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S&P Set To Open At New Record High; Tesla, Apple Trade Post-Split

S&P Set To Open At New Record High; Tesla, Apple Trade Post-Split

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S&P Set To Open At New Record High; Tesla, Apple Trade Post-Split Tyler Durden Mon, 08/31/2020 - 08:13

The melt-up continues: S&P futures rose on Monday for the eighth session in a row alongside European markets, despite fading some of their earlier gains after setting fresh all time highs on Friday amid investor confidence that central bank support will prop up risk for years, setting up the S&P 500 for its best August in over three decades.

The three main US indexes are set for their fifth straight monthly rise following this year’s March lows, with the S&P 500 looking at its biggest percentage rise in August since 1984, even as economic data pointed to an uneven recovery from the steep downturn. Among early movers, Aimmune Therapeutics more than doubled premarket after Swiss food group Nestle offered to pay $2 billion for full ownership of the peanut allergy treatment maker to expand its fast-growing health science business.

Apple gained 1.5% to $126.64...

while Tesla initially spiked to a new all time high, rising to $470 before reversing in a $22 billion swing, as both stocks became "less costly" after their pre-announced stock splits took effect.

Shares of the Cupertino company, which have rallied nearly 30% since it announced its surprise 4-for-1 stock split and blockbuster quarterly results on July 30, were priced at $126.56, up 1.4% when compared to Friday’s split-adjusted close, in pre-market trade. It will be Apple’s latest stock split since a 7-for-1 move in 2014 and its fifth since going public in 1980. Apple shares closed at $499.23 before the split on Friday, up 70% this year, a rally which helped the iPhone maker overtake Saudi Aramco as the world’s most valuable publicly listed company and become the first publicly listed U.S. company to breach $2 trillion in market capitalization.

Tesla followed suit earlier this month by announcing a 5-for-1 split to portion its richly valued stock into smaller chunks, which also takes effect on Monday. Tesla’s stock has surged more than five-fold this year, while shares of General Motors and Ford Motor declined on fallout from the COVID-19 pandemic. Shares of Tesla, up 61% since it announced what is its first stock split in mid-August, closed at $2,213.4 on Friday. They were priced up 2.33% at $453 when counted at their post-split value in pre-market on Monday.

The unprecedented surges driven entirely by stock split news have stunned market watchers because while in theory no new value was created, the fact that "more" retail daytraders can now purchase the stocks was seen as a catalyst to push them higher, even though online brokerages Robinhood, Charles Schwab Corp and Fidelity, along with several smaller shops, have begun offering slices of individual shares.

In Europe, the Stoxx Europe 600 Index rose 0.5% as of 10:30 a.m. in London, with automakers and energy shares advancing the most among sectors. Mining shares also outperformed along with utilities including Suez SA, which jumped after an approach by rival Veolia Environnement SA. The Stoxx Europe 600 Oil & Gas Index gained as much as 1.5% to lead gains among sectors as the price of Brent crude price climbed to the highest since early March with traders focusing on demand recovery. European energy gauge extends gain in Aug. to 5.7%, after retreating 5.4% in July. London markets are closed for a public holiday

Earlier in the session, Asian stocks fell, led by communications and IT, after rising in the last session. Japanese stocks outperformed peers in Asia, the Topix Index gaining 0.8%, bolstered by Berkshire Hathaway’s purchase of stakes in five major trading companies in one of billionaire Warren Buffett’s biggest investments in the nation. Aside for Japan, most markets in the region were down, with Jakarta Composite dropping 2% and India's S&P BSE Sensex Index falling 1.6%. Trading volume for MSCI Asia Pacific Index members was 22% above the monthly average for this time of the day. The Topix gained 0.8%, with Artra and Segue rising the most. The Shanghai Composite Index retreated 0.2%, with Zoy Home Furnishing and Tibet Tourism posting the biggest slides.

Chinese economic activity continued to rebound in August as the world’s second- largest economy emerges from the virus slump. The August Manufacturing PMI from the National Bureau of Statistics (NBS) signaled a continued recovery in overall activity. The NBS manufacturing PMI stayed solid at 51.0 in August (despite being 0.1pp lower than July). The NBS non-manufacturing PMI rose in August as the services PMI climbed to the highest level since early 2018. The construction PMI was modestly lower but remained strong in absolute terms.

