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Kim Jong Un faces Covid dilemma of isolation or vaccination

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The doctrine of juche, or self-reliance, has served as a guiding principle for North Korea’s ruling Kim dynasty for more than seven decades as it kept its people isolated from the outside world.

But Kim Jong Un must decide whether to accept offers of international assistance to overcome the unprecedented health threat posed by coronavirus. The 37-year-old dictator’s choice will have consequences for the international community’s fight to end the global pandemic, with fears that Mr Kim’s security concerns could stand in the way of efforts to inoculate the 25m people under his rule.

“The nuclear and missile developments over the last couple of years have demonstrated just how willing they are to sacrifice the wellbeing and prosperity of their own people for their own security,” said Peter Ward, a Seoul-based North Korea expert at Vienna University.

North Korea has signalled its interest in participating in the Covax programme, which is seeking to ensure equitable vaccine access around the world, according to people familiar with the matter.

International medical experts who have worked in North Korea see this as a positive sign that Pyongyang might be willing to accept aid from Gavi, the UN-backed vaccine alliance that has nearly 20 years’ experience working in the country. The organisation is leading the Covax initiative alongside the World Health Organization and the Coalition for Epidemic Preparedness Innovations.

A critical question hinges on the level of foreign assistance required to facilitate an inoculation programme.

International staff would need to enter North Korea to run initial assessments and support logistical challenges posed by distributing the vaccine across one of the world’s poorest and least-developed countries. They would also be required to train local staff and then, under Gavi’s rules, monitor the inoculation programme.

Gavi boasts long history of funding vaccinations in North Korea

North Korea instituted a sweeping lockdown of cross-border and internal movement in January. While it has not publicly confirmed any coronavirus cases, the measures have also led to most foreigners previously based in the country — including diplomats and aid workers — to depart. 

Ramon Pacheco Pardo, a North Korea expert at King’s College London, said “monitoring could be an issue” given how few foreigners are in the country, despite Pyongyang’s longstanding working relationship with the WHO, Gavi and other NGOs.

“If North Korea is not willing to allow the WHO or Gavi to monitor distribution of the vaccine, it would probably be at the back of the queue considering that all countries across the world want to receive the vaccine as well,” he said.

Kee Park, a lecturer at Harvard Medical School who has worked inside North Korea, was confident Pyongyang could institute a conservative quarantine period with additional testing. This would mean international aid workers would be able to enter the country “in a way that is not a significant risk to the population”.

“I think they can find a path to reopen partially, to at least allow the vaccination project to proceed,” he said.

North Korea’s healthcare system is relatively well prepared to support vaccine storage and distribution despite being underfunded and poorly-resourced in many other areas, according to analysts.

This is a legacy of smaller-scale international efforts to battle diseases such as tuberculosis and hepatitis, as well as infant immunisation programmes.

Experts confident in potential North Korean vaccine coverage

Nagi Shafik, a former manager at the WHO office in Pyongyang, said that North Korea could handle the Oxford/AstraZeneca vaccine, which can be stored at between 2C and 8C.

“The cold chain storage system has been working for a long time . . . I can tell you with confidence that they have a high coverage rate, and they maintain it,” said Mr Shafik, who last worked in Pyongyang in mid-2019 and noted that Gavi data supported his claims.

But the extra-cold temperatures required to store the Moderna and BioNTech/Pfizer vaccines would not be suitable.

Harvard’s Dr Park added that risk-averse North Korean health officials are unlikely to trust vaccines produced in Russia or China until there is more transparency over the jabs’ success rates.

The border closures have battered trade between North Korea and China, straining the cash-strapped economy and slowing deliveries of medical equipment and resources. The economic crisis has heaped pressure on Mr Kim to act.

But a resurgence of cases in the neighbouring Chinese provinces of Liaoning and Jilin has renewed the risk of loosening North Korea’s entry restrictions. Tens of millions of people have been placed under lockdown in China in recent weeks and mass testing has been enforced to root out infections. Underlining the speed at which the virus can spread, officials in Jilin said more than 100 cases had been linked to a travelling salesman.

The North Korean leader’s predicament has come as richer countries face stinging criticism for failing to support poorer nations in accessing Covid-19 vaccines.

Health experts have also called for sanctions on Pyongyang, imposed in response to its nuclear weapons programme, to be eased. They say the measures threaten to slow vaccine rollouts, and that fears over medicine hoarding for the benefit of the military or elites close to the Kim regime are overblown.

“We have to separate the political issue from the scientific; science says that nobody will be immune until everybody is vaccinated . . . this is a human thing, we cannot punish people,” Mr Shafik said.



