TheChek News Flow

Drugs used for weight loss have helped millions of people take control of their physical health. But some patients are reporting unexpected improvements to their intimate lives.

Jacqueline Smith had a healthy sex life until she began taking Ozempic to lose weight. That’s when she noticed some dramatic changes. Smith, 35, and her husband of seven years went from having sex several times a week to doing so daily, sometimes more than once.

“This put it to the point where my husband was like, ‘I need a break,’” she says.

Smith, who lives in Greenville, Ohio, has lost 67 pounds and says she’s now taking the drug on and off. When she stops, she says, her sex drive slows down a bit. “It’s not all crazy wild.”

Ozempic, Wegovy, Mounjaro and Zepbound have transformed the lives of millions of people, helping them control their appetites and lose weight that once seemed impossible to shed. They have shifted the obesity paradigm, demonstrating that the disease is rooted in biology, not willpower. Studies have also found that the drugs may reduce the risk of heart and kidney disease.

And for some patients, they have offered another benefit: a boost in their intimate lives.

‘We Have a Newfound Intimacy’

Danielle Dollar’s health was driving a wedge in her marriage. She suffers from severe polycystic ovary syndrome and endometriosis, which made it difficult to lose weight and control inflammation in her body.

Her struggle meant her husband had to pick up the slack with their three sons, especially with social activities like birthday parties. “If you don’t feel good about yourself, it’s just going to spill over,” Dollar, 41, says. “It definitely affected us romantically, our friendship, our relationship.”

Then she saw a TV ad from Ro, the telehealth company, about its weight loss program, and began taking Ozempic. Dollar has lost 85 pounds to date, and hopes to lose another 40. “The last eight months of our marriage is better than the last about 12 years of our marriage,” she says.

She and her husband, who live in Las Cruces, N.M., and have been married for 15 years, used to turn down invitations to go on group vacations because of her insecurities. But in December, they went on a trip to Puerto Rico with friends. They’ve instituted a standing Friday lunch date, usually at a local spot with a salad bar, but once a month they’ll indulge at a Mexican restaurant.

Before, she says, “it was more of me just trying to cater to him.” Now, “we have a newfound intimacy,” she added.

In online forums, people have dissected all aspects of the drugs, including how they’ve affected sex and relationships. “Anyone had their *ahem* sexual desire plummet on Ozempic?” reads one Reddit thread, while another prompts: “Anybody else dealing with an insatiable desire for sex?”

What Drugmakers and Researchers Say

While the popular medications from drugmakers Novo Nordisk and Eli Lilly indicate there is potential risk for pregnant women and those hoping to conceive, they do not indicate sexual side effects on their labels. There has been little research examining the relationship between these drugs and sexual behavior in humans.

“We actively engage in monitoring, evaluating and reporting safety information for all our medicines,” a Lilly spokesperson said in a statement, adding that if a patient experiences side effects, “we encourage them to speak with their healthcare provider.”

A spokesperson for Novo Nordisk said it would continue to monitor reports of adverse drug reactions, including sexual dysfunction. “Patient safety is of utmost importance to Novo Nordisk,” the spokesperson said.

Biology could explain changes that some people are reporting. “These drugs do work in the same places that pleasure and sexual interest are located in the human brain—male and female,” says Dr. James Simon, a reproductive endocrinologist, OBGYN and clinical professor at George Washington University.

The drugs’ effects on the brain’s reward system are drawing the interest of global researchers, who are studying potential applications such as curbing alcoholism and drug addiction. While Wegovy and Zepbound are approved by the FDA for weight loss, Ozempic and Mounjaro, which contain the same active ingredients, are approved only for diabetes treatment.

Novo Nordisk is investigating whether semaglutide, the active ingredient in its Ozempic, Wegovy and Rybelsus drugs, can treat alcohol-related liver disease. Other potential benefits are still coming to light. Some women who have struggled with fertility have reported accidental pregnancies while taking the drugs. Their experience could be attributed to improved health markers that relate to pregnancy or new research that has found tirzepatide, the active ingredient in Eli Lilly’s Mounjaro and Zepbound, can interfere with the effectiveness of oral birth control. Prescription labels for these drugs advise women to take additional precautions if using oral contraception.

The Kinsey Institute at Indiana University, which studies sexuality, gender and reproduction, said it was not aware of significant research into how the drugs were impacting peoples’ sex lives to date. “Hundreds of thousands of people are taking these drugs, so it seems important we invest in understanding how they affect this core aspect of their lives,” said Camilla Peterson, a spokesperson for the Kinsey Institute.

Better Than Sex

In some cases, desire and performance have slumped. One recent study, published in May by the International Journal of Impotence Research, found obese, non-diabetic men were slightly more likely to have a diagnosis of erectile dysfunction or prescription to a drug treating the condition after starting semaglutide than those who hadn’t taken semaglutide. The research was based on medical records and insurance claims for roughly 6,000 men between the ages of 18 to 50 that met certain medical criteria.

“We are assured that the rates of this are very low,” says Dr. Taylor Kohn, a fellow in male reproductive medicine and surgery in the Department of Urology at Baylor College of Medicine who co-authored the study.

