TheChek News Flow

11 MAY 2018

Quaterra Resources [TSX.V:QTA], a Vancouver-based copper exploration company, could become a target in a rising copper price environment, said COO Gerald Prosalendis.

Copper mines often have large resources, large capex and take many years to bring to production, he said. Quaterra’s USD 250m capex, simple metallurgy and five year production timeline will make it an attractive target for majors when copper prices strengthen over the next few years, he said.

It has several copper projects in Yerington, Nevada, a historic mining district. It has hired M3 Engineering to do a prefeasibility study on its MacArthur project, which should “take the risk out,” he said. The PFS will take about 18 months, and the company will need to raise further capital to progress from prefeasibility to a bankable feasibility study, he explained. Depending on industry conditions and copper prices, the company could consider taking on a partner instead of selling outright, likely after its bankable feasibility study is complete, he added.

A previous preliminary economic assessment (PEA) estimated USD 250m in startup capex for the project, but Quaterra is “shooting for less,” he said.

Quaterra is an exploration company, and management has experience building resources and selling them to larger operators, Prosalendis noted. CEO Tom Patton was president and COO of Western Silver Corporation from 1998 to May 2006, when it was sold to Glamis Gold for CAD 1.2bn. Goldcorp [NYSE:GG] subsequently acquired Glamis that same year for USD 8.6bn in an all-stock deal.

The company recently announced a CAD 3m private placement offered to Canadian investors. It has a CAD 16m market cap.

- tweets: "Why doesn’t the Fake News Media state that the Trump Administration’s Anti-Trust Division has been, and is, opposed to the AT&T purchase of Time Warner in a currently ongoing Trial. Such a disgrace in reporting!" -

You know how a person with a leg cramp needs to walk it off? News of Michael Cohen’s attempted transformation last year from New York taxi medallion merchant to Washington wise man has given me a brain cramp, and I need to think it through.

Swiss pharmaceutical giant Novartis hired President Trump’s designated porn-star silencer to “advise the company as to how the Trump administration might approach certain US healthcare policy matters,” as the company explained in a very embarrassed statement this week. Based on little more than the man’s boasts about his influence, Novartis agreed to pay Cohen, Trump’s conduit to alleged lover Stormy Daniels, $1.2 million per year, in 12 monthly installments.

Earth to Beltway: That number might not shock you, with your $100 lunches and $30,000-a-year preschools, but that’s a truckload of lettuce to Ma and Pa America.

Novartis discovered almost immediately that Cohen had not the slightest idea how the Trump administration might approach health-care policy. Despite his supposed access to the new president, evidently the topic had not come up.

Now, you can’t blame Cohen for this, because candidate Trump never had a health-care policy. He had a couple of health-care slogans. “I am going to take care of everybody,” for example. But in terms of details: The man was a beauty-pageant promoter, for heaven’s sake. If health care had ranked high among his interests, the interview portion of the Miss Universe competition would have been quite different.

Novartis chief executive Vasant Narasimhan called the deal “a mistake” in a memo to company employees. AT&T chief executive Randall Stephenson struck the same note in apologizing for his company’s $600,000 arrangement with Cohen, calling it “a big mistake” and saying the company’s head of lobbying would be retiring. So far, Columbus Nova, an investment firm with close ties to a Russian oligarch, has not apologized for — or explained — the half-mil it reportedly lavished on Trump’s fixer.

What I find striking is that, even after Cohen’s incompetence was apparent, Novartis kept sending those monthly $100,000 checks. The company says the lawyer’s failure to deliver on his promises was not grounds for voiding the contract. Admittedly, if lack of results ever becomes punishable in Washington, the capital’s economy could seize up like a jet engine plowing through a flock of snow geese.

Still, there’s something very New York, or maybe New Jersey, about this scenario. If Cohen could not help Novartis, company brass may have reasoned that he could be in a position to hurt Novartis by putting a poisoned word in the president’s fickle ear. So it was safer and easier for Novartis to pay up. In the world where Cohen and Trump have kept company for years, the world of failed casinos and luxury condos bought with untraceable cash, it’s not unheard of for a commercial enterprise to pay monthly remittances to individuals with, shall we say, connections.

That’s a real nice multinational pharmaceutical corporation you got there. Sure would be a shame if something bad happened to it . . .

Perhaps you are wondering why a company based in Basel, Switzerland, needed $1.2 million worth of good will among the colorful cast of characters on Team Trump. And why that company rushed to sign such a lucrative lobbying contract without performing even minimal due diligence.

For that amount of money, I could have given the company a foolproof way to capture the president’s heart. Just put Narasimhan on CNBC and have him say, “Now that Donald Trump is in the White House, we’re probably going to cure cancer!” Next stop, Lincoln Bedroom.