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Analysis

H&M experiments as it refashions stores after the pandemic

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The Hennes & Mauritz flagship store on Stockholm’s main square is trying to break the mould. A woman sewing a patch on to trousers, party dresses for hire, a beauty salon and a personal shopping service is not standard fare for most fast-fashion outlets.

But it could be a taste of things to come as H&M, the world’s second-largest clothes retailer, works out what to do with its vast network of 5,000 stores after a pandemic that has increasingly pushed shoppers online. The Swedish chain is not just looking at services such as renting and repairing clothes, but on whether its shops can play a role in the logistics of online selling.

For Helena Helmersson, appointed last year as the first H&M chief executive outside the company’s founding Persson family, it is all about boosting relationships and engagement with customers.

“The physical store network that we have is one of our strengths. It’s the different roles the stores can play, the different formats. What kind of experiences are there in a store? Could they be part of an online supply chain? There are so many things to explore . . . it’s almost thrilling,” she told the Financial Times.

Helmersson, 47, has had a tough first year as chief executive. At the height of the first wave of the Covid-19 pandemic, four-fifths of H&M’s physical stores were closed and a big push online was unable to offset the hit. Sales fell a fifth in H&M’s financial year until the end of November to SKr187bn ($22.6bn), while pre-tax profits plunged 88 per cent to SKr1.2bn, interrupting a nascent recovery after years of decline.

Line chart of Ebit margins (%) showing H&M has lagged behind Inditex's profitability

Sales plunged in March and April, before rebounding strongly in the summer, and then getting hit again around Christmas.

But as the pandemic has forced H&M into speedier decision-making and increased flexibility and with Helmersson forecasting a wave of pent-up demand when Covid-19 comes under control, the chief executive is emboldened to say: “Overall, we will come out of the pandemic stronger.”

Boarded up H&M store in Minneapolis, Minnesota, US, in April 2020
With four-fifths of H&M’s stores closed at the height of the first wave, pre-tax profits plunged 88 per cent © Ariana Lindquist/Bloomberg

Anne Critchlow, analyst at Société Générale, said that relatively small increases in sales at H&M could lead to bigger rises in profits. “Potential recovery is part of the attraction of H&M to investors at the moment: it’s very highly operationally geared. H&M should be the fastest to recover,” she added.

But she argued that Inditex, the Spanish owner of Zara that overtook H&M as the world’s biggest fashion retailer by sales a decade ago, was a “better quality company”, and that the Swedish group may be a “bit slower” at returning to its pre-pandemic profit levels as some customers steer clear of its stores.

H&M’s shares fell consistently from 2015 to 2018, before largely treading water since then, although they have climbed 50 per cent since their Covid-19 low in March last year.

Helmersson, a H&M lifer who joined the retailer in 1997 as an economist, said she started to see “light at the end of the tunnel” after a “very demanding” period. “I have super-high expectations on myself. Adding a crisis on top of that, it’s been a really tough year.”

Now, however, her focus is moving to a critical question for H&M: “Where do we need to move faster?”

Line chart of Total sales growth (%) showing H&M's sales have kept pace with Inditex

Despite being in fast fashion, critics said H&M had become slow, outpaced by nimbler Inditex and online retailers such as Zalando and Asos. Inditex could get new clothes to Zara stores in weeks from nearby manufacturing sites in Europe while H&M, with more sourcing in Asia, took longer. Opening new stores gave the Swedish group an easy path to sales growth but did not help its profit margins, which have been declining consistently for the past decade.

Helmersson said H&M took “really, really fast decisions” at the start of the pandemic on how it bought garments, worked with its supply chain, and moved to selling more online. She pointed to how technology allowed designers, suppliers and the production office to work together at the same time to produce new clothes, rather than waiting for one to send a garment to another.

H&M’s rental service at a store in Stockholm, Sweden
It is ‘difficult to gauge how big’ trials such as clothes rental could become, said the H&M chief © DAVID THUNANDER

“It sounds really basic but if you do that in many processes you can be much faster. You also have data to give you more customer insight, which means you can act much quicker,” she said, adding that accessories can now go from conception to store in a few weeks, T-shirts in six weeks, and trousers in eight.

H&M is also trying to increase its speed on sustainability, bringing in a target of using 30 per cent recycled materials by 2025. Critchlow said that the group was leading the industry in its attempts to become circular, although many voice concerns over how much fast-fashion groups encourage excess consumption. Strong investor demand this month led to H&M reducing the interest rate for its maiden sustainability-linked bond, which was 7.6 times oversubscribed

Line chart of Share prices rebased showing Inditex has outperformed its rival over the past decade

Helmersson, a former head of sustainability at H&M, said that the hardest task for the retailer was decoupling its growth from its use of natural resources. She added that the trials in repairing and renting clothes as well as selling second-hand garments through the website Sellpy, in which H&M is the majority owner, were important but difficult to gauge how big they could become. “We have such a size that we can to some extent influence customer behaviour. But we will also see how willing they are,” she added.

