Drug prices: we need to talk about Nirmal
Outliers weaken big pharma’s efforts to fend off attacks over high cost of medicines
Mavericks revel in controversy. After an unruly bikers rally in 1947, the American Motorcyclist Association insisted 99 per cent of riders were upright citizens. Some gangs claimed the term “one percenter” as a badge of pride. A few drugs industry bosses seem to relish disapproval just as much. This complicates the task of big pharma groups in fending off political attacks over the high costs of medicines.
Nostrum Laboratories of the US is the latest outlier. It has raised the price of a prescription cold medicine by more than 300 per cent to about $170. Last year, it upped the price of an antibiotic mixture to more than $2,000. Boss Nirmal Mulye claimed a “moral requirement to sell the product at the highest price”.
The drug can be bought more cheaply elsewhere. Even so, the case is bad publicity for an industry under pressure on pricing from US president Donald Trump. While not exactly cowed — prices of thousands of drugs have been raised recently — there are signs of restraint. By one measure, drug prices experienced their single largest decline in 46 years in 2018.
The introduction of new drugs pushes up prices. Patent expiries typically push them down. But some of the highest-profile rows concern old, off-patent drugs. The Aids and cancer drug Daraprim is the best-known example. Even though it had been on the market for more than 60 years, “Pharma Bro” Martin Shkreli raised the price 5,000 per cent in 2015.
The chorus of disapproval that followed cut no ice. As boss of Turing Pharmaceuticals, the only maker of Daraprim, Shkreli — later imprisoned for securities fraud — could raise the price as much as he thought the market could bear.
But the real challenge to healthcare budgets comes from rising prices for new treatments, especially for rare conditions. A gene therapy drug that Novartis thinks is worth as much as $5m per treatment is a case in point. The cost of bringing a drug to market has risen to more than $2bn. Companies need to make a return on research.
Weighing the value of cures against their cost would be easier without the antics of “one percenter” drugs bosses. Marginalising them is the job of regulators as well the industry. They should speed up approvals for me-too drugs and close loopholes used to block competition. This would clear the air for a debate over the costs of genuinely novel drugs.
FT : Crypto hedge funds live to fight another day
Class volatility in spotlight as $1bn sector auto-reports average losses of 46%
About 150 cryptocurrency hedge funds, which together manage assets of $1bn, survived the volatility in the bitcoin market that saw the price of the most popular digital coin plummet by 72 per cent.
Bitcoin’s price fall last year resulted in heavy losses for most crypto hedge fund managers, according to a report by PwC and Elwood, a digital asset manager owned by Alan Howard, the billionaire co-founder of the Brevan Howard hedge fund.
Several funds failed last year and many others are still fighting to survive. Most crypto hedge funds hold assets of less than $10m, which raises questions about the long-term sustainability of their business model.
Senior regulators have issued pointed warnings. Benoît Cœuré, one of the eurozone’s top central bankers, last year described bitcoin as “the evil spawn of the financial crisis”.
Mark Carney, governor of the Bank of England, said in March last year that cryptocurrencies were “inherently risky” and called for tighter regulation.
Fewer than 10 crypto hedge funds manage assets of more than $50m. Two of the largest players are San Francisco-based Pantera Capital and Polychain Capital, the latter backed by venture capitalists Andreessen Horowitz and Sequoia Capital.
The median crypto hedge fund delivered a 46 per cent loss in 2018, highlighting the extreme volatility and high risks of this nascent asset class. Quantitative crypto hedge funds, which can take short positions to bet on a fall in the value of bitcoin and other digital currencies, fared better with a median return of 8 per cent.
“All performance data were self-reported by each crypto hedge fund and this information has not been verified by their respective fund administrators,” said Henri Arslanian, PwC’s fintech and crypto leader for Asia.
Mr Arslanian said that accurately valuing a crypto hedge fund was “challenging”, particularly those that held illiquid tokens or invested in early stage projects through simple agreements for future tokens (Safts).