  • China official NBS manufacturing PMI: 51.0 in August (GS forecast: 51.1, Bloomberg consensus: 51.2), vs. 51.1 in July.
  • Official non-manufacturing PMI: 55.2 in August, vs. 54.2 in July.

The Chinese PMI data gave investors some renewed comfort in the global economy’s reemergence from virus shutdowns. The eurozone on Tuesday publishes manufacturing and inflation data, followed by U.S. jobs numbers on Thursday and Friday. Inflation readingsfrom Spain, Italy and several German states are well below where the region’s central bank wants them to be.Still, with coronavirus infections in the U.S. ticking up again, India becoming the world’s epicenter for new cases, and the worldwide total surpassing 25 million, the pandemic is far from beaten.

"While momentum has slowed in light of rising cases, in the U.S. in July and in Europe in August, the economic recovery continues to unfold," Esty Dwek, head of global market strategy at Natixis Investment Managers Solutions, said in a note. "Central banks have already stated they would remain ultra-accommodative for a long time. Risk assets are likely to remain supported, even if the ride will probably be bumpy."

In FX, the Bloomberg dollar index edged up with U.S. equity futures while Treasuries steadied amid month-end positioning. The pound weakened versus the euro after a news report said U.K. Treasury officials are pushing for significant tax increases. The country’s stock and bond markets are closed for a public holiday. The yen gave back some of Friday’s gain, the biggest in five months, as Japan searched for a new prime minister following Abe's surprising resignation. The offshore yuan traded to its strongest level since July last year on greenback weakness and optimism for China’s economic recovery. The currency rose as much as 0.21% to 6.8443 a dollar. It is set to advance 2% in August, the biggest monthly gain since January 2019 and the best performer in Asia. The rally comes amid weakness in the greenback, with the Bloomberg Dollar Spot Index near its lowest in more than two years. Also helping sentiment is investor optimism over a trade deal with the U.S. and China’s recovery from the virus pandemic.

In rates, treasury futures were lower on anemic volume with U.K. on holiday, leaving yields cheaper by less than 2bp across the curve. Month-end flows may provide support, while no U.S. coupon auctions this week puts data in focus, especially ISM manufacturing Tuesday and August jobs report Friday. 10-year yields around 0.74%, cheaper by 1.6bp vs Friday’s close with 2s10s and 5s30s steeper by ~1bp; 5s30s at 124bp is within 5bp of its June 5 YTD high; stock futures remain higher, off best levels of the day. Long end may begin to find support from the approach of month-end index rebalancing that’s been inflated by growth in issuance, at 3pm ET.

In commodities, West Texas crude oil advanced above $43 a barrel, while Brent jumped 3% to $46.33, the highest price since the March crash. Silver rose, outperforming gold.

U.S. presidential campaigns are set to take center-stage in the coming weeks with market volatility expected to spike ahead of polling in November. At 1030am ET we get the Dallas Fed Mfg Activity (est. 0, prior -3), while Catalent and Zoom Video are reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.4% to 3,516.75
  • MXAP down 0.7% to 172.93
  • MXAPJ down 1.2% to 571.92
  • Nikkei up 1.1% to 23,139.76
  • Topix up 0.8% to 1,618.18
  • Hang Seng Index down 1% to 25,177.05
  • Shanghai Composite down 0.2% to 3,395.68
  • Sensex down 1.8% to 38,757.94
  • Australia S&P/ASX 200 down 0.2% to 6,060.46
  • Kospi down 1.2% to 2,326.17
  • STOXX Europe 600 up 0.6% to 371.09
  • German 10Y yield rose 1.5 bps to -0.394%
  • Euro down 0.1% to $1.1886
  • Italian 10Y yield rose 2.4 bps to 0.918%
  • Spanish 10Y yield rose 1.4 bps to 0.393%
  • Brent futures up 1.4% to $46.44/bbl
  • Gold spot down 0.3% to $1,958.42
  • U.S. Dollar Index little changed at 92.37

Top Overnight News

  • There isn’t any urgency for the Federal Reserve to offer more clarity on how long it will hold interest rates near zero at the moment because investors already understand the central bank won’t be tightening for a while, Minneapolis Fed President Neel Kashkari said
  • Figures from Italy’s statistics office, Istat, showed that the nation’s economy shrank 12.8% in the second quarter; household spending fell 11.3% in the second quarter, and exports dropped 26.4%
  • India is fast becoming the world’s new virus epicenter, setting a record for the biggest single-day rise in cases as experts predict that it’ll soon pass Brazil -- and ultimately the U.S. -- as the worst outbreak globally
  • Chinese economic activity continued to rebound in August, with a gauge of the services industry at the strongest level since early 2018 while the expansion in manufacturing activity slowed slightly

