FT : Philippe Jabre’s taste for an unexpected second act

Philippe Jabre’s taste for an unexpected second act
Hedge fund trader is now third-generation owner-manager of Beirut brewer Brasserie Almaza

Renowned hedge fund manager Philippe Jabre is enjoying an unexpected second act as a brewer after buying back his family business. 

Jabre, who hails from a prominent Lebanese Catholic family, was once one of Europe’s best-known hedge fund traders — not least for a run-in with the UK financial regulator in 2006 for alleged market abuse. Now he is the third generation owner and manager of the Brasserie Almaza that was created by his grandfather, Michel Jabre, 90 years ago.

“My family makes fun of me, because I’ve gotten really into it,” Jabre said in an interview. “But I’ve been enjoying the challenge of doing something completely different.”

Jabre carved out a reputation as a star manager at London-based hedge fund GLG Partners, where he ran as much as $7bn. 

But in 2006 he received what was then a record individual fine of £750,000 from the UK watchdog for trading on confidential information from Goldman Sachs about a 2003 convertible bond sale, although the authorities stopped short of calling his actions intentional. He moved to Switzerland from London and set up a hedge fund, Jabre Capital. 

Jabre ran money at his eponymous business for just over a decade. At the end of 2018, he announced he would return money to outside investors after suffering heavy losses that year. But after stepping back from professional money management, he admits that he was “bored to tears”.

In mid-2021, Jabre learned that Almaza’s longtime backer Heineken was looking to sell off its controlling stake in the company due to Lebanon’s difficult economic circumstances. The brewery was at risk of shutting down for good, putting nearly 200 jobs at risk. He bought Heineken’s stake for an undisclosed amount with his personal money.

“Almaza has been around since 1933 and survived Lebanon’s many rocky periods, including the civil war. It didn’t sit well with me that it could shut its doors because of this crisis,” he said.

Speaking from Almaza’s works in Beirut, which has occupied the same building since its founding, Jabre said: “This is not Lebanon’s first crisis, and it’s not even its worst.”

He added: “I hope to show others that they shouldn’t give up on Lebanon, that despite the difficulties, we should keep investing in our country.”

Since 2019, Lebanon has been mired in one of the world’s worst economic crises in modern history: more than three-quarters of the population has been plunged into poverty, while its currency has lost more than 95 per cent of its value against the dollar. Most Lebanese have had their funds frozen in its zombie banking system since late 2019, with monthly withdrawals capped and dollar deposits forcibly converted into Lebanese currency at a punishingly low rate.

The country is also trudging through an unprecedented leadership vacuum, without a president for the past nine months and only a caretaker administration governing and stalling on reforms.

Jabre bought the brewery when Lebanon had not yet adapted to its new economic reality and purchasing power was greatly reduced. In 2022, Almaza’s profits stood at around 8 per cent of its sales and were reinvested in the capital-intensive business, Jabre said. He declined to provide sales figures.

Now, almost four years into the crisis, the economy has largely been dollarised but the brewery still cannot get credit lines. Jabre initially had to front the business cash to pay for around half of its imports but he said this will be phased out “because our cash flow is now positive as the business is more stable”.

The brewery’s exports are sometimes delayed because underpaid civil servants are frequently on strike. “It’s not exactly ideal but there’s no alternative right now,” Jabre said.

Still, Jabre has big plans. Almaza produces around 200,000 hectolitres of beer a year. A hectolitre is equivalent to 100 litres. Exports currently make up a quarter of its production, a number he hopes will reach 40 per cent soon.

This summer, Almaza is launching the company’s first new product in a decade, Almaza Unfiltered. Its recent ad campaign caused a furore as it dedicated itself to “all Lebanese enduring unacceptable and unjust daily deceptions”.

Seen more than 1mn times online, it was pilloried by many who accused the company of exploiting Lebanon’s tragedies for commercial gain. Jabre defended it as capturing “the many contradictions of this tiny country”.

His own switch from hedge fund manager to brewer shows, he says, that “life doesn’t stop. It just continues under a different hat.” 

Barrons : Walmart Is Quietly Growing Into a Retail Tech Titan. The Stock Is a Bu

Walmart Is Quietly Growing Into a Retail Tech Titan. The Stock Is a Buy.
The world’s biggest retailer stumbled in the early innings of the e-commerce revolution. Now, it’s poised for big profits.

How do you airlift a dozen eggs, fly them over a mile in 30 minutes or less, then drop the carton from 80 feet in the sky, hitting the target without cracking a single shell?

It isn’t an end-of-year physics-class problem, but a challenge that Walmart (ticker: WMT) tackled, and solved, with its drone-delivery rollout. The drones, operated in partnership with companies such as DroneUp, fly over routes optimized to avoid disrupting the public, lowering products—including carefully cushioned eggs—to a precise point on a customer’s property before returning to their launchpads. The growing program (whose shoppers more frequently opt for rotisserie chicken and Red Bull) is available from three dozen stores in seven states, including Florida and Texas. Although a niche service for now, it’s emblematic of the ongoing quest at the world’s largest retailer to harness technology to enhance its core business—and expand into new, more profitable ones—all while keeping Amazon.com (AMZN), with its own fleet of drones, at bay.

From automation to artificial intelligence, the pandemic supercharged retail’s embrace of tech: Walmart alone has doubled its global e-commerce business over the past three years. Yet that sea change has come with plenty of obstacles, from the threat of digital-native businesses, to the staggering price of software development, to consumers’ increasing and costly demands for speed and convenience.

To dominate this new world, Walmart has no choice but to be at the cutting edge. The good news is that, after some initial missteps, the company is proving that it has the deep pockets—and the culture of experimentation—to do so.

“This is a new company that has improved its competitive performance dramatically in the past year or two,” says John San Marco, portfolio manager of the Neuberger Berman Next Generation Connected Consumer exchange-traded fund (NBCC). “Walmart has really separated itself from the omnichannel perspective without giving up an inch of ground on the value it offers consumers. It has future-proofed its business.”

The future didn’t always look so bright for the world’s biggest company by revenue. Its stock stumbled in the mid-2010s, along with many peers, when Wall Street turned its back on bricks-and-mortar retailers: Walmart shares lost more than a quarter of their value over the course of 2015, a period when Amazon more than doubled.

Walmart’s early efforts to establish its e-commerce bona fides were a mixed bag. It bought hot digital brands like Bonobos and ModCloth at a premium, only to sell them soon after for millions less. Its more than $3 billion acquisition of online retailer Jet.com in 2016 was unwound after four years and generally viewed as a costly boondoggle (though it did bring in the expertise of Jet.com co-founder Marc Lore at a critical time in Walmart’s e-commerce development). Between funding its big investments and lagging behind in the fight for online shoppers, the company’s earnings per share—which had crossed the $5 mark in fiscal 2015—didn’t do so again until fiscal 2021. For a while, it looked as if Walmart wouldn’t make the leap into the digital age.

