>>> Up
* Equinor Raised to Buy at DNB Markets; PT 380 kroner
* Equinor Raised to Buy at DNB Markets; PT 380 kroner
* Heineken Raised to Overweight at Morgan Stanley; PT 103 euros
* Merck KGaA Raised to Overweight at Morgan Stanley; PT 230 euros
* Nestle Raised to Overweight at Morgan Stanley
* Tesla Raised to Buy at Edward Jones
>>> Down
>>> Down
* Danone Cut to Underweight at Morgan Stanley; PT 48 euros
* Diageo Cut to Equal-Weight at Morgan Stanley; PT 3,900 pence
* EasyJet Cut to Neutral at Goldman; PT 450 pence
* JPMorgan Cut to Hold at Deutsche Bank; PT $145
* MorphoSys ADRs Cut to Underweight at Morgan Stanley; PT $3.20
* MorphoSys Cut to Underweight at Morgan Stanley; PT 12.50 euros
* Next Cut to Underperform at Credit Suisse; PT 6,100 pence
* Novartis Cut to Underweight at Morgan Stanley
* Scandinavian Tobacco Cut to Underweight at Barclays
>>> Initiation
* Scandinavian Tobacco Cut to Underweight at Barclays
>>> Initiation
* Corre Energy Rated New Buy at Berenberg; PT 3.65 euros
* DKSH Rated New Neutral at Exane; PT 73 Swiss francs
* Experian Rated New Outperform at Exane; PT 3,200 pence
* Glanbia Reinstated Equal-Weight at Morgan Stanley; PT 13 euros
* Otis Worldwide Rated New Equal-Weight at Morgan Stanley; PT $84
* Pagegroup Rated New Neutral at Exane; PT 505 pence
* Rentokil Rated New Underperform at Exane; PT 470 pence
* Robert Walters Rated New Outperform at Exane; PT 800 pence
* Robert Walters Rated New Outperform at Exane; PT 800 pence
* Robert Half Rated New Underperform at Exane; PT $70
* Royal Unibrew Rated New Underweight at Morgan Stanley
* Securitas Rated New Outperform at Exane; PT 115 kronor
>>> Call
* Biogen May Rise Back Into $300s on FDA Nod Friday, RBC Says
>>> Call
* Biogen May Rise Back Into $300s on FDA Nod Friday, RBC Says
* Citi Strategists Raise European Stocks, Cut US to Underweight
* Citigroup, Goldman PTs Cut at Morgan Stanley on Rising Expenses
* EasyJet Downgraded by Goldman on Persistent Cost Pressures
* MS Sees Rotation From ‘Safe-Haven’ Pharma Back Into Growth
* Consumer Staples ‘a Good Place to Be’; Stock Order Changed at MS
* Next Downgraded at CS With Stock Seen Expensive, Limited Upside
* Scandinavian Tobacco Downgraded at Barclays on Weaker US Market
Stocks in Asia and US futures climbed ahead of crucial American jobs data that will help identify the path forward for Federal Reserve monetary tightening. Equities in Japan, Australia and South Korea rose. Shares in China and Hong Kong fluctuated after initially rallying on news reports Chinese officials would remove restrictions on property developer borrowing. Contracts for European futures and those for the S&P 500 advanced after the US index fell 1.2% on Thursday. Treasury 10-year yields retreated slightly after their first gain of the week on Thursday following comments from Fed officials. The dollar steadied and the yen fell to levels not seen in a week, after the Bank of Japan unveiled further unscheduled bond buying to control its yield curve. The broadly positive sentiment precedes US nonfarm payroll data to be released Friday. Estimates peg a decline in new jobs added, indicating a cooling in the labor market that would in turn reduce the need for higher interest rates. However, private payrolls data released Thursday surpassed estimates and a surprise fall in new claims for unemployment benefits underscored a robust jobs market. There are increasing signs of pressure on technology companies, with Samsung Electronics Co. the latest to report on a demand slump resulting in a 69% plunge in operating profit. Shares in the South Korean giant rose as speculation mounted the hit to earnings would prompt the company to reduce capital expenditure. The rise in European stock futures comes ahead of eurozone consumer price index data due later today. Consensus forecasts suggest inflation fell to 9.5% in December from a year earlier, down from 10.1% recorded in November. Oil rose further after a string of declines that wiped nearly 10% from the price of crude. The price of gold increased after retreating Thursday from a six-month high reached earlier in the week. US After Hours WWE +10.5% jumps as Vince McMahon plans his return, will push for strategic alternatives; AEHR +15.5% higher on earnings; USNA -1.1% lower on guidance
Nikkei +0,59% Hang Seng -0,33% CSI +0,29% Shanghai +0,03% Shenzen +0,13%
Eur$ 1,0519 CNH 6,8599 CNY 6,8538 JPY 134,09 GBP 1,1917 CHF 0,9369 RUB 72,0237 TRY 18,7704 WTI$ 74,22 +0,7% Gold 1,839 +8,6% BTC 16,795 ETH 1,247