But the cold truth is that a million bucks is pocket lint compared with the sweetheart deal that companies such as Novartis have already engineered in the United States. A law prevents America’s largest health-insurance entity, Medicare, from negotiating lower prescription drug prices. That’s a big part of the reason drugs in the United States cost far more than the same compounds prescribed in other Western countries.

Drug pricing in the United States is badly broken. For example, a study published in the journal Neurology found that treatments for multiple sclerosis, a field in which Novartis is a major player, have skyrocketed despite increased competition, thanks to “a seemingly dysfunctional marketplace where expanded choice has led to higher, rather than lower, prices.”

On Friday, Trump unveiled his long-promised plan to tame prescription prices, and guess what? The ban on Medicare negotiation, which candidate Trump promised to end, remains intact. Evidently some of the industry’s lobbying dollars were spent more effectively than others.

11 MAY 2018

BioMarin Pharmaceutical [NASDAQ:BMRN], a major rare disease drugmaker, is actively scouring the landscape for promising gene therapy companies to acquire, according to Jean-Jacques Bienaimé, chairman and CEO.

The San Rafael, California-based drugmaker is already in late stage clinical trials for gene therapy treatment for a genetic condition called PKU, but the company is looking at the broader gene therapy and orphan drug market for additional treatments.

“Although we don’t want to turn into a pure gene therapy company, we’re looking at different opportunities in the gene therapy field,” he said this week on the sidelines of the Financial Times US Healthcare and Life Sciences Summit in New York.

BioMarin does not have a “real need” to do a large transaction, Bienaimé cautioned, but said it could afford up to USD 2bn. The company reported cash and short term investments of nearly USD 14bn as of end-2017.

It’s possible that Biomarin could make a licensing or acquisition deal in the next year but it would be need to be the “right asset at the right price,” he said.

The company is also looking for assets in other areas of orphan disorders, as well as potential treatments for central nervous system disorders, Bienaimé noted.

In terms of a potential rare disease expansion, the company is looking for “somewhat larger indications,” he said, explaining that it’s difficult to get a return on investment for products with very small patient populations.

“There are a lot of little gene therapy companies but a lot of them are going after very small indications and we don’t believe there is an economic argument to acquire them,” said Bienaimé.

BioMarin is one of the largest rare-disease drugmakers with a recent market cap of USD 15.49bn. The company is known for its phenylketonuria (PKU) treatment Kuvan and Morquio syndrome drug Vimizim, its two best-selling products in 1Q18.

In recent years, BioMarin has been reported as a possible takeover target for a number of large pharma players including Gilead Sciences [NASDAQ: GILD], Amgen [NASDAQ: AMGN] and Merck [NYSE: MRK].

BioMarin’s most recent large acquisition was that of Netherlands-based Prosensa Holding, which it agreed to buy in 2014 for about USD 680m, with an additional USD 160m in milestone payments. The acquisition gave BioMarin new capabilities in treating a rare disease called Duchenne muscular distrophy.

Gene therapy is emerging as one hottest areas in drug development. Novartis [NYSE: NVS] acquired gene therapy biotech, AveXis, in April for USD 8.7 bn. In 2016, Pfizer [NYSE:PFE] grew its business in that field with a takeover of Bamboo Therapeutics for up to USD 645m, netting its experimental mini-dystrophin drug.

FDA commissioner Scott Gottlieb said earlier this year that he believes gene therapy will eventually become a “mainstay therapeutic approach” in treating inherited genetic diseases.

BioMarin is currently developing a gene therapy for hemophilia A, known as valoctocogene roxaparvovec. Both Spark Therapeutics [NASDAQ:ONCE] and Sangamo Therapeutics [NASDAQ:SGMO] are also developing gene therapies or hemophilia A.

In the company’s 4Q17 earnings call, Bienaimé said that the company is interested in earlier stage opportunities and said it may announce one to two new pipeline projects before the end of the year.

The British cabinet is still at odds on crucial trade issue; once it gets lined up, other obstacles await

It’s hard to keep up with the convolutions of the Brexit debate in Britain. The latest twist concerns what type of customs arrangement the U.K. should have with the European Union, by far its largest trading partner, after the U.K. leaves the bloc.

The British government wants to leave the EU’s customs union but also to minimize new frictions in EU trade that will emerge with Brexit. Less than 11 months before Britain’s departure and almost two years since the referendum vote to leave, it hasn’t been able to agree on what kind of new customs agreement it wants with the EU, even though the outcome is of enormous consequence to British manufacturing.