The Novo Nordisk spokesperson said it was not involved in the study or analysis and that there was not sufficient information to know if the drugs were being used in an approved manner.

Before the study, Dr. Kohn, who was at Johns Hopkins at the time, said a few men had filtered into the urology clinic citing a dampened desire for sex after they’d started taking a semaglutide-based drug. “If you go on Reddit or [online] forums, there is this complaint floating out there of people who just lose all desire to have sex,” he says. “Fortunately, I don’t think it’s the vast majority.”

In the long-run, Dr. Kohn said that the cardiovascular benefits of the drug likely would serve to positively impact the likelihood of erectile dysfunction in certain men. “We know that if you reverse cardiovascular disease, erectile dysfunction improves as well.”

He’s planning a follow-up study to analyze the impact of semaglutide on male sexual function over time.

Los Angeles native Jared Spencer, 36, found he struggled with erectile dysfunction after he began taking the semaglutide pill Rybelsus. He has struggled with weight his entire life. He was at his heaviest—310 pounds—when he started the medication.

Within about a month, he noticed he was having “performance issues.” He started taking Cialis, the erectile dysfunction medication. He has also paused Rybelsus while taking vacations, including a romantic getaway. “You’re still somewhat in a weakened state,” he says. “It’s not like the marathon that it could be before.”

He speculates the effects of Rybelsus, like reduced hunger cravings which result in eating much less and being less energized, may have contributed to the issue.

Still, Spencer says he’d take the weight loss over anything else. “I have a dating life now, which is something that I didn’t have before,” he says. “I’m apparently handsome.” His confidence and sleep have improved.

“If I had to give up sex entirely until this journey is over, I would do that,” he says.

‘A Complete 180’

After Amy Kane’s youngest child was born in April 2020, she struggled with postpartum depression amid the Covid-19 lockdown. At 300 pounds, she was feeling very insecure in her body.

“I didn’t even want to be touched really, in terms of even hugs and kisses and things of that nature,” she says.

But things took a turn when Kane, 35, was diagnosed with diabetes and had to make her health a priority. She started taking Mounjaro in 2022 and has lost 160 pounds. She said she and her husband, who live in Naperville, Ill., started going to couples therapy. Sometimes they’d follow their sessions with drinks. Eventually, the two quit counseling; their post-therapy drinks became a standing weekly dinner date.

Kane has been vocal about her experience, posting about it on TikTok and Instagram and even appearing on Oprah Winfrey’s March special on ABC about the “weight-loss revolution.” But she still has her own insecurities. “There’s a lot of loose skin in your private area when you lose a lot of weight,” she says. She plans to get a tummy tuck at some point.

Still, intimacy with Kenneth, her husband of eight years, has greatly improved. “A complete 180,” he says. The two now sleep, she says, cuddled up “like a newlywed couple.”

Are emerging market bonds a haven or a risk asset? A bit of both, to judge by the recent global market turmoil.

Some 60% of the asset class is composed of sovereign debt from investment-grade countries, from Poland to Saudi Arabia and South Korea, notes Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.

Yields on those bonds fell as stocks around the world hit an air pocket in early August. But spreads over U.S. Treasuries, investors’ go-to benchmark, widened by about 20 basis points to 130 basis points, says Jeff Grills, head of emerging markets debt at Aegon Asset Management. (A basis point is 1/100th of a percentage point.)

That looks modest. High-yield emerging market paper widened more, sucking the oxygen out of the year’s hottest trades on turnaround stories like Argentina, Turkey, and Ecuador.

“The lower the credit rating, the bigger the selloff has been,” says Valentina Chen, co-head of emerging market debt at fixed-income specialist MacKay Shields.

Local-currency debt is treading water. But managers worry about the fading of the so-called yen carry trade: borrowing cheaply in Japan to reinvest in high-yielding Latin American markets. As the yen surged 9% over the past month against the dollar, the Mexican peso slid 6% and Brazilian real 3%.

With equities continuing to gyrate, the prevailing mood on emerging market bonds is wait and see. “Activity is muted and bid/ask spreads very wide,” Chen says.

Once some dust settles, though, pickings could be rich at the stronger end of the asset class, says Cem Karacadag, head of emerging markets sovereign debt at Barings. “I liked spreads last week,” he says. “I love them today.”

Emerging markets writ large have been fiscally responsible since the pandemic, while advanced economies gorged on debt. That makes repayment problems unlikely for investment-grade issuers, he argues.

“It would take another Covid shock or global financial crisis to move the needle on fundamentals,” Karacadag argues.

Chen is looking farther afield to corporate credits. One focus is Turkey, where a range of solid corporate borrowers are undervalued because their credit rating cannot exceed the government’s, which is well into junk territory at B+.

She also likes state-owned enterprises in the Middle East, whose credit is backed by oil gushers. Saudi Aramco, the regional giant, issued $6 billion in new debt last month.

Dip-buying looks premature to Al-Hussainy, with the prospect of a U.S. recession back on the table. Federal Reserve rate cuts will help emerging markets if they ease a “soft landing.”

They will hurt if they are a sign that the biggest economy is shrinking. “You’re making a bet on why U.S. rates are coming down,” he says. “Right now, it’s not clear.”