Yet if experience is the best teacher, Walmart is a keen student. The company learned valuable lessons from its trial-and-error era of e-commerce, homing in on a winning formula just in time for the Covid-led mass migration online.

It got there by leaning into two strengths that have long distinguished Walmart from the retail pack: its size and physical footprint. A full 90% of Americans live within 10 miles of a Walmart store and shop with the company at least once a year. In the face of the pandemic, the company took advantage of that ubiquity. It ramped up its curbside and in-store pickup business, allowing it to use its stores as distribution hubs, saving on costly shipping expenses. Those savings provided dry powder to invest in store upgrades and automation. Meanwhile, Walmart’s scale gave it the negotiating power with suppliers to keep prices lower than most competitors. Its size allowed it to quickly grow its online advertising business and third-party marketplace as well, feeding a virtuous cycle.


The result: Walmart has grown its U.S. e-commerce business 122% since fiscal 2020, reaching $53.4 billion in sales, nearly 13% of the company’s U.S. total, in the most recent fiscal year. That means the company is at last positioned for digitally driven profit, with earnings per share projected to hit a record of $6.91 in fiscal 2025, up from an estimated $6.24 for fiscal 2024, which ends this coming January.

“The company went through a multiyear period of testing and developing the e-commerce space, and now we’re seeing a shift where it no longer really needs to do as many significant investments,” says Connor Martin, a research analyst at Vontobel Asset Management.

He likens Walmart’s e-commerce learning curve to the process it went through in developing its grocery business. Grocery wasn’t a hit in every market or store type, but the company kept tweaking the strategy. Eventually, it found the secret sauce, bringing a strategic assortment of food and drinks into massive supercenters, making the stores the one-stop shop for many Americans. Along the way, it achieved industry-leading margins in what is a notoriously low-margin business, invested in fast-growing categories like organics, and convinced shoppers to pick up discretionary items on their grocery runs.

Once the retailer got the formula right, it was able to deploy it widely, online and in-store. Grocery now accounts for about 60% of Walmart sales, dwarfing competitors in the space—even Amazon. It has been so effective that its grocery sales have even overtaken Target (TGT) in its rival’s home turf of the Twin Cities.

“This is what Walmart does best: It plays with a concept, and there’s some margin decay, but when it does get it right—just look where it is now,” says Martin, referring to the dominance of its supercenters and food business. “That would have never been the case if Walmart hadn’t spent a few years to get it right, and we see corollaries between then and now. We think we’re about to see benefits like massive improvements in margins.”

Analysts agree that the company’s profitability is turning a corner. On a year-over-year basis, Walmart’s EPS fell 2.6% in its most recent fiscal year, though revenue climbed 6.7%. But that gap is expected to narrow this year, with EPS falling 0.8% from the year-ago period on a 4.2% revenue rise. Consensus calls for the pattern to invert in fiscal 2025, when a 3.7% increase in sales—to a record $660.1 billion—is projected to fuel a nearly 11% jump in bottom-line growth.


Walmart is remodeling existing stores and adding new ones to convince customers to buy in-person and online. Above, QR codes on a display at a Supercenter in Elm Springs, Ark. PHOTOGRAPH BY BETH HALL
Or, as Wells Fargo analyst Edward Kelly puts it, Walmart is “in the early stages of a multiyear margin inflection….Goliath is clearly winning.”

Higher earnings aren’t simply a matter of selling more items to more people, although Walmart is doing that. The company has also made strides in attracting both younger and higher-income consumers in recent years, by offering low prices at a time of historic inflation and the convenience of its Walmart+ subscription service. (The company hasn’t disclosed many hard numbers about the program, which costs users about $100 a year, but analysts have estimated that it counts some 20 million members.)

Unlike the bargain hunters of the financial crisis, the company is hoping to keep these new shoppers. It is remodeling existing stores and adding new ones—Walmart’s warehouse division, Sam’s Club, will open more than 30 new outposts in the next several years. But the real goal is to convince customers to buy online and in-person: The company’s omnichannel shoppers tend to spend two to three times that of consumers who only buy in store, and shop twice as much. Walmart+ is helping with that (free shipping is one benefit), as is the company’s revamped website, which some in the tech press have compared favorably to Amazon’s. Customers are also gravitating to the company’s third-party marketplace, which now offers some 400 million items.

That marketplace also supports a high-margin online advertising business that increased its revenue nearly 30% in fiscal 2023, to $2.7 billion. And its growth hasn’t cooled, soaring more than 30% in the most recent quarter.

Beyond driving ad dollars and critical sales, the company’s online business has created a trove of valuable customer data that help Walmart tailor offerings, particularly to guide shoppers toward more profitable discretionary categories.

“We’re seeing the rise of ecosystems in retail,” says TD Cowen analyst Oliver Chen, who believes Walmart’s platform can “diversify income streams while simultaneously driving increased general merchandise sales.” Few legacy retailers have the capital to make that shift as well as Walmart, says Chen; he thinks the shares should trade to $180.

Of course, all this comes at a time when Walmart needs every edge it can get.

J.P. Morgan warned that Amazon could overtake Walmart as the largest U.S. retailer next year. Many Americans, particularly Walmart’s core lower-income shoppers, are still grappling with the lingering effects of inflation. And retailers are finding themselves in the culture-war crossfire, with some conservative customers decrying things like LGBTQ+ merchandise.

That said, as Walmart’s most recent earnings report shows, it’s benefiting from consumers’ relentless hunt for value in a way that competitors up and down the food chain, from Target to the dollar stores, aren’t. And if those customers who lean on Walmart for low-price essentials stay loyal when their discretionary budget eases, that momentum, combined with a best-in-class omnichannel infrastructure, could make Walmart the high-water mark for both value and convenience.

Then there are the robots.

Behind the scenes, automation, at a scale impossible for all but a handful of other retailers, is streamlining Walmart’s supply chain.

The model the company refined during the pandemic—using its physical locations as both shopping locations and distribution hubs—hinges on the dedicated warehouse spaces behind stores where robot pickers speedily do what human workers find to be monotonous, footsore work. That leads to fewer mistakes and better inventory control, and keeps online customers from competing with in-store shoppers for products or employees’ attention.

“My sense is that the investment community is sitting up in their chair a little bit and looking at Walmart in a different way,” says Chief Financial Officer John David Rainey, referring to the company’s improvements in supply-chain automation and increased earnings potential. (See our interview with Rainey here.) “There’s a notion that Walmart was late to the e-commerce party or we’re on the defensive. I think we’re playing offense.”