Critchlow said H&M deserved “full credit” for the trials but that they were unlikely to lead to soaring profit margins. She added that the crucial questions were how fast H&M returned to pre-pandemic sales and profit levels and whether it could go further. “It requires H&M to manage the costs of the stores,” she said, adding that renegotiated leases during the pandemic had only helped a little.

There is also a debate about how much increasing online sales — expected to rise from 28 per cent of H&M’s total last year to about 43 per cent in 2025, according to Critchlow — help given that they come with additional costs such as delivery and returns as well as in logistics.

Helmersson is unbowed, arguing that H&M will offer multiple ways for customers to engage with the retailer through various store formats offering different services, online, and its own club. “The customer journey is constantly evolving,” she said. “We will follow, and influence. Before, it was about transactions, now it’s about relationships with customers.”



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How vaccine laggard CureVac hopes to come out on top

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Fifteen years ago, after an hour-long meeting in the basement of a Paris hotel, Bill Gates agreed to back a German entrepreneur who claimed a new class of drug would revolutionise the fight against infectious diseases.

When Covid-19 shook the world last year, CureVac — the company built by Ingmar Hoerr with the help of the Microsoft founder’s money — seemed perfectly positioned to make good on that investment and produce a “best-in-class” vaccine.

It could be ready “by the autumn”, predicted European Commission president Ursula von der Leyen.

But while local rival BioNTech and US competitor Moderna brought to market vaccines using similar messenger RNA technology in less than a year, CureVac’s product is lagging up to six months behind.

Ingmar Hoerr, founder of CureVac © Imago images/ULMER Pressebildage

This is the story of how one of the most promising vaccine makers is trying to get back on track after development delays, the brain haemorrhage of its founder and a bizarre — possibly fictional — attempt by the White House to steal the company away from Germany.

‘America first’ again?

Following a meeting with pharma executives at the White House in early March, German media reported that the Trump administration had sought to lure the company, which also has a Boston base, to the US and secure its vaccine exclusively for Americans.

The news led to an uproar in Berlin, especially after billionaire Dietmar Hopp, CureVac’s lead investor, seemed to verify the reports in a magazine interview. 

Days later, CureVac’s American chief executive Daniel Menichella abruptly left the company, even though the biotech denied an official approach by the US government had ever taken place. The Trump administration also rubbished the reports — in one of the few public rebuttals by the former president’s staff against a reported “America first” policy stance.

Dietmar Hopp, lead investor of CureVac © Getty Images

Amid the turmoil, Hoerr, the company’s founder who had just taken over from Menichella as chief executive, suffered a brain haemorrhage in a hotel room, and relinquished the role again.

Venture capitalist Friedrich von Bohlen und Halbach, who sits on CureVac’s board, told the Financial Times that the Trump tale was probably “made up” by people leaping to conclusions about the presence of a German company at a US government event. 

But the reports were enough to spook European leaders. On March 16, von der Leyen spoke to CureVac’s management via video conference, and then publicly offered the 20-year-old company an €80m loan “to quickly scale up development and production of a vaccine”. 

By mid-June the German government had chosen to invest €300m in CureVac, for a 23 per cent stake, ahead of its flotation on the Nasdaq in August. Economy minister Peter Altmaier left little doubt as to Berlin’s motives: “Germany is not for sale, we don’t sell our silverware,” he told reporters.

Former US vice-president Mike Pence, centre, meets drugmakers last March © Eric Baradat/ Getty Images

Suggestions that CureVac’s investors may have spread the Trump tale to engineer a response from Angela Merkel’s government were strongly denied by people close to the company.

“It was not the plan to get German public money,” said von Bohlen, who first invested in the nascent company in 2004, and whose holding company, Dievini Hopp, created with Hopp, still owns half of CureVac. 

In any case, the company was unlikely to up sticks. When Hopp, a co-founder of tech group SAP, first agreed to invest roughly €2m in CureVac in 2005, he wanted to “make sure that we build infrastructure and new jobs here in Germany”, von Bohlen recalled.

Waiting for data

There was some rationale behind the German government’s investment, however. CureVac, which was developing a rabies vaccine when the Covid-19 crisis began, had more experience with infectious diseases than BioNTech. 

Some scientists also believed that CureVac, which unlike its rival does not chemically modify its mRNA, could end up prompting a stronger immune response.

