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Riksbank Hikes 100 bp but the Krone gets No Love

Overview: Yesterday’s late rally in US shares carried into the Asia Pacific session where all of the large markets advanced. However, the bears are not…

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Overview: Yesterday’s late rally in US shares carried into the Asia Pacific session where all of the large markets advanced. However, the bears are not abdicating and Europe’s Stoxx 600 is off for the sixth consecutive session and US futures are trading lower. The sell-off in the bond market continues. European benchmark yields are mostly 8-10 bp higher and the US 10-year Treasury yield is up nearly five basis points to approach 3.54%. The two-year continues to knock on 4%. The US dollar is firmer against all the major currencies. Despite Sweden’s 100 bp rate, the krona is among the weakest of the G10 currencies, losing ground against all but the Norwegian krone and New Zealand dollar. The central bank of South Korea has requested hourly reports from the foreign exchange traders. This seems to have deflected some selling pressure away from the won, while most other emerging market currencies are lower. Gold stalled near $1680 and near $1666 in Europe. December WTI is firm near $85. US natgas is trying to snap a three-day tumble, while Europe’s benchmark is doing the same but with greater conviction. It is up about 4.25% after falling more than 20% over the past three sessions. Iron ore fell for the fifth consecutive session and has fallen nearly 7% over this run. December copper is about 0.5% softer today after slipping marginally yesterday. December wheat has stabilized. It fell 3.4% yesterday.

Asia Pacific

Japan reported slightly higher than expected August inflation. The headline CPI rose to 3.0% from 2.6%, while the core rate, which excludes fresh food, increased to 2.8% from 2.4%. Both were 0.1% above the median forecast in Bloomberg's survey. Excluding fresh food and energy, Japan's inflation rose to 1.6% from 1.2%, also 0.1% above the median forecast. The Bank of Japan meets later this week. Today's data is unlikely to sway the BOJ to change its monetary policy. However, its challenge will intensify. It had forecast core inflation at 2.3% this year. This will have to be revised higher. Yet, the key to policy might not be this year's core but the next year and 2024. The BOJ projects a 1.4% core rate next year and 1.3% in 2024. The median forecast in Bloomberg's survey puts it at 1.6% and 0.5%, respectively.

As widely expected, China left its loan prime rate unchanged at 3.65% and 4.30% for the one-year and five-year, respectively. The President of the World Bank said that China's unwillingness more stimulus puts more pressure on the US. Malpass noted that in the past, China offered more counter-cyclical support, but acknowledged that while this may be good for the PRC, and in the long-term, it puts pressure on the US. While this sounds intuitive clear, it is anything but. The more the "pressure" is looked at the more elusive it becomes. The US is aggressively tightening monetary and fiscal policy. How do decisions in Beijing impact the thrust of US policy?  It does not. US policy, of course is set independently. If Malpass is referring to world growth, which the World Bank estimates at 0.5% next year (-0.4% on a per capita basis), then it is simply mathematical. The weaker growth in China means the US may account for a greater share of world growth. Ironically, the World Bank forecast that the US grows 2.5% this year and 2.4% next is wildly out of date. The IMF is at 2.3% and 1.0%, respectively. The Federal Reserve's median forecast will be revised later this week. In June, it was at 1.7% this year and next.

The dollar is trading at the upper end of the three-day range against the Japanese yen of roughly JPY142.65-JPY143.80. Session highs are being recorded in the European morning and the intraday momentum indicators are stretched. Yet the market may feel emboldened by the divergence of monetary policy that is on full display this week. A move above JPY143.80 would target the JPY145 area that has capped it on at least a couple attempts this month. The minutes from the Reserve Bank of Australia's meeting early this month underscored the message that rates are getting to levels that may encourage a slower pace of increase. It has boosted its cash target rate by 50 bp in each of the last four meetings. It meets again on October 4. The futures market is nearly evenly split between a quarter point and half-point move. The Aussie extended its two-day advance to almost $0.6750 and has been turned back. It found support a little below $0.6700. A break of $0.6690 could signal a retest on the base near $0.6670, but suspect a consolidative North American session is likely. The Chinese yuan consolidated its recent losses. The US dollar trading in a narrow range within yesterday's range, which was within the pre-weekend range (CNY6.9870-CNY7.0255). The PBOC set the dollar's reference rate at CNY6.9468. The medina in Bloomberg's survey was CNY6.9984.

