TheChek News Flow

Helmed by two molecular scientists and an Estée Lauder Cos. alum, SickScience aims to tackle myriad beauty concerns using its proprietary NX35 exosome-isolating technology.

SickScience cocreator Tyler Heiden Jones was in Paris attending the 2022 IMCAS medical research conference when he heard molecular scientists Polen Koçak and Merve Yildirim discussing the potential of exosomes — more specifically, exosome isolation — in regenerative medicine.

“I nearly fell out of my chair during the presentation,” recalled Heiden Jones, who formerly led marketing at La Mer for several years before becoming general manager at Kosé and, most recently, heading up retail sales and marketing at Nécessaire.

“As a marketer, you’re always looking for that ‘next big thing.’ Normally it’s a slow evolution of improvement; the ‘next’ thing will be marginally better than what came before it, but when I saw this I thought, ‘oh my god — this is a big deal.'”

Exosomes are microscopic vesicles that facilitate intercellular communication and transport molecules like RNAs, proteins and lipids. While research into how the particles can benefit cancer treatment, obesity and diabetes management is well underway, exosomes are relatively new to the average beauty consumer’s lexicon — though avid proponents like Dr. Barbara Sturm and Dr. Will Cole have given them a recent boost in visibility.

Importantly, exosomes are notoriously challenging to isolate — a crucial step in wielding their benefits. To overcome this, college-classmates-turned-cofounders Koçak and Yildirim embarked on a 10-year-long research journey that led to the creation of their proprietary exosome-isolating NX35 technology.

And though the Istanbul-based pair were not presenting their findings in Paris with the intent of launching a beauty brand, a meeting with Heiden Jones to discuss the viability of leveraging the technology to improve skin, hair and body care treatments quickly led to the genesis of SickScience.

Launching direct-to-consumer Monday, the beauty brand’s debut stock keeping unit is the ShapeShift V-Line Jaw Defining Serum, which retails for $58 and taps pineapple-derived exosomes to combat “tech neck” and create a more sculpted-looking neck and jawline.

“Traditionally, slimming products will aim to increase firmness and elasticity, or increase blood pressure using caffeine — we’re not doing that. Our exosomes carry the message to fat reserves to naturally metabolize lipids in the body,” said Yildirim.

A key aim of the clinically tested, vegan serum is to offer a more accessible alternative to aesthetic or medical treatments that reduce jaw fat.

“We know [the jaw] is a very difficult area to work with, and we thought this is a great way to sort of plant our flag and say, ‘this is what we stand for’ — problem-solution products for concerns that we don’t feel are being addressed in the cosmetic industry — only through medical procedures,” said Heiden Jones.

The brand’s second launch coming in April will be a hair offering that harnesses garlic-derived exosomes aiming to stimulate growth.

“We like the idea of what we call a ‘popcorn strategy’ — problem solving and jumping through various categories like face, scalp, body,” he said. “NX35 isn’t a magic ingredient; it’s a technology that is applied differently for each product in order to get a desired result.”

Though the brand did not specify sales estimates for the launch, industry sources estimate SickScience could do around $2 million in sales during its first year on the market.

As far as marketing goes, Koçak and Yildirim themselves will take to the brand’s social media platforms to educate consumers about the biotech behind the formulas.

“We know full well this will be a long battle of building awareness,” said Heiden Jones, adding to that end that the brand is betting big on third-party clinical trial results and consumer testimonials to drive growth and build a loyal consumer base.

The brand’s lab-to-market process takes roughly nine to 12 months per new innovation, he said, and while the company’s near-term focus is getting SickScience off the ground, there is potential down the road “that we’ll have learned enough to reduce [manufacturing] costs that we could create a viable raw material business, separate from SickScience.”

Banks strike back at private credit in ‘aggressive’ push to win deals

About $10bn of loans have been refinanced in public markets as conditions improve due to rate cuts being on the horizon

Buyout firms are shaving tens of millions of dollars off interest costs by refinancing debts racked up in private credit markets with publicly traded bonds and loans, delivering a windfall for the Wall Street banks that arrange them.

Roughly $10bn of so-called private credit loans have been refinanced in public markets, as borrowers pay down burdensome loans in favour of a cheaper alternative, according to data from Bank of America.