S&P +0,32% Nasdaq +0,29% EuroStoxx +0,63% FTSE +0,24% Dax +0,58% SMI +0,45%
Macro :
- Citi Strategists Raise European Stocks, Cut US to Underweight
- Goldman’s Bell Expects 2023 To Be a Tough Year for Returns
- Goldman’s Bell Expects 2023 To Be a Tough Year for Returns
- German Regulator ‘Very Optimistic’ About Gas Supply This Winter
Keep an eye on :
Keep an eye on :
- BAYN GY : MS Sees Rotation From ‘Safe-Haven’ Pharma Back Into Growth
- BNTX US : UK Signs BioNTech Deal to Treat 10,000 With Custom Cancer Drugs
- BNP FP : BNP Paribas Launches Tap Issue of €75M Convertible Bonds
- DANSKE DC : Danske Bank Says US Sentencing Completed as Previously Announced
- DANSKE DC : Danske Bank Says US Sentencing Completed as Previously Announced
- EPIA SS : European Industrials' Lost Russia Sales Eye Capex Bulk-Up Offset
- MBG GY : Mercedes Tries to Outdo Tesla With Its Own EV Charging Network
- MUV2 GY : Munich Re, Swiss Re Increase Rates as Protection Costs Surge 50%
- REN PL : REN Signs EU150m Long-Term Financing Contract With the EIB
- ROG SW : Roche: FDA Grants Priority Review to Glofitamab for Lymphoma
- STAN LN : StanChart Faces Fresh Questions Over Future After Bid Report
- SW FP : Sodexo 1Q Revenue Beats Estimates
- STLA IM : Stellantis May Shut More Plants as Electrification Costs Bite
- SREN SW : Munich Re, Swiss Re Increase Rates as Protection Costs Surge 50%
- UCB BB : UCB Says FDA to Review BLA for Rozanolixizumab With Priority
- DG FP : Vinci Energies Buys Otera; No Terms
Samsung Expects 69% Drop in Profit on Slumping Tech Demand
High inflation and weak economies hit sales of memory chips and smartphones
SEOUL— Samsung Electronics Co. said it expects its fourth-quarter profit to plunge as the firm’s mainstay memory-chip and smartphone businesses face a sharp pullback in demand, showing the extent of the global tech downturn after pandemic highs.
The South Korean tech giant on Friday forecast its operating profit in the quarter ended Dec. 31 to drop by 69% from the prior year to 4.3 trillion won, the rough equivalent of $3.4 billion.
Revenue for the October-December quarter is expected to decline year-over-year by 8.6% to 70 trillion won, the company said.
Samsung’s estimated results were far below market forecasts. Analysts polled by FactSet were, on average, expecting Samsung to report roughly 7.1 trillion won in operating profit and 73.1 trillion won in revenue. The company is scheduled to report its full earnings later this month.
Samsung is considered a bellwether for the tech world. It is a major component supplier to companies such as Apple Inc. and is the world’s top seller of smartphones and TVs and a major player in many other areas of consumer electronics.
Samsung said in an explanatory note that its fourth-quarter profit had fallen because of larger-than-expected order pullbacks and price drops in the memory business, combined with falling sales of smartphones and home appliances. The possibility of a global recession and macroeconomic uncertainties are weighing on its key businesses, it said.
The tech industry at large is going through a prolonged downturn as consumers and companies have pulled back their spending on tech gadgets and electronic goods amid high inflation, rising interest rates and other macroeconomic challenges.
Last year’s worldwide shipments of smartphones and PCs are expected to have dropped by roughly 9% and 12% respectively from the prior year, according to International Data Corp., a tech-market research firm. Chip sales, which move in line with demand for tech goods, have also fallen.
Samsung’s vice chairman and CEO of its consumer-technology division said in a recent interview with The Wall Street Journal that the tech-market downturn would persist, though said he hoped for a potential recovery in the second half of 2023.
This year, worldwide semiconductor sales are expected to decline by 4.1% to roughly $557 billion, according to World Semiconductor Trade Statistics, an industry trade group.
Among the different types of chips, memory chips have taken the biggest price hits, as they are more commoditized and sensitive to supply-demand swings. As a category, memory chips are expected to see the steepest drop in revenue of 17% in 2023, versus a 1.2% decline for logic chips, a 1.6% increase for analog chips and a 3.7% increase for sensor chips, according to WSTS.
