TheChek News Flow

Why European Stocks Can Survive a Stronger Euro

The rise of the euro is weighing on stocks, but it’s a sign of the eurozone recovery

Up goes the euro, down go European stocks. Or do they?

To judge by the broad performance of the Stoxx Europe 600, that’s the case. After a promising start to the year, the index has faded since May as the euro has charged higher, and shares are now up just 3.2% for the year, in contrast with continued good economic news from the continent. But the headline is far from the full story.

The gain in the euro—up 13% against the U.S. dollar this year—is causing worries that it will hit profits earned abroad. But it is also boosting returns for non-European investors. In dollar terms, the Stoxx Europe 600 is up 16.5%, handily outpacing the 9.8% gain for the S&P 500.

But a stronger euro shouldn’t be the only story. Domestic demand is proving an important source of strength for the eurozone—even among its big exporters. For instance, Germany’s statistics office says domestic demand grew 1% in the second quarter from the first, although the drag from net trade reduced overall growth to 0.6%.

Europe’s economic outlook remains strong. Moody’s Wednesday lifted its forecast for 2017 growth to 2.1% and for 2018 to 1.9%, arguing that a rising euro shouldn’t derail a homegrown recovery. Recent sentiment surveys haven’t suggested that the euro is a drag. Despite the rise in the currency, forecasts of earnings growth have only moderated gently, with FactSet pegging 2017 growth for the Stoxx Europe 600 at 12.5% and 2018 at 8.2%.

And under the surface, some laggards are gaining. One reason for the euro’s rise is the expectation that the European Central Bank will gently wind down its extraordinary monetary policy. If that generates a steeper yield curve, it should be good news for financial companies. Eurozone banks, which UBS notes offer a good combination of cyclical exposure and domestic focus, are duly outpacing the broader index, with the euro Stoxx Banks index up 11.7%.

The speed and size of the euro’s gains in recent weeks are undoubtedly weighing on stocks. But if a big part of the currency’s rise is down to the brightening prospects for the eurozone, then investors’ worries about the exchange rate should prove to be overdone.

FDA Approves Pioneering Cancer Treatment With $475,000 Price Tag

Novartis’s Kymriah gets nod for some leukemia patients; uses body’s own cells to fight cancer

The Food and Drug Administration approved a first-of-its kind cancer therapy aimed at bolstering a patient’s own immune cells, while the drugmaker behind the treatment attempted to allay worry over the high cost of the procedure.

Swiss pharmaceuticals giant Novartis AG NVS -1.05% said it would charge $475,000 for the treatment, which involves extracting a patient’s disease-fighting blood cells, modifying them to attack cancer cells more vigorously and then reinjecting them in the patient. The $475,000 price tag was significantly lower than many analysts had expected.

The procedure can only be undertaken at a limited number of facilities in the U.S. It is highly tailored to individual patients and can take the better part of a month to complete. Those logistical hurdles and its expected high price had cast a shadow over what has otherwise been seen as a groundbreaking treatment.

The treatment, called CLT019 but re-christened by Novartis after the FDA approval as Kymriah, has been shown to dramatically raise the chances of survival for children and young people with an aggressive form of leukemia who don’t respond to standard treatment.

In a bid to blunt criticism over the price, Novartis said it would take payment for patients covered by Medicaid only if they respond to Kymriah within a month of treatment. The company also said it would offer financial assistance—such as help with copay, travel and accommodation costs—to privately insured patients.

“We have taken a very responsible approach” to pricing, said Bill Hinshaw, Novartis’s U.S. oncology head. He cited independent cost-effectiveness estimates that showed Kymriah could command a price of $600,000 to $750,000. He said that because patients will be children or young adults—who typically fall under their parents’ or caregivers’ private insurance plans, Medicaid or other federal plans aimed specifically at children—few patients would likely end up paying near the full price out of pocket. That cost will fall to the employers, insurers and taxpayer-funded government programs that fund health-care costs.

Novartis Chief Executive Joe Jimenez said the company may charge a lower price in cancer types where the benefit is less dramatic. Novartis is testing Kymriah in adults with diffuse large B cell lymphoma, another form of blood cancer, but its remission rates are lower than in childhood leukemia.

Still, the company has already faced backlash over the announced price. “While Novartis’s decision to set a price at $475,000 per treatment may be seen by some as restraint, we believe it is excessive,” said David Mitchell, president of Patients for Affordable Drugs, a campaign group backed by the Laura and John Arnold Foundation, which supports efforts to make prescription drugs more affordable in the U.S. “Novartis should not get credit for bringing a $475,000 drug to market and claiming they could have charged people a lot more.”

Steve Pearson, head of the Institute for Clinical and Economic Review, which studies the cost of drugs, said that while the price is lower than analysts expected, it should be judged on whether it reflects the benefit to patients.

“It will leave patients and others wondering” why $475,000 is the right price “instead of 175 [thousand], 600, 750 or any other number,” Dr. Pearson said. “And questions will remain about how this price will affect patients’ ability to access the drug, and how it will be used to set a benchmark for other uses of this drug and perhaps other cancer drugs in the future.”