In addition, many established fund administrators do not provide net asset value estimates for cryptocurrencies.
“There are only a limited number of fund administrators servicing the crypto space but this looks set to change as the industry matures,” said Mr Arslanian.
Three-quarters of crypto hedge funds do not have independent directors on their boards, raising questions about corporate governance standards and possible conflicts of interest.
“Having the portfolio managers also control the board may work for ‘friends and family’-type funds but it is unlikely that an institutional investor will commit capital to a crypto fund which does not have proper governance,” said Mr Arslanian.
Investors and cryptocurrency enthusiasts gathered in New York this weekend for Blockchain Week NYC, a week of events to explore the application of digital record-keeping technology to financial markets and other industries.
The price of bitcoin has recovered this year, rising 71 per cent since January 1 to $6,300, according to Bitstamp, a cryptocurrency exchange. Even after the rebound, bitcoin remains 68 per cent below its record price of $19,666 seen in December 2017.
Regulators worldwide are stepping up their scrutiny of cryptocurrencies and blockchain as more established financial players adopt the technology.
The Securities and Exchange Commission, the US regulator, will host a public forum on May 31 to discuss distributed ledger technology and digital assets.
Bin Ren, the chief executive of Elwood, said the crypto hedge fund sector was “just one part” of a much broader ecosystem of digital assets to attract interest from institutional investors.
“Broader interest from investors and regulators is undoubtedly a positive step towards digital assets being recognised as an asset class with true viability,” he said.
Democrats take aim at big agribusiness
Tech companies are not the only ones under fire as competition concerns rise
The two major beneficiaries of the global status quo since the 1980s have been big companies, and big countries. US president Donald Trump is (and will continue to be) spending much of his airtime ahead of the 2020 election going after the biggest of them all: China.
However, Democrats are focusing their economic policy attention at home on the issue of corporate monopolies. And in the last couple of weeks, they have come up with a new focus for their complaints about antitrust issues that could help them gain ground in Republican and swing states — agribusiness.
At a recent “heartland forum” in Iowa, five Democratic presidential hopefuls laid out policies to break up “Big Ag” and help small, family farmers. Elizabeth Warren said she would challenge mergers of big agricultural companies, such as German chemicals group Bayer’s 2016 purchase of US seeds group Monsanto. Meanwhile, Amy Klobuchar, the ranking member of the Senate antitrust subcommittee, complained that two seed companies dominate that market, and four railroads — the same number as “on the Monopoly board”— do most food shipping.
Other contenders, including Cory Booker and Bernie Sanders, have introduced measures to level the playing field in farming. Even the centrist think-tank, Center for American Progress, has come out with a report on concentration in agribusiness, pointing out that four transnational companies control the bulk of America’s food supply. That turns Midwestern pig farmers into unlikely mascots for the diminishing power of labour relative to capital, and links their fortunes to those of groups being targeted by the Democrats, such as gig economy workers. Their message is that while Mr Trump may claim China is the problem, America has bigger issues at home.
The markets for corn seed and meat processing are not quite as concentrated as those for mobile phones or search engines, according to data compiled by the Open Markets Institute. But farms are far more emotionally resonant than technology. The beleaguered American farmer has been a powerful political icon for decades — think of Dorothea Lange’s photographs of Dust Bowl migrants, or the 1985 Farm Aid concert featuring artists including Neil Young, Willie Nelson, and my fellow Hoosier John Mellencamp, whose hit song “Rain on the Scarecrow” was inspired by the worst rural economic conditions since the Depression: “The crops we grew last summer weren’t enough to pay the loans; couldn’t buy the seed to plant this spring, and the Farmer’s Bank foreclosed”.