Then there is the small matter of a U.S. presidential election just three months from now. Donald Trump’s return to the White House, particularly with a Republican Congress, would pose multiple threats to emerging markets, Al-Hussainy says—from his proposed 10% tariff on all U.S. imports to tax cuts that could reignite inflation and put rate cuts on hold.

Samy Muaddi, portfolio manager for emerging market bonds at T. Rowe Price, is a bear on valuation. The iShares J.P. Morgan USD Emerging Markets Bond exchange-traded fund has climbed 15% from a trough in October 2022. Few bargains are left at these levels.

“We’re a few days into a correction after almost a two-year rebound,” he says.

Equity investors might think the same, or not.

US junk loan funds suffer biggest outflows in 4 years

Investors withdrew $2.5bn during market plunge on fears of economic slowdown and lower coupons if interest rates fall

US junk loan funds suffered their biggest outflows since early 2020 during the recent plunge in global financial markets, as investors fretted about the impact of a potential economic slowdown on highly indebted companies.

Investors pulled $2.5bn out of funds that invest in junk, or leveraged, loans during the week to August 7, according to data from flow tracker EPFR, with the withdrawals concentrated in exchange traded funds.

The outflows come after weaker-than-expected US jobs data at the start of August reawakened fears of a US recession, which would be likely to hurt lower-quality borrowers.

That prompted investors to dial up their expectations of interest rate cuts, with markets now pricing in four quarter-point reductions by the end of December, compared with two last month.

Leveraged loans are issued by low-grade companies with large debt piles and have floating interest payments — meaning that, unlike fixed-rate bonds, the coupons they pay to investors move up and down with interest rates.

John McClain, portfolio manager at Brandywine Global Investment Management, pointed to “meaningfully lower demand for floating-rate securities” if the market is correct about rates being cut sharply.

“Additionally we’d be getting the cuts as a result of an economic slowdown, which is bad for lower credit quality — a double-whammy for the asset class,” he added.

The $1.3tn loan market is widely perceived to have weaker credit quality overall than its counterpart in the leveraged finance world — the similarly sized high-yield bond market — making it more vulnerable in a recessionary scenario.

A Morningstar LSTA index of US leveraged loan prices on Monday fell to its lowest level of 2024 as the global sell-off in risky assets intensified, although it has since retraced some of those losses. McClain said the market reaction to July’s weak non-farm payrolls data was overdone, and could present an opportunity to increase exposure to the asset class for those who anticipate “slow and shallow cuts” by the Fed. 

More than 80 per cent of the loan fund outflows tracked by EPFR stemmed from ETFs. The weekly ETF outflows were at their highest level on record, according to EPFR.

But while falling yields might render the asset class less attractive to investors, lower interest rates should also help heavily indebted companies, said analysts. 

“There is a silver lining to rate cuts,” said Neha Khoda, strategist at Bank of America, “because while the appeal of loans as an asset class decreases, with a declining rate trajectory . . . The pressure for the lower-rated [borrowers] to meet higher interest costs also decreases and that actually is beneficial for projected defaults.”

A possible drop in rates “does on the margin help these companies out fundamentally”, said Greg Peters, co-chief investment officer of PGIM Fixed Income.

However, BofA’s Khoda said that if the economic outlook worsens substantially then this could affect the whole of the leveraged finance industry.

“If the trajectory of economic growth changes materially — like it did on payrolls Friday — then it’s not a question of floating to fixed — it then becomes a question of outflows from riskier parts of the credit market into safer havens.”

Only two of 11 co-founders of ChatGPT maker are still active at the $86bn company after a series of exits this year

Just two of OpenAI’s 11-strong founding team are still active at the ChatGPT maker, after an exodus following November’s attempted boardroom coup against chief executive Sam Altman.

Three co-founders have departed so far this year, including John Schulman, who defected to its artificial intelligence rival Anthropic this week. Greg Brockman, OpenAI’s president, also said on Monday he would be taking extended leave from the company.

A high rate of turnover is not unusual at a start-up. However, attrition of senior figures at OpenAI has stepped up in recent months following November’s leadership crisis, when Altman was fired by his board only to be reinstated days later.

Since then, the loss of executives and staffers working on AI safety and research has raised questions about the direction of the $86bn company, which is in a fierce battle to stay ahead of rivals including Google and Anthropic.

Some co-founders have absconded to rivals, others to launch their own AI companies, while the team’s most famous former member — Elon Musk — has become a vociferous critic of OpenAI in public and in the courts.

OpenAI had a larger number of founders than most Silicon Valley start-ups because Altman and Brockman wanted to build an AI supergroup of the top researchers in the field when it got started in 2015. Here is where those 11 founders are now.

ON A LEAVE OF ABSENCE SINCE AUGUST 2024

Brockman is a core member of OpenAI’s founding team. He was persuaded by Altman and Musk to leave his job as chief technology officer at financial technology company Stripe and take on the same position at OpenAI.

He has been a key Altman ally since the beginning. When the board moved against Altman in a coup in November, Brockman was also removed as a director. The two returned to their posts together when the board backtracked five days later.