A quick look around global markets courtesy of NewsSquawk:

Asian equity markets were mostly higher amid tailwinds from last Friday’s gains on Wall St where the S&P 500 extended on record highs and is on course for its best August performance in more than 3 decades, helped by the recent big-tech surge and dovish undertones from last week’s Jackson Hole Symposium. ASX 200 (-0.2%) and Nikkei 225 (+1.1%) were both positive but with gains in Australia’s benchmark capped by mixed fortunes among the mining names and varied data releases, while sentiment in Tokyo was buoyed after stronger than expected Industrial Production which showed the largest M/M increase on record and on hopes of political continuity after reports that staunch Abe loyalist and current Chief Cabinet Secretary Suga is to run in the LDP elections to succeed PM Abe. Furthermore, the biggest gainers in Japan have been the largest general trading companies after Berkshire Hathaway acquired at least a 5% stake in the industry leaders including Itochu Corp. (8001 JT), Marubeni Corp. (8002 JT), Mitsui & Co. (8031 JT), Mitsubishi Corp. (8058 JT) and Sumitomo Corp. (8053 JT). Hang Seng (-1.0%) and Shanghai Comp. (-0.2%) also conformed to the upbeat tone despite mixed PMI data in which headline Manufacturing PMI missed expectations although remained in expansionary territory, while Non-Manufacturing PMI was the highest since January 2018 and Composite PMI also improved. There was a slew of earnings from China including the Big 4 banks which all showed weaker profits and China’s largest oil company Sinopec posted its first loss since 2003, although the weaker results failed to dent the risk appetite with the relevant companies all sitting on respectable gains, while concerns regarding the sale of TikTok after China tightened tech export rules were also brushed aside. Finally, 10yr JGBs were initially lacklustre and briefly slipped below 151.50 with demand for bonds subdued by the heightened risk appetite in Japan, although downside was later reversed amid the BoJ presence in the market for JPY 870bln of JGBs predominantly focused on 1yr-5yr maturities.

Top Asian News

  • China’s Economic Recovery Continues on Strong Services
  • Reliance Buys Future Assets for $3.4 Billion; Bonds Jump
  • Israel’s El Al Pilot Says UAE Flight to Pass Over Saudi Arabia
  • Credit Suisse Plans to Double China Headcount in Five Years

European stocks kick the week off on a firm footing (Euro Stoxx 50 +0.3%) but have drifted off of opening highs heading into month end, as the region coattails on the lead from Wall Street on Friday; while, initially at least, brushing off the overall downbeat APAC performance. Note, UK markets remain closed on account of Summer Bank Holiday. Sectors trade modestly higher across the board with a mild cyclical/value bias; utilities are the marked outperformer on the back of Suez (+18.8%) after Veolia (+3.4%) is offering to purchase ~30% of the group from Engie (+6.3%) for EUR 15.50/shr, amid speculation, since confirmed, that such a move would be a precursor to launching a takeover bid. Other notable movers include Sanofi (+0.3%), whose CEO noted that recent data has increased confidence in the success of the group’s two COVID-19 vaccine candidates. Nestle (+0.7%) is higher after stating it is to purchase Aimmune for USD 34.50/shr totaling USD 2.6bln, with the deal expected to close in Q4. On the other end of the spectrum, Natixis (-2.0%) is pressured as its H20 asset management arm is to temporarily suspend some of its funds, albeit this is not set to have a financial impact on Natixis.

Top European News

  • Wirecard Inquiry Zooms In on Why Germany Missed Fraud of Century
  • Philips Cuts Outlook After U.S. Slashes Ventilator Contract
  • Regulator Tells H2O to Freeze Funds on Valuation Uncertainty
  • Italy Plunged Into Recession by Investment, Consumer Slump

In FX, it remains to be seen whether the Dollar succumbs to remaining month end selling and the usual 4 pm scramble to complete portfolio rebalancing requirements, but for now the Buck is clawing back lost ground and declines against the Yen in particular after Japanese PM Abe confirmed his departure last Friday. In fact, the Greenback on a firmer footing vs most G10 counterparts and the DXY has bounced from a 92.142 low to 92.480 at best awaiting comments from Fed’s Clarida and Bostic alongside the Dallas Fed manufacturing business index for any further opinion on the new flexible average inflation targeting regime.