Current conditions are not that bad, but they are not good. In April, a sentiment index based on a survey of 400 agricultural producers across the US, recorded the fourth largest one-month drop since data collection began in October 2015. Worries about trade had increased, the Purdue University/CME Group Ag Economy Barometer, found. Only 28 per cent of respondents felt that the growing dispute between the US and China over soyabeans (and other trade issues) would be resolved by July, down from 45 per cent the previous month. Nearly half wanted the US to rejoin the Trans-Pacific Partnership, the free trade pact that Mr Trump pulled out of shortly after his election.
This presents an opportunity for Democrats to pick up votes in crucial Midwestern swing states. Farming represents only 1.3 per cent of US employment. But nearly one in five rural counties depend on agriculture as a primary income source. In Iowa, the site of the caucuses that are an early test of US presidential candidates, 30 per cent of the economy is linked to agriculture.
What is more, concentration of power in agribusiness has been a bigger and certainly a longer-term problem for American farmers than China. As a few companies gained control of key areas of the food supply chain, spending on research and development fell, input costs rose, and margins for individual farms went down. The CAP report also documents small farmers being forced into opaque contracts and held up by ridiculous rules, such as those forbidding them to repair their machinery without permission from John Deere or other large manufacturers. (That is something Ms Warren wants to overturn.) Those who try to organise unions have faced retaliation.
It all fits into the larger Democratic effort to reset the economic discussion. They are promising to shift from a trickle down, market-knows-best, technocratic approach that limits the use of public policy solutions to one that acknowledges that where outsized power exists, it needs to be curbed with appropriate regulation.
Do not underestimate heartland support for Mr Trump. His approval ratings in Iowa are at the same level as before the trade war. And I have spoken to any number of people willing to take economic pain in order to reset what they see as a false “free” trade paradigm, in which China gets more than it gives.
But I think Democrats are wise to plant their policy seeds in Iowa. The president has done very little to help the Midwest in real terms over the past two years. Quite the opposite: Deutsche Bank calculates that eight of the 10 states most affected by Mr Trump’s tariffs voted for him in the last election.
China’s Liu He denies backtracking on trade agreements with the US
Washington is preparing new tariffs after alleging that Beijing “reneged”
Chinese vice premier Liu He has denied that China backtracked on agreements made in trade negotiations with the United States, in Beijing’s first detailed response to Washington’s allegation that changes to negotiation texts prompted President Donald Trump to call for additional tariffs on Chinese goods.
Over recent months both sides believed they were nearing a draft agreement that might be concluded as soon as this week. But Mr Trump, who had insisted since late January that the negotiations were proceeding smoothly, changed his tune last week as he alleged Mr Liu’s team was seeking to “renegotiate” terms of the evolving deal.
On Friday, Mr Trump ordered a sharp rise in the punitive tariff rate currently imposed on about $200bn worth of Chinese imports, from 10 per cent to 25 per cent.
He also moved closer to imposing tariffs on all imports from China after talks between Mr Liu and US officials in Washington failed to find a last-minute resolution.
Robert Lighthizer, the US trade representative, said Mr Trump had told him to start preparations for imposing tariffs on the roughly $300bn in Chinese goods that are currently not subject to tariffs.
“[The president] ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300bn,” he said in a statement. “Details will be on the USTR website on Monday as we begin the process prior to a final decision on these tariffs.”
The Chinese government said last week that it would respond to Mr Trump’s move with new tariffs of its own but has so far been relatively calm in its response, as it believes a deal could still be within reach.
Mr Liu told Chinese media at the weekend there had not been a breakdown in talks and that China had not “reneged” on the deals, claiming that the two sides were still in the process of exchanging draft agreements when Mr Trump threatened higher tariffs.
“We believe that before an agreement is reached, any change is very natural,” he said, according to Hong Kong-based Phoenix Media. “We did not backtrack. We had disagreements over how to write some of the text is all.”
China wants a deal “premised on equality and dignity”, Mr Liu said, adding that the remaining differences were “matters of principle” over which China could not make concessions.
On Saturday evening, however, Mr Trump taunted Beijing’s negotiators. “I think that China felt they were being beaten so badly in the recent negotiation that they might as well wait around for the next [US presidential] election, 2020, to see if they could get lucky and have a Democrat win,” the president said. “The deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now.”