On Monday, the company’s president announced he would be taking a sabbatical for the rest of the year.

“First time to relax since co-founding OpenAI 9 years ago,” he wrote on X. “I’ve poured my life for the past 9 years into OpenAI, including the entirety of my marriage. Our work is important to me, but so is life.”

John Schulman

JOINED ANTHROPIC IN AUGUST 2024

Schulman, a research scientist who played a vital role in building the company’s ChatGPT chatbot, announced he would leave OpenAI on Monday. He was responsible for fine-tuning the company’s AI models and ensuring they behaved in a way that conformed to human values — a process known as alignment.

He will take up a similar role at rival start-up Anthropic, which itself was founded by ex-OpenAI researchers in 2021.

“This choice stems from my desire to deepen my focus on AI alignment, and to start a new chapter of my career where I can return to hands-on technical work, alongside people deeply engaged with the topics I’m most interested in,” Schulman said in a note to colleagues on Monday.

LEFT TO FOUND SAFE SUPERINTELLIGENCE IN MAY 2024

Sutskever left his position as OpenAI’s chief scientist six months after voting with the company’s board to remove Altman. Sutskever, one of the most prominent researchers in the field, reversed his position and backed the chief executive’s return a few days later.

Nonetheless, he has been largely absent from public view in the months since the abortive coup, and in May he left to start a company called Safe Superintelligence.

LEFT TO FOUND EUREKA LABS IN FEBRUARY 2024

Karpathy, a research scientist who was advised at Stanford by “Godmother of AI” Fei-Fei Li, first left OpenAI in 2017 to join Tesla as a senior director. He returned to OpenAI in 2023 and left again a year later to launch Eureka Labs, which is building AI teaching assistants.‎

Durk Kingma

LEFT FOR GOOGLE BRAIN IN JUNE 2018

Kingma, who worked on developing algorithms for generative AI models, left for Google in the summer of 2018. He has continued to lead research on large language models and image models at Google Brain, which merged with DeepMind last year.

RESIGNED FROM THE BOARD IN 2018

Musk, who provided much of OpenAI’s early funding, left the company in 2018 after clashing with Altman over the direction of research. The billionaire launched a rival company, xAI, last year and claims he can overhaul OpenAI’s lead.

The Tesla, SpaceX and X chief has also launched a number of lawsuits against Altman and OpenAI, arguing this week that he was induced to invest in the AI company by its “fake humanitarian mission”.

JOINED STRIPE IN 2016

Vagata, listed as a founding member of OpenAI in the company’s launch announcement, makes no mention of the start-up in her LinkedIn profile. She joined Stripe as a technical leader in the fintech company’s AI team in 2016, and founded early-stage venture capital firm Pebblebed in 2021.

‎Vicki Cheung

JOINED LYFT IN 2017

Cheung, who worked on language-learning app Duolingo before becoming OpenAI’s first engineer, left the company in 2017 to join ride-hailing start-up Lyft. In 2020 she founded machine learning start-up Gantry alongside former OpenAI researcher Josh Tobin.

LEFT IN 2017

Blackwell was a partner at Y Combinator, the San Francisco start-up accelerator that Altman ran before establishing OpenAI. He helped launch the AI company and left in 2017. A robotics enthusiast, he is now based in Gloucestershire, England.

‎Remainers

Altman remains as OpenAI’s chief executive after surviving a boardroom coup in November, during which directors accused him of not being “consistently candid” with them. He was reinstated five days after being fired on the back of a campaign by employees and investors in OpenAI, including Microsoft.

The departure of other senior figures has left the 39-year-old as by far the most prominent figure at the company, and the reconstitution of the board after its failed ousting has further solidified his power.

Polish computer scientist Zaremba remains at OpenAI where he works as a researcher. He called on the board to resign after they moved against Altman, and has since urged his chief executive and Musk to drop their “unnecessary fight”.

“It would be so much better to put your creative energy into building the future you dream of over a quarrel. May you (both) be happy and find peace,” he wrote in a post on X in March, signing off with a love heart.

Keytruda will generate $25 billion in sales for Merck this year. But its patent is about to expire, leaving Merck with a gaping hole to fill—and a stock price that could be at risk.

This week’s quarterly results from Merck looked pretty good, all things considered: Sales and earnings came in ahead of Wall Street expectations and the company raised its revenue outlook for the year.

There was no immediate reason, then, for the startling selloff that followed. Merck lost $30 billion in market value by lunchtime and ended the day down 10%. Ultimately, analysts blamed a seemingly minor side note in the report: Demand for the company’s HPV vaccine, known as Gardasil, was down in China, and executives couldn’t say why.

For Merck investors, the selloff is a warning. Big pharma companies survive—and thrive—on the success of a few big drugs. Any disruption can throw the business into disarray.

But if Merck investors are anxious about Gardasil, they could soon have bigger worries. The company is facing the largest patent expiration in the industry’s history.

Ten years ago, the Food and Drug Administration approved Keytruda, a groundbreaking medicine that promised to turn the body’s own immune system against cancer cells. Keytruda helped to launch a wave of immunotherapy drugs that has revolutionized how doctors treat cancer. For Merck, the payoff was particularly broad.