  • JPY - Not quite zero from hero, but the Yen has retreated further from post-Abe peaks amidst reports that staunch supporter and current Cabinet Secretary Suga is in the running to become new LDP leader. Usd/Jpy is now nudging through 105.90 and also taking on board remarks from another challenger to takeover as PM, as Ishiba contends that there is no need to radically change Abenomics or monetary easing, adding that a weaker Yen is not preferable in his view.
  • GBP - The next weak major link, and perhaps the Pound is taking note of Brexit news and media speculation suggesting that the UK is prepared to walk away from negotiations with the EU if Brussels does not back down on its demand for alignment with state aid rules. Cable is struggling to keep hold of 1.3300, albeit with volumes lighter than normal due to the August Bank Holiday.
  • AUD/NZD/EUR - Also unwinding recent gains/outperformance vs the US Dollar as the Aussie fades ahead of 0.7400 in wake of mixed data (Q2 business inventories fell 3 times more than forecast, but company profits rebounded from -7.5% to +15%) and pre-RBA, while the Kiwi has stalled around 0.6750 following deteriorations in ANZ business sentiment and the activity outlook. Elsewhere, the Euro is straddling the 1.1900 handle amidst benign German state, Spanish and Italian national CPI data, but also wary of hefty option expiry interest at the strike in 1.5 bn.
  • CAD/CHF - The Loonie is bucking the broad trend and holding 1.3100+ status against the backdrop of firm crude prices and awaiting Canadian data in the form of building permits and ppi, while the Franc is meandering between 0.9050-25 after an acceleration in Swiss retail sales and not really hindered by latest increases in bank sight deposits.
  • SCANDI/EM - The aforementioned buoyancy in oil and no change in daily FX purchases by the Norges Bank for September appear to be underpinning the Nok, while the Try has derived some support from Turkish GDP defying expectations for a steeper contraction and the Cnh via another firmer PBoC Cny midpoint fix rather than somewhat mixed official Chinese PMIs.

In commodities, WTI Oct and Brent Nov futures continue grinding higher in early European trade as the benchmarks remain supported by overall sentiment. An uptick in prices coincided with source reports that UAE's ADNOC are reportedly to cut October crude oil term supplies to Asia customers by 30% across all grades. In terms of Gulf of Mexico developments, BSEE estimates of shut in for Gulf of Mexico production at 69.76% vs. Prev. 82.13% following Hurricane Laura. Meanwhile, Goldman Sachs which anticipates Brent prices to reach USD 65/bbl by Q3 next year. WTI Oct has tested USD 43.50/bbl to the upside (vs. low USD 42.90/bbl), whilst Brent Nov is yet to convincingly breach USD 46.50/bbl after printing an overnight base at USD 45.80/bbl. Elsewhere, spot gold falls victim to the firming Dollar and trickles lower from overnight highs of USD 1976/oz closer towards USD 1950/oz. Spot silver conversely remains supported around the USD 27.75/oz area. In terms of base metals, Shanghai copper posted its fifth consecutive month of gains – with robust construction and infrastructure activities keeping the red metal buoyed.

US Event Calendar

  • 9am: Fed Vice Chair Clarida Speaks on Monetary Policy Framework
  • 10:30am: Dallas Fed Manf. Activity, est. 0, prior -3
  • 10:30am: Fed’s Bostic Gives remarks to Florida Philanthropic Network

 

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I created a ‘cosy game’ – and learned how they can change players’ lives

Cosy, personal games, as I discovered, can change the lives of the people who make them and those who play them.

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6 hours ago

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March 13, 2024

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Cosy games exploded in popularity during the pandemic. Takoyaki Tech/Shutterstock

The COVID pandemic transformed our lives in ways many of us are still experiencing, four years later. One of these changes was the significant uptake in gaming as a hobby, chief among them being “cosy games” like Animal Crossing: New Horizons (2020).

Players sought comfort in these wholesome virtual worlds, many of which allowed them to socialise from the safety of their homes. Cosy games, with their comforting atmospheres, absence of winning or losing, simple gameplay, and often heartwarming storylines provided a perfect entry point for a new hobby. They also offered predictability and certainty at a time when there wasn’t much to go around.