In the backroom of one of Walmart’s Bentonville, Ark., automation hubs, picker bots retrieve products in a continuous whirl of motion. There’s still a human element to the work, as employees scan and bag the products the robots deliver to their stations (on our visit, one likened the task to “a form of meditation”). But for better or worse, it’s still a system that allows the largest employer in the world to reduce staff; Walmart has laid off more than 3,000 distribution workers this year. By fiscal 2026, the company plans to complete some 55% of orders by automated fulfillment centers, reducing the average amount the company spends to process each product by as much as 20%.

Employees call the bots’ domain “the dance floor,” for the ceaseless, seamless Walmart waltz the robots carry out. It’s a rhythm the stock can follow higher, too. Walmart’s ability to squeeze more profit from every sale makes it easier to argue that the shares, up 11% this year, are still attractive, even with a valuation at 25 times. That’s above their five-year average of 22.3 times, but this is a faster-growing, more efficient Walmart. “The stock is not expensive if we begin to give credit for a tech-based omniretail model,” argues Kelly, who thinks the shares should trade to $170.

In fact, there’s room for estimates to move even higher, says Neuberger Berman’s San Marco. Walmart’s latest forecasts don’t seem to account for the momentum that the company has generated, which could be read one of two ways. “That means either guidance is very conservative and there should be some nice upside,” says San Marco. “Or, retail is in for a rude awakening more broadly, in which case a big, defensive, recession-resistant name like Walmart should be great to own.”

Whether you prefer the sunnier interpretation, or the stormy one: Walmart stock looks like a winner.

Vice.com : The War on Drugs Has Failed And It's Time to Decriminalise, Scotland

The War on Drugs Has Failed And It's Time to Decriminalise, Scotland Says
The Scottish government says it needs radical changes to the UK's old drug laws in order to tackle record drug deaths.

The Scottish government wants to legalise drug possession for personal use and potentially the entire drug market as part of a massive change in the way addiction is tackled.

Scottish ministers want to reform drug laws to enable people with drug problems to be better supported instead of being criminalised. They want to address record drug death rates in the country, which are 15 times more likely to affect the poorest 20 percent, and are the highest in Europe.


Currently the Scottish government, led by the Scottish National Party with the Scottish Greens, has no power to change the laws in this way. VICE News has contacted the UK Home Office for a response to the proposals.

In 2021 the crisis prompted a £250m investment by the Scottish government into the country's addiction services, with former First Minister Nicola Sturgeon admitting her government had “failed” every person who had died as a result of drug addiction.

A policy paper outlining the plans published Friday, entitled A Caring, Compassionate and Human Rights Informed Drug Policy for Scotland, called for the decriminalisation of personal drug possession, the expansion of harm reduction tools such as heroin assisted treatment, supervised drug consumption facilities and drug checking, and a roadmap to explore legal regulation of drugs.

"We want to create a society where problematic drug use is treated as a health, not a criminal matter, reducing stigma and discrimination and enabling the person to recover and contribute positively to society,” said Scotland's drugs policy minister Elena Whitham.

She said that as a strategy to reduce drug use, “the global war on drugs has failed in its objectives”.

“To improve and save lives, we must be innovative, bold and radical. We are clear that nothing should be considered off the table. We must start by recognising that no country, anywhere in the world, has succeeded in eliminating drug use. A fairer, safer and healthier country must care about all its citizens and be inclusive of those with health conditions such as drug dependence.”


In order to achieve these objectives, which Witham said were supported by the public, the UK government needed to change its half a century old drug laws to enable Scotland “to appropriately tailor policy decisions to our unique challenges”.

The paper said decriminalising small amounts of drugs for personal use “could provide a framework within which we can better pursue our existing policies to help, treat and support people rather than criminalise, stigmatise and fail them”.

It said it would also look at outright legalisation. “Implementing a more evidence-based approach to drugs policy could be the basis for considering the potential of introducing regulated markets for the reduction of harm and the safe control of substances”.

The Home Office has repeatedly said it would not consider decriminalisation or legalisation of drugs, for the exact same reason Scotland wants to make its reforms, because of the damage drug addiction and markets cause to individuals and communities.

A government spokesperson said: “Illegal drugs destroy lives and devastate communities. We are committed to preventing drug use by supporting people through treatment and recovery and tackling the supply of illegal drugs, as set out in our 10-year Drugs Strategy.

“We have no plans to decriminalise drugs given the associated harms, including the risks posed by organised criminals, who will use any opportunity to operate an exploitative and violent business model.”

Alex Feis-Bryce, CEO of Transform Drug Policy Foundation, which campaigns on global drug reform, said the UK government should take heed of Scotland’s progressive action on drugs.

“This demonstrates commendable political leadership from the Scottish government on this crucial issue. Rather than pandering to “tough” populist narratives, this UK Government and the Labour Party must support Scotland in delivering these proposals, and take note that this is the best way to end the drugs crisis in the rest of the UK as well.”

CrunchBase : The 10 Biggest Rounds Of June: Inflection AI’s Huge Raise, CleanCap

The 10 Biggest Rounds Of June: Inflection AI’s Huge Raise, CleanCapital Cleans Up

While June certainly had its fundraising ups and downs, it ended with a flourish thanks once again to AI and a big $1 billion-plus round.

Aside from the two AI rounds that bookend this list, it was a huge month for biotech and health care, which had four entries on the list. Even a mining and adtech startup made it into the top 10 for the month.

1. Inflection AI, $1.3B, artificial intelligence: The big news of the month was undoubtedly this Palo Alto, California-based startup. Inflection AI is building what it says will be the “largest AI cluster in the world” and has created large language models to allow people to interact with its AI-powered assistant called Pi, or Personal AI. Pi lets people quickly receive relevant information and advice on their interests. To build the platform, the startup locked up a huge $1.3 billion round led by Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt and new investor Nvidia, which values Inflection AI at $4 billion, according to Forbes, which first reported the news. The new funding brings the total raised by Inflection to more than $1.5 billion, per the company. Founded last year, the generative AI platform is a competitor to other AI firms such as OpenAI and Google. It was co-founded by Mustafa Suleyman, who previously co-founded the Google-owned AI lab DeepMind and serves as CEO at Inflection.

2. CleanCapital, $500M, clean energy: New York-based CleanCapital, a solar and storage developer that invests in early-stage projects, locked up a $500 million commitment from Canadian insurer Manulife Investment Management. CleanCapital will use the money to fund early-stage solar and storage development and acquire other renewable energy assets in the U.S. The company also announced it has deployed more than $1 billion to fund operating, new construction, and early-stage solar and storage development. Founded in 2015, the company has received about $1.1 billion, per Crunchbase.

3. Madhive, $300M, adtech: Advertising software companies have had it tough recently, but not Madhive. The New York-based firm raised $300 million from Goldman Sachs Asset Management, which valued the company at $1 billion, per Axios. The deal gives Goldman a minority stake in the company. Launched in 2015 as Otter TV, Madhive sells its CTV (connected TV) advertising software platform to local TV companies that sell CTV ads. The company already has $100 million, per the Axios report.