Samsung is the world’s largest producer of two major types of memory chips, DRAM, which enable devices to multitask, and NAND flash, which provide devices with storage capacity. The memory business drives most of the company’s income.
In the fourth quarter, prices of Samsung’s DRAM and NAND flash are projected to have both fallen by nearly 30% on a quarterly basis, according to a report last month by Goldman Sachs.
The investment bank forecast Samsung’s semiconductor unit’s operating profit for the October-December quarter to reach 1.5 trillion won, an 83% drop year-over-year. It also projected Samsung’s memory business would record an operating loss starting from the first quarter of this year due to steep losses in the NAND flash business.
Other players in the memory industry have issued grim outlooks. Rival American memory chip maker Micron Technology Inc. said last month that revenue for its latest quarter had dropped by nearly half and that it would curtail its spending. In November, it had announced plans to reduce its memory supply for the current quarter.
The memory-chip sector was in the throes of the most severe supply-demand imbalance in 13 years and profitability would remain challenged through 2023, said Micron Chief Executive Sanjay Mehrotra.
South Korea’s SK Hynix Inc., No. 2 in the memory business, said in October that it would cut its 2023 capital expenditure by more than 50% from the prior year because of deteriorating market conditions.
“I would say the current downturn is very severe for everyone involved in an unprecedented manner,” Noh Jong-won, SK Hynix’s chief marketing officer, said at the time.
Eni calls for south-north energy axis between Europe and Africa
Italian group’s chief pushes for closer collaboration as EU seeks to replace Russian imports
The chief executive of one of Europe’s biggest oil and gas companies has said the EU should look to Africa rather than the US as it seeks to replace Russian energy imports.
Claudio Descalzi, who has run Italy’s Eni since 2014, said closer collaboration with countries in Africa on energy matters offered the potential for a new “south-north axis” connecting the continent’s abundant renewable and fossil fuel resources with the energy-hungry markets of Europe.
“We don’t have energy, they have energy. We have a big industry, they have to develop it . . . There is a strong complementarity,” Descalzi told the Financial Times.
Eni has operated in Africa since 1954, has operations in 14 countries and has continued to invest while several of its US and European rivals have reduced their presence on the continent in favour of other parts of the world.
That footprint meant Africa was the first port of call for Descalzi last year as he sought to replace the 20bn cubic metres of gas that Italy previously imported annually from Russia.
In April, Descalzi secured approval from Algeria to increase the gas it exports via pipeline to Italy from 9bn to 15bn cubic metres a year in 2023 and 18bn in 2024. Two days later, Eni signed a deal to export 3bn cubic metres of liquefied natural gas from Egypt to Europe in 2022.
In the same month, it reached an agreement with the Republic of Congo to accelerate the development of a planned LNG project to provide 1bn cubic metres for export in 2023 and 4bn cubic metres by 2025.
Eni was able to access these opportunities as it had “invested a lot [in Africa] in a period where no one invested”, said Descalzi, adding that some rivals had chosen to invest in US shale gas instead, while Europe had allowed itself to become too dependent on Russian supply.
In November, Eni shipped the first cargo of LNG from Mozambique. The $7bn project — a partnership with ExxonMobil, CNPC, Galp and Korea Gas Corporation — is the first of several giant Mozambique gas projects planned since discoveries were made more than a decade ago.
Europe has exploited Africa’s resources for centuries, often paying royalties to export commodities while doing little to foster the development of local economies.
An effective south-north energy alliance would require a different attitude and approach, said Descalzi. For example, in 2021 about 85 per cent of the gas Eni produced in Africa was used to supply local markets, compared with 78 per cent worldwide.
“When you do something like that you take more risk . . . because it is much easier to export all of the gas you produce,” he said. “[But] we must be sure that we are creating value for them.”
Whether or not European companies and lenders should provide funds to develop new fossil fuel projects in developing regions such as Africa has become an increasingly fraught debate since world leaders signed the Paris climate agreement in 2015.
While environmental groups have lobbied companies, including Eni and France’s TotalEnergies, to halt new hydrocarbon projects in Africa, many African leaders argue they have a right to develop their national resources to drive economic growth and improve access to energy.
Even if Africa were to use all its known reserves of natural gas, the continent’s share of global emissions would only rise from 3 per cent to 3.5 per cent, Nigerian president Muhammadu Buhari wrote ahead of the COP27 climate meeting in Egypt in November.
Descalzi said that new oil and gas projects, if they can be developed quickly, could provide governments with a revenue stream that could be reinvested in clean energy projects.
