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Macro Dynamic Remains the Same but the Calendar gets Busy

Macro Dynamic Remains the Same but the Calendar gets Busy



The economic calendar and central bank meeting diaries are busier in the week ahead.  The highlights include three G7 central bank meetings (the Bank of Japan, the Bank Canada, and the European Central Bank), Chinese Q2 GDP, and the first look at US July survey data (Empire and Philadelphia Fed).  The US also reports June retail sales and industrial production figures.  The Fed's Beige Book may offer some anecdotal insight into economic activity where the virus has jumped and re-openings stalled or reversed.

The underlying macro backdrop is unchanged.  Concerns about the pandemic's growth and the possibility that the antibodies offer only a short-lived reprieve from vulnerability encourage a cautious attitude by businesses and investors.  On the other hand, officials in most major countries seem prepared to provide more assistance and for longer, which underpins the flow of savings into risk assets.  Moreover, the convergence of real and nominal interest rates,  the apparently lagging US response to the health crisis, add to the dollar bear case that has been simmering for some time.

Let's begin with the central bank meetings.  The Bank of Japan's two-day meeting ends on July 15, the same day as the Bank of Canada's.  Neither one seems to have a strong sense of urgency act. The markets have been stable.  Japanese stocks have underperformed over the past month, and it is interesting that the Topix, which is base for the ETFs the BOJ buys, has fallen by about 2.25% over the past month while the narrower Nikkei is virtually flat.  Over the same period, the MSCI Asia Pacific Index, excluding Japan was up nearly 6.5%.

Of interest, the Bank of Japan will provide updated economic forecasts and, reportedly, there is some debate whether to revert back to showing point after providing ranges in April, given the degree of uncertainty.  The BOJ estimated that the world's third-largest economy would contract by 3.0% to 5.0% in the fiscal year through next March.  Both consumption and exports remain weak, and that undermines the case for capex.  There appears to be little upside momentum as the quarter wound down. More fiscal support may be needed, but might not be delivered until after the fiscal half-year in October.

The new Bank of Canada Governor Macklem can be content too with the monetary settings.  Market rates are steady to lower over the past month.  Profit-taking in equities has been limited. The Canadian dollar is around 0.75% weaker against the US dollar since the last meeting and the only major currency not to have risen against the greenback.   Implied currency volatility (three-month) is a little less than 6%, and the 200-day moving averages a little above 6%.  Commodity prices, including oil, have continued to recover from the March-April plunge.  The CRB Index, for example, has retraced roughly half of that drop.  Domestically, the labor market is improving  (about a third more jobs--~963K--than were expected in June after a 290k increase in May), and underlying measures of inflation (Canada has three) are holding up considerably better than the headline, which was below zero in May (most recent data).

The ECB meets on July 16.  It can be pleased that the challenge presented by the German Constitutional Court ruling has been addressed and that the Bundesbank can continue to participate in Public Sector Purchase Program (PSPP).  That said, we wonder if the broader issue of judicial review has been addressed and suspect the principle underlying the German court ruling may be claimed as precedent in the future. There is scope for some technical tweaks, but buying sub-investment grade corporate bonds, like the Federal Reserve is willing to do, is unlikely to be one of them. The more than 1 trillion euro of loans at minus 100 bp also removes the immediate urgency to exclude more reserves from the minus 50 bp deposit rate. 

A key talking point that someone has succeeded in planting with the media centers around the issue of the ECB's flexibility to deviate from the capital key in its bond purchases under the Pandemic Emergency Purchase Program.  The capital key is the share of the ECB's capitalization, and it is based on the size of a member (GDP and population).  With flexibility around it, the capital key has generally conditioned the bond purchases by the Eurosystem.  This sometimes reduced the options officials faced trying to ensure that the transmission mechanism of monetary policy, which meant, influencing yield levels and spreads.

At the same time, the capital key allowed the ECB to stay within its mandate, according to the European Court of Justice, when it has been challenged.  The strict constructionists apparently want to rein in the ECB's discretion as soon as possible and ostensibly keep it on more solid legal footing.  ECB President Lagarde will likely be questioned about this issue at her press conference.  Yet,  it seems that it was someone in that camp that leaked the story, and experience suggests and realpolitik considerations point to someone who lost the issue that often takes their case to the press.  The winning camp has no reason or need.

Turning to the economic data on tap, there are two highlights.  China is the first major country to report Q2 GDP figures.  It is not so much the accuracy of Chinese data that is questioned, after all, the US revises its estimate several times over a couple of years before settling on the right number.  Being able to estimate the output of the world's second-largest economy two weeks after the quarter ends is a feat, and for the speed, some trade-off in terms of accuracy is not unreasonable.  Still, the problem is that China's data is thought, like nearly everything else, to be subservient to the desires of the leaders of the Communist Party.

