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Measure shows tensions in Congress over Biden administration’s $106 billion package

WASHINGTON—A group of Republican senators introduced a stand-alone bill that would send billions of dollars in aid to Israel but not Ukraine, underscoring the challenges facing a much larger $106 billion Biden administration proposal that includes more funding for Kyiv.

The group of GOP senators argues that separating the Israel aid would prevent the assistance from being bogged down in the House, where the number of Republicans opposed to funding Ukraine aid is growing, and now makes up more than half the GOP conference.

“My colleagues and I firmly believe that any aid to Israel should not be used as leverage to send tens of billions of dollars to Ukraine,” said Sen. Roger Marshall (R., Kan.), who is sponsoring the measure with Republican Sens. J.D. Vance of Ohio, Mike Lee of Utah and Ted Cruz of Texas.

The White House has proposed an emergency package that ties together funding for Israel, Ukraine, Taiwan and U.S. border security, an approach seen as boosting the chances for passage of the assistance to Kyiv, which has split Republicans. Minority Leader Mitch McConnell (R., Ky.) and other Senate Republicans allied with Ukraine have said they are generally supportive of the administration’s approach, but they are demanding changes, with an emphasis on substantive policies to tighten U.S. border security.

Marshall, Vance and Lee have opposed Ukraine aid in the past, while Cruz has supported it.

“Russia still needs to be defeated. Taiwan still needs to be defended,” Cruz said. “This bill is about one thing and one thing only: getting our Israeli allies the aid they need, as fast as possible.”

The standalone bill’s prospects, at least in the Democratic-controlled Senate, are dim, but it could exacerbate divisions among Republicans as McConnell tries to rally his caucus around the larger package and negotiate concessions on border policy from the administration. Any bill would need 60 votes to advance in the chamber, where Democrats have a 51-49 majority.

There is broad bipartisan support in Congress for aid to Israel, following the deadly attack by Hamas earlier this month. While Democrats back additional funding for Ukraine, some Republicans are skeptical of new aid, while others would prefer to finance weaponry instead of humanitarian aid or direct economic assistance to the Ukrainian government.

The House elected Rep. Mike Johnson (R., La.) as speaker on Wednesday, restarting work in the chamber after three weeks at a standstill. Lawmakers quickly passed a resolution saying the U.S. stands with Israel against Hamas.

Johnson was among 117 House Republicans who voted against $300 million in security assistance for Ukraine in September.

The GOP senators’ Israel bill, called the Israel Supplemental Appropriations Act of 2023, would provide $14.3 billion in aid. That includes $10.6 billion in military assistance to Israel through the Defense Department, including Iron Dome and Iron Beam systems, and funds to restock U.S. weapons sent to Israel, $3.5 billion in grants for foreign military sales, and $200 million to help shore up security for U.S. embassies and personnel in Israel and evacuate U.S. citizens in the region.

The proposed funding level for Israel is similar to the $14 billion requested for Israel by the Biden administration. But the administration put that money in a broader package that also included $61 billion for Ukraine, about $9 billion for humanitarian assistance to both conflict theaters, about $2 billion for security assistance in the Indo-Pacific and $14 billion for the border, which would pay for more-efficient processing of migrants seeking asylum, more border-patrol agents and asylum officers, and reimbursements to cities and private organizations that have set up shelters.

Congress has approved more than $100 billion for Ukraine since Russia invaded in early 2022.

Pentagon hopes security forum in Beijing next week will help restart military communications

China’s jet fighters are harassing American military aircraft and stepping up sorties around Taiwan. Its coast guard is confronting a U.S. security treaty ally in the South China Sea, leading to a recent collision.

Amid the tensions, talks between the U.S. and Chinese militaries remain largely frozen, which leads Washington to worry that a misstep could trigger a dangerous escalation.

The latest flashpoint is a clash between the Philippines and China over control of a reef in the South China Sea that could draw in the U.S. to defend its ally.

“If Manila requests American support for this mission, it brings into the picture a more serious Chinese challenge of American ships or aircraft,” said Zack Cooper, a former Pentagon official.

Scenarios could include a Chinese ship using a military-grade laser—as has happened against a Philippine ship—or locking its missile-targeting radar on a U.S. aircraft as a warning, according to Cooper, now a security analyst at the American Enterprise Institute, a Washington think tank.

President Biden said Wednesday that the U.S. stood by its legal commitment to defend the Philippines.

There are few active military communication lines between the U.S. and China, making it harder to coordinate a mutual effort to dial down tensions.

China cut off high-level military talks with the U.S. in August 2022 in response to the visit to Taiwan by then-House Speaker Nancy Pelosi.

Among the casualties were annual talks at which American and Chinese military officers discussed ways to ensure safe military encounters at sea and in the air, a forum known as the Military Maritime Consultative Agreement that had been active since 1998.