Eni discovered oil off Ivory Coast in September 2021 and has fast-tracked development to start pumping in the first half of 2023.
The company said the emissions from the oilfield and the energy it uses — known as scope 1 and scope 2 emissions — would be offset with forestry and clean-cooking initiatives that would make it the first “net zero” hydrocarbons development in Africa. All of the associated gas in the field will be used locally for power generation.
“There has to be good cash flow for the country to develop a different energy mix during the transition,” said Descalzi.
In Kenya, where Eni is also exploring for oil and gas offshore, it opened a plant in July to process vegetable oil as a feedstock for its European biorefineries and sent the first shipment from the port of Mombasa in October.
Eni has two refineries in Italy producing biofuels and proposals for a third by 2025, by which time it plans to get 35 per cent of its biorefinery feedstock from agricultural hubs in Africa.
The production of feedstock crops such as castor, croton and brassica on “marginal land” that did not interfere with food crop production could become “the new upstream”, said Descalzi.
Eni is not the only European energy major diversifying its activities in Africa. BP has signed memorandums of understanding to explore the development of green hydrogen for export in Mauritania and Egypt.
TotalEnergies, which has one of the biggest portfolios of African oil and gas assets, is also running solar power projects in Egypt, Burkina Faso, Uganda and South Africa.
Almost half of Africa’s 1.4bn people lack access to electricity. The continent produces only 6 per cent of global fossil fuels from 4 per cent of global reserves, but has access to 39 per cent of global renewable energy potential, according to energy think-tank RMI.
The right investments, based on mutual “respect”, could help address energy security in Europe and energy access in Africa at the same time, said Descalzi. “Respect, what it means for me is that you have to take a risk with them together.”
Falling inflation unlikely to deter ECB from more rate rises
Slump in headline rates masks signs that underlying price pressures remain strong
Eurozone inflation almost certainly fell back into single digits for the first time in three months in December, with data published earlier this week showing price pressures eased by more than expected in Germany, France and Spain towards the end of 2022.
Yet the slowdown is unlikely to be enough to convince the European Central Bank to stop raising interest rates just yet, with markets still pricing in a series of increases by officials in Frankfurt over the course of 2023.
Franziska Palmas, senior Europe economist at research group Capital Economics, said: “The ECB is likely to stick to its hawkish rhetoric in the near term despite the big falls — and likelihood of further sharp declines this year.”
Why are the falls not enough to convince the ECB to change tack?
While falls in fuel prices and government subsidies to help businesses and households out with higher power bills have cut headline inflation rates, underlying price pressures remain strong.
Berlin paid most households’ gas bills for December, which Commerzbank economists estimated knocked 1.2 percentage points off the harmonised rate of headline inflation. The rate fell to 9.6 per cent, down from 11.3 per cent the previous month. But growth in the cost of services, an indicator of how long price pressures are likely to endure, accelerated in December.
In Spain, core CPI inflation — which excludes movements in the price of food and energy — rose in the year to December, despite a sharper than expected fall in the harmonised headline rate to 5.6 per cent.
Although headline inflation in the eurozone fell from the 10.6 per cent record hit in October to 10.1 per cent in November, core inflation — at 5 per cent — remained at an all-time high. It is expected to stay there in December.
“This year will be mostly about getting under the hood of inflation and seeing exactly what is driving it,” said Paul Hollingsworth, chief European economist at French bank BNP Paribas.
For the ECB to change tack, rate-setters will want to see a substantial fall in the core rate and other measures of longer-term inflationary pressures, such as wage growth. They will also be on the lookout for signs that governments’ support for households and businesses struggling with high energy prices is boosting demand.
Christine Lagarde said in an interview with Croatian newspaper Jutarnji List: “We need to be careful that the domestic causes [of inflation] that we are seeing, which are mainly related to fiscal measures and wage dynamics, do not lead to inflation becoming entrenched.”
What’s next for inflation in Europe?
Economists polled by Bloomberg forecast a drop in eurozone inflation to 9.5 per cent in December, down from 10.1 per cent in November. The data, published by the European Commission’s statistics bureau Eurostat, are out at 10am UK time on Friday morning.
Further falls are expected in the coming months, following the slump in energy prices since the start of the year. The impact of last year’s surge in power costs following Russia’s invasion of Ukraine will also soon fall out of the index, lowering the headline figure substantially.
Carsten Brzeski, head of macro research at Dutch bank ING, predicted that euro area inflation could even drop back to the ECB’s 2 per cent target by the end of 2023.
