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Regeneron: the company that Trump claims cured his Covid

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When Donald Trump hosted senior executives from 10 pharmaceutical companies at the White House in March to discuss the coronavirus, he was particularly keen to hear the views of a man he affectionately called “Lenny”.

“Lenny” was Len Schleifer, at one point Mr Trump’s occasional golf buddy, and the chief executive of Regeneron, a biotech company that has been thrust into the spotlight after the president claimed its Covid-19 drug cured his disease and can do the same for millions of others.

The video that Mr Trump released on Wednesday, in which he described Regeneron’s antibody treatment as a “miracle”, further fuelled a rally in the company’s shares, which have jumped 60 per cent since January, in large part on hopes for its Covid-19 drug.

But the president’s fulsome testimonial has also put Mr Schleifer’s 30-year-old pharma company in an awkward position. Regeneron has had to explain that the medicine has not yet been fully tested in clinical trials, is not guaranteed to work for everybody, and will only be available to a few hundred thousand patients by the end of the year.

Len Schleifer became acquainted with the president as a member of his golf club in Westchester © Bloomberg

A spokesperson for Regeneron said: “We have seen promising early data and we will see what future studies show. We think this is a promising treatment.”

However, a person with knowledge of the development process said: “This is not a cure, this is a treatment. Nothing is likely to be a cure for everybody.”

Mr Schleifer, who trained as a neurosurgeon, founded Regeneron in 1988, setting up its headquarters not in New York City where he was born, but instead in Tarrytown, farther north on the banks of the Hudson River.

For years, the company looked like a dud, failing to produce a single successful drug in its first 20 years of existence.

But then Regeneron made a huge breakthrough, discovering a way to inject human DNA into mice so their immune systems would spit out human antibodies when injected with a virus. This platform was the reason the company was able to move quickly when Covid-19 came along: it injected mice with the virus, and out came antibodies it could test in humans.

“These guys have the cutting edge technology to develop antibodies,” said Yatin Suneja, an analyst at Guggenheim. “Nobody else has been able to do what they have done.”

Regeneron has already delivered two blockbuster drugs: Eylea, to treat macular degeneration, and Dupixent, an injection to treat eczema and asthma. Last year, the company sold $4.6bn worth of Eylea and $2.3bn worth of Dupixent.

The company’s success propelled Mr Schleifer into the New York elite. He joined the Trump National Golf Club in Westchester, where he became acquainted with Mr Trump before he ran for the presidency, and the pair would play an occasional round of golf. For years, Regeneron paid for Mr Schleifer’s $18,500 golf club membership, though it ended that perk in 2015.

Mr Trump even bought shares in Regeneron, though government records show he sold them between June 2016 and June 2017, realising a profit of somewhere between $50,000 and $100,000.

Analysts say it was the company’s scientific expertise that put it at the front of the race to find a coronavirus treatment rather than Mr Schleifer’s political connections. The company was able to produce a novel antibody cocktail in months by taking antibodies from a human and a mouse.

Early trials showed that the drug could cut recovery time from 13 days to six, but only for patients whose systems had not mounted their own antibody response. For anyone whose system was already fighting the virus, Regeneron’s therapy appeared to achieve little, which is one of the reasons scientists are loath to call it a cure.

The fact that Mr Trump was given the treatment so soon after his diagnosis suggests the White House was well-acquainted with the drug. “Somebody down there knows what is at the cutting edge of science,” said Barry Bloom, professor of public health at Harvard University.

Regeneron announced this week it had applied to the US Food and Drug Administration for emergency authorisation for the antibody cocktail, though Mr Trump said on Wednesday he had already given his personal approval.

Line chart of Share price, $ showing Regeneron Pharmaceuticals shares are up about 60% this year

If the drug is authorised, the company says it is ready to produce 50,000 doses straight away, and 300,000 doses by January. But if every coronavirus patient requests it, as they have been urged to by Mr Trump, supplies would be quickly exhausted. The US is currently reporting about 50,000 new cases a day.