4. Aledade, $260M, health care: The Bethesda, Maryland-based company raised a $260 million Series F led by new investor Lightspeed Venture Partners. The round comes just about a year after it locked up a $123 million Series E. The startup provides doctors’ offices with data analytics software so they can better manage their patients and identify those most at risk. The company plans to use the new cash to beef up its services and technology, possibly with acquisitions. The new funding deal values the company at $3.5 billion, Bloomberg reported. Founded in 2014, the company has raised nearly $678 million, per Crunchbase.

5. Upstream Bio, $200M, biotech: It was almost exactly a year ago when Waltham, Massachusetts-based Upstream Bio locked up a $200 million Series A. Last month it was back for another $200 million — a Series B led jointly by Enavate Sciences and Venrock Healthcare Capital Partners. Upstream Bio is developing an antibody that targets thymic stromal lymphopoietin and its receptors that can inflame when things like smoke or allergens are introduced into the environment. The treatment could be useful to those with asthma. Founded in 2004, the company has now raised $400 million, per Crunchbase.

6. KoBold Metals, $195M, mining: What happens when you combine AI with the material needed for lithium-ion batteries? You get big money. Berkeley, California-based KoBold Metals raised a $195 million round led by T. Rowe Price and included a number of big-name investors such as Andreessen Horowitz, and Bill Gates and Jeff Bezos-backed Breakthrough Energy Ventures. The new cash values the climate tech startup at $1.15 billion. KoBold Metals uses artificial intelligence to mine for valuable metals such as cobalt, copper, nickel and lithium used in the production of batteries for a variety of sectors, including electric vehicles. The startup has built a database about the Earth’s layers and uses algorithms to make predictions about where mineral deposits are located around the world. KoBold Metals isn’t new to big rounds. In February 2022, the startup closed a $192.5 million Series B, which included investment from Apollo Projects, Bond Capital, BHP Group and the Canada Pension Plan Investment Board. Founded in 2018, the company has now raised more than $400 million, per Crunchbase.

7. Blackpoint Cyber, $190M, cybersecurity: Cybersecurity, like most sectors, has experienced a slowdown when it comes to venture funding. However, that did not stop Maryland-based Blackpoint Cyber from cashing in. The startup, which offers a security suite of products to managed service providers, raised a $190 million growth investment led by Bain Capital Tech Opportunities. Founded in 2014, the company has now raised more than $200 million, per Crunchbase.

8. Alkeus Pharmaceuticals, $150M, biotech: Cambridge, Massachusetts-based Alkeus Pharmaceuticals closed a $150 million Series B led by Bain Capital Life Sciences. The company specializes in pharmaceuticals to fight Stargardt disease, a leading cause of blindness in children and young adults. In addition to the new funding, Alkeus has also named Dr. Joshua Boger, the founder of Vertex Pharmaceuticals, its executive chairman.

9. Bitterroot Bio, $145M, biotech: Cardiovascular disease is the leading cause of death for men, women and many ethnic groups and races in the U.S. and worldwide. Ideally, Bitterroot Bio would like to change that. The Palo Alto, California-based company is focused on novel immunotherapies in cardiovascular disease, and launched from stealth last month with a $145 million Series A led by Arch Venture Partners and Deerfield Management. The company, founded in 2021, hopes to use immunology — including the identification of novel targets and the development of innovative protein therapies — to fight the deadly disease.

10. Runway, $141M, artificial intelligence: New York-based Runway made this list not that long ago after Business Insider reported on this unannounced round. It finally was announced, with Runway raising a $141 million extension to its December $50 million Series C from Google, Nvidia, Salesforce Ventures and existing investors, among others. At the time of the original report, the new cash valued the company at $1.5 billion. Runway helped develop the AI image generator Stable Diffusion, and launched its video-to-video generative AI app in April. The app lets users transform videos into different styles, such as claymation or watercolors. Founded in 2018, the company has raised nearly $240 million, per Crunchbase.

Miss Tweed : Richemont could buy yet another fashion brand. Why?

Richemont could buy yet another fashion brand. Why?

MILAN - Cartier owner Richemont has emerged unexpectedly as a serious contender to acquire the Italian luxury shoemaker Gianvito Rossi, potentially beating competition from Renzo Rosso’s OTB, industry and banking sources said this week. It is not clear if Gianvito Rossi’s financial advisers Rothschild & Co have encouraged talks with Richemont to get OTB to pay a higher price, or if the Swiss group will really land a deal, the sources said.

The talks were taking place as Richemont’s biggest fashion brand Chloé announced on Thursday it was parting ways with designer Gabriela Hearst after three years. Miss Tweed was first to report in December that the time had come for the group to find a replacement for her, despite Chloé’s sales being on the rise. The American-Uruguayan designer was proving difficult to work with and finding it hard to strike the right balance between her responsibilities for the French label and her own brand, as well as life in New York.

LEATHER GOODS
Richemont’s strategy in fashion is not clear for investors. It is not its core business. The group’s strength is in jewelry and watches and in powerhouses such as Cartier, Van Cleef & Arpels, Vacheron Constantin and IWC. Yet the Swiss group appears to be bent on expanding in fashion and leather goods. In June 2021, it acquired the Belgian leather goods maker Delvaux for €178 million.

“The acquisition is intended to preserve European craftsmanship, grow maison value and strengthen thegroup’s presence in the leather goods sector,” Richemont wrote in its 2022 annual report about Delvaux. Luxury investors will recall that Richemont sold French leather goods maker Lancel in 2018 after 21 years of losses and frustration. Lancel proved a difficult brand to export.

As of Friday, it could not be confirmed whether Richemont was in exclusive talks with Gianvito Rossi. “We know the Swiss group is in advanced talks, but no deal has been agreed yet,” one Milan-based banking source said. It is far from certain whether Richemont will agree on a price and acquire the business or if in the end, as Miss Tweed reported last month, OTB will win the auction. Rothschild & Co, Richemont and OTB declined to comment.

Several sources said Giorgio Armani was also in the race, although its interest is surprising considering the Italian brand has for decades bought only suppliers, not other brands. Gianvito Rossi has rejected expressions of interest from private equity firms. The Italian designer and founder of the eponymous shoe brand wants to partner with a fashion and luxury group that will help it expand worldwide. It wishes to use its expertise, clout and contacts to get prime real estate locations for its stores and obtain discounts when buying advertising.

Gianvito is the son of Italian shoemaker Sergio Rossi, whose brand Kering acquired in 1999 and sold in 2015 after years of losses. Gianvito Rossi made a name for himself by launching his own eponymous brand in 2006. His stilettos, which cost between €600 and €900, are known for being ultra-feminine and comfortable thanks to lightly cushioned insoles, a secret Sergio Rossi passed on to his son.

