Bristol-Myers Agrees on Acquisition of Celgene; Healthcare ETFs Remains the Key Focus

The healthcare industry has been continually witnessing a wave of strategic mergers and acquisitions, which could bring in major transformations in the spectrum of healthcare business. Post multiple series of consolidation between the pharmacy benefits managers and health insurers last year, biotech companies have been flourishing in the healthcare space as they have evolved as highly attractive targets for large firms after their valuations came down in the past few months.

This is apparently evident as Bristol-Myers Squibb, a leading American pharmaceutical company, agreed vis-à-vis acquiring Celgene Corporation for a valuation worth $74 billion, in terms of cash and stock deal. This proposed deal would be beneficial for either of the companies that are struggling in the cancer market (presently one of the largest pharmaceutical spaces) for innovation-oriented treatments.

Details of the Deal

As per terms and conditions of the deal, Celgene investors would be receiving one Bristol-Myers share and around $50 cash for every holding of Celgene, along with a contingent value of $9, in case three treatments in development get approvals at the right time.

The deal values Celgene at $102.43 each, a premium of around 53.7% to the closing price and would bring in together two of the global leaders in cancer drug businesses in the largest ever pharmaceutical deal. The combined company would be 69% taken by Bristol-Myers and will frame a specialty biopharma company dedicated for treatments in cancer, inflammatory, and cardiovascular diseases. It will also have a robust portfolio of around nine drugs with a surpassed valuation of $1 billion in case of annual sales.

The transaction would eventually translate into an overall cost savings of around $2.5 billion by 2022, with around 55% derived from cuts in expenses in terms of  general, sales, and administrative, 35% via reduction in the research & development spending and around 10% from the manufacturing spectrum. Therefore, Bristol-Myers anticipates the deal to supplement 40% to its net earnings in the first year post closing.

The news has shed some light on multiple number of ETFs in healthcare, primarily in case of biotech and pharma, which could be in absolute favor of investors to leverage opportunity coming from the BMY-CELG deal. Investors should also keep a close track of the movement of ETFs in the forthcoming weeks.

In multiple cases, acquisitions are instrumental in terms of overcoming significant hindrances in achieving organic growth or growth obtained with the help of the existing assets. Otherwise, in case the existing business is not growing in significant terms, purchasing another business has become more of a common strategy to flourish and reap significant benefits through augmented cash flow.

Australian Oil Explorer Melbana Finalizes Agreement with Chinese Major to Drill Three Wells in Cuba’s Block 9

Australian oil explorer Melbana Energy has signed agreement with Anhui Modestinner Energy, a subsidiary of Chinese major Anhui Guangda Mining Investment to conduct drilling operations in exploration well Alameda1 in northern Cuba.

Alameda is highest ranking exploration target in block 9, and holds a structural proximity to the largest oil field in Cuba, Varadero field, which is nearly 35 km away. Block 9 is one the most underexplored onshore acreage covers around 2,380 Sq. Km.  Three wells are planned to be drilled in this key location.

This is a recent development after a letter of intent was formulated in October last year mutually by both parties. The farm-out agreement is legally binding on both parties. Anhui Modestinner is an international equipment and oilfield service provider. Melbana CEO Robert Zammit, believes the prospects are high for Alameda1 exploration, Alameda and Zapato drills will come with zero cost to company.

The terms of the farm-out agreement state that Anhui will fund all costs of block 9 production, including the three wells. The two wells at Zapato and Alameda will be drilled by November 2019 and the third by July 2020. Anhui will provide all necessary guarantees to the Australian oil explorer along with 12.5% profit sharing. Melbana will cover back costs of $3.5 million for Block 9. The conditions of the agreement includes securing Chinese and Cuban regulatory approvals.

Melbana in December 2018 signed a long term binding contract to share any enhanced production from Santa Cruz oil field with CubaPetrolio. The Santa Cruz field has a potential of 100 million barrels of recoverable oil. The field is offshore, just 28 Miles away from Havana. The Beehive prospect along with Alameda exploration will significantly improve Melbana’s growth prospects.

According to preliminary reports from USEIA, Cuba is heavily dependent on imports with imports of 1, 72,000 barrels per day and domestic production of about 50,000 barrels per day. The area offers significant potential as it was left unexplored by the American 60-year embargo during cold war. In 2016, Cuban oil assets were estimated at 124 million barrels. With Melbana drills the country is set to harness the immense underexploited oil and gas potential which will help reduce its imports.

