Now that Q2 earnings season is officially over, and liquidity is especially dismal with more than half of Wall Street pros on vacation, the annual plenary of the global central bank cognoscenti kicks off in Jackson Hole this week. As DB's Tim Wessel puts it, the main macro event of the deep dog days of summer – where this year’s theme is “Reassessing Constraints on the Economy and Policy” – will be kicked off by Jerome Powell’s remarks on Friday morning. Commenting on the week's main event, Bloomberg's Garfield Reynolds writes that equity investors may be more on edge than normal going into this year’s Jackson Hole gathering as there is plenty of anticipation Powell "will push back hard against the considerable loosening in financial conditions, a decent part of which has involved the strong rebound rallies in equities."
As Reynolds further notes, the dollar just had its biggest weekly gain since the pandemic and the risks look skewed toward the upside as "stocks globally have been moving inversely in line with the dollar, so if the greenback busts out to fresh record highs it’s likely equities would make fresh lows" and "shares are a lot further away from this cycle’s troughs than the dollar is from recent peaks."
That said, while the strength of the USD last week suggests that a J-Hole "Hawk-ano" is a popular market view, there are whispers that Powell will be more cognisant of the impact of USD strength on other economies and may therefore chose not to project an overly hawkish view.
While we wait for J-Pow's Friday comments, global production data will serve as suitable hors d’oeuvres throughout the week, while US PCE data on Friday will be a side dish commanding ample attention. Elsewhere, we receive the second estimate of 2Q US GDP; will the poor aftertaste of two consecutive quarterly retractions continue to overwhelm the otherwise supportive ingredients that comprise near-term growth?
Back to Jackson Hole, as the market looks for direction on the uncertain economic outlook and Fed reaction function, Chair Powell’s remarks are one of the key events that can jolt US policy expectations from their recent range, along with inflation and employment data preceding the September FOMC. Indeed, as DB notes, since the day of the July CPI print, 2yr Treasury yields are on net less than a basis point lower, while pricing of the September rate hike has oscillated in a narrow range that effectively has placed equal probabilities on a 50 or 75bp hike, as conviction around the terminal rate and intervening path of policy is low until the market can assess which way inflation (and the Fed) is breaking.
The Chair will likely strike an imposing tone against the inflationary scourge, all the more given his remarks last year noted the bout of inflationary pressure was likely to be a transitory phenomenon (important to keep in mind how much the policy outlook can evolve over a 12-month time frame, let alone when uncertainty is this high here). While the Fed has taken to emphasizing two-way risks around the tightening cycle, most visibly in the minutes at the July meeting, the easing of financial conditions since the July meeting may force the Chair to re-orient expectations away from the balance of risks back toward the primary objective of bringing inflation lower.
Elsewhere, tomorrow’s round of August PMI data will provide a snapshot as to how the Eurozone economy is has been holding up recently. Germany’s July manufacturing PMI reading registered a 2-year low, signalling the acuteness of the headwinds already being felt. The release of Germany’s IFO survey later in the week is also expected to reflect further deterioration in business sentiment. Despite this, the ECB is expected to retain a hawkish tone in the face of strong price pressures. Although ECB President Lagarde will not be travelling to Jackson Hole this week, several members of the Governing Council will reportedly be there. Their remarks are likely to set the tone for the ECB’s forthcoming September 8 policy meeting.
Executive Board member Schnabel will be the highest profile ECB speaker at the gathering, where focus is on calibrating the ECB’s next policy action. Before Schnabel, due on a panel Saturday, the ECB’s account of the July meeting’s 50bp hike will provide yet more detail into the super-sized kickoff to the ECB’s tightening cycle. Elsewhere in Europe, the looming energy crisis will remain top of mind. German Chancellor Scholz and Vice Chancellor Habeck are in Canada to try and plug the energy gap left by dwindling Russian gas supplies. Along with alternative imports, the government is still weighing whether to extend the life of heretofore condemned nuclear facilities if sufficient supplies cannot be secured.
There will also be a few interesting US data releases this week, which may color the tone that Powell takes this week. These include August US PMI, July new homes sales, durable goods orders, a Q2 GDP revision and some inflation data. The Bloomberg market consensus sees little scope for an alteration from the shockingly soft Q2 GDP plunge of -0.9% q/q saar. The Fed’s favored measure of inflation, the PCE deflator, is expected to show some moderation in price pressures. The market median stands at 6.4% y/y, down from a June figure of 6.8% y/y.