Settling that question among ministers is only the start. Consider the other obstacles that confront whatever position the government adopts.

The first is the British Parliament.A majority of the House of Lords, the unelected upper chamber, is determinedly anti-Brexit and seeking to soften the economic dislocation created by Britain leaving the EU. In the latest and almost certainly not the last defeat for the government, the Lords this week called for the U.K. to remain in the European Economic Area, which would give the country an intimate, Norway-style relationship to the bloc and keep it inside its single market.

The Lords’ votes often don’t matter much, but their amendments to government legislation could provide a vehicle for the elected House of Commons to defeat the government’s Brexit plans.

Such is the government’s shaky hold on the Commons that almost any outcome is possible in Brexit votes there. Having lost her majority in last June’s election, Prime Minister Theresa May depends on the support of the small Democratic Unionist Party from Northern Ireland, whose views she must take into account.

In the Commons, her Conservative Party’s 316 members include a minority of about 60 hard-line pro-Brexit lawmakers who want to sever most ties to the EU and who regularly suggest they will vote down the government over any proposal that hugs the bloc too close. The party also includes a smaller knot of strongly pro-EU members who could vote with the opposition to deliver a less abrupt break.

Holding all of the potential Conservative rebels back is the risk that their votes could bring about a crisis in the form of another general election. That could bring the Labour Party’s left-wing leader Jeremy Corbyn to power with policies such as renationalizing a host of industries.

Labour’s official position is that it favors staying in a customs union under certain conditions, though many of its lawmakers would prefer to stick closer to the EU than that.

It is thus not at all unlikely that the Commons could reject the government’s agreed approach and insist that the U.K. stay part of the EU’s customs union, at least for a time. How Conservative hard-liners would react to that is unclear.

Because of the uncertainty over Parliament, the government will likely delay many key votes until the autumn. But a decision over customs is more urgent than that, because the government hopes it will provide a solution to avoid creating a visible border on the island of Ireland, an issue the EU has said it wants to see settled by next month.

However, once the government has agreed on an approach, it amounts only to a negotiating position to put to the EU. And there arises obstacle No. 2: the EU.

Any British proposal must overcome Irish government skepticism that it will succeed in avoiding the reappearance of an Irish border. More broadly, the EU has already expressed strong doubts about both customs options being considered in London.

In the first option, the U.K. would collect customs duties for the EU. For goods entering U.K. ports and bound for the EU, Britain would pass on the duties to Brussels. For products destined for the U.K., tariff rates would probably differ and the funds retained in London. In the second option, the U.K. would use technology, such as electronic tracking of goods, to obviate the need for most border controls.

The EU has questioned the first option, asking among other things how an arrangement in which the U.K. would collect EU duties would be policed. Even with Britain inside the EU, Brussels has had issues with U.K. customs collection. On the other side of the fence, British Foreign Secretary Boris Johnson, a leading pro-Brexit voice, has described the idea of collecting EU customs duties in Britain as “crazy.”

As for the technological option, the EU also contends that the means don’t yet exist to make it workable. One EU diplomat described the ideas as “sci-fi solutions.”

Indeed, obstacle No. 3 for the two approaches being considered by London is practical: Even if one is agreed upon and negotiated, there is no evidence that the IT systems and other infrastructure to make a new system work will be in place next year—or indeed even by the end of 2020, when the expected status-quo transition period concludes.

This is one reason why there is more discussion of the transition period being followed by a further period of implementation, and why anxiety in Brussels and elsewhere is growing that negotiations to reach an U.K.-EU agreement may fail.

In fact, the shakiness of Mrs. May’s government, the divisions over Brexit in her cabinet and Parliament, and all the big questions that remain to be settled in negotiations about the future relationship, suggest almost any outcome for Brexit remains possible—even no Brexit at all.

London-based private-club company wants to expand globally—and is considering a public stock offering to fund it

The 23-year-old London operation says its 19 locations in nine markets around the world currently have 71,000 members, who pay $1,050 to $3,200 each in annual dues for access to the club and its hip events and social networks. (Food and drink not included.)

The company plans to open as many as five new clubs each year in major cities around the world, and is considering a public stock offering in the U.S. as a way to fund that expansion, said founder and Chief Executive Nick Jones. The company’s current locations include London, New York and Istanbul, and new sites are planned in Amsterdam, Hong Kong and Mumbai, among others.

“We really do feel there are some good, long legs here,” said Mr. Jones, who opened the first Soho House in London in 1995. Location No. 20 is set to open later this month in Brooklyn’s Dumbo neighborhood. “There is a lot of white space for us. There are a lot of countries, a lot of cities where there could be more clubs.”

