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US Dollar Offered Ahead of the Employment Report

Overview: Risk appetites have returned but may be tested by the US jobs report. News of progress with US auditors in China helped lift Hong Kong and Chinese…

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Overview: Risk appetites have returned but may be tested by the US jobs report. News of progress with US auditors in China helped lift Hong Kong and Chinese equities. Most of the large bourses in the region also rose. Europe’s Stoxx 600 is up a little more than 1% near midday after shedding 1.3% over the past two sessions. US futures also are trading with an upside bias. Benchmark 10-year yields are mostly a little softer today. The 10-year US Treasury yield is at 4.13%, down slightly. The greenback is softer against all the major currencies and most of the emerging markets as well. The dollar-bloc leads the G10, while Thailand and Hungary lead the emerging market currencies. Softer rates and the US dollar are helping gold recover from the push below $1617 yesterday. It is probing $1645-$1650. December WTI is moving above $90 to reach its best level since October 10. US natgas has been alternating between gains and losses this week. It was off about 4.7% yesterday and is up a little more than 4% today, ostensibly on weaker stocks. Europe’s benchmark is 1.6% lower around 122.1 euros. It finished last week at 110 euros. Iron ore, which snapped a six-session slide on Tuesday, is up for the fourth consecutive session today. It has rallied 11% in this run. December copper is jumping 3.3% and is at its best levels of the week. After falling almost 7% over the past two sessions, December wheat has come back bid and is up nearly 1.2%.

Asia Pacific 

News that the US audit process of Chinese companies, required to prevent delisting has proceeded faster than expected helped lift Chinese stocks. An index of mainland companies that trade in Hong Kong rose nearly 6% today and led the region with an 8.9% gain this week. The Hang Seng rose 5.3% for an 8.6% advance this week, easily the best performer in the region. The CSI 300 gained nearly 3.3% today and 6.4% for the week. There had been some speculation earlier this week that the zero-Covid policy would be abandoned but this was denied.

The PBOC has been raising the dollar's reference rate for six consecutive sessions through today. The dollar is allowed to rise by a maximum of 2% above the fix, so this means that the dollar's cap has been moving higher. At the same time, officials are gradually narrowing the gap between the fix and market expectations. That gap reached 950 pips on October 20 amid the Party Congress and narrowed to slightly less than 600 pips today.

Japan's markets re-opened after yesterday's holiday and played a little catch-up, with the Nikkei losing nearly 1.7%. The final October service and composite PMI were better than the flash readings. The service PMI was revised to 53.2 from 53.0 of the preliminary estimate and 52.2 in September. The composite stands at 51.8, not 51.7, and 51.0 in September. Both are at their best levels since June. Separately, we note that three-month implied yen volatility has slipped to its lowest level in three weeks, a little below 12.3%. The dollar is little changed against the yen this week.

In its monetary policy statement, the Reserve Bank of Australia upgraded its inflation outlook and pared its growth forecasts. Its preferred inflation measure, the trimmed mean is expected to peak at 6.5% at the end of this year (up from 6%) before falling to 3.75% by the end of next year and reaching the top of is 2-3% target in 2024. It shaved this year's growth projection to 3% from 3.25% and sees growth at 1.5% in 2023 and 2024.

The dollar is confined to a JPY147.50-JPY148.50 trading range. We suspect that support is stronger than resistance. Still, the dollar has not traded above JPY149 since October 25, and that was just barely. With a brief but notable exception, since the second week in October, the dollar has been largely confined to a JPY145-JPY150 range. The Australian dollar fell from almost $0.6500 on Wednesday to near $0.6270 yesterday. It has fallen for the past six sessions but has steadied today. It is firm but within yesterday's range today. The $0.6375-$0.6400 offers the nearby cap. The Chinese yuan is trading about 0.5% higher and recouping the losses of the past two sessions. The PBOC set the dollar's reference rate at CNY7.2555 and this ostensibly allows the dollar to trade as high as CNY7.40. It has not traded above CNY7.3120.