Gianvito Rossi is understood to be aiming for a valuation of between €350 million and €400 million. Sales are estimated at some €100 million and underlying profitability, or earnings before interest, tax, depreciation and amortization (EBITDA), stands at around 25 percent of revenue, industry sources have said.

WHY SHOES?
Investors often question Richemont’s commitment to fashion. And now they may ask: why would Richemont want to acquire a shoe business? It is a field in which it has little experience and a business that is even more complicated to run than a ready-to-wear or leather goods brand because there can be a substantial quantity of unsold stock because of the variety of sizes and models, and production is not simple.

During its annual results presentation in May, Richemont CEO Jérôme Lambert talked about the group’s “increased ambition in leather goods” and how successful its fashion and leather goods brands had become. It was the first time in years that Richemont spent any time talking about its fashion and leather goods business. Lambert pointed to solid sales growth and improved profitability but stopped short of giving numbers.

Richemont’s fashion and leather goods division, which includes Chloé, Alaïa, Peter Millar, Serapian and Delvaux, feature in the group’s “Other” results section. These brands’ sales and profit figures are combined with real-estate operations and Watchfinder & Co, the lossmaking online second-hand retailer. Lambert would only say that the group’s fashion and luxury brands combined generated a €94 million profit in the year to March 31 “due to higher sales, improved pricing power and strong financial discipline.” However, he did not say how strong the combined sales increase was or what kind of profit he meant: operating profit, net profit or other.

Lambert would only say that Chloé was “on a positive dynamic since the appointment of its creative director Gabriela Hearst in late 2020, with new aesthetics across its product offering.” He added: “Delvaux is enjoying a successful integration into the group in its first full year as part of Richemont and has achieved very sharp growth since acquisition.”

Lambert hinted in the last results presentation that Richemont had big ambitions in fashion and leather goods. Hence, it would not be surprising if the group bought Gianvito Rossi. In May, Lambert described Richemont’s goals in that field: “Over the past year, we have strengthened our teams across the whole organisation, reinforced the agility and flexibility of our operations, accelerated our time-to-market, and managed our inventories effectively. We will remain focused on these priorities, raising the bar for all of them as we progress on our ambition to drive sustainable and profitable growth in the category.”

However, one business Lambert omitted to mention is AZ Factory, the start-up Richemont helped the late Alber Elbaz get off the ground - only to see it orphaned just four months later as the designer passed away due to Covid-19 complications. Miss Tweed reported in December that the future looked uncertain for AZ Factory as key staff from the Elbaz era had left the company. The young fashion brand has been partnering with young designers to design collections, but the model cannot work as wholesalers cannot invest in brands consumers do not get the time to know, Miss Tweed explained late last year. Rupert feels a moral obligation to sustain this business out of respect for the memory of Elbaz, but it’s not clear what its strategy will be going forward nor how long Richemont will finance its losses.

NEW DESIGNER
Richemont’s interest in Gianvito Rossi comes as Chloé announced that Gabriela Hearst was leaving. The 2024 spring-summer collection she would present in September would be her last. Relations between Hearst and the Paris Chloé studio had grown tense. The designer was rarely seen in Paris and routinely sent her orders late in the day Paris time, meaning that staff had to work on New York time, which was hardly compatible with family life.

Industry insiders said Hearst behaved like a diva because she did not “really need the salary”.

The 46-year-old designer is married to Austin Hearst, grandson of William Randolph Hearst, the founder of one of America’s biggest media groups. Hearst owns Harper’s Bazaar and Elle, as well as several television channels, newspapers and real estate.

Under her creative leadership, Chloé has become a New Age, rustic, artisanal brand selling pendants with healing stones and square handbags with fringes. Such aesthetics have little to do with the refinement and sophistication embodied by Chloé for so many years, fashion critics say. Founded by Gaby Aghion in 1952 as a new way of expressing women’s new-found freedom, Chloé’s heritage has always been about chic femininity.

Hearst’s aesthetics, influenced by Latin America’s artisanal sensibility, is a world away from the work that designers such as Karl Lagerfeld, Phoebe Philo, Hannah MacGibbon and Clare Waight Keller have done for the brand. Under them, Chloé remained sophisticated and romantic, with a slightly cool 1970s touch. It was never rustic. There were lots of flowing dresses and pastel colors.

“Now with Gabriela, there is no more ‘flou’ (fluid and draped outfits),” said someone who works for Chloé. “There is a lot of tailoring, leather and mesh, but not much silk, organza, chiffon, crepe and other fabrics that Chloé traditionally uses. These fabrics are what give life and movement to clothes. But Gabriela did not want to work with them. As a result, her clothes tend to be stiff and rigid, just like her handbags.”

Richemont said Chloé’s profitability had improved. However, this is rather the result of a cut in expenses such as advertising and marketing than higher sales, industry sources say. Last year, Chloé did not take part in the Hyères fashion festival. Until now, it had been a traditional sponsor of the festival, designed to support young talent. Analysts and industry sources estimate Chloé’s annual revenues are between €450 million and €500 million. Industry sources say Chloé is closing its more accessibly priced See by Chloé line as part of efforts to clarify the brand’s strategy and preserve its high-end image. The fall-winter 2023-2024 collection will be the last. Valentino and Dolce & Gabbana have also closed their second lines to preserve the brand’s perceived exclusivity.

LOW IMPACT
On Thursday, Chloé CEO Riccardo Bellini thanked Hearst for “her unwavering commitment to supporting the maison’s meaningful progression in shaping a more responsible future”. Hearst has worked on the brand’s supply chain, favoring “low impact” fabrics, and putting QR codes on garments to provide consumers with information on the origin of the fabrics used and advice on how to recycle. One of Chloé’s best sellers designed by Hearst is the Nama running shoe made from recycled plastic bottles.“I represent a standard for quality that has no space for compromise,” Hearst said in the company’s statement about her departure.

The designer will focus on her Gabriela Hearst brand, which is estimated to generate around €40 million in annual sales. LVMH, which took a minority stake in her label in 2019, is no doubt pleased about her exit from Chloé as she will now spend more time on her own brand.

Hearst’s departure marks the second time in a row Chloé chooses the wrong person for the job. Before that, it was Natacha Ramsay-Levi who did not fit. In 2017, the French designer succeeded Clare Waight Keller who had quit the brand after falling out with the CEO. “Ramsay-Levi also did not get what Chloé is supposed to be,” one Paris-based head-hunter said. “She was a disciple of Ghesquière (Louis Vuitton’s womenswear designer) who is known for futuristic designs and mixing together different fabrics. Like Hearst, Ramsay-Levi did not do much ‘flou,’ instead a lot of suits, short pants with square boots, and these looks were not very feminine.”

“Chloé needs femininity,” said the CEO of a major online fashion business, adding that its Marcie and Woody bags were among the brand’s best-sellers on his website. Chloé has hired French designer Chemena Kamali to work on the next collections, but it is not clear whether she will succeed Hearst as the brand’s new creative director.