A notable event for the UK on Friday will be the announcement from Ofgem regarding how much average household energy bills are set to rise in October. In recent weeks, estimates have only been headed one way and are currently pointing to annual bills rising to around GBP3,600, with more increases to follow next year. Given the stark reality that energy bills will simply be unaffordable for some households this winter, Liz Truss, the favoured contender for the Tory party leadership, is now indicating that additional support could be at hand. Earlier this month she had announced that she did not believe in “giving out handouts”. On the back of the surge in the cost of living in the UK, workers at the port of Felixstowe, the biggest container facility in the country, have commenced an eight day walk out over pay. The impact is likely to enhance supply side issues for businesses around the country. Additionally, UK barristers are voting on proposals for an all-out strike next month as part of an ongoing dispute with government over pay and cuts to legal aid. Having broken below the GBP/USD1.20 level last week, cable is holding well clear of that level this morning.
Wednesday will mark 6 months of war between Russia and the Ukraine. The FT is reporting this morning that Moscow sees no possibility of a diplomatic solution to the end of the conflict, according to Russia’s permanent representative to the UN in Geneva. These comments are a blow to hopes that the recent agreement to allow grain exports from Ukraine’s Black Sea ports could have formed the basis for a broader solution.
Courtesy of DB, here is a day-by-day calendar of events:
Monday August 22
- Data: US July Chicago Fed national activity index
- Earnings: Zoom, Palo Alto Networks
Tuesday August 23
- Data: US, Germany, France, Eurozone, UK, Japan August PMIs, US August Richmond Fed manufacturing index, July new home sales, Japan July nationwide department store sales, Eurozone August consumer confidence
- Central Banks: ECB's Panetta speaks
- Earnings: XPeng, JD.com, Macy's, Intuit
Wednesday August 24
- Data: US July durable goods orders, capital goods orders, pending home sales
- Central Banks: Fed's Kashkari speaks
- Earnings: Royal Bank of Canada, Ping An, Salesforce, Snowflake, Autodesk
Thursday August 25
- Data: US 2Q second reading of GDP, core PCE, August Kansas City Fed Manufacturing Activity index, initial jobless claims, Japan July services PPI, Germany 2Q private consumption, government spending, capital investment, August Ifo survey, France August business and manufacturing confidence
- Central Banks: Jackson Hole Forum begins, BoJ's Nakamura speaks, ECB's account of July meeting
- Earnings: Fortum Oyj, Dollar Tree, Dollar General, Peloton, Affirm, Workday, Marvell Technology
Friday August 26
- Data: US July advance goods trade balance, wholesale inventories, personal income, personal spending, retail inventories, PCE deflator, final reading of August University of Michigan consumer survey, Japan August Tokyo CPI, Germany September GfK consumer confidence, France August consumer confidence, Eurozone July M3, Italy August consumer and manufacturing confidence, economic sentiment
- Central Banks: Fed Chair Powell speaks
Turning just to the US, Goldman writes that the key economic data releases this week are the durable goods report on Wednesday, the second Q2 GDP release on Thursday, and the core PCE inflation report on Friday. There are a few scheduled speaking engagements from Fed officials this week, including a speech by Fed Chair Jerome Powell on Friday at the Jackson Hole Economic Policy Symposium.
Monday, August 22
- There are no major economic data releases scheduled.
Tuesday, August 23
- 09:45 AM S&P Global US manufacturing PMI, August preliminary (consensus 51.9, last 52.2): S&P Global US services PMI, August preliminary (consensus 50.0, last 47.3)
- 10:00 AM Richmond Fed manufacturing index, August (consensus -5, last flat)
- 10:00 AM New home sales, July (GS -1.0%, consensus -2.5%, last -8.1%): We estimate that new home sales declined 1.0% in July, following an 8.1% decline in June.
- 07:00 PM Minneapolis Fed President Kashkari (FOMC non-voter) speaks: Minneapolis Fed President Neel Kashkari will take part in a Q&A session at the Wharton Minnesota Alumni Club. Audience Q&A is expected. In his last public appearance, on August 18th, President Kashkari emphasized that the FOMC needs to “get inflation down urgently,” and that this will require the Committee to “get demand down.” President Kashkari also noted that he “[doesn’t] know” whether the Fed “can bring inflation down without triggering a recession.”