If the recent falls in gas prices continue, the ECB will almost certainly have to downgrade its inflation projections for this year. The central bank said in December that prices would rise 6.3 per cent over the course of 2023, based on assumption for natural gas prices to average €124 per megawatt hour over the whole of this year.
But the price of the Dutch TTF benchmark European gas contract has fallen about 10 per cent this week to just €69.70/MWh as of Thursday afternoon — a level 80 per cent below the August high of €340/MWh.
“The ECB’s own inflation projections are currently too high, just judging from the technical assumptions for gas and oil prices and where these prices are currently,” said Brzeski.
What does this outlook mean for interest rates?
Last year, the ECB responded to soaring inflation by raising interest rates at an unprecedented pace, lifting its deposit rate from minus 0.5 per cent in July to 2 per cent by the end of the year.
ECB president Christine Lagarde said in December that markets were underestimating how much higher borrowing costs would go, adding: “We should expect to raise interest rates at a 50-basis-point pace for a period of time.”
Since then, investors have been pricing in about 1.5 percentage points of rate rises over the opening three quarters of 2023.
Two half-point rate rises at officials’ next two policy meetings in February and March and a few smaller moves later in the year remain the expectation, despite the sharper than expected falls in inflation this week.
Without sharper falls in measures of underlying price pressures, markets’ and economists’ expectations for eurozone interest rates are unlikely to shift by much.
“It is all very well getting back to 3 or 4 per cent inflation,” Hollingsworth said. “But it could be harder to get down to 2 per cent, particularly if there is a milder than expected recession.”
He added: “We really need to see services prices and wage growth cooling to convince the ECB it has done enough.”
Can Swiss industrial group ABB gear up for growth?
Chief executive has dramatically slimmed down head office and introduced tough delivery targets to boost performance
Björn Rosengren took the reins at ABB in March 2020 with a mandate to shake up the Swiss industrial group after years of underperformance.
Events — a global pandemic, production shutdowns in key markets and an economic downturn — may have proved an additional challenge but have done little to slow him down.
Almost three years on, the 63-year-old Swede has unpicked ABB’s highly centralised corporate structure and parted with most, if not all, non-core businesses. ABB’s four strategic divisions — electrification, motion, process automation and robotics — have been broken down into 20 autonomous businesses.
Along the way, ABB’s head office has shrunk from 18,000 to just 800 people. Some 7,000 of the original 18,000 have gone to work directly for the different business units. The company employs about 100,000 people in more than 100 countries.
Rosengren’s guiding principle is accountability. After a career spent whipping other industrial companies into shape, including Swedish engineer Sandvik, before landing at ABB, Rosengren said “people like accountability”.
Accountability, he said, is key, crediting it as one of the factors behind the success of private equity groups. People there are “incentivised, meaning that if they make a success of the company, their future will be bright, at least financially”. Today, ABB similarly incentivises people and gives full accountability.
Each of the different businesses has its own management team and is responsible for its own costs. Each also has its own strategic mandate and within that, needs to deliver first on stability, then profitability and then growth.
Performance is closely monitored, with a scorecard system that contains about 15 key indicators. Comparisons of current and past performance are critical in order to gauge the direction of each business and whether it is healthy, said Rosengren.
He is unapologetic if the approach entails shedding underperforming businesses or parting with heritage.
“People like to work for successful companies. I think that’s more important than heritage,” he added.
His method, he insisted, had begun to pay off. When he started, just 30 per cent of businesses were in their third “growth stage”. Today, 70 per cent are growing.
Despite his focus on decentralisation, Rosengren says there are reasons to keep the units together as one group within ABB: all have the same purpose, which he defines as enabling a “sustainable and energy efficient future with technology leadership in electrification and automation”.
There is also collaboration between the businesses — but only if it makes sense, either by adding value to customers or by being more cost efficient.
Andrew Wilson, equity analyst at JPMorgan who has a “neutral” rating on the company’s stock, said Rosengren deserved credit for making a “tangible improvement in the way ABB is run”.
“People underestimated his ability to repeat the same playbook he used at Sandvik at ABB, a bigger and more complex beast where others had tried and failed before.”
ABB’s balance sheet is in better shape but more remains to be done, including the disposal of the company’s power conversion unit, acquired as part of a $2.6bn deal for General Electric’s industrial solutions business in 2018 and which helps companies run infrastructure more efficiently. A sales process is under way.
An original plan to float its electric vehicle charging business last summer was postponed due to the wider market rout. ABB in November raised about SFr200mn from selling an 8 per cent stake. The private placement gave the business an equity value of SFr2.4bn-SFr2.5bn, with investors expecting a surge in demand for charging points.