On Wednesday, the FDA approved Kymriah for children and young adults up to 25 years old who suffer from acute lymphoblastic leukemia and who have not responded to standard therapy. The decision was expected, following the backing of an FDA advisory committee of experts, who voted unanimously in favor of approval in July.

Kymriah is a form of personalized immunotherapy known as CAR-T, or chimeric antigen receptor T-cell therapy. A patient’s T-cells, which are a type of white blood cell, are removed and then sent to a manufacturing center where they are genetically programmed to target leukemia cells. The cells are then infused back into the patient to kill cancer cells.

In the early days of CAR-T research in the late 1990s, “no one ever thought it would be possible to commercialize a therapy like this,” said Carl June, a professor of immunotherapy at the University of Pennsylvania’s medical school whose research led to the development of Kymriah. “I think the whole cancer world’s going to be changed forever,” referring to the potential of CAR-T to treat more types of cancer.

So far, it has only shown promise in a few blood cancers, but Novartis is in the early stages of testing CAR-T in some forms of lung and brain cancer. Dr. June said that some of the first leukemia patients to receive the CAR-T treatments about seven years ago remain cancer-free, but it will take longer-term follow-up to see if the therapy completely eradicates cancer in these patients. Dr. June will receive royalties from the product’s sales; he said he couldn’t disclose specifics.

Acute lymphoblastic leukemia affects bone marrow and blood and is the most common childhood cancer in the U.S. There are about 3,100 patients ages 20 and younger diagnosed with the disease each year, according to the National Cancer Institute. The roughly 600 of these who don’t respond to standard treatment would be eligible for Kymriah.

The new treatment field is growing quickly, with the FDA saying it has approved 76 applications by companies and researchers to test CAR-T treatments. “This may turn out to be more broadly applicable,” especially in treating other types of blood cancer, said Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research. This week, Gilead Sciences Inc. agreed to pay about $11 billion for Kite Pharma Inc., in an ambitious bet on the field.

Early Uber investor Bill Maris suggests he’d buy shares again, but all the sellers “have disappeared”

While Bill Maris was the CEO of Google’s venture unit, GV, the outfit made a bet in 2013 that drew snickers: it poured $258 million into the ride-share company Uber at a roughly $3.7 billion post-money valuation.

The investment was by far GV’s biggest investment at the time. Yet while seemingly rich, the investment looks brilliant in hindsight. (It also looks complicated, of course, with Google spin-off Waymo now suing Uber for allegedly stealing its trade secrets.)

Maris has more recently launched his own venture firm, Section 32, but as the founder of GV, he maintains a meaningful interest in Uber’s future, and he suggests that after this week, he’d buy Uber again — at its current $68 billion valuation — if only he could find a seller.

We talked with Maris earlier today about his renewed enthusiasm for the company. Our chat has been edited lightly for length.

TC: You closed on a $150 million debut fund in May. How many investments have you made since?

BM: It’s quite a long list: BloomAPI, Embark, Freenome, Coinbase, Auris. About ten have been made public and some are in stealth mode.

TC: You’ve told me you’d consider investing in Uber at its current valuation. That would require a lot of money. Can you write any size check you like?

BM: I have broad latitude to make investments that I think are worthwhile.

When I look at Uber now, I don’t think of it as expensive. I’m very optimistic and bullish on the company’s future. I’m excited about new CEO Dara Khosrowshahi, who seems very much like a values-driven, principled leader. And I feel like Uber is a buy now, not a sell.

TC: You say “now.” Did you feel differently recently?

BM: Earlier, I might have felt more pessimistically. Now I can say there’s a light there.

What I’ve observed in talking with other investors and folks involved is that this feeling of fear has now shifted to optimism and excitement.

TC: You own a stake through your previous employer’s venture fund. Have you tried buying secondary shares from another seller more recently? Have you been approached?

BM: It’s best I don’t comment on that. I will note that groups that were sellers have disappeared and I think it would be foolish [otherwise] given what has transpired. There’s a lot of risk, of course, but the company has so much potential, especially given that people who work there are fired up again. If you believe Khosrowshahi can lead the company successfully, you see it as a unique investment opportunity.

TC: At $68 billion. Do you think that, as Benchmark has said, Uber will “comfortably” be valued at more than $100 billion in the not-too-distant future?

BM: I said [as much some time ago] and faced a lot of laughter and derision, but certainly I think so. Companies that reach exit velocity of $10 billion plus more often than not don’t become worth zero. The company is facing a lot of risk, but the numbers it revealed last week showed stunning growth and shrinking losses, and this was without a CEO or CFO, so you can imagine what it can do with a great management team in place, one that employees believe in.

TC: Have you ever met Khosrowshahi?

BM: I have not, but he’s saying and doing all the right things and I think he’s just a brilliant choice.

TC: What do you make of Benchmark alleging in a lawsuit that Kalanick duped the board?

BM: What I know of these things, I read in the paper. It’s sort of like with the White House. I don’t want to look, but it filters through and it’s cringeworthy, like: What happened now?