Colpac to Launch Recyclable and Compostable Heat Seal Sandwich Pack, Aims to Build Consumer Confidence with Environmentally-Responsible Offerings

Sustainability is no longer just a trend, rather it has become more of a necessity. Many of the big brands are coming forward and taking significant steps in this direction to make their offerings in line with the necessities of sustainability. Similarly, Colpac is set to launch a latest and exclusive product from its Zest eco packaging range at Packaging Innovations i.e. a recyclable and compostable heat seal sandwich pack.

The company stated that this particular launch of heat seal packaging has the potential to aid in extending shelf life of the food inside having short-life ingredients and is ecofriendly by nature.

The pack, along with the window, has been created using recyclable materials, such as paperboard, that enable the complete pack to get instantly recycled. Appropriate for any sort of food service operators, ranging from delicatessens to bakeries and from restaurants to supermarkets, the pack offers feasibility in terms of customization to a large extent as per the user specifications.

The eco packaging format by Colpac was developed as a response to the mushrooming demand from various food service establishments and operators, who are on a lookout for packaging, which is compatible with various steams of waste.

Packaging Innovations shall be conducted at NEC Birmingham from 27th February onwards. With rising consumer preferences for products offered by sustainable companies, leading brands are paying immense attention to offer products that are environmentally responsible. For years it has been claimed that consumers are not concerned with products being environmentally-responsible, which is not the case anymore. It’s increasingly observed that sales figures of products that are environmentally responsible have crossed significant boundaries as compared to that of the ones that are not environmentally responsible.

The aforementioned has been inferred in line with statistics from some of the world’s leading organizations. With drastic changes in climatic adversities, damage to environment has become uncompromising and larger brands with stronghold are not willing to take risks in terms of customer confidence on their products. Unmet consumer needs do exist across many categories, with packaging being a prominent one. This step by Colpac in terms of aligning their production strategies vis-à-vis sustainability and launching products along the similar lines will definitely help the company tap into some colossal business opportunities and gain high-profit margins.

Governmental Policy Shift Along with Changing Landscape Threatens Chinese Drug maker’s Generic-based Business Model

Chinese drug maker’s stocks plunged by $46 billion in December 2018.  Chinese government is planning a shift in its drug pricing policy by undertaking bulk procurement of drugs as part of its new program. The move is significant as it will bring down prices of drugs as a major step towards universal and cheaper access of drugs to its citizens.

Generic drugs are a class of drugs whose patents have been expired, Chinese domestic pharmaceutical industry relied mostly on manufacturing generic drugs. After serving inflated profit margins to the industry, governmental policy shift has raised concerns about the efficacy of generic drugs profitability in the long run.

The central procurement program of drugs launched by Chinese government buys drugs for a city in bulk, as contracts are placed in competitive bids by pharmaceutical companies the prices of drugs have fallen forcing the fragmented industry into consolidation. This is only the beginning as the government plans to expand the program to all major cities in near future. One such bidding, drove down the price of the drugs by 55% and the other by as much as 90%. This radical shift in governmental policy has forced pharmaceutical companies into introspecting its business model.

According to fresh data gathered by Bloomberg, of the top 100 generic drug makers, Chinese companies with a gross and profit margin of 74% and 18% respectively, outran the global average of 55% and 9.5%.  The oversized profit margins owe their existence to regulatory privileges enjoyed by many. The domestic generic drug makers swiftly acquired government approval for copying drugs, while foreign multinationals had to wait for years to get government’s green signal. This along with the absence of any regulatory quality control gave domestic companies to rapidly expand in the market.  

But now many companies are planning to reverse this overdependence on generic drugs driven business model by investing more on Research and Development. The new landscape will favor companies who have already invested heavily in R&D. The companies with impressive R&D investment are Jiangsu Hengrui Medicine, Yipinhong Pharmaceutical and Chengdu Kanghong Pharmaceuticals with 16%, 8.4% and 8% of R&D investment of their total revenues respectively. Jiangsu Hengrui has 20:80 novel to generic drugs revenue ratio, the company wants invert this by focusing on new research.

Launching any novel drug is a many-year-long process, Chinese pharmaceuticals will find it hard to compete with global giants with vast talent pool and deep pockets. However, experts believe that with generic drugs revenue in shock, the transition to R&D and novel drugs won’t be easy.

Amazon, a Company Notoriously Famous for Secrecy has Finally Revealed the Number of Alexa built in Devices Sold

Amazon has revealed recently that approximately 100 million devices with Alexa built in have been sold. The number came from the senior vice president of devices and services of the company, Dave Limp in an interview with The Verge. When asked about the number of Echo dots sold this season, Mr. Limp refused to give an exact number instead remarked that it has already outran its expectations for this season and Echo dots are sold out already.