Wednesday, August 24
- 08:30 AM Durable goods orders, July preliminary (GS +2.0%, consensus +0.8%, last +2.0%); Durable goods orders ex-transportation, July preliminary (GS +0.3%, consensus +0.1%, last +0.4%); Core capital goods orders, July preliminary (GS +0.4%, consensus +0.3%, last +0.7%); Core capital goods shipments, July preliminary (GS +0.6%, consensus +0.3%, last +0.7%): We estimate that durable goods orders rose 2.0% in the preliminary July report, reflecting strong commercial aircraft orders. We also expect a continued solid rise in shipments of core capital goods (+0.6%), but we assume a more moderate rise in new orders for that category (+0.4%) due to mixed foreign demand.
- 10:00 AM Pending home sales, July (GS -0.5%, consensus -2.5%, last -8.6%); We estimate pending home sales declined 0.5% in July, following an 8.6% decline in June.
Thursday, August 25
- 08:30 AM GDP, Q2 second release (GS -0.6%, consensus -0.9%, last -0.9%); Personal consumption, Q2 second release (GS +1.5%, consensus +1.5%, last +1.0%): We estimate a three-tenths upward revision to Q2 GDP growth to -0.6% (qoq ar), mainly reflecting the upward revisions in the July retail sales report. We also assume a boost from a post-Omicron rebound in recreation and travel categories, based on last Friday’s Quarterly Services Survey (QSS). However, we expect a downward revision to healthcare services consumption, reflecting the softer QSS details for that category.
- 08:30 AM Initial jobless claims, week ended August 20 (GS 247k, consensus 252k, last 250k); Continuing jobless claims, week ended August 13 (consensus 1,443k, last 1,437k): We estimate initial jobless claims declined to 247k in the week ended August 20.
- 11:00 AM Kansas City Fed manufacturing index, August (consensus NA, last 13)
Friday, August 26
- 08:30 AM Personal income, July (GS +0.6%, consensus +0.6%, last +0.6%); Personal spending, July (GS +0.6%, consensus +0.5%, last +1.1%); PCE price index, July (GS +0.05%, consensus +0.1%, last +0.95%); PCE price index (yoy), July (GS +6.39%, consensus +6.4%, last +6.76%); Core PCE price index, July (GS +0.22%, consensus +0.3%, last +0.59%); Core PCE price index (yoy), July (GS +4.69%, consensus +4.7%, last +4.79%): Based on details in the PPI, CPI, and import prices reports, we estimate that the core PCE price index rose by 0.22% month-over-month in July, corresponding to a 4.69% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.05% in July, corresponding to a +6.76% increase from a year earlier. We expect that personal income and personal spending both increased by 0.6%.
- 08:30 AM Advance goods trade balance, July (GS -$97.1bn, consensus -$98.3bn, last -$98.6bn): We estimate that the goods trade deficit decreased by $1.5bn to $97.1bn in July compared to the final June report, reflecting a decrease in imports.
- 08:30 AM Wholesale inventories, July preliminary (consensus +1.4%, last +1.8%)
- 10:00 AM University of Michigan consumer sentiment, August final (GS 56.0, consensus 55.3, last 55.1): University of Michigan 5-10 year inflation expectations, August final (GS 3.0%, consensus NA, last 3.0%): We expect the University of Michigan consumer sentiment index rose to 56.0 and that the 5-10 year inflation expectations measure remained unchanged at 3.0% in the final August reading.
- 10:00 AM Fed Chair Powell (FOMC voter) speaks: Federal Reserve Chair Jerome Powell will deliver a speech titled “The Economic Outlook” at the Kansas City Federal Reserve Bank’s annual Economic Symposium in Jackson Hole. The topic of the conference this year is “Reassessing Constraints on the Economy and Policy.” Text and media Q&A are expected. At the press conference following the July FOMC meeting, Chair Powell endorsed the message from the June dot plot—which is consistent with our forecast for an additional 100bp of rate hikes in 2022—as the “best guide” we currently have for the near-term policy path. Chair Powell also noted that 75bp hikes are “unusually large” and that “as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”
Source: DB, Goldman, BofA
EY Eyes Comeback for Biopharma M&A
EY noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021. The $88 billion accounted for most of the…
A recent trickle of mergers and acquisitions (M&A) announcements in the billion-dollar-and-up range suggests that biopharma may be ready to resume dealmaking this year—although the value and number of deals isn’t expected to return to the highs seen just before the pandemic.