It’s always unattractive when disputes play out in the public sphere, whether it’s the President and his staff or a venture fund and a startup. Hopefully, [this lawsuit] is resolved happily and if not, that both sides are equally dissatisfied with the outcome.

There are such huge problems in the world; [stories about Uber] are a cognitive load that none of us needs. If I had to never read another story about boardroom drama at Uber again, it would be fantastic. It’s not interesting at this point, don’t you think?

TC: And yet there’s always a development, including, most recently, that the Justice Department has opened a preliminary probe into whether some of Uber’s managers breached the Foreign Corrupt Practices Act. As a shareholder, does that worry you?

BM: Any time the DOJ opens an investigation, it’s not a good thing. It’s something you need to pay attention to. I know at Google, we were made to be very cognizant of those rules, and with a fast-growing company you need to be especially cognizant. But I don’t want to speculate. If wrong was done, then justice will hopefully be served and if not, hopefully nobody suffers needlessly.

TC: And this Waymo lawsuit?

BM: I’m sure it will work out Someone will win or it will get settled.

TC: Khosrowshahi told employees today that Uber could go public in 18 to 36 months. That must be music to shareholders’ ears.

BM: It’s a completely reasonable estimate to get the management team in place and win the hearts and minds of employees and drivers. All those things take time.

And [yes, it’s a relief] to have a timeline. What’s with the cloak-and-dagger games [under Kalanick, who actively avoided talk of an IPO]? That [Khosrowshahi] said what he did just gives me more faith that this is an experienced executive.

Employees in particular have been left out of the equation, and I think [Khosrowshahi] wants to help them feel like they’ve been on a winning team, especially after the scandals and so much bad news.

TC: Let’s say you can’t buy more shares in the company until it goes public. Do you invest at the IPO?

BM: Ask me then! Market cap is just discounted future cash flow, and at that time, it would depend heavily on all the issues: the Benchmark lawsuit, the Waymo lawsuit, the management that’s in place, the company’s historical growth record and whether its growth will continue. That’s a call you make at the time.

I mean, if you’d been an investor in the Google IPO and held your shares until now, you’d probably feel pretty good about that.

Galeries Lafayette announced on Thursday its intention to acquire fashion and homeware e-business La Redoute, as the upmarket French department store chain seeks to accelerate its digital transformation.

Upon completion of the transaction, the size of which was not disclosed, Galeries Lafayette would hold 51 per cent of La Redoute through its holding company Motier, with the aim of owning 100 per cent in the future.

The move illustrates how retailers are trying to strengthen their so-called “omni-channel” approach that combines the best of digital and e-commerce with physical stores.

Philippe Houzé, executive board chairman of Galeries Lafayette group, said in a statement: “With the fashion and retail industries facing unprecedented global change, the complementary position of La Redoute and Galeries Lafayette – the group’s flagship brand – would establish us as a leading physical and digital retailer specialised in fashion

and home furnishings, with French roots and international outreach.”

Family-run private group Galeries Lafayette, which employs 14,000 people in France, recorded retail sales of €3.8bn last year. Meanwhile La Redoute recorded €750m revenues in 2016. Internet sales represent 85 per cent of La Redoute’s sales in France, and laredoute.fr claims to have more than 9m unique visitors each month.

Nathalie Balla and Eric Courteille, co-chairmen of La Redoute, would continue to run the company with the team in place.

The transaction is expected to be finalised in the next few months subject to regulatory approval.

*CARREFOUR-H1 Ebit 621m(674.6),H2 tough,FY Ebit dwn i/l with H1.....-7%

*EIFFAGE-H1 Rev €7b(6.86),OP €727m(721.33),buying Saipem M/Ops......+1%

*BUWOG-FY Ebitda 188.1m(184),Div 69c,Recurring FFO 117.2m...........+0.5%

*BOUYGUES-H1 Net 240m,Sales 15.162b(15.147),Op Margin 2.5%..........+1%

*PERNOD-FY OP 2.394b(2.41),Lifts FY Div,Targets Org Op Grth 3-5%....-2%

*METRO W/S-Q3 Sales 9.339b(9.15),Ebit 230m(229),Net 88m(96).........+0.5%

*VIVENDI-Italian govt to meet today over veto powers says Sole......U/C

*VONTOBEL-Increases pft target for 2020,NNM Grth 4-6%,Inv Day.......+0.25%

*FIELMANN-Q2 Sales 353.5m(355),EBT 63m(62.7),NI 43.3m(43)...........U/C

*CASINO-Read across from Carrefour profit warning...................-1%

CS :

*Carrefour    -6-8%   H1 light, France performance deteriorating, outlook weaker

*Eiffage      +1-2%   EBIT 1.5% ahead, EPS c19% beat vs CSe

*Hays         +1-2%   FY EBITA small ahead, FY divi at 3.72p and special of 4.25p

*Ladbrokes     +2%    Revs £1204m vs cons £1213m, confident on triennial review

*Melrose      -1-2%   H1 revs inline, Brush facing increased market challenge

*Miners        +1%    Copper +0.45%, Brent -1.70%, Iron Ore +2.00%, China -0.70%

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