Private equity firms that buy out companies are taking advantage of a recovery in global corporate bond and loan markets, after the Federal Reserve signalled that inflation had been sufficiently tamed for it to begin cutting interest rates.

That shift has opened the door for investment banks to pitch hard for business that they lost to private lenders after rates dramatically rose in 2022, with the banks hoping for a revival of lucrative fees.

“Pressure is coming from sponsors for the coupons to be cut and this is just a race to the bottom between the banks and the direct lenders,” said Neha Khoda, a strategist at Bank of America.

The list of borrowers shifting from private to public debt markets includes Veritas-backed energy consultancy Wood Mackenzie and UK insurance broker Ardonagh, according to people briefed on the matter. Ardonagh is owned by Madison Dearborn and HPS Investment Partners.

Other firms, including Blackstone and Hg, have sought cut-rate loans for new deals, with banks and the direct lenders of the private credit industry often being played against each other as private equity firms look to whittle down interest costs.

It culminated last week with the sale of a $5bn loan that backed KKR’s purchase of a stake in a healthcare technology company known as Cotiviti. An aborted investment last year in Cotiviti was initially to be funded by direct lenders, as ructions in public markets pushed banks to the sidelines.

But banks led by JPMorgan Chase lobbied hard to underwrite a financing over the past four months as a new deal moved closer to the finish line. The package they clinched on Thursday included a $4.25bn loan that pays an interest rate just 3.25 percentage points above the Sofr floating rate benchmark, a level far below the threshold considered last year by private lenders. The company also raised a $725mn fixed-rate loan with a coupon of 7.63 per cent.

The changing market conditions offer an opportunity to banks, which were saddled with billions of dollars of losses on the deals they agreed to finance in 2022.

Scorching inflation and rapidly rising interest rates made it difficult for big lenders to shift loans off their own balance sheets and into the hands of other investors.

That included loans associated with some marquee buyouts including Elliott Management’s takeover of technology business Citrix, Elon Musk’s purchase of social media company Twitter and Apollo’s acquisition of telecommunications group Brightspeed. The losses limited lenders’ interest in extending new loans, and when they did the terms were often too expensive for private equity firms to turn to.

Private credit funds stepped into the gap, writing multibillion-dollar loans to companies including Norwegian online classifieds company Adevinta and software maker New Relic, and providing money at a time when cash was harder to come by.

“Direct lenders made significant market share gains on the banks because the banks were undergoing periods of stress,” said Kipp deVeer, head of Ares’ credit business. “Those market share gains are lasting but it ebbs and flows.”

The gulf between the two worlds had not been this wide in at least a decade, said Khoda. By her calculations, direct lenders were charging roughly 2.5 percentage points more than banks. A year ago, that figure was a full percentage point lower.

“As we’ve turned the year you see banks being more aggressive,” said Chris Bonner, who heads leveraged finance capital markets for Goldman Sachs. “You have seen more stability in the ecosystem, [with investors] feeling rates are finally coming down . . . As an underwriter you’re more comfortable putting on risk positions.”

This shift has heaped pressure on private credit lenders, which are either rapidly reducing the costs they charge borrowers — in some cases waiving fees to keep deals in their hands — or losing those deals to traditional syndicated loan markets.

The issue may present less of a challenge for the colossal money managers that straddle both worlds, given many of the giants in the private credit industry — including Ares, Blackstone and KKR — are also massive players in public debt markets. But the direct lending funds they manage may begin to post lower returns, investors said.

In a board meeting last month, an executive at the $105bn Ohio Public Employees Retirement System said the generous return on private credit may shrink as competition intensifies. “It wouldn’t surprise me in the coming years if we do see some compression in terms of the spread we are able to earn,” she said.

Pressure on yields has also been exacerbated by a dearth of big mergers and acquisitions since the Fed began raising rates.

“There have been fewer LBOs and therefore less new loan volume,” said Michael Patterson, a governing partner at asset manager HPS Investment Partners.

“Managers have not invested as much capital as they expected and . . . want to make sure they participate in the next opportunity. And they’re willing to be aggressive to make sure they do.”