Cosy games are often made by small, independent developers. “Indie games” have long been evangelised as the purest form of game development – something anyone can do, given enough perseverance. This means they can provide an entry point for creators who hadn’t made games before, but were nevertheless interested in it, enabling a new array of diverse voices and stories to be heard.

In May 2020, near the start of the pandemic, the small poetry game A Solitary Spacecraft, which was about its developer’s experience of their first few months in lockdown, was lauded as particularly poignant. Such games showcase a potential angle for effective cosy game development: a personal one.

Personal themes are often explored through cosy games. For instance, Chicory and Venba (both released in 2023) tackle difficult topics like depression and immigration, despite their gorgeous aesthetics. This showcases the diversity of experiences on display within the medium.

However, as the world emerges from the pandemic’s shadow, the games industry is facing significant challenges. Economic downturns and acquisitions have caused large layoffs across the sector.

Historically, restructurings like these, or discontent with working conditions, have led talented laid-off developers to create their own companies and explore indie development. In the wake of the pandemic and the cosy game boom, these developers may have more personal stories to tell.

Making my own cosy game

I developed my own cosy and personal game during the pandemic and quickly discovered that creating these games in a post-lockdown landscape is no mean feat.

What We Take With Us (2023) merges reality and gameplay across various digital formats: a website, a Discord server that housed an online alternate reality game and a physical escape room. I created the game during the pandemic as a way to reflect on my journey through it, told through the videos of game character Ana Kirlitz.

The trailer for my game, What We Take With Us.

Players would follow in Ana’s footsteps by completing a series of ten tasks in their real-world space, all centred on improving wellbeing – something I and many others desperately needed during the pandemic.

But creating What We Take With Us was far from straightforward. There were pandemic hurdles like creating a physical space for an escape room amid social distancing guidelines. And, of course, the emotional difficulties of wrestling with my pandemic journey through the game’s narrative.

The release fared poorly, and the game only garnered a small player base – a problem emblematic of the modern games industry.

These struggles were starkly contrasted by the feedback I received from players who played the game, however.

This is a crucial lesson for indie developers: the creator’s journey and the player’s experience are often worlds apart. Cosy, personal games, as I discovered, can change the lives of those who play them, no matter how few they reach. They can fundamentally change the way we think about games, allow us to reconnect with old friends, or even inspire us to change careers – all real player stories.

Lessons in cosy game development

I learned so much about how cosy game development can be made more sustainable for creators navigating the precarious post-lockdown landscape. This is my advice for other creators.

First, collaboration is key. Even though many cosy or personal games (like Stardew Valley) are made by solo creators, having a team can help share the often emotional load. Making games can be taxing, so practising self-care and establishing team-wide support protocols is crucial. Share your successes and failures with other developers and players. Fostering a supportive community is key to success in the indie game landscape.

Second, remember that your game, however personal, is a product – not a reflection of you or your team. Making this distinction will help you manage expectations and cope with feedback.

Third, while deeply considering your audience may seem antithetical to personal projects, your game will ultimately be played by others. Understanding them will help you make better games.

The pandemic reignited the interest in cosy games, but subsequent industry-wide troubles may change games, and the way we make them, forever. Understanding how we make game creation more sustainable in a post-lockdown, post-layoff world is critical for developers and players alike.

For developers, it’s a reminder that their stories, no matter how harrowing, can still meaningfully connect with people. For players, it’s an invitation to embrace the potential for games to tell such stories, fostering empathy and understanding in a world that greatly needs it.

Looking for something good? Cut through the noise with a carefully curated selection of the latest releases, live events and exhibitions, straight to your inbox every fortnight, on Fridays. Sign up here.

Adam Jerrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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KIMM finds solution to medical waste problem, which has become a major national issue

A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed…

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9 hours ago

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March 13, 2024

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A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.

Credit: Korea Institute of Machinery and Materials (KIMM)

A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.

The Korea Institute of Machinery and Materials (President Seog-Hyeon Ryu, hereinafter referred to as KIMM), an institute under the jurisdiction of the Ministry of Science and ICT, has succeeded in developing an on-site-disposal type medical waste sterilization system that can help to resolve the problem caused by medical waste, which has become a national and social issue as the volume of medical waste continues to increase every year. This project was launched as a basic business support program of the KIMM and was expanded into a demonstration project of Daejeon Metropolitan City. Then, in collaboration with VITALS Co., Ltd., a technology transfer corporation, the medical waste treatment system was developed as a finished product capable of processing more than 100 kilograms of medical waste per hour, and was demonstrated at the Chungnam National University Hospital.

