Dear reader,
Magic does not work. Science does. The first morphed into the second via alchemy. This fruitless quest to transmute base metals into gold laid the foundations for systematic experimentation. One of the finest fruits of the latter is the victory of medical science over a lengthening list of diseases.
Lex explored this theme — and R&D as a broader topic — in this week’s column. You can email me about that, or any other aspect of our coverage at Lexfeedback@ft.com.
One of my first jobs at the Financial Times was writing about pharmaceuticals. As I prepare to retire from full-time journalism, it stands out as one of the few areas where well-financed innovation has indisputably improved the world.
I unwittingly contributed to a broad bust in UK biotech stocks in the late 1990s by exposing the inaccuracy of claims made by flagship company British Biotech. Its drugs did not work.
Just over a decade later I was bemoaning the Götterdämmerung of Big Pharma in the Lombard column. Pharma units languished at discounts to healthcare divisions selling bunion cream within the valuations of companies such as GSK.
One analyst told me most potential blockbuster drugs had been discovered — although that was plainly unknowable.
Then, starting in 2013, Gilead of the US delivered a series of breakthrough treatments for hepatitis B. In 2014, AstraZeneca rebuffed a takeover bid from Pfizer with projections for sales of new drugs many observers thought were wildly optimistic.
Since then, the Anglo-Swedish group has made extraordinary progress. It has been one of the lead developers of the immunotherapy drugs that are at last pushing back cancer.
AstraZeneca also produced a serviceable Covid vaccine. But it was German start-up BioNTech that really turned the tide against coronavirus in 2020 — with a little help from Pfizer.
For some pharma groups, notably Sanofi of France, the pandemic was a time of embarrassing and very public underperformance. This week, chief executive Paul Hudson admitted he had fumbled the scrapping of 2025 margin targets.
Investors fear the company is over-dependent on blockbuster asthma and eczema drug Dupixent. Sales should top €20bn by 2030, with exclusivity running out not long after. Pipeline drugs will need to come on stream to replace lost earnings.
The success of weight loss drugs from Novo Nordisk and Eli Lilly has prompted other invidious comparisons. Roche is therefore acquiring US-based obesity drugs developer Carmot for up to $3.1bn. The Swiss company already has a packed pipeline. The problem is that too many drug trials have failed.
Merck knows how that feels. Its shares slumped 12 per cent on Wednesday after a multiple sclerosis medicine flopped in late-stage trials. The market value dropped by €4.5bn, much more than the prospective value of the drug. Merck badly needs cancer treatment Xevinapant to succeed.
China’s pharma researchers do a lot of R&D of their own, but do not seem to produce many blockbusters. Even so, it would be highly regrettable if the US stuck a spanner in the works of Chinese drugs research.
The stock of Wuxi Biologics fell steeply this week after a profit warning. In Lex’s view, the shares were on a hair trigger. Foreign investors fear that America could extend sanctions against Chinese digital technology to its pharmaceuticals.
This would hurt science and healthcare. But there is no cure for human folly.
Nor for rent seeking. This is embodied in the expensive, dysfunctional and unfair US healthcare system.
The advent of “value-based” care under the US’s state Medicare and Medicaid systems is triggering a gold rush among insurers, healthcare providers and benefits managers. One consequence, after successive rounds of consolidation, is a mooted $140bn insurance tie-up between Cigna and Humana.
US healthcare is a horrible embarrassment, if, like me, you would prefer markets to deliver optimal outcomes. This is still possible for Airbus’s planned replacement for the A320 narrow-body jet.
The European consortium company has nevertheless hinted it may need state support for the research and development project. Just to keep boss Guillaume Faury on his toes, Lex calculated that private investors have a good chance of making a decent 14 per cent internal rate of return on the $15bn project.
Better get weaving on those investor slide decks, M. Faury.
Developing quantum computers is a rather more speculative activity. Just to be clear, these do not work at present and may never do so. Quantum states are innately unstable, like markets. However, the publication of a seven-year development timeline by IBM should help to attract investment capital to the sector.
Digit fidget
Lex uses steam-powered spreadsheets, not quantum computers, for its own calculations. Some of the figures we reported this week usefully highlighted key stories:
Dual-listed German travel group Tui may ditch London to make Frankfurt its main quote. Median daily volume in the FTSE All-Share is just 0.15 per cent of market value, says Panmure. That compares with 0.2 per cent for the Stoxx 600 ex-UK and 0.7 per cent for the S&P 500.
AJ Bell has revealed that cash accounts for 13.3 per cent of its retail customer assets. The UK DIY investment platform faces regulatory pressure to reduce the level. Citi estimates that every 1 percentage point fall in these cash balances erodes earnings by 6 per cent.
BAT has reduced its estimate of the economic life of its US brands from “forever” to 30 years. Even that may be optimistic. Cigarette makers are failing to persuade newly wealthy Asians to puff on their toxic wares. Nor are tobacco companies faring well in vapes.
Spotify is on course to generate $2.2mn in sales per employee following job cuts. Meta should manage $2.2mn and Netflix $3mn. The music streaming platform may need to cut more deeply.
Things I have enjoyed
The closing credits of Napoleon. When they started rolling, it meant I did not have to watch the movie any more.
Boney’s mob failed to kill my ancestor Gunner “Paisley Jimmy” Guthrie at the Battle of Waterloo. But I nearly lost my own will to live during this ahistorical, plodding account of the general’s life.
I loved the Frans Hals exhibition at London’s National Gallery. Incredible portraiture was mournfully adorned by the name of defunct sponsor Credit Suisse.
I have also greatly enjoyed writing for you over the past few years. Lex readers are smart, highly educated and always keen to debate an interesting point.
Thank you so much for reading.
Au revoir,
Jonathan Guthrie
Head of Lex
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