Soho House’s core business model isn’t new. Private social clubs have been around for centuries, popularized in British high society in the 19th century and later in university and city clubs initially tailored to elite businessmen in the U.S.

Membership in Soho House is selective. Admission requires a lengthy application and interview process, and the waiting list hovers around 27,000, the company said. But unlike elite private clubs of the past, membership isn’t based primarily on wealth or family status.

There’s no set formula for new admissions. Membership committees for each house meet quarterly and decide how many new members to admit, considering factors such as overcrowding. Members include Matthew Rhys, star of the FX series “The Americans,” and actress Jodie Foster.

Soho House has purged its ranks when members don’t fit the image they want to portray. In New York after the financial crisis, it removed several hundred bankers from its rolls, the company said. Membership committee decisions are final.

Its average member is 36 years old and getting younger, the company said, compared with an average age of about 50 for the typical U.S. private club, according to data from the National Club Association. Executives say Soho House is tapping into a desire for flexible workplace arrangements such as those offered by WeWork Cos.

“There’s plenty of proof that people are less corporate, more entrepreneurial. The 9 to 5 is disappearing,” said Mr. Jones, who said the company’s model provides spaces for social gatherings, meetings or workouts throughout the day, along with options to stay overnight at many locations.

Soho House is majority-owned by billionaire investor Ron Burkle’s Yucaipa Cos., which took a 60% stake in the company in 2012. London fashion and restaurant impresario Richard Caring has a 30% stake, and Mr. Jones owns the rest.

The company posted $371 million in operating revenue in 2016, up 21% from a year earlier, according to data provided to the U.K. government. Approximately half of revenue comes from food and beverage, 20% from membership and the remainder from hotel rooms and other services, according to the company.

As it has pursued global expansion plans in recent years, Soho House has taken on significant debt that led to ratings downgrades by Standard & Poor’s and Moody’s in 2016. Those firms found that the company’s construction and development costs for new properties were quickly eating up its cash.

In early 2017, the company agreed to a consolidation of its debt with one of its bondholders, Permira Debt Managers, according to a person familiar with the matter. The agreement extended the company’s debt maturity to 2022, from 2018, and reduced its average cash cost of debt by 30%, the person said.

“We were going down the motorway a few years ago and skimmed the central barrier. It was a brief skid,” said Mr. Jones. “We’ve been growing at a heavy pace, which takes capital.”

The popularity of the new breed of urban social clubs like Soho House comes amid a decline in private club membership across the U.S. over the past decade, as the baby-boomer generation ages and some suburban country clubs are in decline. Membership in private clubs overall has fallen about 5% over the past decade, according to data from the National Club Association, though membership in urban clubs not tied to golf has increased 7% over the same period.

Frank Vain, president of the McMahon Group, which consults for private clubs, said the new generation of urban clubs has found a way to create a mystique around membership without being overtly exclusive or stuffy.

“People always want what they can’t have, and they want something that’s special,” said Mr. Vain. The new clubs “have redefined special. There’s an anticlub aspect to them that is creating a buzz.”

The Wing, a women’s social club and co-working space, started in New York in 2016 and has four locations, with plans to expand to seven new sites around the world. Its Dumbo site is near the soon-to-open Soho House.

NeueHouse, a co-working company founded four years ago, is borrowing aspects of the Soho House model at its locations in New York and Los Angeles. But the company is focused on building spaces more oriented toward work than socializing, said Jon Goss, the company’s chief commercial officer. Investors in the company include the Hong Kong real-estate company Great Eagle Holdings and the family office of Barry Diller and Diane von Furstenberg.

Like Soho House, NeueHouse holds events for members and offers a “social membership” that grants access only to panels it hosts and happy hours. About 1,600 members pay anywhere from $150 to several thousand dollars a month for a space big enough for multiple employees. NeueHouse doesn’t offer overnight rooms, but there are screening rooms, bars and auditoriums for after-work activities.

Though Soho House runs restaurants, bars and hotels as part of its business, the company says its profit margins aren’t as tight as those industries because members’ dues provide a steady revenue base. Marketing and customer acquisition costs are also low, said Peter McPhee, the company’s chief financial officer, because of its long waiting list.

“Ultimately, there’s more demand than supply,” he said.

In meeting with industry officials, president proposes 20% tariff and tougher emission rules on vehicle imports

President Donald Trump proposed to executives from the world’s biggest auto makers Friday imposing a 20% tariff on vehicles brought into the U.S. and also subjecting imports to tougher emissions standards than domestic vehicles, according to people familiar with the session.