Merck sponsored hundreds of human studies of the medicine. Trial after trial showed that Keytruda worked far better than existing treatments. In advanced skin cancer, where survival rates a year after diagnosis had been only 25%, Merck eventually showed that patients on Keytruda survived more than 2½ years on average, and that nearly 40% of patients were alive after seven years.

Today, countless patients owe years of their lives to Keytruda. The FDA has expanded its approval of the drug dozens of times to cover new cancers and new indications, and it has become an era-defining drug; one of the most important medicines ever discovered by the pharmaceutical industry.

With a list price of $22,600 when administered every six weeks, Keytruda is now the top-selling drug in the world. Analysts, according to FactSet, expect sales to peak at $33.3 billion in 2027.

But the nature of success in the pharmaceutical industry means that the enormous Keytruda revenue will soon pose a problem of unprecedented scale for Merck. The company currently relies on the medicine for roughly 40% of its total revenue.

Merck expects the patents protecting Keytruda to expire in the U.S. in 2028, at which point it will begin facing competition from copycat medicines known as biosimilars. Amgen and Samsung Bioepis are already testing their own versions of Keytruda. A large handful of biosimilars could be on the market by 2028 or 2029.

And that will happen just as Keytruda becomes eligible for a government program that could allow Medicare to pay reduced prices for the medicine beginning in 2028.

That could all spell a dramatic revenue drop for Merck as the decade comes to a close. The overall impact is impossible to predict given the unprecedented size of the Keytruda market, the complexity of biosimilar competition, and the novelty of the Medicare price negotiation program.

But a long history of patent expirations in the pharma industry suggests that Merck will face a revenue hole of some $16 billion by 2029 or 2030, and that’s assuming that multiple things go right.

And yet Wall Street isn’t paying much attention to Merck’s vulnerability. Heading into the second-quarter earnings report, 23 analysts rated the stock a Buy, with just five Holds and not a single Sell. The stock has returned 64% over the past three years, more than double the S&P 500.

And while traders have punished Pfizer and Bristol Myers Squibb for their own coming patent expirations, Merck’s valuation has remained steady. The company’s stock trades at 12 times estimated earnings for next year.

Rivals that face similar patent issues fetch lower multiples. Pfizer trades at 11 times 2025 earnings estimates, while Bristol trades at just seven times. Both companies could lose billions in annual revenue due to patent expirations by the end of the decade.

For Merck, Keytruda’s patent expiration is no secret. Executives have been fielding investor questions on the topic for at least five years.

Company executives have sought to turn investor attention past the Keytruda expiration and into the next decade. “I see it as more of a hill than a cliff,” Merck CEO Rob Davis said on an investor call in April. “My confidence that we’re going to come back with fast growth after this is very high.”

Davis’ confidence is well earned. In September 2021, in his first months as CEO, Davis made a risky $11.5 billion bet on a biotech company called Acceleron Pharma, which was then testing a new cardiovascular medicine. The trial returned positive results a year later, vindicating Davis’s acquisition. The FDA approved the drug, now called Winrevair, earlier this year. Analysts expect sales to hit $6 billion in 2029, according to FactSet. Jefferies analyst Akash Tewari estimates that Winrevair could eventually peak with $11 billion in annual sales.

Despite the China worries, Gardasil has become a key product for Merck. After growing more than 20% annually in recent years, sales could hit nearly $10 billion in 2024. Vaccines are generally exempt from patent worries, so Gardasil sales could keep climbing for years.

What’s more, Merck has a packed pipeline. Early this year, Merck said that by the early 2030s, it could see more than $20 billion in annual revenue from cancer drugs currently under development, plus $15 billion in revenue from Winrevair and a handful of other cardiometabolic drugs, plus billions more from tulisokibart, an immunology drug acquired in Davis’ $10.8 billion buyout of Prometheus Biosciences.

That adds up to a potential $35 billion in revenue, enough to keep Merck bulls more than satisfied despite the looming Keytruda expiration. “We have a very broad and deep portfolio with multiple levers,” Davis tells Barron’s. The pipeline, he says, may be the biggest in Merck’s history.

Much of Wall Street agrees. “It’s my favorite idea in the space,” says Chris Shibutani, who covers Merck for Goldman Sachs.

But pipelines are far from guaranteed, and disappointments are part of the process.

One thing Merck does not have is its own version of the hot new weight-loss medicines that have made Eli Lilly and Novo Nordisk worth more than half a trillion dollars each. An acquisition of an obesity-focused biotech like Viking Therapeutics could excite investors. Davis has said the company will continue to make deals.

For the foreseeable future, though, Keytruda remains vital to Merck’s future. The company is betting on its strategy—call it Keytruda 2.0—to extend the financial value of the drug well past its expiration.

Today, every dose of Keytruda is administered intravenously during a 30-minute session at a hospital or clinic. Merck is currently testing a new version of Keytruda that could be quickly injected into the skin.

