Sitting in the shadow of the brutalist health department building in Washington, with only a leather jacket for protection against an autumnal breeze, Moncef Slaoui cuts a defiant figure.
Six months after the former GlaxoSmithKline executive left the private sector to become President Donald Trump’s coronavirus vaccine tsar, Mr Slaoui feels his decision has been vindicated, and critics of the ability of Operation Warp Speed to develop a vaccine in record time having been proved wrong.
“The easy answer for experts was to say it was impossible and find reasons why the operation would never work,” he told the Financial Times.
But the vaccine push is now hailed as the bright spot in the Trump administration’s Covid-19 response, as products from Pfizer and BioNTech, Moderna, and AstraZeneca and Oxford university move closer to approval.
Operation Warp Speed is a more than $10bn investment programme with a remit to fund vaccines, therapeutics — such as two recently approved antibody treatments — and diagnostics.
So far it has spent the vast majority of its money on Covid-19 vaccines.
As well as funding some vaccine developers directly, it has also signed pre-orders for the products others are working on, guaranteeing them an income from an approved vaccine when the normal commercial decision might be to not take the risk.
Mr Slaoui’s team also helped manufacturers secure supplies and sped up responses to usually laborious regulatory queries.
Scientists had warned that, with much still to learn about Covid-19, a vaccine might take longer to develop, manufacture and distribute than Mr Slaoui — and his boss, the president — might have hoped.
The central achievement of Operation Warp Speed had been accelerating investment in manufacturing, said Angela Rasmussen, a virologist at the Columbia University School of Public Health.
“Normally, that would be a huge investment for a vaccine manufacturer to make, and potentially be a huge loss for them if they developed a vaccine that never went on to the market,” she said.
Even Pfizer, which did not take direct investment from Operation Warp Speed, benefited from having a $2bn pre-order for when its vaccine gets approved, said Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering.
“Even if J&J or someone else beat them to the punch, they were going to get paid,” he said.
Stéphane Bancel, chief executive of Moderna, the lossmaking biotech which took about $2.5bn in government funding from different bodies, said the money was “very helpful”, covering the costs of trials and helping it buy raw materials.
“The entire planet is going to benefit from it,” he told the FT. “We are going to file [for approval] in the UK based on the US data paid for by the US government. We’re going to file in Europe and hopefully have a vaccine available in France and Spain and Italy, all paid for by the US government.”
Backing many horses
Mr Slaoui breaks off from his conversation with the FT to take an urgent call. “The White House,” he explained.
Later that afternoon he would appear in the White House Rose Garden alongside Mr Trump to give an update on Operation Warp Speed — a sign of how he has managed to navigate the politics of the pandemic.
Despite being a registered Democrat, he became one of few scientific experts in the administration to retain both their closeness to the president and their professional reputation. Mr Slaoui said he took the job on the condition that there would be no “political interference” and he believes that has been fully met.
He spent almost 30 years at GSK, where his biggest research triumph was developing the first malaria vaccine. Francesco De Rubertis, a partner at Medicxi, a venture capital group, where he worked alongside Mr Slaoui, said it was his “mission” to deliver the vaccine, even though it took decades.
Jean-Paul Clozel, chief executive of the Swiss biotech company Idorsia, worked with Mr Slaoui when he was at GSK. He said Operation Warp Speed’s plan to back so many horses looks to have been inspired by how Mr Slaoui ran R&D at the UK drugmaker, where he splintered the department into smaller teams to compete against each other.
“You had to fight for money for your research,” Mr Clozel said.
Which companies got Operation Warp Speed money?
Johnson & Johnson: $456m investment for development, $1bn for manufacturing and delivery, including a pre-order for 100m doses
Moderna: up to $955m investment for development, $1.5bn for manufacturing and delivery, including a pre-order for 100m doses
AstraZeneca and Oxford university: up to $1.2bn for development and manufacturing, including a pre-order for 300m doses
Novavax: $1.6bn for manufacturing, including a pre-order for 100m doses
Pfizer and BioNTech: $2bn pre-order for 100m doses, if the vaccine is approved
Sanofi and GSK: $2bn for development and manufacturing, including a pre-order for 100m doses
While he brings expertise from industry, Mr Slaoui has been sharply criticised for his financial interests in vaccine makers. Elizabeth Warren, the Democratic senator, has called for an investigation into why he was hired as a contractor rather than as a government employee — a distinction which she claims helped him evade government ethics requirements.
When he took the job, he quit the board of Moderna, an Operation Warp Speed participant, but he did not sell his $12.4m stake until after positive early vaccine data had sent the stock price soaring. He has since pledged the extra capital gain from the time of his appointment to the stake sale to cancer research.
Mr Slaoui retains the shares he owns in GSK — reported to be about $10m — even though GSK is also a participant in Operation Warp Speed in partnership with Sanofi. He has committed to giving any gains higher than the average of the pharmaceutical index to the National Institutes of Health.
Mr Slaoui said he had always held himself to the highest ethical standards. “That has not changed upon my assumption of this role. [Health department] career ethics officers have determined my contractor status, divestures and resignations have put me in compliance with the department’s robust ethical standards.”
Critics wish that Operation Warp Speed had sought more for its money. They think it could have secured lower vaccine prices, and shared technology to improve access to the vaccines for the developing world.
Zain Rizvi, a researcher at consumer advocacy group Public Citizen, said it was “uncontroversial” that Operation Warp Speed played an “indispensable role” in creating vaccines for the pandemic — but it could have used the investment to steer the industry in a different direction.
“Warp Speed could have required the corporations, who are receiving really unprecedented amounts of public money, to commit to setting a reasonable price for their products, not just now, but also in the future,” he said.
Many point out that Operation Warp Speed stands on the shoulders of investments made by others, including other arms of government such as the NIH.
Some lament that, if those other investments had been greater, either in vaccine technology and manufacturing or in pandemic preparedness more generally, then Operation Warp Speed might not have been necessary to compensate.
But most experts now save their harshest criticism for the name “Warp Speed”. Mr Slaoui did not pick the moniker — and did not know at first that it was borrowed from Star Trek.
While everyone involved in the operation insisted it is focused on safety as well as speed, outsiders worry the name might muddy the message. Ms Rasmussen of Columbia University called the name a “really bad idea” because “it implies that we’re cutting corners. We need to address that to make sure . . . people are actually willing to take the vaccine.”
Whatever the criticisms, Mr Slaoui insisted the project has been a success — so much so that he now sees his role as coming to a natural end.
While he has called for his officials to be allowed access to Joe Biden’s presidential transition team, he suggested he might not be making the transition himself, or at least not for very long.
“I would feel that I have achieved most of what I was hoping to achieve if we have two vaccines approved and two medicines approved,” he said. “This is a transient role, and frankly the operation is a transient mission.”
CLOs draw in new support after showing resilience
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.
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.”
Huawei’s fall hits growth of Sony’s chip business
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.
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.
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.”
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.
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
Kamala Harris takes heat handling knotty vice-presidential portfolio
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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