Regeneron’s rival Eli Lilly is producing a similar treatment, which it is able to manufacture more quickly since it derived its antibodies from a single source. The Indiana-based drugmaker says it expects to make 100,000 doses this month.

The Trump administration has already bought Regeneron’s initial 300,000 doses at a cost of $450m, and plans to give them to patients for free. After that, the company says it does not know how much it will charge.

Walid Gellad, an associate professor in medicine at the University of Pittsburgh, said: “We don’t all live in the White House . . . there are going to be major inequities in who gets the therapy.”

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Analysts warn that whatever happens after the initial manufacturing run, the company could struggle to generate significant profits from its discovery.

Mr Suneja at Guggenheim said: “This is not a product that is going to generate perpetual cash flow, not least because companies are going to get negative press if they try to make a lot of money out of it.”

But he points out it does little harm for Regeneron to be making political allies, given that both Republicans and Democrats have threatened to impose price caps in response to public anger over the soaring cost of drugs in the US.

“What this does most is help them build their reputation in DC, which right now is invaluable,” Mr Suneja said.



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Analysis

CLOs draw in new support after showing resilience

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One of Wall Street’s hottest hedge funds has pulled in a quarter of a billion dollars from a small group of investors seeking out returns from an obscure corner of capital markets: collateralised loan obligations.

Diameter Capital, which posted a 24 per cent gain in its main hedge fund last year, intends to use the seed money to structure and sell its first six CLOs, which bundle together risky company loans and use them to back interest payments on slices of new debt, each with different levels of risk and return.

The asset class nestles just on the fringe of markets, dominated by specialists, but demand is now rising more broadly. The combined $250m investment in Diameter from alternative asset managers Apollo Global Management and Corbin Capital, and the pension fund of renewable energy company Babcock & Wilcox, also hints at a shift towards the mainstream.

“CLOs have survived the market swoon intact,” said Bret Leas, who runs Apollo’s structured credit business. “Therefore the asset class continues to gain more widespread acceptance. It’s no longer niche.”

Part of the allure for investors is that the CLO market offers a way to improve returns now that low interest rates have made higher-yielding assets scarce. 

Total issuance of CLOs in the US this year is running at a record pace around $70bn, according to data from S&P Global Market Intelligence, with the total market now sitting at $770bn outstanding, according to Citi. The bank predicts it will grow to $850bn by the end of the year.

“It is a source of return in a world where there are not many obvious returns,” said Craig Bergstrom, chief investment officer at Corbin, who noted Diameter’s record as part of the $8.5bn investment manager’s decision to invest. Once interest has been paid to debt investors in the CLO, whatever is left flows through to the equity holders that have provided seed capital.

CLOs have been viewed sceptically in the past. Before the pandemic struck, regulators had expressed concerns that they had facilitated risky lending with weaker standards, and that they could lay the groundwork for a future credit crisis. 

But CLO participants now feel vindicated, arguing that a strong rebound from the depths of the coronavirus-induced fall in markets has proved the resilience of the structure and offered comfort to cautious investors, even if critics still point to the large amount of assistance provided by the Federal Reserve that helped all credit markets — from bonds to loans — recover.

Column chart of Monthly US CLO issuance ($bn) showing CLO issuance surges as industry makes play to become mainstream

Even CLO equity investors, most exposed to the default of underlying issuers, largely ended 2020 with positive, single-digit returns, according to multiple industry sources.

“CLOs have come out pretty unblemished,” said Scott Snell at credit fund Tetragon, which invests in both the debt and equity of CLOs. “If liquidity had not been provided by the Fed, CLOs would have been more adversely impacted but it also would have been more challenging for all markets, not just CLOs.”

Eager to capitalise on the demand, a host of fund managers has sought to enter the market or expand their business.