Europe

Germany's services and composite PMI were revised but still show the economy struggling. The service PMI is at 46.5, up from the preliminary 44.9 and above September's 45.0. The final composite is at 45.1. The flash reading was 44.1 and it was at 45.7 in September. Separately, September factory orders were dismal, falling 4%, compared with expectations for a 0.5% decline after a revised 2% fall in August (initially a 2.4% fall). The French PMI was also revised up, but both the services and composite PMI was softer than September. Still, they both held above the 50 boom/bust level. The service PMI is at 51.7 (51.3 flash and 52.9 in September) and the composite is at 50.2 (from 50.0 flash and 51.2 previously). France also reported declines in September industrial output (-0.8%), and manufacturing (-0.4%). Italy's PMIs fell more than expected. The services PMI fell to 46.4 from 48.8, and the composite is at 45.8 from 47.6. Note that Prime Minister Meloni will present her budget today. Spain's service PMI rose to 49.7 from 48.5, but the composite slipped to 48.0 from 48.4. It reported that September industrial production fell 0.3% after rising by the same amount in August. The aggregate services PMI stands at 48.6, up from 48.2 of the initial estimate but still down slightly from September's 48.8. The composite is at 47.3, slightly better than the flash reading of 47.1, but down from 48.1. The composite has fallen since April's peak at 55.8.

The Bank of England delivered the 75 bp rate but warned that the terminal rate would likely be lower than the markets were discounting. BOE Governor Bailey said the markets saw a terminal rate of 5.25% next year. That may have been the case for recently, but the swaps market has implied a policy rate peak slightly below 4.70% on the eve of the BOE meeting. The BOE warned that the economy may have contracted by 0.5% in Q3 as the UK enters a several quarter recession. The first estimate is due at the end of next week. The BOE sees the CPI peak at 10.9% later this year. This down from a previous forecast of 13%. The BOE's forecasts do not take into account the budget that will presented November 17. Former Minneapolis Fed president, Kocherlakota had written an op-ed piece recently arguing that the BOE's regulatory lapse toward pension funds and its limited support for the Gilt market led to Truss's down fall. Bailey defended himself yesterday in an interview, claiming that it would have created a moral hazard. That seems to be a rather weak defense, no matter what one thinks about Truss's fiscal intentions. Can it be demonstrated that having the emergency program fully in place through the budget statement been a significantly greater moral hazard?  Bailey also sidestepped the question about the regulatory approach to the pension funds, and how does that relate to moral hazard?  

The euro initially rallied to $0.9975 on the initial dovish reading of the FOMC statement and reversed, falling to a low yesterday of about $0.9730. It has steadied today and has been confined about a half-of-a-cent range below $0.9800. There are options there for 1.7 bln euros that expire Monday and another billion euros that expire Tuesday. The recent price action has weakened the technical tone of the euro and the five-day moving average is slipped back below the 20-day moving average for the first time in about three weeks. Yesterday's high was near $0.9840, and a close above there were begin repairing some of the technical damage. Sterling's high this week was recorded on Monday by $1.1615 and it fell to $1.1150 after the BOE meeting. Yesterday's 2% loss was the most since the turmoil in late September. It is making session highs in the European morning almost a cent higher. Initial resistance is likely in the $1.1300-10 area. Sterling has risen for the past three weeks for almost 4.8%. At $1.1240, it is off about 3.25% this week, making its easily the poorest performer in among the G10 currencies. The euro is second with about a 1.8% loss.

America

Today's US employment report is sandwiched between the FOMC meeting and next week's October CPI. The market looks for around a 200k increase in nonfarm payrolls. This is a smaller increase that the US has been reporting but would be a solid number. The monthly average in 2018 and 2019 was 150k. Contrary to some claims, the Fed is well aware of its two mandates of price stability and full employment. The unemployment rate was at 3.5% in September, matching the pre-pandemic low. Whatever full employment means, the Fed is closer to achieving that than reaching its inflation objective, hence the focus. That said, one dimension that is problematic because of the implication for potential growth is the participation rate. It stood at 62.3% in September. It first reached that in February after hitting a Covid-low of 60.2% in April 2020. However, before the pandemic struck the participation rate was 63.3%-63.4%. It never fully recovered from the Great Financial Crisis when the participation rate hovered around 66%. The Fed and many private sector economists had expected that higher wages would pull people back into the labor market, but we are more than homo economicus, and there appear to be some large social forces at work. 