Kamali designed women’s ready-to-wear at Saint Laurent for more than six years under creative director Anthony Vaccarello. Previously, she worked for three years with Waight Keller at Chloé. Earlier this year, she was a consultant for the U.S. brand Frame, industry sources say. Frame did not reply to requests for comment.

Kamali is not as well-known as Hearst, but she has a good reputation for “flou” designs. “She brought femininity to Saint Laurent,” the Paris-based head-hunter said. “She would totally be capable of doing Chloé that’s for sure.” Her studio at Chloé currently has only a handful of people.

Waight Keller, whose style and sensibility fitted well with Chloé, was invited to return, one London-based source who advises her told Miss Tweed on condition of anonymity. “But she was so badly treated that she did not want to go back,” the source said. “She felt she did not get the support of the group when she left.”

Richemont is currently trying out Kamali and could bring in someone else to lead the design studio and work with her. What the future holds for Chloé from the design and performance viewpoints is not clear.

>>> US Close Dow -0,55% S&P -0,29% Nasdaq -0,13% Russell +1,22%

Closing Stock Market Summary

The major indices traded in better form for most of the session today; however, things deteriorated in the afternoon trade when some mega cap stocks rolled over into negative territory. That roll, in turn, weighed heavily on index performance. Still, there was more positive action under the surface despite the major indices closing near their worst levels of the day. 

Advancers led decliners by a 5-to-2 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq. The Invesco S&P 500 Equal Weight ETF (RSP) rose 0.3% while the Vanguard Mega Cap Growth ETF (MGK) fell 0.5%. Microsoft (MSFT 337.22, -4.05, -1.2%) and Apple (AAPL 190.68, -1.13, -0.6%) were among the more influential laggards, contributing to the underperformance of the Dow Jones Industrial Average (-0.6%) and the information technology sector (-0.4%). 

Small caps and value stocks, meanwhile, exhibited relative strength throughout the session, reflecting the pro-growth mentality driving today's tape. The Russell 2000 rose 1.2% while the Russell Value Indices all outperformed their growth counterparts.

The Employment Situation Report for June served as the primary catalyst for today's action.

Nonfarm payrolls increased by 209,000 (Briefing.com consensus 220,000) while nonfarm private payrolls rose by just 149,000 (Briefing.com consensus 210,000). The ADP Report on Thursday estimated that 497,000 jobs were added to private sector payrolls in June, so today's official employment report mitigated the strength of that reading.

An increase in the average workweek and a 0.4% increase in average hourly earnings bodes well for continued spending growth that will support continued growth in the economy. Overall, the employment report supported the soft landing narrative.

The economically-sensitive S&P 500 energy (+2.1%), materials (+0.9%), and industrials (+0.2%) sectors were the top performers while the defensive-oriented consumer staples (-1.3%), health care (-1.2%), and utilities (-0.7%) sectors closed at the bottom of the pack. 

Treasuries saw some knee-jerk volatility immediately following this morning's data, but the market settled down as the session progressed. The 2-yr note yield fell seven basis points to 4.94% and the 10-yr note yield rose one basis point to 4.05%.

  • Nasdaq Composite: +30.5% YTD
  • S&P 500: +14.6% YTD
  • S&P Midcap 400: +7.1% YTD
  • Russell 2000: +5.9% YTD
  • Dow Jones Industrial Average: +1.8% YTD

Reviewing today's economic data:

  • Nonfarm payrolls increased by 209,000 in June (consensus 220,000) and there were downward revisions to April and May that, combined, showed 110,000 fewer jobs than originally thought. Average hourly earnings, though, increased a stronger than expected 0.4% (consensus 0.3%) and May was revised up to 0.4% (from 0.3%), so the year-over-year change in June was unchanged at 4.4%.
    • The key takeaway from the report is that it continued to fit in the soft landing zone, as payroll growth slowed but remained positive; meanwhile, an increase in the average workweek and the 0.4% increase in average hourly earnings are a boon for aggregate earnings that will continue to support both discretionary and non-discretionary spending.

Looking ahead to Monday, market participants will receive the following economic data:

  • 10:00 a.m. ET: May Wholesale Inventories (consensus -0.1%; prior -0.1%)
  • 3:00 p.m. ET: May Consumer Credit (consensus $21.0 billion; prior $23.0 billion) 

FT : Sales of electric vehicles in the US are accelerating

Sales of electric vehicles in the US are accelerating
Tax credits, discounts and improved production capacity have lifted demand for EV manufacturers

US electric vehicle sales are gathering pace, hitting the 4mn mark at the end of June, according to data and analysis from consultancy Atlas Public Policy.

The sales are being driven by a combination of price cuts at Tesla and Ford this year, tax credits worth up to $7,500 for consumers and greater manufacturing capacity, experts say.

“There’s no doubt that the pie for EVs is getting bigger,” said Atlas founder Nick Nigro.

“More people that were buying combustion engines are buying EVs . . . Tesla’s sales are growing, but everybody’s sales are growing, and that’s the sign of a strong market.”

It took nearly eight years to sell the first 1mn battery-powered cars, trucks and vans in the US, a milestone hit in 2018. The 2mn mark took roughly 32 months, and the third million took approximately 15 months. The accelerating pace brought the 4 millionth sale after just 10 months.

Tesla, General Motors and Rivian all reported strong US sales and deliveries for EVs during the second quarter, as did BYD in China. EV sales declined 2 per cent at Ford in the second quarter versus a year earlier, but they were still up 12 per cent in the first half of the year compared to 2022.

Tesla makes up about 61 per cent of the market, compared to just over 4 per cent for GM.

For the time being, electrified cars and trucks remain the province of early adopters, with EVs comprising less than 10 per cent of new vehicle sales. The sense that they are mainstream only exists in pockets of the US market, like California, where nearly a quarter of new vehicle sales in the first three months of the year were electric.

Some players in the auto industry want to slow the electric transition. The Alliance for Automotive Innovation, a trade group that includes major carmakers, has said stringent US emissions standards proposed in April mark “a significant movement of the country’s electrification goalposts”. The United Auto Workers union said on Thursday that standards for EV adoption should be set “to feasible levels”, tightening “over a greater period of time”.

But rising sales mean more people are likely to know someone who owns an EV, said Jessica Caldwell, executive director of insights at Edmunds, and as “more vehicles hit the road . . . people will feel more comfortable with them”.

Sales of electric models, like the auto industry as a whole, are improving because as the supply chain crisis has eased, manufacturers are no longer struggling as much to obtain the parts necessary to build cars and trucks. New players in the industry, like Rivian, are also improving output as they move past the production problems that dogged their early days. The California company built almost 14,000 trucks in the second quarter, nearly 3,000 more than Wall Street expected.