100 million number seems extravagant at first look, but comparatively with other platforms in market it lags far behind impressive. In May 2017, Google reported that its android platform is run on 2 billion mobile devices. Apple’s iPhone and Android already has captured more than 99% of smartphone market. If compared to Siri and Google assistant run devices, Amazon’s number lags but Dave believes that as these assistants are preinstalled on the phones, customers are not making active choices. While in case of Amazon’s Alexa customers are actively choosing the devices.

There are 150 Alexa built in devices on the market along with 28,000+ smart home devices which work on Alexa platform made by 4500 Manufacturers. The sheer number of devices adopting Amazon’s Alexa is big pat on the back of Alexa. The platform is also diversifying its 70,000+ skills base by localizing content and getting more voice developers on board. 

Although technology analysts have long drawn comparisons between Alexa, Siri and Google Assistant, The Company rejects the idea of a full-on platform war. Out of the 150 products running on Alexa, 100 are shipped in 2018 and Amazon doesn’t even make it. The company hasn’t signed any exclusivity agreements with its partner, and believes in the strategy of allowing its partners to work with diverse assistants. He’s open for diverse assistants working with each other and cited the partnership with Microsoft to make Cortana and Alexa work with each other. According to Dave, in future we’ll see multiple players in the Assistant field, and in order to ensure ease of access and inter-platform operability for the user, a collaborative effort to integrate all assistants is necessary.

Amazons goal is to create an ambient user interface. A smartphone is not ambient as the user has to actively use it. Without direct interaction the phone just sits there in the pocket. This is the game Alexa wants to change by allowing smart interfaces to interact with user without active participation. Amazon doesn’t feel comfortable to label Alexa as an assistant. The company sees no point luring android users already using Google assistant to use Alexa, it’s difficult. Neither is there any possibility that Apple, in its right senses, will allow Alexa to be preinstalled in its iPhone. Amazon wants to expand Alexa’s reach to where smartphone cant, the home, the car and the workplace.

Britain on Nuclear Alert after Hitachi Freezes £20 Billion Plant Project

Britain’s nuclear power ambitions were in doubt on Thursday when Hitachi shelved a £20 billion project, following Prime Minister Theresa May’s overwhelming defeat of her Brexit deal.

The Japanese conglomerate confirmed it is suspending plans to construct nuclear power station in North Wales and would take a multi-billion pound write-down.

The £16 billion Wylfa plant on Anglesey was focused to be the next in construction of new plants nuclear plants after Hinkley Point C, but Hitachi has become the second firm in two months to abandon a major nuclear power project, sending a major blow to Britain’s energy strategy.

According to Evening Standard (ES), since June 2018, the company has been in talks with the UK government about funding the equity portion of Horizon Nuclear Power project which will make the deal economically viable. However, both the sides failed to reach an agreement.

The decision to freeze the project was made from the economic standpoint as a private enterprise, Hitachi said. Business and Energy Secretary Greg Clark said that Hitachi and the Government are unable to reach an agreement to proceed the project, despite extensive negotiations.

The Japanese company bought the Wylfa project for £697 million in 2012 after acquiring a joint venture between RWE and E.ON to extend its UK nuclear ambitions, ES reported.

Financing plans included securing backers and the Government to invest in equity portion of the project with Hitachi, contributing nearly one-third of the financing, with the rest coming from loans.

The company said it will continue to extend their discussions with UK government regarding a nuclear power programme and remain committed to Britain, where it makes digital equipment and trains.

The reactors, including second Hitachi plant at Oldbury, would have created around 850 jobs and up to 4000 construction workforce. It will also involve job losses of around 300 staff at Hitachi’s UK subsidiary, Horizon Nuclear Power, news reported.

Duncan Hawthrone, chief executive of Horizon Nuclear Power said that Hitachi was starting consultation with the staff about the next steps. Despite the best efforts of everyone involved, it could not reach an agreement, he added.

On Thursday, Hitachi said it would take a 300 billion yen hit from withdrawing Wylfa and a further 300 billion yen impairment.

In November 2018, Toshiba scrapped plans to construct nuclear power plant in Cumbria from its NuGeneration subsidiary which left a huge hole in Britain’ energy policy.

Has the US Behemoth Become Too Big to Fail? Jacobs behind £200bn of UK Infrastructure Projects

The US engineering behemoth ‘Jacobs’ has long been dominating majority of London’s infrastructure including £500 million-worth of projects related to the High Speed Two rail line, £5 billion super-sewer project, restoration project of Palace of Westminster worth over £4 billion, and many more.