Beijing also suspended a channel between the Pentagon and the Chinese military called the Defense Policy Coordination Talks that had been used to foster cooperation and discuss crisis management.

Adm. John Aquilino, the head of U.S. Indo-Pacific Command, said recently that he has sought talks with his Chinese counterparts for 2½ years without having a request accepted.

In its latest annual report on the Chinese military, the Pentagon said the absence of communication “raises the risk of an operational incident or miscalculation spiraling into crisis or conflict.”

From China’s perspective, that may be exactly the intention. Chinese military scholars say Beijing wants the U.S. to feel the danger of taking what China sees as provocative actions such as flying and sailing close to Chinese territory or areas over which China seeks to exert control.

“If on one hand you put too much pressure on me with so much aggressive behavior, and on the other side you say, ‘OK, please come out and we will talk about guardrails or crisis management,’ it doesn’t make sense,” Senior Col. Zhao Xiaozhuo, a senior fellow at China’s Academy of Military Sciences—a research institute controlled by the People’s Liberation Army, as China’s military is known—said in June.

“If I talk with you, that will legitimize your aggressive behavior,” Zhao said.

U.S. officials are hopeful that a shift by Chinese leader Xi Jinping to re-engage over diplomacy and economic policy could lead to progress in the military sphere. On Thursday, Chinese Foreign Minister Wang Yi is set to arrive in Washington for talks with Secretary of State Antony Blinken that may pave the way for a visit by Xi to the U.S. in November.

Biden administration officials say Blinken will raise actions by China’s military in the East China Sea and South China Sea that the U.S. considers provocations.

Meanwhile, the Pentagon plans to send officials to an annual security conference in Beijing next week known as the Xiangshan Forum, where U.S. defense officials have in the past held talks with their Chinese counterparts.

“In terms of hopefully kind of kick-starting some of the military-to-military engagements, yes, I’m hopeful that we’ll have an opportunity to do that in the coming months,” said Michael Chase, deputy assistant secretary of defense for China, this week in response to a question about the Xiangshan Forum.

Chad Sbragia, who attended the forum in 2019 as Chase’s predecessor, said he had a range of meetings with his counterparts, including Wei Fenghe, China’s defense minister at the time.

Sbragia said Beijing could still move to rebuild ties even in the absence of a defense minister. Li Shangfu’s removal from the post was confirmed by Beijing this week without explanation.

If China names a successor in time, the new minister might have an opportunity to meet Secretary of Defense Lloyd Austin at a regional defense ministers summit meeting in November in Jakarta, Indonesia.

“The key now will be to see if initial outreaches can mature into substantial exchanges,” Sbragia said.

Merck, Pfizer are the latest big pharma companies to invest in this booming area

A true home run in the drug industry is when a company develops a mega-blockbuster that transforms its finances for years.

But with Medicare trying to bring costs down by targeting the industry’s most expensive drugs, a portfolio of medium-size moneymakers that can keep your name off the U.S. government’s naughty list can be a wise strategy.

That is at least one reason why big pharma is investing heavily in biotech companies developing antibody-drug conjugates. Known as ADCs, these treatments work like a guided missile by pairing antibodies with toxic agents to fight cancer. In short, they enable a more targeted form of chemotherapy that goes straight into the cancer cells while minimizing harm to healthy cells.

Earlier this month, Merck and Daiichi Sankyo agreed to jointly develop and commercialize three potential ADCs in a deal worth up to $22 billion. That came after Merck was unable to come to an agreement to acquire Seagen, another ADC company that was later snagged by rival Pfizer PFE 0.99%increase; green up pointing triangle for $43 billion. While the three Daiichi ADCs in the Merck deal are promising, they aren’t going to be massive blockbusters. Akash Tewari, an analyst at Jefferies, sees peak sales for each drug in the hundreds of millions of dollars. A drug is considered a blockbuster if revenue exceeds $1 billion annually.

A silver lining of having a portfolio of medium-size moneymakers is that it keeps your drugs from earning a spot on an ever-growing list of top-selling drugs selected later in their life by Medicare for negotiation. Under the Inflation Reduction Act passed last year, Medicare will now be able to negotiate the prices of drugs it spends the most on and that don’t face competition from less-expensive copies. “A portfolio of smaller assets feels more fitting, portfolio risk-wise, for the era of the Inflation Reduction Act,” wrote Daina Graybosch, an analyst at Leerink Partners, after the Daiichi deal.

There are other provisions in the IRA that encourage ADC investments as well. For one, because they are complex biologics, they will be protected for longer than regular medicines. Price negotiation for small molecule medicines is allowed nine years after Food and Drug Administration approval compared with 13 years for large molecule biologics. In addition, because they are so complex to make, they also might avoid competition from copycat biosimilars well after their patents have expired, explains Andy Hsieh, an analyst at William Blair.