Moreover, the installation and use of this product have been approved by the Geumgang Basin Environmental Office of the Ministry of Environment. All certification-related work for the installation and operation of this product at the Chungnam National University Hospital has been completed, including the passage of an installation test for efficiency and stability conducted by the Korea Testing Laboratory.

Through collaboration with VITALS Co., Ltd., a corporation specializing in inhalation toxicity systems, the research team led by Principal Researcher Bangwoo Han of the Department of Urban Environment Research of the KIMM’s Eco-Friendly Energy Research Division developed a high-temperature, high-pressure steam sterilization-type medical waste treatment system by using a high-temperature antimicrobial technology capable of processing biologically hazardous substances such as virus and bacteria with high efficiency. After pulverizing medical waste into small pieces so that high-temperature steam can penetrate deep into the interior of the medical waste, steam was then compressed in order to raise the boiling point of the saturated steam to over 100 degrees Celsius, thereby further improving the sterilization effect of the steam.

Meanwhile, in the case of the high-pressure steam sterilization method, it is vitally important to allow the airtight, high-temperature and high-pressure steam to penetrate deep into the medical waste. Therefore, the research team aimed to improve the sterilization effect of medical waste by increasing the contact efficiency between the pulverized medical waste and the aerosolized steam.

By using this technology, the research team succeeded in processing medical waste at a temperature of 138 degrees Celsius for 10 minutes or at 145 degrees Celsius for more than five (5) minutes, which is the world’s highest level. By doing so, the research team achieved a sterilization performance of 99.9999 percent targeting biological indicator bacteria at five (5) different locations within the sterilization chamber. This technology received certification as an NET (New Excellent Technology) in 2023.

Until now, medical waste has been sterilized by heating the exposed moisture using microwaves. However, this method requires caution because workers are likely to be exposed to electromagnetic waves and the entrance of foreign substances such as metals may lead to accidents.

In Korea, medical waste is mostly processed at exclusive medical waste incinerators and must be discharged in strict isolation from general waste. Hence, professional efforts are required to prevent the risk of infection during the transportation and incineration of medical waste, which requires a loss of cost and manpower.

If medical waste is processed directly at hospitals and converted into general waste by applying the newly developed technology, this can help to eliminate the risk of infection during the loading and transportation processes and significantly reduce waste disposal costs. By processing 30 percent of medical waste generated annually, hospitals can save costs worth KRW 71.8 billion. Moreover, it can significantly contribute to the ESG (environmental, social, and governance) management of hospitals by reducing the amount of incinerated waste and shortening the transportation distance of medical waste.

[*Allbaro System (statistical data from 2021): Unit cost of treatment for each type of waste for the calculation of performance guarantee insurance money for abandoned wastes (Ministry of Environment Public Notification No. 2021-259, amended on December 3, 2021). Amount of medical waste generated on an annual basis: 217,915 tons; Medical waste: KRW 1,397 per ton; General waste from business sites subject to incineration: KRW 299 per ton]

As the size and structure of the installation space varies for each hospital, installing a standardized commercial equipment can be a challenge. However, during the demonstration process at the Chungnam National University Hospital, the new system was developed in a way that allows the size and arrangement thereof to be easily adjusted depending on the installation site. Therefore, it can be highly advantageous in terms of on-site applicability.

Principal Researcher Bangwoo Han of the KIMM was quoted as saying, “The high-temperature, high-pressure steam sterilization technology for medical waste involves the eradication of almost all infectious bacteria in a completely sealed environment. Therefore, close cooperation with participating companies that have the capacity to develop airtight chamber technology is very important in materializing this technology.” He added, “We will make all-out efforts to expand this technology to the sterilization treatment of infected animal carcasses in the future.”

 

President Seog-Hyeon Ryu of the KIMM was quoted as saying, “The latest research outcome is significantly meaningful in that it shows the important role played by government-contributed research institutes in resolving national challenges. The latest technology, which has been developed through the KIMM’s business support program, has been expanded to a demonstration project through cooperation among the industry, academia, research institutes, and the government of Daejeon Metropolitan City.” President Ryu added, “We will continue to proactively support these regional projects and strive to develop technologies that contribute to the health and safety of the public.”