In any event, as Fed Chair Powell has pointed out on numerous occasions, there is no one number that does for the labor market was the PCE deflator does for inflation. Powell continues to put stock in the job openings as a sign of tightness of the labor market. Weekly jobless claims can be noisy, and a four-week moving average smooths it out. In late 2019, the four-week moving average was 230-340k. It has held below 220k for the past seven weeks. Continuing claims have been gradually rising. At 1.485 mln in the week through October 21, it is the highest since March, but is still in its trough after bottoming in May near 1.306 mln. Before Covid, continuing claims were considerably higher. It was slightly below 1.9 mln at the end of 2019. Given the heightened sensitive to inflation, the average hourly earnings may be important. A 0.3% increase in October, matching the pace seen in August and September, would see the year-over-year rate ease to 4.7%, slowest since August 2021. Recall average hourly earnings rose 2.9% year-over-year in December 2019, and this was seen as insufficient. At his press conference, Powell, explained, "I don't think wages are the principal story of why prices are going up. I don't think we see a wage-price spiral. But, once you see it, you're in trouble."

Canada also reports October employment data today. Canada's job creation has stalled. The number of full-time positions has fallen in three of past four months. It has created an average of 16k full-time positions a month this year. The average in the first half was around 38.5k. Counting part-time positions, Canada has averaged an increase of 19k a month. The median forecast in Bloomberg's survey looks for a 10k increase in jobs last month, half of the pace seen in September. Canada's labor force participation rate reached its pre-Covid level (65.5%) in September 2021 and has gradually pulled back to 64.7%-64.8% for the past three months. Still, despite the widening of policy rates, and the widening of the two-year US premium to near three-year highs, the exchange rate appears to be more a function of the general risk environment (S&P 500 as proxy) and the general direction of the US dollar. The 60-day rolling correlation of changes in the Dollar Index and the Canadian dollar is the highest it has been in six years. Separately, Canada announced a 2% tax on share buybacks (the US Inflation Reduction Act has a 1% tax) and it will launch a C$6.7 bln (~$5 bln) five-year tax credit program to clean energy projects. Lastly, we note that the government is now projecting a C$36.4 bln fiscal deficit. In April, it anticipated a C$52.6 bln shortfall.

The dollar-bloc is leading the move against the dollar among the major currencies ahead of the employment report. The Canadian dollar's 0.8% gain trails the Antipodeans, which are up slightly more than 1%. The greenback briefly traded above CAD1.38 yesterday and is near CAD1.3630 in Europe. The week's low was set Tuesday around CAD1.3530. We identified the CAD1.35 area as a key to the medium-term technical outlook. A convincing break would bolster the chances that the CAD1.40 level approached in late September was a significant higher. Some of the US dollar selling may be related to expiring options. At CAD1.37, there were options for $545 mln that expire today and another set for $500 mln at CAD1.3630. Yesterday's price action saw old USD support at MXN19.80 act as resistance. That area capped the greenback's bounce and it reversed to close below MXN19.65. It is fraying the MXN19.60 area in Europe. It reached a five-month low near MXN19.5065 on Wednesday. The low for the year was set on May 30 around MXN19.4150. The peso is the third best performing EM currency this week. Brazil is the best with a 3.5% gain coming into today, and the Thai baht is in second place with almost a 1.1% gain. The peso is slightly more than 1% higher this week ahead of today's local session. 

 

 

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EY Eyes Comeback for Biopharma M&A

EY noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021. The $88 billion accounted for most of the…

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A recent trickle of mergers and acquisitions (M&A) announcements in the billion-dollar-and-up range suggests that biopharma may be ready to resume dealmaking this year—although the value and number of deals isn’t expected to return to the highs seen just before the pandemic.

2022 ended with a handful of 10- and 11-figure M&A deals, led by Amgen’s $27.8 billion buyout of Horizon Therapeutics, announced December 13. The dealmaking continued into January with three buyouts announced on the first day of the recent J.P. Morgan Healthcare Conference: AstraZeneca agreed to acquire CinCor Pharma for up to $1.8 billion, while Chiesi Farmaceutici agreed to shell out up to $1.48 billion cash for Amryt, and Ipsen Group said it will purchase Albireo Pharma for $952 million-plus.

Biopharmas generated about $88 billion in M&A deals in 2022, down 15% from $104 billion in 2021. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. The number of biopharma deals fell 17%, to 75 deals from 90. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine. [EY]
EY—the professional services firm originally known as Ernst & Young—recently noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021 [See Chart]. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. That $135 billion figure is less than half the record-high $313 billion recorded in 2019, including $261 billion in 70 biopharma deals.