“When you produce biologics, even a slight temperature change can give you vastly different drug products,” Hsieh says. “At least in the near term, big pharma doesn’t see any sort of biosimilar encroachment into the field.”

The growing focus on ADCs, after an era during which Merck’s financials have been dominated by a single cancer drug, Keytruda, makes sense. Sales of Keytruda, which faces patent expirations later this decade, grew 17% in the third quarter to $6.3 billion, Merck said on Thursday. That represents nearly 40% of the company’s total revenue of $16 billion for the quarter. For the year, analysts expect Keytruda to bring in close to $25 billion in sales. That makes it the bestselling drug in the industry this year and means it will likely be selected for Medicare negotiation later this decade. Merck already had its diabetes drug Januvia selected in this year’s list and has filed a lawsuit challenging the U.S. government’s plan to negotiate drug prices.

One reason most ADCs aren’t likely to become mega-blockbusters like Keytruda, a cancer immunotherapy that has earned 35 approvals across 16 types of cancer, is that they aren’t one-size-fits-all drugs. Instead, they are designed to target a specific protein that is expressed on the surface of a cancer cell. That means that each drug is made with an antibody targeting a subset of cancer. There are more than 100 ADCs being tested in humans by pharma and biotech companies.

While the first ADC was approved in 2000 for acute myeloid leukemia, interest has been lukewarm for much of the past two decades due to various technical difficulties, including the ability to properly link the antibodies to the toxic payloads. As the technology has been refined, interest has picked back up in recent years, with companies such as AstraZeneca and Gilead Sciences joining in.

New drug pricing laws have made an already appealing technology even more attractive.

Central bank’s efforts to bring down inflation could be complicated by any escalation of Israel-Hamas conflict

Turkey has raised interest rates for the fifth time since June as the country steps up its battle against inflation and the threat of escalating conflict in the Middle East poses a fresh challenge to policymakers.

The central bank on Thursday increased the benchmark one-week repo rate by 5 percentage points to 35 per cent, matching the expectation of economists in a Reuters poll.

The big rate rise is the latest sign of how Turkey has sharply pivoted its economic policy since President Recep Tayyip Erdoğan was re-elected in May. Central bank chief Hafize Gaye Erkan has vowed since her appointment in June to tighten monetary policy as much as is necessary to cool inflation, which is running at more than 60 per cent. 

“Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in inflation outlook is achieved,” the central bank said, as it warned that “geopolitical developments pose risks to the inflation outlook” if they led to higher oil prices.

The price of international crude benchmark Brent has jumped nearly 20 per cent to $88 a barrel since the start of June. Production and export cuts by Saudi Arabia and Russia have partly driven the rally. But analysts also fear that any broadening of the Israel-Hamas war into a wider regional conflict will send prices even higher. 

Turkey imports the bulk of its energy and, in addition to boosting inflation, higher oil prices will make it more difficult for the government to achieve its goal of narrowing the country’s massive current account deficit. 

The central bank’s policy tightening and its recent communications have helped to rebuild its credibility and generate confidence that it is taking a more serious stance against inflation,” said Liam Peach, senior emerging markets economist analyst at Capital Economics.

Erkan’s central bank has more than quadrupled the one-week repo rate since June in an attempt to rein in inflation, which has been fuelled both by overheating domestic demand and elevated energy prices.

The higher-rate policy marks a stark contrast to Erdoğan’s long-held insistence that borrowing costs should be kept at low levels despite a prolonged period of high inflation.

Erdoğan in September publicly embraced tight monetary policy, something that has helped to ease scepticism that the Turkish president will change course ahead of next year’s local elections in which his Justice and Development party will attempt to take back control of the country’s biggest city, Istanbul. 

A central bank poll before Thursday’s rate decision showed Turkish investors and business leaders expected the one-week repo rate to be 39 per cent a year from now, highlighting how the local business community is braced for a long period of high borrowing costs. 

Higher rates are part of a broader economic overhaul that is being led by finance minister Mehmet Şimşek, who was appointed in June. The government has boosted taxes, taken a series of actions to slow consumer and commercial lending growth and allowed the lira to fluctuate more freely after curtailing a costly programme to prop it up. 

Foreign investors, who fled Turkey after years of unorthodox economic policies, have broadly taken an upbeat view on the new programme even if they remain sceptical about how much leeway policymakers will have ahead of next year’s municipal elections. 

Investors are also paying keen attention to Erdoğan’s response to the Israel-Hamas conflict. The Turkish president has stepped up his rhetoric against the Jewish state and its western allies in recent days. Turkish stocks fell sharply on Wednesday after he said Hamas, whose militants killed at least 1,400 people in its October 7 attack on Israel, was not a terrorist organisation but rather a “group for liberation”.

Helping to counterbalance those concerns was Erdoğan’s decision this week to send Sweden’s request for accession to Nato to Turkey’s parliament. The US and Europe have both been pushing Ankara to ratify Sweden’s accession into the military alliance.

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