 

Meanwhile, this research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”

###

The Korea Institute of Machinery and Materials (KIMM) is a non-profit government-funded research institute under the Ministry of Science and ICT. Since its foundation in 1976, KIMM is contributing to economic growth of the nation by performing R&D on key technologies in machinery and materials, conducting reliability test evaluation, and commercializing the developed products and technologies.

 

This research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”

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IFM’s Hat Trick and Reflections On Option-To-Buy M&A

Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to…

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11 hours ago

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March 13, 2024

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Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to acquire IFM Due as part of an “option to buy” collaboration around cGAS-STING antagonists for autoimmune disease.

This secures for IFM what is a rarity for a single biotech company: a liquidity hat trick, as this milestone represents the third successful exit of an IFM Therapeutics subsidiary since its inception in 2015.

Back in 2017, BMS purchased IFM’s  NLRP3 and STING agonists for cancer.  In early 2019, Novartis acquired IFM Tre for NLRP3 antagonists for autoimmune disease, which are now being studied in multiple Phase 2 studies. Then, later in 2019, Novartis secured the right to acquire IFM Due after their lead program entered clinical development. Since inception, across the three exits, IFM has secured over $700M in upfront cash payments and north of $3B in biobucks.

Kudos to the team, led by CEO Martin Seidel since 2019, for their impressive and continued R&D and BD success.

Option-to-Acquire Deals

These days option-based M&A deals aren’t in vogue: in large part because capital generally remains abundant despite the contraction, and there’s still a focus on “going big” for most startup companies.  That said, lean capital efficiency around asset-centric product development with a partner can still drive great returns. In different settings or stages of the market cycle, different deal configurations can make sense.

During the pandemic boom, when the world was awash in capital chasing deals, “going long” as independent company was an easy choice for most teams. But in tighter markets, taking painful levels of equity dilution may be less compelling than securing a lucrative option-based M&A deal.

For historical context, these option-based M&A deals were largely borne out of necessity in far more challenging capital markets (2010-2012) on the venture front, when both the paucity of private financing and the tepid exit environment for early stage deals posed real risks to biotech investment theses. Pharma was willing to engage on early clinical or even preclinical assets with these risk-sharing structures as a way to secure optionality for their emerging pipelines.

As a comparison, in 2012, total venture capital funding into biotech was less than quarter of what it is now, even post bubble contraction, and back then we had witnessed only a couple dozen IPOs in the prior 3 years combined. And most of those IPOs were later stage assets in 2010-2012.  Times were tough for biotech venture capital.  Option-based deals and capital efficient business models were part of ecosystem’s need for experimentation and external R&D innovation.

Many flavors of these option-based deals continued to get done for the rest of the decade, and indeed some are still getting done, albeit at a much less frequent cadence.  Today, the availability of capital on the supply side, and the reduced appetite for preclinical or early stage acquisitions on the demand side, have limited the role of these option to buy transactions in the current ecosystem.

But if the circumstances are right, these deals can still make some sense: a constructive combination of corporate strategy, funding needs, risk mitigation, and collaborative expertise must come together. In fact, Arkuda Therapeutics, one of our neuroscience companies, just announced a new option deal with Janssen.

Stepping back, it’ s worth asking what has been the industry’s success rate with these “option to buy” deals.

Positive anecdotes of acquisition options being exercised over the past few years are easy to find. We’ve seen Takeda exercise its right to acquire Maverick for T-cell engagers and GammaDelta for its cellular immunotherapy, among other deals. AbbVie recently did the same with Mitokinin for a Parkinson’s drug. On the negative side, in a high profile story last month, Gilead bailed on purchasing Tizona after securing that expensive $300M option a few years ago.

But these are indeed just a few anecdotes; what about data since these deal structures emerged circa 2010? Unfortunately, as these are mostly private deals with undisclosed terms, often small enough to be less material to the large Pharma buyer, there’s really no great source of comprehensive data on the subject. But a reasonable guess is that the proportion of these deals where the acquisition right is exercised is likely 30%.

This estimate comes from triangulating from a few sources. A quick and dirty dataset from DealForma, courtesy of Tim Opler at Stifel, suggests 30% or so for deals 2010-2020.  Talking to lawyers from Goodwin and Cooley, they also suggest ballpark of 30-50% in their experience.  The shareholder representatives at SRS Acquiom (who manage post-M&A milestones and escrows) also shared with me that about 33%+ of the option deals they tracked had converted positively to an acquisition.  As you might expect, this number is not that different than milestone payouts after an outright acquisition, or future payments in licensing deals. R&D failure rates and aggregate PoS will frequently dictate that within a few years, only a third of programs will remain alive and well.