That new subcutaneous version would be more convenient for patients and doctors, but would also have big commercial benefits for Merck. It would mean that the biosimilar versions of intravenous Keytruda that hit the market in 2028 would need to compete with Merck’s new subcutaneous version, which competitors wouldn’t be allowed to copy, leaving open an avenue for Merck to hold on to significant Keytruda revenue.

Merck executives say the new version of the drug could also be exempt from the Medicare price negotiation program.

Davis told investors in April that roughly half of Keytruda volume could move to a subcutaneous version by 2028. He implied there would be a competitive price for the treatment to achieve “quick adoption,” presumably an effort to stave off competition from biosimilar offerings.

It’s a somewhat daring approach to replace billions in annual revenue, particularly since the subcutaneous treatment approach remains in trial. Even so, analysts say the idea has connected with investors.

“Nobody thinks it’s a home run, like every payer is going to let this happen,” says Daina Graybosch, an analyst at Leerink Partners who covers the stock. “But people assume that there’s a certain proportion of patients and payers that will have a real access reason to use this.”

Still, if the plan falls through, the stock could take a hit. “For investors, it will be a big deal,” Graybosch says.

Data from a key trial of the subcutaneous version of Keytruda are expected later this year. Those results need to be positive for Merck to move forward as planned. The trial combines Keytruda with an enzyme called hyaluronidase that helps disperse injected drugs through the body.

Merck rivals Roche and Bristol have licensed versions of the same enzyme for their subcutaneous cancer drugs.

Merck has already abandoned a plan for a subcutaneous Keytruda without that enzyme. A trial of that treatment met its predefined goal, but analysts at South Korea–based Shinhan Securities who spotted the results in a federal database highlighted slightly higher death rates among lung cancer patients who took the subcutaneous shot than among those who took the intravenous Keytruda. The company says the differences weren’t significant.

As Barron’s reported in June, Merck chose not to publicize those results, a decision at odds with its transparent approach to other Keytruda trials.

A successful trial for subcutaneous Keytruda won’t resolve the other issue hanging over Merck—whether the new treatment will be exempt from Medicare price negotiation.

The answer will come down to how the next administration interprets a portion of the Inflation Reduction Act that empowers Medicare to negotiate some drug prices—leaving plenty of uncertainty for investors.

The Centers for Medicare and Medicaid Services has yet to issue guidance for the 2028 price negotiation process. CMS can negotiate new Medicare prices for many drugs 13 years after approval, but existing guidance suggests that timeline gets reset when an older drug is combined with another medicine. That’s what Merck intends to do with Keytruda.

Davis says Merck is “quite confident” that subcutaneous Keytruda will be exempted from the price negotiation program, based on the language CMS has published so far.

That may not be the final word, however. Richard Frank, a senior fellow at the Brookings Institution and director of the think tank’s Center on Health Policy, says that the guidance leaves open too many questions. “You could add aspirin to anything and call it a combination product,” Frank says. “Obviously they are not going to allow that to happen.”

In comments he submitted to CMS, Frank said that the guidance on combination drugs doesn’t “offer sufficiently complete direction.” He told Barron’s that he expects CMS to clarify the guidance this fall.

Ultimately, though, Merck’s Keytruda pricing could become part of the political football that takes place as Medicare rolls out its closely watched negotiation program. That isn’t a game Wall Street can easily forecast.

Davis, for his part, says the outcome isn’t make-or-break for Merck. “I have multiple paths to get where I need to be,” he says.

He repeated his mantra about Keytruda’s expiration. “When I talk about the hill versus the cliff, it’s taking the totality of all of that opportunity, and the fact that we have more coming in our pipeline,” he says. “We’re going to continue to invest.”

Merck’s fundamentals remain solid. The pipeline is strong, and the executive team has a record of successful acquisitions. But Keytruda’s long-term success could be out of the company’s control. It’s a wild card worth billions of dollars. And as of now, Merck’s stock doesn’t reflect the risk.

The global private credit craze is spilling into the globe’s fastest-growing region, Asia—with explosive potential, eventually.

Goldman Sachs Group and Mubadala Investment, the sovereign wealth vehicle of Abu Dhabi, announced a $1 billion Asian private credit fund in February. That follows a $1.1 billion vehicle that private markets giant KKR unveiled two years ago.

These ventures look tiny compared with the $34 billion U.S.-oriented direct lending fund that Ares Management just announced, breaking industry records. But Asia’s growth curve could be steep.

“Asian credit markets are bigger than the U.S. and Europe combined, and they show increasing need for out-of-the-box thinking,” says Michael Ewald, global head of Bain Capital’s private credit group.

Asia shows some of the precursors that set private credit afire in the West after the 2008-09 financial crisis. Banks still dominate the market, accounting for 79% of total credit in the Asian-Pacific region compared with 33% in the U.S., according to Nomura.

Regulators increasingly restrict those banks’ lending after past excesses, says Michel Lowy, whose Hong Kong–based SC Lowy is aiming for $750 million in its third regional private credit direct lending fund. His firm lately jumped in to fund an Indian plastics manufacturer that was barred from bank financing “at the holding company level,” for instance. South Korean authorities are tapping the brakes on banks that look overexposed to real estate, Lowy adds.