During a tense meeting at the White House that was billed as a discussion of U.S. auto-emissions standards, Mr. Trump brought up the issue of trade and targeted European auto makers for not building more vehicles in the U.S., according to the people briefed on the meeting. He then proposed a 20% tariff on imported cars, which he also suggested would be subject to Obama-era emissions regulations, the people said.

The president’s comments added to the list of Washington policy changes the auto makers are now processing. The administration is considering new emissions standards that could clash with those in California and is in the midst of negotiating a rewrite of North American Free Trade Agreement rules that govern which cars and auto parts can be traded within the bloc without incurring duties.

A spokeswoman for U.S. trade representative Robert Lighthizer referred questions about the matter to the White House, which didn’t respond to a request for comment.

Industry officials were guarded in their reaction. “We thank President Trump for inviting us to the White House to discuss the automotive sector. He is passionate about our industry and we appreciate his interest and shared commitment to American jobs and the economy,” said John Bozzella and Mitch Bainwol, the heads of the Association of Global Automakers and the Alliance of Automobile Manufacturers, respectively, in a joint statement.

Mr. Trump has rattled car executives dating back to his presidential campaign, questioning their commitments to U.S. jobs and threatening stiff border taxes on Mexican imports. Auto makers have responded by highlighting U.S. commitments and, in some cases, changed foreign investment plans. Mr. Trump has touted industry announcements, even some that were long-planned and not necessarily responses to his criticisms.

Mr. Trump has repeatedly singled out autos—a major part of U.S. trade—in warnings about potentially imposing tariffs. This year he said cars from the European Union could face tariffs if the EU retaliates against U.S. duties on steel and aluminum imports. Trade experts say it would be difficult to enact extra tariffs on car imports without violating World Trade Organization rules.

Under WTO agreements, cars imported to the U.S. are subject to 2.5% tariffs, with trucks subject to 25% tariffs, unless the U.S. has a free-trade agreement with the country exporting the vehicles.

During the Friday meeting, which was closed to reporters except for opening statements, administration officials said they would work with California on the emissions issue as the administration moves to ease Obama-era federal rules. The companies welcomed that message, as they are hoping to avoid a dual system that included a national standard and a California standard.

The state has an Environmental Protection Agency waiver allowing it to set its own standards. Many other states follow California’s lead, a coalition that makes up a sizable portion of the U.S. car market.

Mr. Trump began the meeting by threatening litigation against California, but in an about-face, later in the meeting said EPA Administrator Scott Pruitt and Transportation Secretary Elaine Chao would be tasked with striking a deal with California.

One person with knowledge of the meeting said the Big Three Detroit auto makers stayed behind at the end of the session after the foreign auto makers left. It was unclear what was discussed.

At the beginning of the meeting, the president urged the companies to build more cars in the U.S., saying they should “build them here and ship them overseas.” He singled out Sergio Marchionne, the chairman and CEO of Fiat Chrysler Automobiles NV, for praise and lauded the company’s plans to move a facility to Michigan from Mexico.

“That’s what we like,” Mr. Trump said. “Right now, he’s my favorite man in the room.”

He also credited the law overhauling the U.S. tax code that he signed last year for increasing auto manufacturing in the U.S.

On the emissions issue, auto makers say the current standards for their vehicles are too rigorous and don’t reflect consumer demand for fuel-thirsty trucks and sport-utility vehicles that now eclipse 60% of U.S. sales. But they have voiced concern that the rollback being pushed by the White House is so extensive that it will cause more problems than it seeks to solve.

“The administration will soon issue a range of proposals for future fuel economy and greenhouse gas regulations, and we look forward to reviewing their notice of rulemaking and providing comments along with other stakeholders,” Messrs. Bainwol and Bozzella said in their statement. “We also appreciate the president’s openness to a discussion with California on an expedited basis.”

Separately, Mr. Trump during the opening again assailed Nafta, and the subsequent discussions with car executives were expected to provide an opportunity for vehicle manufacturers to sound out the president on proposed changes to the agreement’s auto rules.

The U.S. now wants vehicles and significant components that move across the Nafta region to have at least 75% North American content to avoid duties when crossing borders, down from a previous proposal of 85%. The current trade pact sets the so-called rules-of-origin threshold at 62.5%. The Trump administration also has dropped a previous suggestion that vehicles be made up of 50% U.S. content to pass through borders duty free.

Detroit’s auto makers and other vehicle manufacturers have moved significant amounts of production to Mexico, and had grown concerned that drastic changes to Nafta would upset their business plans and potentially force higher prices on consumers.

According to Mr. Bozzella’s group, international auto makers built more than 5.1 million cars and trucks in the U.S. in 2017, just under half of all light-duty vehicle production nationwide.