As a result, some market participants expect consolidation among CLO managers. There are 135 CLO managers in the US, according to Citi, with 50 of them managing less than $2bn. Industry veterans say that depending on the fees charged and the size of the team, it typically takes $2bn to $3bn in assets to break even. 

However, few M&A deals have emerged with both new and existing managers seemingly preferring tie-ups akin to Diameter’s. 

Diameter’s launch follows York Capital ceding control of its CLO business to a new entity called Generate Advisors earlier this year, partnering with Kennedy Lewis Investment Management who will provide a $200m equity contribution to future deals. Kayne Anderson in January raised $600m in a fund to invest in the equity of both its own and other managers’ CLO deals. 

This is Apollo’s fifth partnership, starting with an equity financing for CLO manager Gulf Stream in 2011, with three others in between. 

“We preferred to build something ourselves that we can infuse with our DNA as opposed to buying a business that’s struggling on another platform,” said Scott Goodwin, who co-founded Diameter with Jon Lewinsohn. The pair met while working at credit fund Anchorage roughly a decade ago, starting Diameter in 2017. Investing across credit markets, it has become known as one of the most prolific hedge funds in recent years.

Goodwin’s first boss working at Citi was Jim Zelter, now co-president of Apollo. Both Goodwin and Lewinsohn also had a long-held relationship with John Zito, Apollo’s deputy chief investment officer, cemented after Apollo supported Diameter’s entry into issuing collateralised debt obligations. 

“A lot of people talk about it but there has been very little CLO M&A,” said Leas at Apollo. “The price sellers expect to be paid is not typically attractive to firms like ours when we can just either issue our own deals or seed other managers. A tie-up is a far more likely way to launch a CLO manager these days.”



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Huawei’s fall hits growth of Sony’s chip business

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Growth of Sony Group’s semiconductor business has slowed, reflecting a plunge in shipments of image sensors for smartphones to Huawei Technologies as a result of the US-China trade war.

Although Sony has avoided a fall in the volume of shipments thanks to orders from other Chinese smartphone makers, the recovery of earnings appears likely to be delayed until the fiscal year of April 2022 to March 2023 because of weakened demand for sensors for high-end smartphones.

As Samsung Electronics of South Korea, which is strong in processing sensors for midrange smartphones, catches up, Sony is halfway towards recapturing the smartphone market.

“We cannot achieve an earnings recovery in the year through March 2022,” said Terushi Shimizu, president and CEO of Sony Semiconductor Solutions, at a press briefing on June 3.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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For fiscal 2021, the semiconductor arm of Sony Group expects its operating profit to decline for the second consecutive year to ¥140bn ($1.26bn). The projection reflects changes in the smartphone market structure resulting from the trade friction between the US and China.

Huawei had a global market share at the 4 per cent level in terms of shipments in the January-March period, according to US research firm IDC. With the US government banning the export of American technology to Huawei, the Chinese company saw its market share plunge some 14 percentage points from the same quarter of 2020, when it ranked second.

At the expense of Huawei, Samsung, Apple of the US and three Chinese smartphone manufacturers — Xiaomi, Oppo and Vivo — expanded their shares.

Changes in global smartphone market shares

Sony commands half of the global market for image sensors in value. Growing demand for high-definition smartphone cameras, and the trend of using two or more cameras in a smartphone in recent years, have enabled Sony to expand shipments to Apple and Huawei on the back of its advanced technology of producing high-end sensors.

With Huawei losing its momentum, demand for cutting-edge sensors for high-end smartphones has weakened. Sony thus increased shipments to the three Chinese smartphone makers which primarily manufacture middle- and lower-end phones. While sensors for such phones are each priced low, the makers demand improvements in image quality to attract consumers.

Samsung has set an eye towards capitalising on the “new normal” created by the trade friction between the world’s two largest economies, in a bid to recover its lost ground.