Private equity, which drives most large private credit transactions in mature markets, also looks poised for a breakout in Asia as interest rates edge down and economies rev up. Asian private-equity funds were sitting on $486 billion in “dry powder” at the end of last year, according to consultant EY.

Private credit faces plenty of obstacles in Asia, too. The region’s two economic giants, China and Japan, are largely off the radar screen: China because lenders fear the political crossfire, and Japan because bank finance remains cheap and abundant.

That leaves a choice between smaller economies like Australia, with reliable grounds rules, and high-growth markets like India, where governance looks shakier. Big global credit names tilt toward the former, though Indian private credit deals jumped nearly 50%, to $7.3 billion, last year, EY reports.

Bank credit remains entrenched in Asia for both political and cultural reasons, says Jeffrey Griffiths, head of private credit at private markets advisor Campbell Lutyens. “Governments in Europe and Asia want to see banks continue to support local companies,” he says.

Asian business, ex-Japan and China, is dominated by family firms with conservative attitudes toward debt, he adds. “The family-backed entrepreneur doesn’t want the levels of leverage you often see in the U.S.,” Griffiths says.

Asia isn’t a major focus for the new frontier in private credit—loans to investment grade corporates, says Michael Zawadzki, global chief investment officer for Blackstone Credit and Insurance.

“You’ll see this expand in North America first, then Europe and Asia,” he says. “Our geographies for investment grade are all in developed markets with established bankruptcy and credit protections.”

Over time, Wall Street’s latest financial alchemy will find its place on the continent whose capital needs are growing most voraciously.

“Asian private credit is an increasing focus for many asset allocators,” says Michael Small, a member of KKR’s global private investment committee. “With a high degree of certainty, I’d say most allocators will be talking about it in five to 10 years’ time.”

There may be opportunity in beating the crowd, though.

The yen carry trade sell-off marks a step change in the business cycle

Gyrations in global markets come at a time of a monetary policy shift between the US and Japan

At first glance the wild gyrations in global markets over the past 10 days appear to have been driven by increased fears of US recession and of the Federal Reserve having been caught napping. Weak labour market data together with gloomy survey evidence on the state of the country’s manufacturing induced weakness in crowded and exuberantly valued areas of the US equity market such as tech. In short, an army of momentum traders was drastically wrongfooted by extreme volatility in thin August markets.

Yet the recession fixation borders on perversity given that the economy was growing at 2.8 per cent in the second quarter and that a weaker labour market is a precondition for the achievement of the Fed’s 2 per cent inflation target. That reminds us that one of the hazards of data-dependent monetary policy — Fed speak for steering by the rear-view mirror — is constant overreaction to new data releases.

A more fundamental point behind sky-high volatility is the relative monetary policy shift between the US and Japan. While Fed chair Jay Powell has clearly signalled that a rate-cutting cycle will begin in September, his Japanese opposite number, Kazuo Ueda, shifted policy aggressively last week. In addition to raising the policy rate, he indicated that there was more tightening to come.

The consequent rise in the yen caused a dramatic unwinding of the yen carry trade whereby investors borrow in the low-interest Japanese currency to invest in higher-yielding assets elsewhere, including US tech stocks. After years of yen weakness and negative interest rates this trade has ballooned. For want of good data the dynamics of the unwind are difficult to read. But TS Lombard estimates that investors may need to find up to $1.1tn to pay off yen carry-trade borrowing.

The risk now is that Fed cuts to address soft labour markets and the threat of recession will cause more carry trades to unwind, with further disruption in the markets globally.

This all marks a step change in the evolution of the business cycle. During this century and within the memory of most people on today’s trading floors, recessions have been precipitated by financial booms turning to busts. Central banks have then acted as lenders and market makers of last resort to address the resulting financial instability. Such action has taken place against the background of quiescent inflation courtesy of globalisation and the erosion of the pricing power of labour and companies.

In the 1980s and 1990s, by contrast, recessions were induced by a tightening of monetary policy to bring inflation under control. Because financial institutions were more heavily regulated there was less financial instability. Inflation was the chief yardstick for judging the sustainability of economic expansions, as opposed to financial imbalances.

A combination of the pandemic and the war in Ukraine has created economic circumstances very similar to the late 20th century. But thanks to financial liberalisation the scope for financial upsets in a monetary tightening cycle is much greater, as the collapse of Silicon Valley Bank and others showed last year. 

How much more financial vulnerability might be exposed in this cycle is an open question. Because of the long period of ultra-low interest rates since the 2008 financial crisis, much private sector borrowing has been at fixed rates and long maturities, so credit stress from the sharp interest rate rises of the past two years has been delayed. And then there is huge uncertainty around the extent of risk taking in the burgeoning non-bank financial sector.

There are nonetheless grounds for regarding the setback in equities as a healthy correction. Market buoyancy this year has been overdependent on hype around artificial intelligence in the so-called Magnificent Seven tech stocks. Note that Elroy Dimson, Paul Marsh and Mike Staunton in the UBS Global Investment Returns Yearbooks have established that over more than a century investors have placed too high an initial value on new technologies, overvaluing the new and undervaluing the old.