2022 ended with a handful of 10- and 11-figure M&A deals, led by Amgen’s $27.8 billion buyout of Horizon Therapeutics, announced December 13. The dealmaking continued into January with three buyouts announced on the first day of the recent J.P. Morgan Healthcare Conference: AstraZeneca agreed to acquire CinCor Pharma for up to $1.8 billion, while Chiesi Farmaceutici agreed to shell out up to $1.48 billion cash for Amryt, and Ipsen Group said it will purchase Albireo Pharma for $952 million-plus.
EY—the professional services firm originally known as Ernst & Young—recently noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021 [See Chart]. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. That $135 billion figure is less than half the record-high $313 billion recorded in 2019, including $261 billion in 70 biopharma deals.
The number of biopharma deals fell 17% to 75 deals from 90. EY’s numbers include only deals greater than $100 million. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine.
“We expect this to be a more active year as the sentiment starts to normalize a little bit,” Subin Baral, EY Global Life Sciences Deals Leader, told GEN Edge.
Baral is not alone in foreseeing a comeback for biopharma M&A.
John Newman, PhD, an analyst with Canaccord Genuity, predicted last week in a research note that biopharma companies will pursue a growing number of smaller cash deals in the range of $1 billion to $10 billion this year. He said rising interest rates are discouraging companies from taking on larger blockbuster deals that require buyers to take on larger sums of debt.
“We look for narrowing credit spreads and lower interest rates to encourage larger M&A ($50 billion and more) deals. We do not anticipate many $50B+ deals that could move the XBI +5%,” Newman said. (XBI is the SPDR S&P Biotech Electronic Transfer Fund, one of several large ETFs whose fluctuations reflect investor enthusiasm for biopharma stock.)
Newman added: “We continue to expect a biotech swell in 2023 that may become an M&A wave if credit conditions improve.”
Foreseeing larger deals than Newman and Canaccord Genuity is PwC, which in a commentary this month predicted: “Biotech deals in the $5–15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle.”
Those capabilities include leadership within a specific therapeutic category, for which companies will have to buy and sell assets: “Prepared management teams that divest businesses that are subscale while doubling down on areas where leadership position and the right to win is tangible, may be positioned to deliver superior returns,” Glenn Hunzinger, PwC’s U.S. Pharma & Life Science Leader, and colleagues asserted.
The Right deals
Rising interest and narrowing credit partially explain the drop-off in deals during 2022, EY’s Baral said. Another reason was sellers adjusting to the drop in deal valuations that resulted from the decline of the markets which started late in 2021.
“It took a little bit longer to realize the reality of the market conditions on the seller side. But on the buyer side, the deals that they were looking at were not just simply a valuation issue. They were looking at the quality of the assets. And you can see that the quality deals—the right deals, as we call them—are still getting done,” Baral said.
The right deals, according to Baral, are those in which buyers have found takeover targets with a strong, credible management team, solid clinical data, and a clear therapeutic focus.
“Rare disease and oncology assets are still dominating the deal making, particularly oncology because your addressable market continues to grow,” Baral said. “Unfortunately, what that means is the patient population is growing too, so there’s this increased unmet need for that portfolio of assets.”
Several of 2022’s largest M&A deals fit into that “right” category, Baral said—including Amgen-Horizon, Pfizer’s $11.6-billion purchase of Biohaven Pharmaceuticals and the $6.7-billion purchase of Arena Pharmaceuticals (completed in March 2022); and Bristol-Myers Squibb’s $4.1-billion buyout of Turning Point Therapeutics.
“Quality companies are still getting funded one way or the other. So, while the valuation dropped, people were all expecting a flurry of deals because they are still companies with a shorter runway of cash that will be running to do deals. But that really didn’t happen from a buyer perspective,” Baral said. “The market moved a little bit from what was a seller’s market for a long time, to what we would like to think of as the pendulum swinging towards a buyers’ market.”
Most biopharma M&A deals, he said, will be “bolt-on” acquisitions in which a buyer aims to fill a gap in its clinical pipeline or portfolio of marketed drugs through purchases that account for less than 25% of a buyer’s market capitalization.
Baral noted that a growing number of biopharma buyers are acquiring companies with which they have partnered for several years on drug discovery and/or development collaborations. Pfizer acquired BioHaven six months after agreeing to pay the company up to $1.24 billion to commercialize rimegepant outside the U.S., where the migraine drug is marketed as Nurtec® ODT.