ABB’s financial performance has also begun to improve, although third-quarter income, announced in October, was hit by a non-operational provision in connection with a legacy project in South Africa.
Investors say a key target this year is hitting a margin of at least 15 per cent on operational earnings before interest tax and amortisation — one year ahead of plan.
Rosengren also points to a strong order intake, increasing 4 per cent on a reported basis and 16 per cent on a comparable basis from last year to $8.19bn in the third quarter.
“I think the most important [thing] is that we have to stay with 15 per cent over a business cycle, meaning that we should also be able to deliver over 15 per cent in the downturn,” said Rosengren, stressing that conditions look more challenging next year.
Cevian Capital, which bought into the stock in 2015 and had been agitating for a new strategy, said it is happy with the results so far.
Robert Schuchna, a partner at Cevian, said Rosengren had “successfully deconglomeratised” ABB in how it is organised and run. The result was a company that is “significantly more dynamic, competitive and profitable”.
“The 15 per cent margin is a big improvement, but in our view the company can and will become more profitable,” added Schuchna.
On the growth front, ABB has set a revenue growth target of 4 to 7 per cent in constant currency through the economic cycle. “The bit where the jury is still out is, can you sustainably match the peer group growth rates over the long-term,” said JPMorgan’s Wilson.
Some of the company’s growth will come through acquisitions, notably small to medium-sized ones to help divisions strengthen their market positions. Rosengren said ABB had a “huge pipeline” of such deals and expected to do five to 10 a year.
William Mackie, head of capital goods research at Kepler Cheuvreux, said 2022 had been the “year in which the company has done all the housekeeping, including decentralising, cleaning up legacy contracts and selling everything apart from the power conversion business”.
The coming year, he added, would be “all about driving for growth”.
For Rosengren, one of the main challenges on the horizon is the rising political tension between different parts of the world. ABB’s strategy to be local in most of the countries it operates in, however, should provide some protection.
He is also worried about the rising regulatory push associated with Europe’s push towards a greener economy, which contrasts sharply with America’s strategy of offering incentives to companies to invest.
Europe’s politicians are aware of the need to act. But the question is: will the different member states agree on something.
“I am European and I would like to see a healthy Europe in the future,” Rosengren said.
A pharma partnership that brought a breakthrough in breast cancer
Daiichi Sankyo and AstraZeneca’s Enhertu could double time patients can live without their condition progressing
It is not often that a drug receives a standing ovation. When Daiichi Sankyo and AstraZeneca announced impressive results for their breast cancer treatment Enhertu, oncologists took to their feet to applaud.
“It was a goosebump moment, sending shivers down my spine,” said Susan Galbraith, who leads oncology research and development at AstraZeneca.
Ken Keller, chief executive of AZ’s Japanese partner on the drug, deliberately stood apart from his team at the American Society of Clinical Oncology meeting to see the mood of the crowd. “People had basically tears of joy in their eyes,” he said.
But the man who had brought the two companies together — pioneering oncologist José Baselga — did not live to witness the drug’s reception. He died in 2021 aged 61 from a rare brain disease.
One in eight women will get breast cancer in their lifetime — and Enhertu has the potential to change treatment for half of them. David Fredrickson, executive vice-president of the oncology business at AstraZeneca, said the drug “blows up the swim lanes” that previously defined the treatment of breast cancer. For a large group of patients, he said, it could be “one of the most important medicines ever”.
Enhertu was first approved in the US in 2019 for a subset of patients with cancer that has high levels of a protein called HER2. About 15 to 20 per cent of breast cancers are HER2-positive but last June a trial showed that the drug could double the time patients can live without their cancer progressing, even if they have low levels of this protein. About a fifth of the participants with metastatic cancer — usually seen as uncurable — had complete responses: scans could not detect their tumours.
The drug has transformed Daiichi Sankyo into an oncology company. And it is further proof that AstraZeneca, a leader in the field, knows when to pounce: its unorthodox move to raise $3.5bn on the public markets to help pay for the $6.9bn deal to develop and sell the drug looks set to more than pay off. Analysts are forecasting about $10bn a year in Enhertu sales at their peak.
In 2005, Daiichi merged with Sankyo, bringing together chemists from the former and biologists from the latter who would go on to create Enhertu.
The drug builds on a history of targeting the HER2 protein which dates back to Roche’s launch of Herceptin in 1998. Just like with Herceptin, scientists used an artificial antibody to hook on to the HER2 protein on a cancer cell. But they improved on current treatments by creating a strong link to a more powerful molecule that breaks down enzymes and kills cancer cells.
