+2.76%) leading gains helped by a boost in Chinese technology and property stocks as the China Securities Regulatory Commission (CSRC) yesterday pledged more support for the real estate industry as well as for the broader economy. Meanwhile, the Nikkei (+0.54%), the KOSPI (+0.75%), the CSI (+0.62%) and the Shanghai Composite (+0.24%) are also higher. DM Stock futures are indicating a positive start with contracts on the S&P 500 (+0.30%), the NASDAQ 100 (+0.34%) and the DAX (+0.24%) trading slightly higher.

Early morning data showed that producer prices in South Korea rose +6.3% y/y in November, the slowest growth since April 2021 and fifth consecutive month decline. This follows a +7.3% increase in October.

Elsewhere the Japanese yen stabilised yesterday, and saw a modest -0.55% decline against the US Dollar. That follows its +3.93% gain on Tuesday, which was the largest single-day gain since 1998. This morning it's back up +0.4%. 10yr JGBs are -7bps lower at 0.4% as BoJ buying dominates.

In terms of economic data yesterday, US existing home sales fell to an annualised rate of 4.09m in November (vs. 4.20m expected). That’s their 10th consecutive monthly decline, and with the exception of May 2020 at the height of the pandemic, it’s also their lowest level since 2010. Otherwise, we got the latest CPI data for November in Canada, which came in at +6.8% (vs. +6.7% expected). Furthermore, if you exclude food and energy, inflation actually ticked up to +5.4%, having been at +5.3% the previous month. Finally in the UK, public sector borrowing (ex banks) came in at £22.0bn in November (vs. £14.8bn expected), the highest monthly number for November since records began in 1993.

To the day ahead now, and data releases from the US include the third estimate of Q3 GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing index for December. Otherwise, we’ll also get decisions from a couple of G20 central banks, with those in Indonesia and Turkey deciding on rates.

Happy holidays and here are my favorite TV series of the year… see you on the other side…..

  1. The Offer – A dramatised account of the making of the Godfather. I am not a devote of the films but the events around the making of it were fascinating, funny, scary and gripping. Please watch even if you’ve never seen the films just to see life in the early 1970s and the unbelievable obstacles to making one of the biggest movies of all time.
  2. Winning Time – The Rise of the Lakers Dynasty – Like with “The Offer” I’m not a basketball fan but this was again funny, fascinating and utterly mesmerising. Series one ends in 1980 and not being a basketball fan I’ve only a vague idea of what happens next so no spoilers as series 2 eventually takes the story on.
  3. Better Call Saul - The best prequel ever? Very sad to see the Saul/Jimmy story now complete.
  4. The White Lotus II – Maybe one of the better sequels. Much better than the first series that I could have taken or left.
  5. The Newsreader – A fascinating walk back in time to a 1980 Aussie newsroom and all the issues and prejudices the world had back then. Compelling stories and characters.
  6. SAS Rogue Heroes – The (mostly) true story of the setting up of the SAS. Very well done and astonishing stories and people.
  7. Stranger Things – Basically a kids story but one done very well both dramatically and visually. The Kate Bush soundtracked scene that helped her score her first number 1 for nearly 40 years was incredibly powerful.
  8. House of the Dragon – There was always a worry about how good or relevant a Game of Thrones prequel would be but I was pleasantly surprised.
  9. Borgen – After a decade away it was fascinating to see how the former (fictional) Statsminister of Denmark was progressing.
  10. Black Bird – A rarity in so far as this is a one-off complete story so no need to worry about cliff-hanger endings and a year’s wait for the next instalment. True story about a prisoner tapped up by the FBI to befriend a suspected serial killer to make him elicit a confession.
  11. Ozark – The final series didn’t quite hit the heights of previous ones but was still very good.
  12. The Crown – My wife and I raged against some of the deliberate inaccuracies but it was a fascinating journey back in time to stories of our younger days and always very well shot.
  13. Cobra Kai – Very lightweight but always masses of fun and with a very good heart.
  14. Karen Pirie – A Scottish detective who looks a bit like my wife! Not sure who is more dogged and determined.
  15. The Bear – Utter chaos as a tortured star chef inherits and takes over a rundown Chicago sandwich shop. Mayhem ensues.

Honourable mentions. For all Mankind, Reacher, Bosch: Legacy, Only Murderer in the Building, Sherwood.

Tyler Durden Thu, 12/22/2022 - 08:03

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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…

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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…

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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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