The higher US duties imposed on Friday will only apply to Chinese goods shipped from Friday onwards — and not on products already en route to or in US ports. China has yet to announce counter measures.
As most merchandise trade between the world’s two largest economies is transported across the Pacific by ship, that gives both sides several weeks to negotiate a settlement before the tariffs kick in. The two sides concluded their 11th formal round of trade talks in Washington on Friday.
China believes the tariffs are the “starting point” of the trade dispute and must be fully removed before a deal can be reached, Mr Liu told Phoenix.
“The Chinese are showing remarkable restraint and an eagerness to stay engaged in talks despite harsh words from the US,” said Eswar Prasad, a professor at Cornell University and former head of the International Monetary Fund’s China division.
China, which imports far less from the US than the US does from China, has imposed tariffs of its own on almost all US imports, with most of the impact felt by American farmers and energy exporters.
Mr Trump said on Twitter the US government would “buy agricultural products from our Great Farmers, in larger amounts than China ever did” — heralding a big round of state subsidies for the US farming sector.
US farmers have already seen a sharp drop in exports to China over the past year due to the trade war and have been begging the administration to reach a deal with Beijing. Last year, the Trump administration put in place a $12bn aid package for farmers to prevent a political backlash, but until this week it had ruled out a new one.
The US imported goods worth $505bn from China in 2017, according to US data, compared to exports to China of $130bn.
Aside from raising existing tariff levels, the Chinese government could resort to non-tariff barriers and other administrative measure to punish US corporate interests in the world’s second-largest economy.
While Chinese officials will not welcome an all-out trade war, they are unlikely to try to avoid one at all costs as nationalist attitudes harden at home.
“Basically the US cannot defeat China through trade,” said Huang Weiping, an economics professor at Renmin University in Beijing. “American sanctions did not break Russia or Cuba. They will definitely not break China.”
The total value of China’s exports have fallen from about 35 per cent of GDP to 18 per cent since 2006, with exports to the US now equivalent to just four per cent of GDP.
Li Linghui, owner of a suitcase exporter whose products will be hit by the tariff increase, said he was not concerned even though one-third of his business is in the US. “If they increase tariffs we’ll just be more expensive in the US,” he said. “It’s American customers who are going to bear the cost, not us. I’m not going to lose money selling to them.”
“And I can always turn to [China’s] domestic market,” he added. “I will survive.”
Barrons weekend summary: Cover story on selection dividend stocks; Positive features on JBHT and UPS; cautious on UBER
* Cover story: The case for dividend stocks has rarely been stronger. Lower interest rates—especially with the Federal Reserve signaling that it will not raise rates this year—provide support by making bonds less of a threat to dividend stocks; Barron’s found seven that investors should consider—they all possess good prospects for growing payouts, thanks to strong free-cash flows and sound capital-allocation priorities by their management (Positive on SRE, JPM, NEE, APD, HON, MKC, MSFT).
* Features: 1) Cautious on UBER: Ride-hailing company’s first day of trading after its initial public offering was the worst first-day performance for a giant U.S. IPO by a wide margin, a sign investors are hesitant to buy into what Uber called its “massive” global market opportunity; 2) Positive on UPS: Wall Street isn’t entirely enthusiastic about the delivery giant, but at $100, its shares look appealing after changing very little during the past five years, and bulls like the company’s conservative balance sheet and high credit ratings; 3) Positive on JBHT: Company known as the “king” of intermodal shipping—transporting goods on containers via low-cost rail, then switching to higher-cost, shorter-distance trucks—faces negative trends in the railway and e-commerce sectors, but the decline in share price is an overreaction, and the stock now looks cheap; 4) Cautious on Brown-Forman, MCPI: Sales of Kentucky bourbon and Tennessee whiskey have elbowed aside beer to become a favorite of millennials worldwide—revenues doubled for American whiskey suppliers in the past 10 years, but the trend, while it may not have peaked, will eventually slow down, and investors “should eye the exits.”