When they tried it in mice, they could see it worked better than the market leader, Roche’s Kadcyla. But Daiichi had never made a cancer drug. “In the end, science won the day back then,” said Ken Takeshita, global head of R&D at Daiichi. “It was courageous for this company to say, we’re going to steer away from being a cardiovascular company.”
Keller wished he could say that he knew how promising the drug was at that point. By about 2015, the technology started to look “pretty spectacular”. “But there’s a lot of drugs that look spectacular in animal studies,” he said.
He was more convinced after the first study in humans: a hard-to-treat population that had tried several other drugs. “At that point, almost nothing works. And we were seeing the tumour shrink dramatically,” he said.
Keller credits the chief executive of the time, George Nakayama, with making two big bets: focusing the company on Enhertu, and working with AstraZeneca.
Baselga joined AstraZeneca in early 2019 as head of oncology research and development. He had been forced to resign from his post as physician-in-chief at New York’s Memorial Sloan Kettering cancer centre because of a failure to disclose payments from healthcare companies, which the American Association for Cancer Research later concluded was “inadvertent”.
But while there, he had led the phase 2 trial for Enhertu, seeing first hand how it was helping patients. In his first week at AstraZeneca, he pushed the idea that AstraZeneca should have a partnership with Daiichi.
Fredrickson said Baselga’s extensive experience studying breast cancer meant that he and AstraZeneca chief executive Pascal Soriot sat up and listened. Soriot had already built AstraZeneca into an oncology powerhouse, producing blockbusters like Tagrisso and Lynparza.
“José really gave us the conviction that this was a medicine that AstraZeneca needed to be a part of,” Fredrickson said.
Daiichi split the rights 50/50 with AstraZeneca, outside of Japan, in return for AZ conducting further clinical trials. Michael Leuchten, an analyst at UBS, said it was a “very, very clever deal”. “What did AstraZeneca see that others missed?” he asked, adding that the company has proved repeatedly it can make good decisions.
For Daiichi, AstraZeneca offered oncology expertise and money. To make the most of Enhertu’s potential, they are planning 40 trials, one of the largest programmes in the industry. They are asking huge unanswered questions: does Enhertu work in earlier stages of breast cancer? It has already been approved for some types of other cancers like gastric and lung, where HER2 shows up; but how many more could it tackle?
“We have so many potential cancers that we can study and sometimes it’s a bit challenging to find all the people and all the resources,” Takeshita said.
The biggest opportunity is early-stage breast cancer. The earlier cancer is treated the better, so it could make an even bigger difference earlier.
Nick Turner, an academic consultant medical oncologist at the UK’s Institute for Cancer Research, who specialises in breast cancer but was not involved in the Enhertu trials, said it is very likely in the future that oncologists will prescribe Enhertu instead of the previous standard medicine, Kadcyla.
“We’ll then be on the way to really curing the substantial majority of patients with early-stage HER2-positive breast cancer,” Turner said.
Roche said Kadcyla will still be an important option for patients, with its well-established record of safety and efficacy, and the company is exploring using it in combination with another of its cancer drugs.
However, Enhertu has significant side effects. Patients often have the same side effects well known from chemotherapy — such as sickness and hair loss — and there is much smaller risk of developing a serious lung condition. Early-stage patients tend to take a drug for longer and they may find it hard to tolerate over time.
Daiichi is also creating other drugs based on the same platform as Enhertu, one of which is also part of a partnership with AstraZeneca. Gareth Powell, head of healthcare at specialist fund manager Polar Capital, said Enhertu has helped take AstraZeneca to a “whole new level in terms of growth potential” — and when sales take off, would ultimately boost margins at Daiichi.
“At some point, this product gets so big, you can’t spend it fast enough in terms of investment,” he said.
Analysts at Credit Suisse in London said the competition is at least three years behind. They believe if all of the treatments based on the platform that combines antibodies with a molecule to kill cancer cells in the pipeline are successful, it could add up to an opportunity as big as Merck’s blockbuster oncology drug Keytruda, which hit $17.2bn in sales in 2021. But they warned that investor expectations are already very high, so that if anything did go wrong, it could hit shares in AstraZeneca.
For patients, Enhertu promises time. Emma Fisher was diagnosed with breast cancer in 2016 when she was just 35, and two years later, found out it had spread. The average lifespan of someone with secondary breast cancer is two to five years.
Fisher’s private health insurance paid for the drug, but she testified to the UK’s National Institute of Clinical Excellence to try to persuade authorities to pay for it for everyone on the NHS. NICE now covers the drug for many patients with HER2-positive breast cancer, and will consider it for cancers with low levels of HER2 in 2023.
“Twelve months is a phenomenally long amount of time. It might not sound like a huge amount of time to somebody who doesn’t have incurable cancer. But for somebody with incurable cancer, an extra 12 months is everything,” she said.
