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Rabo: “Public Opinion Seems To Be Shifting Behind The Striking Workers”

Rabo: "Public Opinion Seems To Be Shifting Behind The Striking Workers"

By Benjamin Picton, Senior Macro Strategist at Rabobank

The Beatings…

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Rabo: "Public Opinion Seems To Be Shifting Behind The Striking Workers"

By Benjamin Picton, Senior Macro Strategist at Rabobank

The Beatings Will Continue Until Morale Improves

Another day, another selloff for bonds and equities. Duration was unpopular again as the NASDAQ fell 1.57%, while the Dow Jones and Euro Stoxx were down 1.14% and 0.92% respectively. Brent crude was up 0.72%, 10-year Treasury yields were up a smidgen (but nothing like the 8-10 point moves that we have become accustomed to in recent days) and 10y bund yields rose 1bp. You can hardly blame traders for being a little bit gloomy yesterday as the flow of data wasn’t especially conducive to optimism. US new home sales were down 64,000 from July to August, and about 23,000 lower than expected by the Bloomberg survey. Prices, meanwhile, recorded a rise of 0.8% in July vs predictions of just 0.4%, which was the gain in June. So, higher prices and fewer buyers.

The Conference Board’s consumer survey was more of a mixed bag. The overall index slipped from 108.7 in August to 103 in September. That was worse than the 105.5 expected by surveyed analysts, but the ‘present situation’ actually rose to 147.1 and the prior reading was revised higher, too. The Richmond Fed manufacturing index was surprisingly strong at +5 (compared to -7 in August), but their gauge of business conditions slipped from +1 last month to -5 and the Dallas Fed’s services activity index tilted more negative to -8.6. So, good now, bad later?

The improvement in manufacturing aligns with the trend in the ISM surveys, which seems to show that the bottom is in and that the economy is gathering pace. Perhaps that shouldn’t come as a surprise given the largesse splashed around by the Biden Administration via the Inflation Reduction Act and the CHIPS Act, or the broader trend towards reshoring supply chains as ‘decoupling’ shrinks global trade volumes at the fastest pace since the early months of the pandemic.

The protectionist trend and generationally tight labor markets has presented an opportunity for organized labor to win back some ground from corporate interests. We are seeing this play out in the United Auto Workers strikes at the moment. Public opinion seems to be shifting behind the workers whose demands for wage increases of up to 40% maybe aren’t all that unreasonable given that the *best* paid amongst them only make about $66k a year (less than the average American household income), while the CEOs of Ford, GM and Stellantis are pulling in salaries of at least $21 million each. Lower paid auto workers’ annual wages are less than the cost of an entry-level Ford F150, one of America’s best-selling passenger vehicles. Henry Ford, who famously wanted his workers to be sufficiently well-paid to be able to buy his cars, must be rolling in his grave.

We’ve been banging this drum for a while now, but labor versus capital is back. That’s might cause some headaches for central bankers, because rising days lost to industrial action is a further supply-side constraint (on top of all the other supply-side constraints) and rising real wages in the absence of meaningful productivity gains means increased unit labour costs. All of that is inflationary. Don’t expect any help to come from politicians, either. Both Biden and Trump are courting organised labour in rustbelt states that will again be the key to victory in the Presidential election next year, and everyone but Mike Pence seems to understand at this point that Reaganism is out of vogue.

The Fed’s Neel Kashkari must have some sense of the risk, because he said overnight that he expects the Fed will raise rates once more this year and he puts a “40% probability on a scenario where the Fed will have to raise rates significantly higher to beat inflation”! Not to be outdone, JP Morgan’s Jamie Dimon yesterday speculated about a worst case world of a 7% Fed Funds rate (!!), while the ECB’s Robert Holzmann was more circumspect in suggesting that it was unclear whether ECB policy rates have peaked or not.

Meanwhile, the NY Fed’s measure of 10y Treasury term premia has turned positive for the first time since 2021 and, as our Global Strategist Michael Every has pointed out in recent days, it could have an awful lot further to rise if it is to approach anything like a long-run average. This comes at an interesting time because US student loan repayments are due to resume on October 1st for the first time since March of 2020, US credit card balances have now exceeded $1 trillion, credit card losses are rising at the fastest pace since the GFC and Bloomberg reports that most US households have now burned through all of their pandemic-era excess savings (and then some). This all sounds pretty bearish for the consumer economy, enough so that our own Senior US Strategist Philip Marey is forecasting a recession to begin in the USA in the final quarter of the year.

We haven’t mentioned energy prices yet, or the worried mutterings over Treasury basis trades, or what must be happening to hold-to-maturity bond portfolios. Nevertheless, it’s fair to say that the mood is wary and the recent trend is for market pricing to become more pessimistic by the day. Let’s hope the data can continue to surprise on the upside. But for now, it seems the beatings will continue until morale improves.

Tyler Durden Wed, 09/27/2023 - 10:45

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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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