Fees underwriting these risky deals in the US have risen 35 per cent year to date to $1.8bn, according to data from LSEG, and are up 10 per cent globally.

Nonetheless, banks have quite a bit of room to make up, given they earned about $11bn on their US leveraged finance businesses in both 2023 and 2022. That was down a third from 2021 levels, when it surged above $16bn.

Risks still lurk, and bankers say they have not forgotten how quickly things could unravel like they did in 2022. But they are hopeful that now is their time to strike, particularly in an election year when markets may be more volatile.

Private credit lenders add that they are not going anywhere. Even as fundraising slows from its white-hot pace, large managers are still pulling in billions of dollars a quarter to make new loans.

“In order for you to have a functioning capital markets ecosystem you want the banks involved,” said Milwood Hobbs Jr, a managing director at Oaktree, the investment manager. “Everyone is losing sight of the fact that this market is too big for just private credit or banks.”

Finance ministry accountant general says demobilisation of reservists will boost economy

Israel plans to raise about $60bn in debt this year, freeze government hiring and increase taxes as it almost doubles its defence spending to support its war in Gaza, according to a senior finance official.

Israel’s more than four-month conflict with Hamas has taken a severe toll on the economy, which shrank almost 20 per cent on an annualised basis in the last quarter of 2023.

The hit came as the government mobilised a record 300,000 reservists; tens of thousands of people were displaced in the north and south of the country; and consumer spending slumped. About 150,000 Palestinians workers have also been prevented from entering Israel from the occupied West Bank.

But Yali Rothenberg, the finance ministry’s accountant general, told the Financial Times that he expected the economy to begin to recover as large numbers of reservists are demobilised and consumer spending picks up.

“The economic fundamentals are there,” he said. “If you look at the high-tech sector, it’s there. If you look at the infrastructure investment, it’s there. If you look at the private consumption, it’s there.”

Rothenberg said a critical factor in restoring the health of Israel’s economy was the demobilisation of reservists. He said that the number still serving was about a fifth of the 300,000 called up after Hamas’s October 7 attack that killed 1,200 people, according to Israeli officials, and triggered the war.

That number was expected to drop to between 30,000-40,000 by the end of March, he added, saying the conflict was “de-escalating”.

“This is the scenario which is budgeted,” Rothenberg said.

The government is, however, threatening to expand its offensive in Gaza to Rafah, a southern city where more than 1mn people already displaced from their homes have sought sanctuary, despite international warnings that an assault in such a densely populated area would be devastating.

The Israeli offensive has killed more than 29,000 people, according to Palestinian health officials, devastated huge swaths of the strip and forced more than 85 per cent of the 2.3mn population from their homes.

And despite demobilising thousands of reservists, Israel has said it expects to maintain a security presence in the strip for the foreseeable future. The office of Prime Minister Benjamin Netanyahu on Friday released a plan for postwar Gaza that envisages Israel maintaining a sizeable security buffer within the enclave.

There are also concerns that almost daily clashes between militant movement Hizbollah and Israeli forces across the Lebanese-Israeli border could escalate into a full-blown conflict.

It is against this backdrop that the government plans to raise defence spending this year by 55bn shekels ($15bn), an 85 per cent increase on the prewar defence budget. That would push defence spending to about 20 per cent of the 2024 budget, the finance ministry said, up from 13.5 per cent before the war. The draft budget for 2024 is being reviewed by committees in the Knesset and is expected to be passed next month.

“We think there will be increased defence spending in Israel for the coming years,” Rothenberg said. “This is why we took the fiscal steps right now.”

He added that a committee of experts from outside the government had been established to advise on future defence spending.

State revenue for 2023 came in at 12bn shekels below forecast, while the government increased spending by about 26bn shekels because of the war. That included an additional $4.7bn on defence as the finance ministry issued special permits to allow the government to operate outside the budget immediately after Hamas’s October 7 attack.

In a bid to balance the books, the ministry plans to increase value added tax from 17 per cent to 18 per cent in 2025, while this year and next it will increase taxes such as those on smoking and banking, freeze government hires and defer public sector wage increases.

Moody’s this month lowered Israel’s sovereign rating from A1 to A2 over concerns about the war in Gaza, its indefinite duration and the broader impact on the economy. The rating agency also lowered Israel’s debt outlook to negative due to the risk of the conflict spreading to the country’s northern front. 