“There were already some kind of relationships there before these deals actually happened. But that also gives an indication that there are some insights to these targets ahead of time for these companies to feel increasingly comfortable, and pay the valuation that they’re paying for them,” Baral said.
$1.4 Trillion available
Baral sees several reasons for increased M&A activity in 2023. First, the 25 biopharma giants analyzed by EY had $1.427 trillion available as of November 30, 2022, for M&A in “firepower”—which EY defines as a company’s capacity to carry out M&A deals based on the strength of its balance sheet, specifically the amount of capital available for M&A deals from sources that include cash and equivalents, existing debt, and market cap.
That firepower is up 11% from 2021, and surpasses the previous record of $1.22 trillion in 2014, the first year that EY measured the available M&A capital of large biopharmas.
Unlike recent years, Baral said, biopharma giants are more likely to deploy that capital on M&A this year to close the “growth gap” expected to occur over the next five years as numerous blockbuster drugs lose patent exclusivity and face new competition from lower-cost generic drugs and biosimilars.
“There is not enough R&D in their pipeline to replenish a lot of their revenue. And this growth gap is coming between 2024 and 2026. So, they don’t have a long runway to watch and stay on the sidelines,” Baral said.
This explains buyers’ interest in replenishing pipelines with new and innovative treatments from smaller biopharmas, he continued. Many smaller biopharmas are open to being acquired because declining valuations and limited cash runways have increased investor pressure on them to exit via M&A. The decline of the capital markets has touched off dramatic slowdowns in two avenues through which biopharmas have gone public in recent years—initial public offerings (IPOs) and special purpose acquisition companies (SPACs).
EY recorded just 17 IPOs being priced in the U.S. and Europe, down 89% from 158 a year earlier. The largest IPO of 2022 was Prime Medicine’s initial offering, which raised $180.3 million in net proceeds for the developer of a “search and replace” gene editing platform.
Another 12 biopharmas agreed to SPAC mergers with blank-check companies, according to EY, with the largest announced transaction (yet to close at deadline) being the planned $899 million merger of cancer drug developer Apollomics with Maxpro Capital Acquisition.
“For the smaller players, the target biotech companies, their alternate source of access to capital pathways such as IPOs and SPACs is shutting down on them. So how would the biotech companies continue to fund themselves? Those with quality assets are still getting funded through venture capital or other forms of capital,” Baral said. “But in general, there is not a lot of appetite for the biotech that is taking that risk.
Figures from EY show a 37% year-to-year decline in the total value of U.S. and European VC deals, to $16.88 billion in 2022 from $26.62 billion in 2021. Late-stage financing rounds accounted for just 31% of last year’s VC deals, down from 34% in 2021 and 58% in 2012. The number of VC deals in the U.S. and Europe fell 18%, to 761 last year from 930 in 2021.
The decline in VC financing helps explain why many smaller biopharmas are operating with cash “runways” of less than 12 months. “Depending on the robustness of their data, their therapeutic area, and their management, there will be a natural attrition. Some of these companies will just have to wind down,” Baral added.
Baral also acknowledged some headwinds that are likely to dampen the pace of M&A activity. In addition to rising interest rates and inflation increasing the cost of capital, valuations remain high for the most sought-after drugs, platforms, and other assets—a result of growing and continuing innovation.
Another headwind is growing regulatory scrutiny of the largest deals. Illumina’s $8 billion purchase of cancer blood test developer Grail has faced more than two years of challenges from the U.S. Federal Trade Commission and especially the European Commission—while Congress acted last year to begin curbing the price of prescription drugs and insulin through the “Inflation Reduction Act.”
Those headwinds may prompt many companies to place greater strategic priority on collaborations and partnerships instead of M&A, Baral predicted, since they offer buyers early access to newer technologies before deciding whether to invest more capital through a merger or acquisition.
“Early-stage collaboration, early minority-stake investment becomes increasingly important, and it has been a cornerstone for early access to these technologies for the industry for a long, long time, and that is not changing any time soon,” Baral said. “On the other hand, even on the therapeutic area side, early-stage development is still expensive to do in-house for the large biopharma companies because of their cost structure.