A benign feature of the correction is that price correlations between bonds and equities have gone from positive to negative. That is, they no longer move in lockstep and provide investors with the benefit of diversification because they act as a hedge against each other. This is important because diversification helps address the problem of market concentration and the excessive weight of tech stocks in the US market.

In a knife-edge US presidential election year it is a safe bet that volatility will not go away, though history tells us that over the long run it is mean reverting. For investors looking for havens gold was a disappointment this week, falling alongside equities. But that was probably a reflection of investors selling to meet margin calls on riskier assets.

Over longer periods and against the background of geopolitical turbulence and continuing financial fragility the yellow metal will offer valuable diversification, as it has done over centuries. Do not expect anything remotely comparable from crypto.

The agency declined to approve the psychedelic drug’s use treating post-traumatic stress disorder

The Food and Drug Administration turned down an ecstasy-based drug.

The agency rejected use of the drug, known as MDMA, along with mental-health therapy in the treatment of post-traumatic stress disorder. It asked Lykos Therapeutics, which had sought the approval, to test the drug therapy further, the company said Friday.

The decision is a setback for decades of efforts to legalize psychedelics and a disappointment for veterans advocates and other groups that have been seeking a new, better medicine for treating the 13 million Americans with post-traumatic stress.

Yet it isn’t a surprise, after FDA staff and expert advisers raised questions about the studies evaluating whether the MDMA drug from Lykos Therapeutics worked safely.

Lykos said the FDA told the company it couldn’t approve the drug therapy based on the data submitted to date. The company said it would ask the FDA to reconsider its decision, as well as to discuss the agency’s recommendations for submitting another application.

“There’s a clear need that’s out there,” said Lykos Chief Executive Amy Emerson. “The need doesn’t go away, and the data that we have doesn’t go away.”

Emerson said Lykos believes it can address the FDA’s concerns with the study data it has already collected and references to scientific literature. She said conducting the late-stage study requested by the FDA would take several years.

Other companies chasing psychedelic drugs that promise to help with debilitating mental-health problems are expected to continue their pursuits.

Investors, who have plowed billions of dollars into the companies, said they have hope for other psychedelic drugs in the works because they are being tested differently than the MDMA drug.

MDMA, or midomafetamine, has been a favorite of clubgoers because it can reduce inhibitions and promote feelings of euphoria.

Its use, outside of specific medical settings authorized by drug regulators, has been illegal. Ecstasy shares the same Drug Enforcement Administration classification as heroin and LSD.

Use of the drug can result in serious side effects, including sharp increases in body temperature that can cause organ failure, brain swelling and, in rare cases, death.

About 13 million Americans, including some veterans and victims of sexual assault, suffer from post-traumatic stress. Few medicines are approved to treat them, and doctors and patients complain they don’t usually work well.

Lykos’s drug had raised hopes for a new, better option. The data Lykos sent the FDA from its two major clinical trials showed the treatment significantly reduced patients’ PTSD symptoms and caused many of them to no longer qualify for their original diagnoses.

Dozens of members of Congress signed a letter earlier this week urging FDA to approve the treatment and highlighting the need for treatment options for veterans.

But company-sponsored studies were marked by problems.

A subject of a middle-stage trial said she was sexually assaulted and abused by the married therapists overseeing her involvement. Her lawsuit against the therapists was settled out of court on undisclosed terms.

Lykos has said what happened was malpractice and that it cut ties with the therapists.

The Wall Street Journal reported that suicidal thoughts worsened in three people during and after testing, but the studies didn’t capture that. They said they felt pressure to report positive results and support a history-making treatment.

Some of the therapists who were conducting the trials also administered ecstasy on the side in “underground” therapy sessions, The Journal reported.

Lykos has said it conducted studies properly, after consulting with the FDA, and the experiences of three people shouldn’t undermine overall positive study results. The company said it wasn’t aware of therapists involved in the trials who were administering ecstasy illicitly at the same time.

In June, experts advising the FDA recommended against approval. The advisers expressed concerns that the data Lykos presented was incomplete or unreliable, pointing out that 40% of patients in the trials had previous experience with MDMA and other unusual elements of the clinical trials.

Industry experts said other companies developing psilocybin, LSD and other psychedelic drugs for mental-health disorders will use the FDA’s rejection as a guide.

“It seems like the issues are Lykos-specific, not something to do with FDA’s broader views of the class of medicine,” said Matthew Baggott, chief executive of Tactogen, a company developing drugs similar to MDMA.

Kabir Nath, CEO of Compass Pathways, said its final-stage testing of psilocybin for treatment-resistant depression takes a different approach than Lykos’s.

For instance, the Compass final-stage studies follow patients for an entire year, rather than the several months that Lykos looked at. Also, Compass will pair its drug with support from a mental-health professional, rather than therapy—a difference that Nath said should make it easier for the FDA to discern the effects of the drug itself.

Rick Doblin, a board member of Lykos and founder of the advocacy organization that created it, has spent roughly four decades advocating for psychedelics. He said before the FDA’s decision that he would remain hopeful about MDMA’s future no matter which course the agency took.

“Whatever FDA says, there will be a pathway towards approval,” he said. “I don’t intend to stop working on this until FDA approval has been obtained.”