* Tech Trader: Positive on MTCH: The diminishing threat from FB’s plan to enter the online dating space has provided a tailwind for Match, which “has achieved a rare feat in the world of social-networking: persuading people to actually pay for the service,” many of whom may be wary of privacy issues at Facebook.
* Trader: The U.S. economy could get hit by a slowdown in demand due to the Federal Reserve’s previous interest-rate hikes and higher prices triggered by tariffs, says Michael Darda of MKM Partners—to prevent the worst-case scenario, the Fed might have to lower interest rates; Companies continue to spend large amounts of money on buybacks, but investors shouldn’t overlook spending on research and development—and how much they stand to gain by favoring the most innovative companies; Positive on GM: The latest round of investment in the automaker’s Cruise division, amounting to $1.15B, barely budged the stock, but investors should be more excited—autonomous driving is a major trend with the potential to remake the car business.
* Interview: James Anderson, head of Scottish investment firm Baillie Gifford’s global equities business, believes that a group of founder-led companies “of the utmost ambition” has the potential “for greatness at an extreme scale” (select holdings: AMZN, TSLA, BABA, Tencent).
* Profile: Winslow Capital chief executive and chief investment officer Justin Kelly doesn’t hire anybody without an implied agreement they will spend their entire career at the firm, based on the belief turnover can damage the portfolio (MainStay Large Cap Growth Fund top 10 equity holdings: MSFT, AMZN, GOOG, B, UNH, CRM, FB, MA, PYPL, NKE).
* European Trader: Replacing Mario Draghi as president of the European Central Bank may well be the most important task for Europe’s leaders this year—but that doesn’t mean the most qualified candidate will get the job, which requires somebody with a serious résumé, political acumen, a vision of the ECB’s future, firm views on monetary policy, and a deep understanding of financial markets.
* Emerging Markets: Investors are unsure about how to react to South Africa’s general election—pundits assumed the African National Congress would win re-election, but president Cyril Ramaphosa may not have a large enough margin of victory to neutralize rivals loyal to his predecessor, Jacob Zuma.
* Commodities: “Copper’s recent decline looks to be a temporary setback, as the industrial metal readies for a potentially significant supply shortage in the coming years.”
* Streetwise: Investors should nonetheless consider putting some money in RSP or the smaller RVRS—doing so can produce handsome returns while providing a hedge after a long S&P 500 run that is “looking equal parts wonderful and weird,” says columnist Jack Hough.
Generic drug makers accused of price fixing - https://cbsn.ws/2PYqstD
Some of the biggest generic drug makers in the industry are being sued for what the attorney general of Connecticut calls an industry-wide conspiracy to fix the prices of generic drugs. Sunday on 60 Minutes
Connecticut and more than 40 states and Puerto Rico filed suit today against some of the biggest generic drug makers in the industry accusing them of illegally fixing the prices of generic drugs to maximize profits. Connecticut Attorney General William Tong says the lawsuit highlights corporate greed on a scale he has never seen. Bill Whitaker speaks to Tong and the attorneys in his office who cracked the case for a report to be broadcast on 60 Minutes, Sunday, May 12 at 7:00 p.m., ET/PT on CBS.
"I think that what we have come upon is that the generic drug industry is the largest private sector corporate cartel in history," Tong says. Tong's lead investigators on the case are seasoned antitrust attorneys Michael Cole and Joe Nielsen. They tell Whitaker they found evidence of price fixing dating back to 2006. The Connecticut attorney general only had to look in his own medicine cabinet to be convinced. "This is my bottle of doxycycline… I take every day for a skin condition and there is a conspiracy around doxycycline…I'm one of the victims." The price of the commonly prescribed antibiotic surged 8,281 percent, from $20 to more than $1,849, between 2013 and 2014.