Tesla also said recently that it will open its Supercharger network to owners of cars and trucks made by Ford, GM and Rivian. Anxiety over how far an EV can travel on a single charge is a persistent worry for US drivers, given the limited availability of fast public charging. Tesla’s network of 12,000 Superchargers represents about 60 per cent of the total fast chargers available to US EV drivers, according to Deutsche Bank analyst Emmanuel Rosner.

Discounts at Tesla and Ford have contributed to rising sales. Tesla delivered a record 466,000 cars between April and June after cutting prices in the US in January by up to $13,000 across models. This prompted Ford to price its Mustang Mach-E between $46,000 and $64,000. Tesla then lowered prices again in March, decreasing the starting price of the Model S by 5 per cent to about $90,000 and the cheapest Model X by 9 per cent to about $100,000.

Tax credits have also boosted EV sales, although it is unclear by how much. The Inflation Reduction Act, President Joe Biden’s signature climate change and industrial policy law, grants consumers up to $7,500 in tax credits. Consumers, Caldwell noted, are always interested “whenever there is free money at play”.

But the list of vehicles that qualify for the full tax credit is abridged based on whether it is produced in North America and on the origin of the materials used in the battery. Only 10 of the 68 EV models currently for sale in the US are eligible for the full credit. Three of those models are Teslas, after the law lifted the cap on receiving the credit after a carmaker had sold more than 200,000 EVs, a threshold Tesla passed five years ago.

The tax credits are helping demand for EVs, said Joe McCabe, chief executive at AutoForecast Solutions, but “honestly, who’s it helping? Tesla.”

That is the case for Quinton Gaines, a new Tesla owner in Clearwater, Florida. The Gaines family bought their Model Y last month after an abortive attempt to purchase a Ford Mustang Mach-E. Gaines said he wanted to buy an EV because the family wanted a second car, and he could not justify the carbon emissions of owning a second petrol-powered vehicle.

They ordered the Mach-E in November. No local dealerships had EVs on the lot, and Ford guaranteed them a six-month delivery window, Gaines said. But when the sport utility vehicle arrived in June, it malfunctioned during a test drive, losing power at a major intersection. A police officer arrived to help, Gaines said, and “the last thing the officer said is: ‘You may wish to reconsider your purchase’”.

The Model Y, he said, was the only vehicle he could find that he trusted to drive properly, was eligible for the full tax credit and could “haul four people and a bunch of chairs down to the beach”.

Carmakers are vying for attention and customers as the electric vehicle market develops, McCabe noted. “In the automotive space, not everyone can win,” and right now, it is “the Wild West out there”.

Barrons : Americans Have the Travel Bug, and They’re Going Abroad. What Stocks t

Americans Have the Travel Bug, and They’re Going Abroad. What Stocks to Play.

The July Fourth holiday was a record-breaking period for travel, taking a sledgehammer to the notion that consumers are beginning to pull back on travel spending.

Friday, June 30, was the busiest air travel day on record, as the Transportation Security Administration screened more than 2.88 million passengers, beating the previous record on the Sunday after Thanksgiving in 2019. Travel records were broken at airports across the country over the weekend, the TSA added.

Other data aren’t as strong: Airfares fell for a second consecutive month in May, according to U.S. inflation data, while hotel demand has receded for three straight months, the U.S. Travel Association says. But those numbers largely reflect domestic trends, masking a boom in overseas travel.

After “three summers where Americans vacationed domestically, we observe that they are heading internationally this summer,” Truist analyst Patrick Scholes says.

The numbers support that. Airfares to Europe from the U.S. are averaging $1,200 per round trip, says online travel agency Hopper—the highest in more than five years. London hotel room rates surged close to 20% in May, industry tracker STR says.

The overseas travel trend could pay off nicely for investors.

Truist analysts say Hyatt Hotels H +1.78% (ticker: H) is their favorite hotel stock, noting that around 30% of its earnings come from its business with Caribbean-centric Apple Leisure Group, a big provider of packaged travel. Hyatt could also benefit from leisure demand strength in Europe. Analysts have an average price target of $127.53 on the stock, according to FactSet data, implying an 11% upside to its recent price.

Cruise-line stocks have led the travel industry’s march higher in 2023, partly because of the industry’s inherent international focus. Royal Caribbean Group RCL +0.24% (RCL) is up 107% in 2023, Carnival CCL +0.95% (CCL) has climbed 136%, and Norwegian Cruise Line Holdings NCLH +0.69% (NCLH) is up 78%.

Stifel analyst Steven Wieczynski argues Royal Caribbean can climb another 17%, to $120. He says that despite fears over a consumer softening, “there is at least another two-to-three-year pent-up backlog in demand.”

Airline stocks have also been on a hot streak, despite an apparent weakening in domestic ticket prices.

Airfares fell 3% in May, after a 2.6% decrease in April, according to U.S. consumer price index data. That isn’t necessarily a sign of falling demand; it could reflect declining fuel costs. What’s more, J.P. Morgan analyst Jamie Baker notes, CPI is “highly skewed” to domestic data and “there’s currently an ongoing year-over-year shift from domestic to international destinations.”

That explains the outperformance of United Airlines Holdings UAL +1.78% (UAL), Delta Air Lines (DAL), and American Airlines Group (AAL)—the U.S. carriers with the greatest international exposure. They each have climbed more than 40% in 2023.

Wall Street thinks Delta stock can rise another 19%, while analysts see an 18% upside to United’s stock, according to average price targets on FactSet.

The normalizing of domestic demand is good news for the Federal Reserve in its inflation battle. But it isn’t a bad thing for travel stocks—at least for those exposed to the summer international boom.

Barrons : A Drug for Itchy Dogs Costs $1,200. Why Is the Human Equivalent $43,00

A Drug for Itchy Dogs Costs $1,200. Why Is the Human Equivalent $43,000?
What a shot that treats pet eczema reveals about how pharma companies actually price their drugs.

If your eczema is making you itchy, your doctor might prescribe Dupixent, a Sanofi monoclonal antibody therapy with a U.S. list price of around $43,000 a year. If your dog Fritz’s eczema is making him itchy, the veterinarian might suggest Cytopoint, also a monoclonal antibody therapy, this one from animal health company Zoetis.

If your eczema is making you itchy, your doctor might prescribe Dupixent, a Sanofi monoclonal antibody therapy with a U.S. list price of around $43,000 a year. If your dog Fritz’s eczema is making him itchy, the veterinarian might suggest Cytopoint, also a monoclonal antibody therapy, this one from animal health company Zoetis.
But don’t panic—this won’t be a $43,000 vet bill: Cytopoint will run you closer to $1,200 to $2,400 a year, depending on whether your pup is Yorkie-size or Lab-size, and how often he needs a dose.

