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Vaccine hopes lift equities to major highs

In November, global equities saw their biggest ever monthly rise: +12.2% for the MSCI AC World index in US dollars (dataset since 1988). Encouraging news on COVID-19 vaccines explained most of the gains. Widespread vaccination can be expected to spur…

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In November, global equities saw their biggest ever monthly rise: +12.2% for the MSCI AC World index in US dollars (dataset since 1988). Encouraging news on COVID-19 vaccines explained most of the gains. Widespread vaccination can be expected to spur a cyclical recovery in 2021.

Once every four years, investor attention is riveted on the outcome of the US presidential election. In 2016, Donald Trump’s surprise victory was followed by a surge in US equities and a sharp spike in long-term rates. This year, investors had to revise their political expectations. Joe Biden won the White House, but there was no Democratic ‘blue wave’ with sweeping control of both the House of Representatives and the Senate.

The final composition of the Senate won’t be known until after the run-off races for two seats in Georgia on 5 January. If the Democrats win both seats, they would tie with the Republicans in the Senate. Vice-president Kamala Harris would then cast the deciding vote, potentially permitting the Democrats to enact much more of their plans than would be the case under a Republican Senate majority.

Meanwhile, the outgoing president has bluntly refused to accept his defeat. Even so, and despite a host of legal challenges from the Republican side, the transition has begun.

The main source of investor optimism: News on COVID vaccines

The announcements throughout November on promising results of clinical trials helped drive equity indices to all-time highs (in the US) or return to highs not seen for decades (Japan). Investors appeared convinced that an efficient and safe vaccine will soon be readily available.

Seemingly beyond hope just a few months ago, this prospect helped markets to avoid succumbing to news of the pandemic’s resurgence and its damping impact on economic activity. The new lockdown measures put in place in late October in Europe led to a sharp deterioration in the services sector, which is likely to mean a contraction in GDP in Q4. In the US, a spike in virus cases in early December after the Thanksgiving holiday could lead to new restrictions or greater consumer caution, which would weigh on US growth in early 2021.

Faced with this bleak short-term outlook, investors chose to focus on the possibility of a cyclical recovery enabled by mass vaccination. They also remained convinced that economic policies would continue to support activity, encouraged by central bankers hinting at further monetary easing in December or early in 2021.

Toward the end of the month, investors’ attention turned to Joe Biden’s cabinet appointments. Financial markets welcomed the naming of former Federal Reserve chair Janet Yellen as Treasury Secretary.

Broad-based equity rally

Indices and sectors that had lagged so far this year perked up in November. European equities rose by 18.1% (EuroSTOXX 50), but are still down by 6.7% over the year to date. In the US, the Dow Jones index (+11.8%) surpassed for the first time ever the 30 000 threshold. The S&P 500 gained 10.8% over the month (and 12.1% year-to-date). In Japan, the Nikkei 225 index gained 15% (+11.7% in 11 months).

Emerging Asia underperformed other emerging markets in November, but is still up by 17.9% year-to-date versus 8.1% for the MSCI Emerging index in US dollar terms, which returned 9.2% in November.

At the global level, energy (driven by the recovery in oil prices), financial stocks and cyclical sectors markedly outperformed. Defensive sectors (utilities, consumer staples and telecommunications) underperformed.

ECB – Keeping a close watch

Early in November, German long-term yields rose along with their US counterparts: The 10-year Bund yield (-0.63% at the end of October) returned to above -0.50%, its highest since mid-September. It then slipped back, as did US rates. Weaker economic indicators played a role. They suggest a fourth quarter GDP contraction as European economies face lockdowns to curb COVID infections.

Equities rose sharply after the first report of promising vaccine test results, as did long-term yields, seemingly causing the ECB to reassess the actions needed to keep financial conditions favourable. This could be seen in the changes in PEPP asset purchases. From an average of EUR 14 billion a week since early October, purchases spiked higher to EUR 20 billion for the week to 13 November and remained close to that level thereafter as the central bank sought to contain the upward pressure on rates.

‘Peripheral’ eurozone bond markets benefited from this increase in purchases and investors’ search for yield. The Italian 10-year rate eased by 13bp to 0.63% at the end of November, the Spanish 10-year rate eased by 6bp to 0.08% and the Portuguese 10-year rate slid back below 0%, finishing at 0.03% (-7bp).

Given the ECB’s accommodative policy, which may be loosened further in December, even the shilly-shallying over the Next Generation EU stimulus plan failed to weigh on ‘peripheral’ markets.

Year-end volatility; positive medium-term outlook

The recent announcements on the vaccines are undoubtedly good news, not only in terms of easing the health crisis, but also for financial markets since they increase the likelihood of a cyclical recovery in 2021.

The coming weeks are likely to see both disappointments and new hopes depending on the progress made on the shots. Despite all that, a surge of hopeful excitement has led drug authorisation agencies to fast-track approval procedures, and governments in major developed countries to announce vaccination campaigns as early as Q1 2021, even as large-scale testing continues.

In short, the equity rally appears justified and the medium-term outlook for risky assets has improved. An efficient, soon-to-be-available vaccine should give rise to a rotation to sectors or markets that have lagged since April. Such a rotation would not be mechanical, but take into account the fundamentals of each industry and company.

In the very short term, investors still need to remain flexible in their asset allocations. The resurgence of the pandemic poses risks to economic activity as we approach the end of this year. Current equity valuations, particularly in the US, do not seem to us to accurately reflect all these risks as investors have repositioned themselves in recent weeks after being more hesitant during much of the rally.

Nevertheless, central banks remain dovish and could become even more so in December. In addition, bold fiscal stimuli look set continue to support activity in 20

All these factors remain supportive of equities over the medium term, especially cyclical sectors.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Nathalie Benatia. The post Vaccine hopes lift equities to major highs appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide…

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide Black Lives Matter riots in the summer of 2020, some elite colleges and universities shredded testing requirements for admission. Several years later, the test-optional admission has yet to produce the promising results for racial and class-based equity that many woke academic institutions wished.

The failure of test-optional admission policies has forced Dartmouth College to reinstate standardized test scores for admission starting next year. This should never have been eliminated, as merit will always prevail. 

"Nearly four years later, having studied the role of testing in our admissions process as well as its value as a predictor of student success at Dartmouth, we are removing the extended pause and reactivating the standardized testing requirement for undergraduate admission, effective with the Class of 2029," Dartmouth wrote in a press release Monday morning. 

"For Dartmouth, the evidence supporting our reactivation of a required testing policy is clear. Our bottom line is simple: we believe a standardized testing requirement will improve—not detract from—our ability to bring the most promising and diverse students to our campus," the elite college said. 

Who would've thought eliminating standardized tests for admission because a fringe minority said they were instruments of racism and a biased system was ever a good idea? 

Also, it doesn't take a rocket scientist to figure this out. More from Dartmouth, who commissioned the research: 

They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds.

All the colleges and universities that quickly adopted test-optional admissions in 2020 experienced a surge in applications. Perhaps the push for test-optional was under the guise of woke equality but was nothing more than protecting the bottom line for these institutions. 

A glimpse of sanity returns to woke schools: Admit qualified kids. Next up is corporate America and all tiers of the US government. 

Tyler Durden Mon, 02/05/2024 - 17:20

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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