The number of biopharma deals fell 17% to 75 deals from 90. EY’s numbers include only deals greater than $100 million. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine.

We expect this to be a more active year as the sentiment starts to normalize a little bit,” Subin Baral, EY Global Life Sciences Deals Leader, told GEN Edge.

Baral is not alone in foreseeing a comeback for biopharma M&A.

John Newman, PhD, an analyst with Canaccord Genuity, predicted last week in a research note that biopharma companies will pursue a growing number of smaller cash deals in the range of $1 billion to $10 billion this year. He said rising interest rates are discouraging companies from taking on larger blockbuster deals that require buyers to take on larger sums of debt.

“We look for narrowing credit spreads and lower interest rates to encourage larger M&A ($50 billion and more) deals. We do not anticipate many $50B+ deals that could move the XBI +5%,” Newman said. (XBI is the SPDR S&P Biotech Electronic Transfer Fund, one of several large ETFs whose fluctuations reflect investor enthusiasm for biopharma stock.)

Newman added: “We continue to expect a biotech swell in 2023 that may become an M&A wave if credit conditions improve.”

Foreseeing larger deals than Newman and Canaccord Genuity is PwC, which in a commentary this month predicted: “Biotech deals in the $5–15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle.”

Those capabilities include leadership within a specific therapeutic category, for which companies will have to buy and sell assets: “Prepared management teams that divest businesses that are subscale while doubling down on areas where leadership position and the right to win is tangible, may be positioned to deliver superior returns,” Glenn Hunzinger, PwC’s U.S. Pharma & Life Science Leader, and colleagues asserted.

The Right deals

Rising interest and narrowing credit partially explain the drop-off in deals during 2022, EY’s Baral said. Another reason was sellers adjusting to the drop in deal valuations that resulted from the decline of the markets which started late in 2021.

Subin Baral, EY Global Life Sciences Deals Leader

“It took a little bit longer to realize the reality of the market conditions on the seller side. But on the buyer side, the deals that they were looking at were not just simply a valuation issue. They were looking at the quality of the assets. And you can see that the quality deals—the right deals, as we call them—are still getting done,” Baral said.

The right deals, according to Baral, are those in which buyers have found takeover targets with a strong, credible management team, solid clinical data, and a clear therapeutic focus.

“Rare disease and oncology assets are still dominating the deal making, particularly oncology because your addressable market continues to grow,” Baral said. “Unfortunately, what that means is the patient population is growing too, so there’s this increased unmet need for that portfolio of assets.”

Several of 2022’s largest M&A deals fit into that “right” category, Baral said—including Amgen-Horizon, Pfizer’s $11.6-billion purchase of Biohaven Pharmaceuticals and the $6.7-billion purchase of Arena Pharmaceuticals (completed in March 2022); and Bristol-Myers Squibb’s $4.1-billion buyout of Turning Point Therapeutics.

“Quality companies are still getting funded one way or the other. So, while the valuation dropped, people were all expecting a flurry of deals because they are still companies with a shorter runway of cash that will be running to do deals. But that really didn’t happen from a buyer perspective,” Baral said. “The market moved a little bit from what was a seller’s market for a long time, to what we would like to think of as the pendulum swinging towards a buyers’ market.”

Most biopharma M&A deals, he said, will be “bolt-on” acquisitions in which a buyer aims to fill a gap in its clinical pipeline or portfolio of marketed drugs through purchases that account for less than 25% of a buyer’s market capitalization.

Baral noted that a growing number of biopharma buyers are acquiring companies with which they have partnered for several years on drug discovery and/or development collaborations. Pfizer acquired BioHaven six months after agreeing to pay the company up to $1.24 billion to commercialize rimegepant outside the U.S., where the migraine drug is marketed as Nurtec® ODT.

“There were already some kind of relationships there before these deals actually happened. But that also gives an indication that there are some insights to these targets ahead of time for these companies to feel increasingly comfortable, and pay the valuation that they’re paying for them,” Baral said.

$1.4 Trillion available

Baral sees several reasons for increased M&A activity in 2023. First, the 25 biopharma giants analyzed by EY had $1.427 trillion available as of November 30, 2022, for M&A in “firepower”—which EY defines as a company’s capacity to carry out M&A deals based on the strength of its balance sheet, specifically the amount of capital available for M&A deals from sources that include cash and equivalents, existing debt, and market cap.