Cytopoint and Dupixent are manufactured the same way, in steel tanks known as bioreactors using cells from a cell line that originated in the ovaries of a Chinese hamster. On a biological level, there’s little difference between them: Dupixent targets proteins in the human immune system called interleukin-4 and interleukin- 13, while Cytopoint targets a protein in the dog immune system called interleukin-31.

The regulatory frameworks governing the drugs are roughly the same, too. While Cytopoint was licensed by the U.S. Department of Agriculture, Zoetis’ (ticker: ZTS) other two monoclonal antibodies were approved by the Food and Drug Administration. The newest, Librela, which treats osteoarthritis pain in dogs, received FDA approval in May.

So why does one drug cost more than 35 times as much as the other?

The obvious answer is, of course, who can afford to drop $43,000 a year to keep their dog itch-free?

But while (most) people do have a higher threshold for what they’ll pay for human versus pet health, it isn’t a frivolous question. The forces that elevate the price of a human drug like Dupixent have major real-world implications. More than 8% of U.S. adults say they have skipped prescribed medicines over the past year because of the cost, according to the Centers for Disease Control and Prevention. The average net price that Medicare’s prescription drug benefit paid for brand-name prescription drugs more than doubled from 2009 to 2018. And Dupixent itself isn’t even particularly expensive, as human monoclonal antibodies go: AbbVie’s (ABBV) megablockbuster Humira, which treats similar conditions, has a list price of $80,000 a year.

Politicians from both parties say drug prices are too high, but that has yet to translate to substantial reform. A new law intended to reduce the federal government’s spending on drugs could change that starting in 2026—if it isn’t derailed by the waves of lawsuits now being filed by drugmakers.

A decade or so ago, if you had asked a pharmaceutical executive why their medicine cost more than a dog medicine, they likely would have pointed to the vastly higher cost of developing a human drug. A host of factors contribute to those totals, including higher failure rates and additional testing requirements. It costs an average $1.3 billion to develop and test a new human medicine to market, according to one recent study. Meanwhile, Zoetis Chief Financial Officer Wetteny Joseph puts the research-and-development cost for an animal medicine in the tens of millions of dollars.

But using development costs to justify drug prices has never really held water. Academic research has shown no connection between the amount of R&D investment in a particular drug and its launch price.

For pharma execs, the approach definitively burned out during the 2014 debate over the $84,000 price tag Gilead Sciences (GILD) slapped on a breakthrough hepatitis C antiviral. Gilead had bought the drug as part of an $11 billion acquisition that closed in 2012, and simple math showed that it didn’t need to charge so much to recoup its investment: Gilead sold $12.4 billion worth of the medicine in 2014 alone.

Today, drugmakers talk about pricing in the context of “value,” by which they mean the money a drug saves the healthcare system by avoiding the need for care, or, more abstractly, the benefit it offers to patients in terms of longer lives or better quality of life.

“The first principle has to be based on the value, and not the cost of production,” Novartis CEO Vas Narasimhan tells Barron’s.

What’s more, drug companies note that insurers and government entities that pay for the drugs generally get big discounts, and insured patients pay only a fraction of list prices out of pocket.

Academic experts counter that the companies charge massive amounts not because the drugs warrant them, but simply because they can.

“In the United States, we allow drug companies to set prices for their drugs at whatever level they want,” says Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School, who studies drug pricing in the U.S.

That isn’t normal, in a global context. The United Kingdom, Canada, Germany, Japan, and other developed nations all regulate the prices of prescription drugs in various ways. The U.S. hasn’t, although last year’s Inflation Reduction Act will introduce some new price controls on a handful of branded drugs. One reason the American government has remained hands off is likely the political muscle of the pharmaceutical industry, which spent $4.7 billion lobbying the federal government between 1999 and 2018, according to one study.

The Cytopoint versus Dupixent comparison sheds some light on how the complexity and lack of transparency in the U.S. healthcare system blunts the impact of normal market forces that might otherwise help curb drug pricing.

For the dog drug, the market works in a straightforward way: Zoetis sells Cytopoint to veterinarians to offer to pet owners, few of whom have health insurance for their pets. Vets set a price and inform pet owners, who then decide whether or not to pay it.

That isn’t how it works for Dupixent, or any other branded human medicine. The patent system, in conjunction with FDA exclusivity rules, awards temporary monopolies to developers of new medicines. Patients and their doctors are insulated from drugmakers by multiple levels of mediation: insurers, employers, pharmacy-benefit managers, drug distributors, pharmacists. Prices are inconsistent, depending on who is paying, and there is little to no transparency around how much actually is paid.

Pharma industry critics argue that this system gives companies massive pricing power, limited only by competition from similar drugs and concerns that price gouging could invite regulation.

Drugmakers characterize the situation differently. “It’s true that we have the authority to set our prices however we want to,” says Adam Gluck, head of U.S. and specialty care corporate affairs for the French drugmaker Sanofi (SNY). “We know that if we don’t price responsibly, it will negatively impact the system, it will negatively impact patients, and it will ultimately result in [the medicine] not being utilized in a way that can best support and meet the patient’s needs.”

Companies also note that there are players in the system with the power to push back on prices. Pharmacy-benefit managers, for one, can refuse to put drugs on the formularies that determine patient access, or place limits on coverage.

“It’s kind of a soft science,” says Gluck of Sanofi’s pricing. “We don’t have a formula where we plug in hard data numbers and it spits out a price and that’s the price.” Instead, he says the company speaks to payers, doctors, patients, and patient advocates as they work toward a U.S. price. “We spend a lot of time leading up to setting the price of a medicine to really understand all of the dynamics at play, especially the payer perspective…and the patient perspective.”

A Pfizer executive declined to detail the company’s pricing strategy, but agreed with Sanofi that value is its primary driver of price.

Drugmakers may talk about value, but they don’t share the way they calculate it. One way to approach that tricky task is demonstrated by the Institute for Clinical and Economic Review, or ICER, an influential nonprofit that publishes recommendations on drug pricing. It calculates a drug price based on how much time a medicine might add to a patient’s life, expected quality of life, drug efficacy compared with other treatment options, and other factors. ICER’s models tend to spit out a range of possible prices—in part because of the difficulty of valuing a year of human life. In most cases, ICER publishes two versions of its model, one valuing a population-level, quality-adjusted year of life at $100,000, and one at $150,000.

ICER’s conclusions don’t always line up with the prices set by drugmakers. In one recent instance, the group estimated that Biogen (BIIB) and Eisai’s (ESAIY) new Alzheimer’s disease therapy, the monoclonal antibody Leqembi, should cost between $8,900 and $21,500 a year; the companies have set the drug’s list price at $26,500.

Any model includes a range of assumptions and projections, says ICER president Dr. Steven Pearson: “There are always going to be some assumptions in your model that, if you’re a company doing it, you just are going to be more likely to pick an assumption that’s going to shine favorably upon your drug.”