In short, Jacobs is the biggest company people in London have never heard of.

According to research by the Standard, the company is reportedly working on massive UK infrastructure projects worth nearly £200 billion. Jacobs’ dominance has raised several concerns that it has become too big to fail or too strong when it comes to offering public work. Its huge size, owing to working as both contractor and project manager, has also led to perceptions of conflict risks.

In 2017, the US behemoth acquired its awkwardly-named US rival CH2M in a £2.5 billion deal, giving a big push to Jacobs’ overbearing presence. In addition, the deal created an engineering giant with 10,000 workforce in the UK alone, and 80,000 worldwide.

Both the companies were already serious heavyweights in the UK. CH2M came to prominence when it was assigned to be project manager of the London 2012 Olympics, alongside Mace and Laing O’Rourke.

Jacobs’ dominance, on the other hand, surged more stealthily through a long chain of acquisitions of which CH2M is the latest.

Potential conflict of interest has been raised long before the merger which led to CH2M’s withdrawal from Phase 2 contract of the HS2 line, although it was named development partner of the project on Phase 1 in 2012.

Despite the termination, Jacobs still holds the Phase 1 contract, assigned to CH2M, to manage and evaluate all the professional services firms operating on Phase 2. Most interestingly, most of those projects have gone to Jacobs’ other divisions.

In 2016, Jacobs was named design partner on the first phase of HS2; in the following year, on second phase of the route, the company achieved the role of Environmental Overview Consultants.

Jacobs’ spokesperson said that the firm is one of the premier professional services consultants supporting major infrastructure projects in the UK and taking into account the degree of talent, it has been awarded several high-profile contracts. This along with consolidations in the industry can give rise to risk of conflicts of interest, the spokesperson added.

Moreover, many in the industry complain about the company’s influence over officials in public sector.

Jacobs have claimed that they remain dedicated to ensuring integrity in the delivery of key public programs to the customers’ satisfaction.

Evening Standard (ES) reported that the company’s access to the British public’s money makes its shares a honeypot for investors.

Jacobs’ chairman and chief executive Steve Demetriou highlighted the company’s business strength in the UK. Last year, it raised $3.3 billion through a sale of one division and is on the lookout for more acquisitions. Jacob’s plans for domination is not over yet, ES reported.

IMF Warns No-deal Brexit and Trade Tensions Could Hit Global Economy Growth

In a new report on world economic outlook, the International Monetary Fund (IMF) has warned that escalation of Trump’s trade war with China and a no-deal Brexit could undermine global economic growth.

The IMF is now predicting the world economy to grow 3.5% in 2019, though it forecast the growth of 3.7% in October last year. As reported in BBC news, the global figure projects weaker growth than a year earlier.

For the UK, the report estimates the GDP to grow by 1.5% this year and 1.6% in 2020, however, it said that there is considerable uncertainty around that figure.

Tariff increases enacted by the US President in the nation and its counterpart in China have already been a major factor of the previous economic slowdown.

For China, the IMF expects the slowdown to continue, while growing by 6.2% this year and next.

The new assessment also includes revisions for the developed economies, particularly the European nations.

Unexpected developments have inflicted the economic damage, the report said, which in Germany followed the introduction of new fuel emissions standards, leading to disruptions to the motor industry in terms of sales and production.

In Italy, concerns are raised as the financial markets have been unstable by the government plans to expand spending, while economy slumped amid the battle with EU officials over the budget this year. According to the report, there are continued weaknesses in Italy’s banking system as well.

The UK’s economic outlook is particularly uncertain, the report said. The 2019 figure is unchanged but there appears to be small upward revision to the forecast for 2020. Earlier, the IMF had also warned that no-deal Brexit would involve significant costs to the Britain’s economy.

Rising trade tensions could spark a further deterioration to the global economy growth this year which have also been a recurrent topic in the latest IMF assessments. According to the organization, the main priority of shared policy is for nations to resolve quickly and co-operatively their trade disagreements and resulting policy uncertainty, instead of raising destructive barriers further and destabilizing an already plummeting world economy. It had already witness a downgrade in the October forecast due to impact of the tariff increases imposed by the US and China, the report added.

The IMF said that there are also risks from financial markets. Moreover, trade tensions and financial markets have intertwined in the most recent times which tightened the financial conditions, while increasing the risks to global growth.