Atlas’ experience with Option-based M&A deals

Looking back, we’ve done nearly a dozen of these option-to-buy deals since 2010. These took many flavors, from strategic venture co-creation where the option was granted at inception (e.g., built-to-buy deals like Arteaus and Annovation) to other deals where the option was sold as part of BD transaction for a maturing company (e.g., Lysosomal Therapeutics for GBA-PD).

Our hit rate with the initial option holder has been about 40%; these are cases where the initial Pharma that bought the option moves ahead and exercises that right to purchase the company. Most of these initial deals were done around pre- or peri-clinical stage assets.  But equally interesting, if not more so, is that in situations where the option expired without being exercised, but the asset continued forward into development, all of these were subsequently acquired by other Pharma buyers – and all eight of these investments generated positive returns for Atlas funds. For example, Rodin and Ataxion had option deals with Biogen (here, here) that weren’t exercised, and went on to be acquired by Alkermes and Novartis (here, here). And Nimbus Lakshmi for TYK2 was originally an option deal with Celgene, and went on to be purchased by Takeda.

For the two that weren’t acquired via the option or later, science was the driving factor. Spero was originally an LLC holding company model, and Roche had a right to purchase a subsidiary with a quorum-sensing antibacterial program (MvfR).  And Quartet had a non-opioid pain program where Merck had acquired an option.  Both of these latter programs were terminated for failing to advance in R&D.

Option deals are often criticized for “capping the upside” or creating “captive companies” – and there’s certainly some truth to that. These deals are structured, typically with pre-specified return curves, so there is a dollar value that one is locked into and the presence of the option right typically precludes a frothy IPO scenario. But in aggregate across milestones and royalties, these deals can still secure significant “Top 1%” venture upside though if negotiated properly and when the asset reaches the market: for example, based only on public disclosures, Arteaus generated north of $300M in payments across the upfront, milestones, and royalties, after spending less than $18M in equity capital. The key is to make sure the right-side of the return tail are included in the deal configuration – so if the drug progresses to the market, everyone wins.

Importantly, once in place, these deals largely protect both the founders and early stage investors from further equity dilution. While management teams that are getting reloaded with new stock with every financing may be indifferent to dilution, existing shareholders (founders and investors alike) often aren’t – so they may find these deals, when negotiated favorably, to be attractive relative to the alternative of being washed out of the cap table. This is obviously less of a risk in a world where the cost of capital is low and funding widely available.

These deal structures also have some other meaningful benefits worth considering though: they reduce financing risk in challenging equity capital markets, as the buyer often funds the entity with an option payment through the M&A trigger event, and they reduce exit risk, as they have a pre-specified path to realizing liquidity. Further, the idea that the assets are “tainted” if the buyer walks hasn’t been borne out in our experience, where all of the entities with active assets after the original option deal expired were subsequently acquired by other players, as noted above.

In addition, an outright sale often puts our prized programs in the hands of large and plodding bureaucracies before they’ve been brought to patients or later points in development. This can obviously frustrate development progress. For many capable teams, keeping the asset in their stewardship even while being “captive”, so they can move it quickly down the R&D path themselves, is an appealing alternative to an outright sale – especially if there’s greater appreciation of value with that option point.

Option-based M&A deals aren’t right for every company or every situation, and in recent years have been used only sparingly across the sector. They obviously only work in practice for private companies, often as alternative to larger dilutive financings on the road to an IPO. But for asset-centric stories with clear development paths and known capital requirements, they can still be a useful tool in the BD toolbox – and can generate attractive venture-like returns for shareholders.

Like others in the biotech ecosystem, Atlas hasn’t done many of these deals in recent funds. And it’s unlikely these deals will come back in vogue with what appears to be 2024’s more constructive fundraising environment (one that’s willing to fund early stage stories), but if things get tighter or Pharma re-engages earlier in the asset continuum, these could return to being important BD tools. It will be interesting to see what role they may play in the broader external R&D landscape over the next few years.

Most importantly, circling back to point of the blog, kudos to the team at IFM and our partners at Novartis!

The post IFM’s Hat Trick and Reflections On Option-To-Buy M&A appeared first on LifeSciVC.

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