But an initial readout from phase 1 trials in November damped the high expectations. The data showed that the level of antibodies produced by the vaccine was higher than the average in the blood samples of recovered Covid-19 patients, but appeared to be lower than those produced by the BioNTech and Moderna’s candidates.

However, as each company’s results were measured using different assays and against a different group of convalescent patients, they were not directly comparable, according to Suzanne van Voorthuizen, an analyst at Kempen. “You are always comparing apples with oranges,” she said.

The inconclusive data did not deter the European Commission, which signed a contract to secure 405m doses soon thereafter. Manufacturing deals with Germany’s Wacker Chemie and Rentschler followed in the next few weeks, as well as with France’s Fareva.

CureVac also raised $517m via a share offering and its shares trade more than six times last August’s IPO price. Twice in the last few weeks the company’s market value has surpassed that of Deutsche Bank and now stands at about €16bn.

Line chart of Rebased to Aug 2020 showing Vaccine makers' share prices

“In two years from now, nobody will care any more [about the delay],” said von Bohlen. “Capacity, quality and price — that is what everyone will care about,” he added, predicting that regular vaccinations would be required to protect against virus mutations and that CureVac’s mRNA technology would be ideally suited to that challenge.

An initial readout from large-scale phase 3 trials is expected in March, and although CureVac has given up on pursuing US authorisation, citing market saturation, approvals from the EU regulators will probably come halfway through 2021.

Competitive advantages

Being behind in the race to produce an mRNA Covid-19 vaccine could also end up being a blessing in disguise for CureVac, according to founder Hoerr, 52, who is recovering from his health crisis. He claims time spent perfecting the formulation of its candidate has given its product several competitive advantages.

Unlike vaccines by BioNTech and Pfizer, which currently have to be kept at an ultra-cold -70C while being shipped, and Moderna’s product, which must be kept at -20C, CureVac’s candidate is able to survive in standard fridge temperatures for at least three months, making it much easier to deliver to the developing world. “That’s not a miracle,” said Hoerr. “That is technology. You have to work on that.”

Additionally, at 12 micrograms per dose, it requires the smallest amount of active ingredient among the mRNA vaccines, enabling more efficient distribution.

Bar chart of Covid-19 shots under contract (doses bn) showing Vaccine makers race to supply the world

CureVac, which claims to be able to produce 300m doses this year and a further 1bn in 2022, spent extra time scaling up its manufacturing network.

The positive assessment is shared by pharma giant GlaxoSmithKline, which bought a 9 per cent stake in CureVac in July and earlier this month pledged a total of €150m to develop so-called “next-generation” Covid-19 vaccines with the company to tackle new variants.

The UK government has also agreed to provide CureVac with access to its genomic sequencing expertise. In exchange, the UK will receive 50m doses of the biotech’s jab and permission to use contract manufacturers to produce it in Britain.

“The UK is one of the most advanced countries in understanding mutations and sequencing them,” said Wassili Papas, a portfolio manager at German institutional investor Union, which has a small stake in CureVac. “So for them to choose CureVac, there must be something to it.”

CureVac’s ambitions were given its biggest boost to date in early January, when German pharma group Bayer agreed to help with the production and approval of the Covid-19 candidate — the first foray into vaccine development in the company’s 158-year history.

Bayer told the FT that the agreement was a “one-off” and that the company “just wanted to help”, denying suggestions that Merkel’s administration had pushed for the partnership.

Friedrich von Bohlen und Halbach
Venture capitalist Friedrich von Bohlen und Halbach sits on CureVac’s board © Andreas Riedel

The German government told the FT that it “explicitly does not exert any influence on the operating business of the company via its shareholding”, while von Bohlen said Berlin was first informed by the companies of the agreement after the deal was closed.

Nonetheless, in a government press conference last month, Armin Laschet, the newly elected head of Merkel’s party and the premier of North Rhine-Westphalia, which is home to Bayer, was clear about the deal’s significance.

“We need to recognise how important it is at this moment not to be completely reliant on the global market,” he said, “but also to be able to independently produce in Germany.”

Two weeks ago, CureVac began submitting approval data to the European regulator, and with the first batch of doses secured by the EU, the vaccine could also offer the bloc a chance to repair some of the political damage caused by the much-criticised procurement of the BioNTech and Oxford/AstraZeneca jabs.

If successful, the company built by Hoerr, who has reportedly been nominated for a Nobel Prize, could even eclipse Bayer’s €64bn market value, said von Bohlen, and along with BioNTech, reshape the entire sector.