Primark Exceeds Expectations in Retail Profits in the Christmas Season as Other Fashion Retail Chains Suffer Ongoing Gloom

Dublin-based fashion retail chain Primark has reported a rise in market share as profits increased during the Christmas season sales in its retail stores across UK. The fashion chain which only sells its products at the high street retail stores has never launched its products on its website although they are available on other ecommerce platforms including Amazon and eBay.

One third of all products sold online are returned implying that Primark’s modest product prices won’t be able to cover the shipping costs, according to the John Bason, finance chief of Associated British Foods, Primark’s parent company. Accordingly Primark has adopted a strategy of staying away from online sale of products and rather focused on expanding offline retail presence. The chain recently announced new store launches in Eastern Europe such as Slovenia and Poland as the sales in Eurozone increased by over 5% for 16 weeks leading up to 5 January 2019.

In terms of volume of sales the company is already Britain’s biggest fashion retail chain, while in terms of value its ranked third after Marks and Spencer who retains the top spot. Primark’s good performance over the Christmas season is an aberration in the industry as many retail chains announced store closures owing to increasingly shifting consumer preference from retail to online shopping. Marks and Spencer was recently in news for closure of 17 retail stores.

Mr. Bason said that although rivals stepped up expenditure on promotions, the firm could turn up profits owing to the several fashion hits this season such as faux sheepskin jackets and animal printed dresses despite a reduction in discounting. Other contributing factors were tighter stock control and lower prices. Primark exceeded its performance expectations after a December update which threatened challenging trading conditions. Its shares rose by over 6% after the announcement.

ABF, the parent company with huge presence in food business warned of losses in its bakery business which owns Sunblest, Allinson and Kingsmill brands. The company which has launched nine stores in USA and planning two more has reported a strong sale in the country along with Spain, another high performer. As worldwide sales in established stores fell by 2% over the period of four months, the strengthening of pound against dollar, which is primary mode of payment to eastern countries, prompted a rise in profit margins.

Mr. Bason said that although customers love the comfort of online shopping, they can offer the lower price range because they don’t have to bear the cost of home delivery. He added that Primark’s strength lies in the fact that its stores are a place where people come to have fun and don’t leave without buying something.

Google Threatens the Withdrawal of News Service from Europe if the New EU Rules are Finalized

The European Union is working towards the finalization of a new copyright law which has alarmed search giants including Microsoft and Google. The new copyright law seeks to give publishers the right to demand compensation from Google-parent Alphabet Inc. and other online platforms including Facebook if small snippets of news from their articles appear on their search results. Google is considering to wind up its news service from the Europe completely if the controversial law gets passed.

Google’s public policy manager for Europe region, Jennifer Bernal said that the company is contemplating the prospect of complete wind-up of its news service in Europe as a response to the new law. She added that the Google would consider all possible options before making any final decision but any withdrawal would be reluctant decision.

Two proposed rules have attracted the most controversy, one Article 11 of the law may force Google, Microsoft and others to pay publishers if small snippets appear on its search results and another Article 13 requires online platforms like Instagram and Youtube to verify copyrights before letting users upload it on their site. When Germany and Spain first implemented Article 11 like rule, the news publishing websites reported a plunge in website traffic from the search engines.

The European Commission first proposed these rules in 2016 but due to the disagreement among various member states about the scope of the law it has postponed the implementation of the rules. The EU had plans to finalize the rules by the first week but resistance among member states may drag the legislation process longer.

Google claims that it doesn’t make any money from its news aggregation service and that a harsh withdrawal would not lead to any financial consequence to the company. However, news results from publishers entice the mobile users to come back to the search panel leading to more searches which generates lucrative ad revenues for the company. Google’s withdrawal would also mean losing grounds to other competitors in the news aggregation service field which includes Apple and Microsoft.

Although there are numerous issues surrounding the legislation, but one important issue includes the concerns small print publishers. The first draft of the rules included a provision which enabled some publishers to waive their rights to the news content appearing on the search engine. This meant that larger news organizations with deep pockets would allow their content to appear freely on the search engine in exchange for increased web traffic to their sites. This would prove a disadvantage for small publishers. But European parliament introduced a provision taking into consideration the concerns of the small print publishers which disallows any publishers from allowing their content on Google freely.

Some activists and small publishers are blaming Google’s intense lobbying efforts for the delay in legislative process to finalize the rules. The law has pitted the search giant against small publishers and activists. Although Google has threatened withdrawal, Mr. Francois Godard, a European Media analyst said that he doesn’t buy the threat saying that Europe being the key market for Google, ‘’they cant afford to lose it’’.