After Hours Summary: WWE +10.5% jumps as Vince McMahon plans his return, will push for strategic alternatives; AEHR +15.5% higher on earnings; USNA -1.1% lower on guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: AEHR +15.5%, SRTS +8.2%, DCT +2.5%, RCM +2.4%
Companies trading higher in after hours in reaction to news: CTMX +61.5% (CTMX announces collaboration and licensing agreement with MRNA), EFTR +17.8% (provides data update for Zotatifin and general corporate update), WWE +10.5% (Vince McMahon expects to return as exec chairman; will participate in upcoming media rights negotiations; also will push for review of strategic alternatives), FUSN +7% (FUSN and BWXT enter into supply agreement for actinium-225), CACI +4.4% (wins $2.25 bln Defense contract), TPIC +4.3% (extends supply agreements with GE Renewable Energy), DRS +3.8% (awarded U.S. Army contract), COST +2.8% (reports Dec sales), TDOC +1.4% (launches new app enabling whole-person care), LTC +1.4% (announces investment in 12 assisted living/memory care properties), MRNA +0.3% (CTMX announces collaboration and licensing agreement with MRNA), CHPT +0.2% (announces plans to rapidly expand 400 charging hubs), ASR +0.2% (reports December traffic), IPSC +0.2% (announces internal portfolio prioritization), SPWR +0.1% (SPWR and MAXN extend supply relationship)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: KRUS -4.9%, USNA -1.1%, PCRX -0.1%
Companies trading lower in after hours in reaction to news: FATE -49.5% (terminates collaboration agreement with Janssen), GRPH -42.8% (voluntary pause of Phase 1/2 CEDAR study), BBBY -7.1% (preparing to file for bankruptcy within weeks, according to WSJ), WKME -2.2% (names new Chairperson), LGIH -1.5% (closed 504 homes in Dec), ENVX -1.3% (delivers custom sample cells for US Army), MSA -0.1% (divests subsidiary holding legacy product liability claims), BWXT -0.1% (FUSN and BWXT enter into supply agreement for actinium-225), PFE -0.1% (may pull back on early-stage rare disease research, sell some major assets, according to Barron's)
SEC says ex-BlackRock manager did not disclose conflict of interest with film studio
Regulator says former employee asked client to assist his daughter’s acting career
A former BlackRock portfolio manager has paid $250,000 to settle claims that he failed to disclose that a film company in which one of the asset-manager’s funds invested had helped his daughter land a small acting role.
The Securities and Exchange Commission alleged that while working at the world’s largest money manager, Randy Robertson asked BlackRock client Aviron Pictures — which distributed movies featuring Hollywood stars such as Keanu Reeves and Anne Hathaway — to “help his daughter’s career”.
Aviron received as much as $75mn from BlackRock’s Multi-Sector Income Trust (BIT) fund, which Robertson and others managed, the SEC said, making it one of the fund’s single largest investments.
The company — whose founder William Sadleir was convicted last year for fraud involving a Covid-relief programme — “presented [Robertson’s daughter] with potential opportunities in the film industry”, the regulator added.
In 2014, Robertson emailed his daughter’s curriculum vitae and headshots to an intermediary between the now-defunct Aviron and BlackRock, noting that “[a]ny help is appreciated”, the SEC said. The manager later discussed his daughter’s career with Sadleir on several occasions.
Sadleir offered to send Robertson’s daughter screenplays, claiming that he had “reasonable influence with the producers and their casting choices”, according to the SEC order. He also offered to fly her to the Cannes film festival, the SEC alleged.
Robertson’s daughter met an Aviron executive in August 2018, who later emailed the BlackRock manager to say he “was able to offer her a small talking role” in a film and was “setting her up on a few casting agents in LA”, the order said.
Lawyers for Robertson did not immediately respond to a request for comment. The 62-year-old has not admitted to wrongdoing. BlackRock declined to comment on the SEC settlement.
“Investment professionals must be forthcoming about any conflicts of interest they may have with the companies in which they invest client funds, including situations involving favours or assistance to family members,” said Andrew Dean, co-chief of the SEC’s enforcement division overseeing the asset management sector.
“Investors must be able to know that the advice they receive is free of undisclosed conflicts, regardless of whether the conflict is financial in nature.”
Robertson was fired by BlackRock in February 2020. The asset manager sued Aviron, and said in a statement in 2020 that it had managed to “fully recover the amounts it loaned to Aviron and to realise a rate of return that is the same or better than the rate of return of the other assets in BIT’s investment portfolio during the relevant investment periods”.