Samsung ships nearly 300m smartphones per year, most of which contain image sensors it produces on its own. While having stable demand, the company is strong at producing high pixel sensors used in midrange smartphones and is enjoying growing demand.

In the global image sensor market, Samsung, with a share of 20 per cent, is trailing Sony, with its 50 per cent share. With Samsung boasting microfabricating technology needed for high pixel sensors, Shimizu said, “We are actually falling behind as far as high pixels are concerned.”

But, he added, “we will add new value using technology cultivated in the field of high image quality.”

Terushi Shimizu, president and CEO of Sony Semiconductor Solutions, speaks at a press briefing on June 3 © Masaharu Ban

Samsung has a large number of manufacturing facilities, including those for memory chips and central processing units. Sony will spend ¥700bn on production facilities in its semiconductor business under a three-year plan through fiscal 2023, up 20 per cent from the preceding plan. But if the importance of microfabrication technology increases, Samsung may gain an advantage because of its greater leeway for investment, according to a research company.

Sony is also expected to take time before reducing its reliance on the volatile smartphone market. Although the company positions image sensors for automobiles as a growth market and keeps boosting annual sales by 50 per cent, the business is still small in scale. Collaborating with its “Vision S” prototype electric vehicle project, Sony plans to develop a high-performance sensor capable of detecting objects even in the dark and sell it to American and European automakers.

Sony will also challenge for a new business model. While Sony has engaged in the sale of image sensors, it is attempting to establish a recurring model of collecting fees on a continuous basis. Specifically, it will use a sensor equipped with data-processing functions of artificial intelligence it has developed. Data, therefore, can be processed both in the cloud and in the sensor so that the volume of communication can be reduced.

For example, the sensor can be used in a camera at a cashless payment retailer with no cash register and improve the performance of street monitoring cameras.

Sony’s AI image sensor has found its way into smart monitoring cameras the city of Rome will put into use in June to optimise the operation of buses by sensing congestion at bus stops or emit light to pedestrians walking through a red light.

Image sensors with data-processing functions of artificial intelligence, developed by Sony, are promoting the rise of new core semiconductors for smartphones (Photo courtesy of the company)

The semiconductor business centred on image sensors was positioned as an engine of growth when Sony was rehabilitating itself. In fiscal 2019, it contributed to Sony’s earnings, logging more than ¥1tn in sales and an operating profit ratio of 22 per cent to sales.

Sony Semiconductor has propped up the revival drive despite such difficulties such as damage inflicted on its local plant by a series of earthquakes in Kumamoto Prefecture in 2016.

While striving to address radical changes in the smartphone market, Sony Semiconductor is being tested for whether it can develop new growth sectors such as image sensors for automobiles and AI image sensors.

Cutting-edge semiconductors are also drawing attention from the viewpoint of national security as the government has drafted a policy of courting overseas manufacturers.

The procurement of logic chips has become difficult as even Sony farms out most of production to overseas manufacturers. Asked whether Sony Semiconductor will launch production, including a joint venture project, for stable procurement, Shimizu admitted to the difficulty of producing them on its own in terms of both technology and cost.

“Generally speaking, it is extremely meaningful to receive state support,” Shimizu said, suggesting the need for government financial assistance for production.

A version of this article was first published by Nikkei Asia on June 7, 2021. ©2021 Nikkei Inc. All rights reserved

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Kamala Harris takes heat handling knotty vice-presidential portfolio

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US vice-president Kamala Harris gave a widely panned television interview while visiting Guatemala this week. 

Asked why she hadn’t been to the US-Mexico border, where an influx of migrants is putting a huge strain on local communities, Harris first dismissed the question and said, “We’ve been to the border.” Pressed, she laughed and said: “And I haven’t been to Europe.” 

Her comments drew criticism and underscored the political dangers that the number two official in the White House faces as she juggles a cumbersome, and expanding, policy portfolio.