Europe

The idea that the BOJ could simply raise rates and that would stop the yen from falling seems naive. Ask Sweden. The Riksbank delivered a 100 bp hike today to 1.75%. Most economists had expected a 75 bp move, while the swaps markets saw the risk of a larger move. The Riksbank sees the deposit rate at 2.5% a year from now. The krona initially rose but is weaker now against the dollar and euro. Swedish inflation reached 9% last month. The Riksbank cut next year's growth forecast to -0.7% from previously expecting growth to be of that magnitude.

The eurozone reported a nearly 20 bln euro current account deficit in July. It swamped the 15.6 bln euro surplus reported in the first half. Consider that in the first seven months of 2021, the EMU reported an average monthly current account surplus of about 30.6 bln euros. While goods trade balance has eroded, the service surplus has grown. The primary income account, which includes profits, dividends, coupon payments, royalties, licensing fees, and the like has swung into deficit, but also its deficit on its secondary income account (transfer payments) widened. We suggest that the deterioration of the eurozone's external balance is important, it is worth considering the secondary effects, such as beneficiaries of its export of surplus savings.

The euro rose to a five-day high near $1.0050 but was quickly sold back off to $1.0000 in early European turnover. There are large options struck there that expire tomorrow and Thursday (2.3 bln euros and 3.9 bln, respectively). Given that the euro has been straddling that level for several weeks, it is difficult to know or have a sense of what has been hedged or neutralized. Broad consolidation still seems to be the most likely near-term scenario. Sterling extended yesterday's recovery to $1.1460 today, stopping short of the pre-weekend high closer to $1.1480. So far, today is shaping up to be the third consecutive session that sterling has not traded above $1.15. Note that strike activity is set to resume with dock workers in Liverpool for two weeks, and next week Felixstowe dock workers also strike. More rail strikes are planned too.

America

The US reports some housing data before the conclusion of the FOMC meeting tomorrow. On tap today are August housing starts. They are getting a bad rap. Since the end of last year, US housing starts have alternated between gains and declines on a monthly basis. July was down, so August should be higher. The median in Bloomberg does in fact look for a small increase. In the first seven months of the year, they have averaged 1.65 mln (seasonally adjusted annual rate). During the first seven months of 2021, when rates were lower and the economy more vibrant, housing starts averaged 1.58 mln. In the Jan-July period in 2019, housing starts averaged 1.2 mln a month.

Canada report August CPI today. The broad pattern is expected to echo what we saw in the US. While the headline pace is slowly moderating the core rates ae proving sticky, that speaks to the breadth of the price pressures. Headline CPI is expected to have slowed for the second month, after peaking at 8.1% in June. The 7.3% projected by the median forecast in the Bloomberg survey would be the lowest since April. The Bank of Canada has three core measures (common, median, and trim). They are likely to have firmed to an average of 5.4% from 5.3%. The average was 3.4% at the end of last year. It stood at almost 3.8% in Q1 and 5.2% at the end of Q2. After lifting rates by 100 bp in July and 75 bp earlier this month, the Bank of Canada is expected to hike by 50 bp next month and 25 bp at the last meeting of the year. That would put the target rate at 4%. The swaps market has the terminal about 4.25%.

The potential bearish shooting star candlestick in the dollar-CAD exchange rate seen yesterday has gone for nought. Initial follow-through USD selling was quickly exhausted near CAD1.3225 and the reversal of US equities helped lift the greenback toward CAD1.33. Yesterday's new two-year high was set by CAD1.3345, meeting the 38.2% retracement of the US dollar's decline from the March 2020 pandemic peak (~CAD1.4670). That said, the intraday momentum indicator is stretched, but watch stocks for the cue. The US dollar posted its lowest settlement against the Mexican peso in five sessions yesterday, but here too follow-through has been minimal. The US dollar is bouncing off the MXN19.90 area. In the broader picture, the greenback has been in mostly confined to a MXN19.80-MXN20.20 range since mid-August. 


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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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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.

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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. 

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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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