Nevertheless, there is little doubt that the Chinese economy is, in fact, recovering from the 9.8% contraction in Q1.  The real question is over the pace.  Retail sales and industrial output were likely still contracting on a year-over-year basis in June. Exports and imports are also lower, but the median forecast calls for China's economy to have grown about 2.5% from a year ago in Q2.  That would follow a 6.8% contraction in Q1.  On the quarter-over-quarter basis, China is expected to report growth of around 9.6% after a 9.8% decline in output in Q1.  It seems a bit too good.

At the same time, the dramatic moves in the Chinese markets continue.  Stocks are on fire, seemingly encouraged by official media. The Shanghai Composite is up more than 13% here in July and up 11% for the year. The Shenzhen Composite has gained nearly 31% this year through last week.  While the US and European 10-year benchmark yields have moved lower by 20-25 bp over the past month, China's 10-year yield has risen by as much to push above the 3.0% threshold for the first time since January.  Over the past month, the Chinese yuan has been the second strongest emerging market currency, rising 0.8% against the dollar (the Colombian peso is up 1.4%).

The other economic data highlight comes from the US.  Several high-frequency reports, but because of the new surge in virus cases, and rising hospitalizations, the data, like arguably we saw with the response to the jobs report, maybe too dated to have much impact outside of headline risk.    The June retail sales are likely to show more modest but still substantial gains in retail sales than seen in May.  The median forecast in the Bloomberg survey calls for a 5.6% increase after May's 17.7% surge.  Industrial output likely picked up momentum after the 1.4% rise in May, which included a 2.8% increase in manufacturing output.  The survey showed a median forecast for a 4.4% rise in June, led by a 5.5% jump in manufacturing output.  Housing starts and permits are expected to have accelerated in June, and the market may be sensitive to the geographic breakdown that is provided.

There are few doubts that general price pressures in the US remain muted.  The headline CPI in May was 0.1%.  It is expected to rise to 0.6%.  Core CPI is likely still moving lower as the minor rises are not sufficient to counter the base effect.  The challenge may be with inflation expectations.  Both the University of Michigan's survey (July 17 preliminary) and the market-based breakevens (the difference between the inflation-linked and conventional security) have been steadily increasing.  The former is approaching levels that prevailed before the crisis, while the latter is at its highest levels since late February (~1.40% 10-year breakeven).

Yet, investors seem to be hungriest for data that captures the economic impact of the new growth of the virus.  The July Empire State and Philadelphia Fed manufacturing surveys, albeit narrowly focused, may draw more attention than usual.  They enjoy strong correlations with other survey data.

After hitting -78.2 in April, the Empire State survey has been getting less worse, rising to -48.5 in May and -.0.2 in June.   The Bloomberg survey shows a median forecast of 5.5 for July. It finished 2019 at 3.3 after averaging 4.8 for the entire year.  The Philly Fed had its surge in June, jumping to 27.5 from -43.1 in May.  The median projection shows a milder reading of 17.5 in July.  The devil will be in the details but note that it averaged below 6 in Q4 2019 and below 10 for all of 2019.  Owing to an appreciation that things on the ground could be changing faster than data can capture, for businesses and investors, the anecdotal nature of the Beige Book may be of special interest

At the very end of the week, event risk takes the shape of the EU summit that is supposed to resolve the dispute over the Recovery Fund (560 bln euros), and a separate debt issuance (190 bln euros) and, more broadly, the seven-year budget.  If it is a Hamiltonian Moment, as some have argued, it is not hotly contested.  The so-called Frugal Four do not object to the common bond. Their objection is how the proceeds should be distributed.  They are opposed to giving it away and are more inclined to make the lending conditional. The focus has turned to the Dutch, there will be several bilateral meetings with Prime Minister Rutte next week.  Rutte is insisting that the strategic interests of Europe are secured, and that requires more Europe, which means conditionality.  

At the same time, the defeat of the candidate that Germany, France, Italy, and Spain backed for Eurogroup President warns of the risk of a different challenge, and the budget decision requires unanimity. The potential, given short-term market positioning (see speculative positioning in the futures market and the skew in the options market), is for a larger sell-off on disappointment than a rally on news of an agreement. 


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

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



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

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

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

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

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


This popular vacation destination will soon have a nomad visa

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

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

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

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

'Not be given a residence card of residence certificate'

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

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

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

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