Last month, Israel’s central bank governor urged the government to rapidly curb spending, warning that its market “credibility” depended on it making budget adjustments, including cuts to expenditure and increases to revenue.

Israel’s government is forecasting a budget deficit of 6.6 per cent of gross domestic product this year, and predicts that growth will drop from 2 per cent in 2023 to 1.6 per cent this year.

After the war broke out, it borrowed about 81bn shekels, pushing the debt-to-GDP ratio to about 62 per cent, its highest level in about eight years.

The ministry expects that ratio to rise by another five or six percentage points this year as it looks to tap domestic and international markets to raise about 250bn shekels. However, it forecasts that debt-to-GDP will remain below 70 per cent.

Rothenberg, who has been meeting investors in New York and London, said most of the debt would be raised locally, but added the ministry was looking “intently” at the dollar market, saying “everything was on the table”.

“Investors really want to own some Israeli paper, they think it’s an opportunity and people recognise the de-escalation,” he said.

German stocks have stalled this year after a decent 2023. The Global X DAX Germany exchange-traded fund has gained less than 1% year to date, while the S&P 500 index jumped another 5%.

No wonder. Europe’s biggest economy shrank last year, and the Bundesbank just predicted more of the same for the first quarter. Airbus

Expectations for corporate profit increases have cratered from 8% at the start of the year to 1%, says Uwe Hohmann, equity strategist at Metzler Bank in Frankfurt. The government lost 177 billion euros ($191 billion) in spending power when the Constitutional Court ruled last November that it couldn’t repurpose revenue left over from an emergency pandemic fund. Transit strikes are roiling the land of labor-management consensus.

It’s early to say that Germany is returning to the “sick man of Europe” status it occupied two decades ago. But an uneasy stasis could last a while. “Germany will not get out of this stagnation very easily or quickly,” says Carsten Brzeski, chief euro zone economist at Dutch bank ING.

Germany has been a big loser from recent geopolitical fissures. It rocked for most of this century on cheap Russian natural gas feeding industries that sold on to a voracious China. Russia cut off its end entirely after invading Ukraine in 2022. China is buying less and competing more, most notably in automobiles.

“What we are seeing in Germany clearly stems from a world that has changed,” says Matt Gertken, geopolitical strategist at BCA Research.

Germany’s internal fabric isn’t in the best shape to combat these external challenges. Chancellor Olaf Scholz presides over a fractious three-party coalition with approval ratings below 20%. Societal “complacency” runs deeper, Brzeski says.

The country has slipped steadily in World Economic Forum competitiveness rankings, coming in a derisory 22nd for 2023. The mighty automotive complex dozed through the early stages of the electric-vehicle transition. “I remember the auto industry laughing at Tesla, saying this isn’t a car,” Brzeski says.

With government debt around 60% of gross domestic product, half the U.S. level, Germany might benefit from some stimulative deficit spending. But a constitutionally enshrined “debt brake” limits budget gaps to 0.35% of GDP. The two-thirds parliamentary majority to overturn it looks well out of political reach.

Not everything is quite so bad. European natural-gas prices have fallen well below pre-Ukraine War levels, thanks in part to the Scholz government moving fast to replace Russian imports. Energy-intensive industries like chemicals are “thinking twice about leaving the country,” says Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Employment is at record levels. Real wages are rising a bit as inflation subsides and labor shortages loosen employers’ purse strings.

The biggest listed German companies are more dependent on the global economy in any case. Software giant SAP, machinery colossus Siemens, financial empire Allianz, and jet maker Airbus (AIR.Germany) account for a third of the DAX index among them.

The market is still cheap, at least relative to the U.S. The average price/earnings ratio is 12, a hair under the historical mean of 12.5 and half the S&P 500’s multiple, Hohmann reports.

“We have lots of industrial names with mid-single digit P/Es, which could gain with any acceleration in demand,” he argues.

Writ large, though, Germany looks stuck. Angela Merkel cured the national malaise 20 years ago, loosening the labor market and trimming the welfare state. This time, no turnaround leader is on the horizon—at least not yet.