That firepower is up 11% from 2021, and surpasses the previous record of $1.22 trillion in 2014, the first year that EY measured the available M&A capital of large biopharmas.

Unlike recent years, Baral said, biopharma giants are more likely to deploy that capital on M&A this year to close the “growth gap” expected to occur over the next five years as numerous blockbuster drugs lose patent exclusivity and face new competition from lower-cost generic drugs and biosimilars.

“There is not enough R&D in their pipeline to replenish a lot of their revenue. And this growth gap is coming between 2024 and 2026. So, they don’t have a long runway to watch and stay on the sidelines,” Baral said.

This explains buyers’ interest in replenishing pipelines with new and innovative treatments from smaller biopharmas, he continued. Many smaller biopharmas are open to being acquired because declining valuations and limited cash runways have increased investor pressure on them to exit via M&A. The decline of the capital markets has touched off dramatic slowdowns in two avenues through which biopharmas have gone public in recent years—initial public offerings (IPOs) and special purpose acquisition companies (SPACs).

EY recorded just 17 IPOs being priced in the U.S. and Europe, down 89% from 158 a year earlier. The largest IPO of 2022 was Prime Medicine’s initial offering, which raised $180.3 million in net proceeds for the developer of a “search and replace” gene editing platform.

Another 12 biopharmas agreed to SPAC mergers with blank-check companies, according to EY, with the largest announced transaction (yet to close at deadline) being the planned $899 million merger of cancer drug developer Apollomics with Maxpro Capital Acquisition.

“For the smaller players, the target biotech companies, their alternate source of access to capital pathways such as IPOs and SPACs is shutting down on them. So how would the biotech companies continue to fund themselves? Those with quality assets are still getting funded through venture capital or other forms of capital,” Baral said. “But in general, there is not a lot of appetite for the biotech that is taking that risk.

Figures from EY show a 37% year-to-year decline in the total value of U.S. and European VC deals, to $16.88 billion in 2022 from $26.62 billion in 2021. Late-stage financing rounds accounted for just 31% of last year’s VC deals, down from 34% in 2021 and 58% in 2012. The number of VC deals in the U.S. and Europe fell 18%, to 761 last year from 930 in 2021.

The decline in VC financing helps explain why many smaller biopharmas are operating with cash “runways” of less than 12 months. “Depending on the robustness of their data, their therapeutic area, and their management, there will be a natural attrition. Some of these companies will just have to wind down,” Baral added.

M&A headwinds

Baral also acknowledged some headwinds that are likely to dampen the pace of M&A activity. In addition to rising interest rates and inflation increasing the cost of capital, valuations remain high for the most sought-after drugs, platforms, and other assets—a result of growing and continuing innovation.

Another headwind is growing regulatory scrutiny of the largest deals. Illumina’s $8 billion purchase of cancer blood test developer Grail has faced more than two years of challenges from the U.S. Federal Trade Commission and especially the European Commission—while Congress acted last year to begin curbing the price of prescription drugs and insulin through the “Inflation Reduction Act.”

Those headwinds may prompt many companies to place greater strategic priority on collaborations and partnerships instead of M&A, Baral predicted, since they offer buyers early access to newer technologies before deciding whether to invest more capital through a merger or acquisition.

“Early-stage collaboration, early minority-stake investment becomes increasingly important, and it has been a cornerstone for early access to these technologies for the industry for a long, long time, and that is not changing any time soon,” Baral said. “On the other hand, even on the therapeutic area side, early-stage development is still expensive to do in-house for the large biopharma companies because of their cost structure.

“So, it is efficient cost-wise and speed-wise to buy these assets when they reach a certain point, which is probably at Phase II onward, and then you can pull the trigger on acquisitions if needed,” he added.

The post EY Eyes Comeback for Biopharma M&A appeared first on GEN - Genetic Engineering and Biotechnology News.

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IMF Upgrades Global Growth Forecast As Inflation Cools

IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday,…

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IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday, painting a slightly less gloomy picture than three and a half months ago, as inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis following Russia’s invasion of Ukraine has been less severe than initially feared.