The generic drug industry points to drug shortages and market forces as reasons behind the price increases. In court filings related to a separate, but similar, ongoing case against them, generic drug makers argue there is no proof of an overarching conspiracy to fix prices. But, after two years of digging, Joe Nielsen says he found evidence, including e-mails, phone records, and text messages, pointing to illegal price fixing as the reason behind the price spikes.
"This is an organized, systematic effort to conspire and fix prices and avoid competition. This is criminal behavior," says Nielsen.
Macro :
- China, U.S. Trade Talks Stalled Over Three Areas, Xinhua Says
- Liu Says China, U.S. to Continue Talks in Beijing in Future
- 1MDB’s Jho Low, Rapper Pras Michel Indicted Over Obama Donation
- Yuan May Weaken to 6.95 Per Dollar on Trade Tensions: NatWest
Keep an eye on :
- AC FP : Accor in Talks to Invest Up to $40m in Treebo: Economic Times
- AVP US : *AVON FALLS 2% AS NATURA DENIES REPORT OF LOAN FOR TAKEOVER
- BAYN GY : Financial Firms Vie to Buy Assets from Bayer: Handelsblatt
- BAYN GY : Bayer Hires Law Firm to Probe Monsanto’s Stakeholder Mapping
- BMW GY : BMW, Daimler to Review Hungary Ramp-Up Plans: Handelsblatt
- CNE LN : Cairn Energy Is Said to Seek Sale of Norwegian Oil-Field Stake
- CRG IM : Carige May Attract PE Funds After BlackRock Exit, Newspapers Say
- DAI GY : China's BAIC seeks to buy 5 percent Daimler stake - sources - https://reut.rs/2VfTmqb - Reuters
- FRE GY : Fresenius Seeks Potential Buyers for Transfusion Business: FAZ
- FGP LN : Coast Capital Calls for FirstGroup to Replace Six Directors: FT
- GEO IM : Geox First Quarter Revenue Meets Estimates
- GLEN LN : Zambia Tells Glencore to Surrender Shafts Set to Close
- ISP IM : Italy’s Banca IMI Pleads Guilty to Bid-Ridding Scheme for ADRs
- MRK GY : Merck KGaA Will Pursue MS Pill Alone After Mixed Trial Results
- MTRO LN : *METRO BANK EXPLORES SALE OF MORE THAN GBP1B WORTH OF LOANS: FT
- NOVN SW : Novartis Eyes Zolgensma Discounts to Get Insurer Coverage: Rtrs
- NOVN SW : Novartis Issues Voluntary U.S. Recall of Promacta, FDA Says
- NSF LN : NSF Plans to Push Ahead With Hostile Bid for Provident: Times
- PFG LN : Coltrane Rejects NSF’s Hostile Bid for Provident: Times
- RDSA LN : Delek: Gulf of Mexico Deal Canceled as First Refusal Executed
- SAL IM : Salini Wins EU530m Contract in Turkey for High-Speed Train
- STOB LN : *STOBART GROUP TO PICK DAVID SHEARER AS NEW CHAIR: SKY
- TELIA SS : Telia Gets EU Probe Into Takeover of Bonnier TV Operations (1)
- TKA GY : Thyssenkrupp Reaches Pact With IG Metall for Job Cut Program
- TKA GY : Thyssenkrupp Open to Partnerships, Asset Sales: Handelsblatt
- TIS IM : Italian Investors Agree to Buy 22% Stake in Tiscali
- FP FP : Goes Further in Liquefied Natural Gas With $8.8 Billion Deal in Africa - WSJ - https://on.wsj.com/30e8zLN
- UBER FP : Uber's Fall Could Postpone Payday for Kalanick, Early Investors
- UNA NA : Unilever Considers $1 Billion Bid for Skincare Brand: Telegraph
- VIFN SW : Vifor Pharma’s Phase-II Amber Study Meets Primary Endpoint
- VOD LN : Vodafone May Sell Tower Firm Stake to Redeem Pledged Shares: ET