Harris was in Central America as leader of the Biden administration’s response to the border problem, including the thorny question of how to address migrants fleeing north from the troubled countries of Guatemala, El Salvador and Honduras.

She has also been handed the nearly intractable task of shepherding contentious voting rights and police reform legislation through a sharply divided Congress. She has hit the road to sell President Joe Biden’s sweeping infrastructure plans. In addition, she has also taken an interest in black maternal mortality and other racial equity issues, including tackling vaccine hesitancy among African-Americans. 

Harris’s first foreign trip as vice-president exposed what detractors and allies alike say are her shortcomings as a politician and vulnerabilities should she run again for president. Harris, a former senator from California, abandoned a floundering primary bid for the White House in late 2019. 

Her comments earlier in the week to NBC News sparked outrage, particularly from Republicans who are hammering the administration over migrants. Meanwhile, she took flak from fellow Democrats for urging migrants not to come to the border in the first place. 

Mary Anne Marsh, a Democratic strategist, pointed to the vice-president’s failure to effectively convey her message on the trip.

“If this is your debut as vice-president on the international stage, you want to give your best performance, and she certainly can do better,” Marsh said. 

Harris made history at her January swearing in, becoming the first woman, the first black person and first Asian-American to serve as vice-president. She holds outsized power as the tiebreaking vote in a Senate evenly divided between Democrats and Republicans. But the other duties of a vice-president are less clearly defined. 

People close to the administration say that Harris has proven a deft counsellor to the president and a near constant presence at the White House, attending regular briefings, offering Biden advice and appearing at his side for big speeches. 

Biden himself served as vice-president under President Barack Obama from 2009 to 2017. When he announced Harris as his running mate last summer, he said he hoped that she would provide advice as he did to Obama. 

“When I agreed to serve as President Obama’s running mate . . . he asked me what I wanted most . . . I told him I wanted to be the last person in the room before he made important decisions,” Biden said. 

He added: “That’s what I asked Kamala. I asked Kamala to be the last voice in the room.” 

Harris is hardly the first vice-president with difficult assignments. Most recently, Mike Pence, Donald Trump’s vice-president, headed the White House coronavirus task force. 

“The vice-presidential tasks are such that usually, if you are successful, they become the president’s and the administration’s accomplishments. If you are unsuccessful, they become yours,” said Kenneth Baer, the founder of consultancy Crosscut Strategies. He was a speech writer for vice-president Al Gore in the Clinton administration and Gore’s ill-fated 2000 presidential bid. 

Harris supporters contend that her challenging portfolio only underscores the faith Biden has placed in her.

“Any one of those issues would be a full-time job for most people,” Marsh said.

Many Democrats argue Harris faces undue criticism, from Republicans in particular, given her identity as a woman of colour. But others admit she made missteps in Latin America and say that her refusal to correct course — Harris later had a frosty exchange with a Univision TV anchor about the border crisis — only remind people of her shortcomings as a presidential candidate in 2019.

“What I think you have seen in the past few weeks . . . are some of the issues you saw during the campaign,” Marsh said. “At different points during the campaign, she did not perform particularly well. Other days, she was spectacular.” 

Looming over Harris’s term is the political future of Biden, who is 78. Her allies say that she is focused on supporting the president as he seeks to push through his legislative agenda ahead of the 2022 midterm elections, when control of both chambers of Congress will be up for grabs. Next week, as part of her voting-rights remit, she will meet state legislators from Texas, where Democrats recently blocked a state bill that would have restricted access to the ballot box. 

“There is a sense . . . that she is focused on her future as opposed to the job, and I just don’t think that is true,” said Dylan Loewe, a former speech writer for then-vice-president Biden who also ghostwrote Harris’s memoir. 

“The last thing that she wants for her future presidential campaign, whenever it is, is for the storyline to be that she was focused on the future and not the president, and that she was not the same kind of vice-president to Joe Biden as Joe Biden was to Barack Obama.”

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