But, as Statista's Felix Richter notes, that’s not to say the outlook is rosy, as the global economy still faces major headwinds.

However, the IMF predicts the slowdown to be less pronounced than previously anticipated.

Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024.

The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.

Infographic: IMF Upgrades Global Growth Forecast as Inflation Cools | Statista

You will find more infographics at Statista

One of the reasons behind the cautiously optimistic outlook is the latest downward trend in inflation, which suggests that inflation may have peaked in 2022.

The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post released along with the report.

“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”

The risks to the latest outlook remain tilted to the downside, the IMF notes, as the war in Ukraine could further escalate, inflation continues to require tight monetary policies and China’s recovery from Covid-19 disruptions remains fragile. On the plus side, strong labor markets and solid wage growth could bolster consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for more monetary tightening.

In conclusion, Gourinchas calls for multilateral cooperation to counter “the forces of geoeconomic fragmentation”.

“This time around, the global economic outlook hasn’t worsened,” he writes. “That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”

However, just because the 'trend' has shifted doesn't mean it's mission accomplished...

That looks an awful lot like Central Bankers' nemesis remains - global stagflation curb stomps the dovish hopes.

Tyler Durden Tue, 01/31/2023 - 14:45

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Nike Escalates Design Battle Against Lululemon

The sportswear giant is accusing lululemon of patent infringement.

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The sportswear giant is accusing lululemon of patent infringement.

The Gucci loafers. The Burberry  (BBRYF) trench coat. When it comes to fashion, having a unique design is everything. This is why brands spend millions both creating and protecting their signature looks and the reason, as in the case of Adidas  (ADDDF) , extricating a brand's design from creators who behave badly is a costly and difficult process.

There is also the constant effort to release new styles without infringing on another group's style. This week, sportswear giant Nike  (NKE) - Get Free Report filed a lawsuit accusing lululemon  (LULU) - Get Free Report of infringing on its patents in the shoe line that the Vancouver-based activewear company launched last spring.

After years of selling exclusively clothing, accessories and the odd yoga mat, lululemon expanded into the world of footwear with a running shoe it dubbed Blissfeel last March. These were soon followed by training shoe and pool slide styles known as Chargefeel, Strongfeel -- all three of the designs (including a Chargefeel Low and a Chargefeel Mid design) have been mentioned in the lawsuit as causing "economic harm and irreparable injury" to Nike.

Nike's History Of Suing Lululemon Over Design

The specific issue lies in the technology used to build the shoes. According to the lawsuit filed in Manhattan federal court, certain knitted elements, webbing and tubular structures are too similar to ones that had been used by Nike earlier.

Nike is keeping the amount it hopes to receive from lululemon under wraps but is insisting the company infringed on its patent when releasing a shoe line too similar to its own. Lululemon had previously talked about how its shoe line "far exceeded" its leaders' expectations both in terms of sales and ability to expand.

In a Q1 earnings call, chief executive Calvin McDonald said that the line "definitely had a lot more demand than we anticipated."

Nike has already tried to go after lululemon through the courts once before. In January 2022, it accused the company of infringing on six patents over its at-home Mirror Home Gym. As the world emerged out of the pandemic, lululemon has been billing it as a hybrid model between at-home and in-person classes. 

The lawsuit was also filed in the U.S. District Court in Manhattan but ultimately fizzled out.

When it comes to the shoe line lawsuit, Lululemon has been telling media outlets that "Nike's claims are unjustified" and the company "look[s] forward to proving [their] case in court."

Lululemon

Some More Examples Of Prominent Design Battles

In the fashion industry, design infringement accusations are common and rarely lead to high-profile rulings. While Nike has gone after the technology itself in both cases, lawsuits more often focus on the style or pattern on a given piece.

Shein, a China-based fast-fashion company that took on longtime leaders like H&M  (HNNMY)  and Fast Retailing  (FRCOF) 's Uniqlo with its bottom-of-the-barrel pricing, has faced numerous allegations from smaller and independent designers over the copying of designs -- in some cases not even from fashion designers but artists painting in local communities.

"They didn't remotely bother trying to change anything," U.K.-based artist Vanessa Bowman told the Guardian after seeing her painting of a local church appear on a sweater on Shein's website. "The things I paint are my garden and my little village: it’s my life. And they’ve just taken my world to China and whacked it on an acrylic jumper."

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