“So, it is efficient cost-wise and speed-wise to buy these assets when they reach a certain point, which is probably at Phase II onward, and then you can pull the trigger on acquisitions if needed,” he added.congress pandemic genetic interest rates european europe
IMF Upgrades Global Growth Forecast As Inflation Cools
IMF Upgrades Global Growth Forecast As Inflation Cools
The International Monetary Fund published its latest World Economic Outlook on Monday,…
The International Monetary Fund published its latest World Economic Outlook on Monday, painting a slightly less gloomy picture than three and a half months ago, as inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis following Russia’s invasion of Ukraine has been less severe than initially feared.
However, the IMF predicts the slowdown to be less pronounced than previously anticipated.
Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024.
The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.
You will find more infographics at Statista
One of the reasons behind the cautiously optimistic outlook is the latest downward trend in inflation, which suggests that inflation may have peaked in 2022.
The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.
“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post released along with the report.
“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”
The risks to the latest outlook remain tilted to the downside, the IMF notes, as the war in Ukraine could further escalate, inflation continues to require tight monetary policies and China’s recovery from Covid-19 disruptions remains fragile. On the plus side, strong labor markets and solid wage growth could bolster consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for more monetary tightening.
In conclusion, Gourinchas calls for multilateral cooperation to counter “the forces of geoeconomic fragmentation”.
“This time around, the global economic outlook hasn’t worsened,” he writes. “That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”
However, just because the 'trend' has shifted doesn't mean it's mission accomplished...
That looks an awful lot like Central Bankers' nemesis remains - global stagflation curb stomps the dovish hopes.
Nike Escalates Design Battle Against Lululemon
The sportswear giant is accusing lululemon of patent infringement.
The sportswear giant is accusing lululemon of patent infringement.
The Gucci loafers. The Burberry (BBRYF) trench coat. When it comes to fashion, having a unique design is everything. This is why brands spend millions both creating and protecting their signature looks and the reason, as in the case of Adidas (ADDDF) , extricating a brand's design from creators who behave badly is a costly and difficult process.
There is also the constant effort to release new styles without infringing on another group's style. This week, sportswear giant Nike (NKE) - Get Free Report filed a lawsuit accusing lululemon (LULU) - Get Free Report of infringing on its patents in the shoe line that the Vancouver-based activewear company launched last spring.
After years of selling exclusively clothing, accessories and the odd yoga mat, lululemon expanded into the world of footwear with a running shoe it dubbed Blissfeel last March. These were soon followed by training shoe and pool slide styles known as Chargefeel, Strongfeel -- all three of the designs (including a Chargefeel Low and a Chargefeel Mid design) have been mentioned in the lawsuit as causing "economic harm and irreparable injury" to Nike.
Nike's History Of Suing Lululemon Over Design
The specific issue lies in the technology used to build the shoes. According to the lawsuit filed in Manhattan federal court, certain knitted elements, webbing and tubular structures are too similar to ones that had been used by Nike earlier.
Nike is keeping the amount it hopes to receive from lululemon under wraps but is insisting the company infringed on its patent when releasing a shoe line too similar to its own. Lululemon had previously talked about how its shoe line "far exceeded" its leaders' expectations both in terms of sales and ability to expand.
In a Q1 earnings call, chief executive Calvin McDonald said that the line "definitely had a lot more demand than we anticipated."
Nike has already tried to go after lululemon through the courts once before. In January 2022, it accused the company of infringing on six patents over its at-home Mirror Home Gym. As the world emerged out of the pandemic, lululemon has been billing it as a hybrid model between at-home and in-person classes.
The lawsuit was also filed in the U.S. District Court in Manhattan but ultimately fizzled out.
When it comes to the shoe line lawsuit, Lululemon has been telling media outlets that "Nike's claims are unjustified" and the company "look[s] forward to proving [their] case in court."
Some More Examples Of Prominent Design Battles
In the fashion industry, design infringement accusations are common and rarely lead to high-profile rulings. While Nike has gone after the technology itself in both cases, lawsuits more often focus on the style or pattern on a given piece.
Shein, a China-based fast-fashion company that took on longtime leaders like H&M (HNNMY) and Fast Retailing (FRCOF) 's Uniqlo with its bottom-of-the-barrel pricing, has faced numerous allegations from smaller and independent designers over the copying of designs -- in some cases not even from fashion designers but artists painting in local communities.
"They didn't remotely bother trying to change anything," U.K.-based artist Vanessa Bowman told the Guardian after seeing her painting of a local church appear on a sweater on Shein's website. "The things I paint are my garden and my little village: it’s my life. And they’ve just taken my world to China and whacked it on an acrylic jumper."china pandemic
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