“MRNA has the potential to become, by orders of magnitude, the broadest therapeutic class in medicine,” he said. “It’s a bit of a revival of the German strength in the pharmaceutical industry.”

The bar chart in this article has been amended since original publication to correct a rounding error



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Amazon given lifeline in Future Group fight after India Supreme Court ruling

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India’s Supreme Court handed Amazon a lifeline on Monday in its fight for the country’s vast retail market by temporarily barring Indian retailer Future Group from closing a $3.4bn deal with Reliance Industries. 

Amazon is racing against time to stop Reliance’s chairman, Mukesh Ambani, from buying up Future’s 1,500 fashion and grocery stores and boosting his ambitious JioMart venture, which delivers daily essentials from a growing network of small shops.

Ambani swooped for the ailing Future Group late last year, after it missed a bond payment and its credit rating was downgraded to “near default”.

The deal has been signed off by regulators and is pending a green light from the National Company Law Tribunal (NCLT) and a vote by Future’s shareholders.

But Amazon alleged that the sale breached a contract it had with a subsidiary of Future that barred Future from selling its retail assets without Amazon’s consent.

An arbitration panel in Singapore called in October for the deal to be put on ice pending a final verdict, and Amazon appealed to India’s Supreme Court to intervene.

On Monday, the Supreme Court agreed the NCLT should not “sanction” the deal until it has heard the case, which is scheduled for March.

Amazon’s fear is that, once Future’s shareholders vote, any legal action will become “irrelevant”, said a source with knowledge of the company. “There is no point in closing the stable door after the horse has bolted,” he said.

The deal would give Reliance, which is already the country’s biggest offline retailer, another national network of stores and brands including Big Bazaar and the gourmet food store Foodhall.

It would strengthen JioMart as a competitor to Amazon, which currently has just under a third of India’s booming ecommerce market, estimated to be worth $86bn by 2024, according to research firm Forrester.

Neil Shah, an analyst at Counterpoint, said that Reliance was racing Amazon to win over millions of mom-and-pop stores. JioMart taps into the 400m users of Reliance’s Jio mobile phone network and has partnered with WhatsApp for payments.

“Reliance getting stronger is direct competition to Amazon,” said Shah. “It’s a battle of technology companies in the end and it’s the data that counts rather than just building a retail channel, it’s a means to an end.” 

Following its Future deal announcement in August, Reliance’s retail arm raised more than $6bn from investors including Silver Lake and KKR for just over 10 per cent of the company. 

Amazon has cast the battle with Future and Reliance as the latest example of the uneven playing field foreign investors face in the country. Its case comes as Vodafone and Cairn Energy are fighting long-running legal disputes over retrospective taxes with Prime Minister Narendra Modi’s government.

But Future argues that Amazon’s contract was with subsidiary Future Coupons — which markets and distributes gift and loyalty cards — not the entire group, so the international arbitrator’s order is not valid and the deal can go ahead.

Its lawyers have likened Amazon to the East India Company and said it was obstructing the transaction “to prevent any competition in the Indian retail market”. 

Amazon acquired a 49 per cent stake in unlisted Future Coupons in 2019, with the right to buy into the flagship company after a few years. Amazon also holds minority investments in More, a supermarket chain, and department store chain Shoppers Stop.

Together with Walmart-owned Flipkart, Amazon commands about 70 per cent of the online market in India. However, India’s regulations currently restrict a foreign company from running online “multi-brand retail” stores, similarly to how Amazon operates in the US. 

Legal experts said Amazon may have invested in Future Coupons to work around the FDI rules and exercise control indirectly, with the hope of eventually being able to invest further if and when the rules change. 

While the legal battle continues over enforcing the international arbitrator emergency order, there is a good chance Future and Reliance will close the deal and come out on top, said Nigam Nuggehalli, law school dean at BML Munjal University in Gurgaon outside New Delhi. 

“When Amazon entered a complex structure at this time, it was already sailing close to the wind,” added Nuggehalli.

“Lawyers are basically arranging contracts to meet the challenges of FDI regulations and tax compliance and things can go wrong,” he said. “When that happens you have cases like Vodafone and Amazon/Future.” 

Future, in deep distress after India’s coronavirus lockdown and in danger of liquidation, has argued that it will collapse if the deal does not go through, putting 25,000 employees out of work.

Future companies, including food-focused FMCG arm Future Consumer and retail infrastructure firm Future Enterprises, have defaulted on debt repayments in the past six months. 

Debanshu Mukherjee, a co-founder of the Vidhi Centre for Legal Policy, said Indian courts would probably consider it important to keep the company alive to save jobs. 

“Courts are also considering whether the company survives and they would look at this factor,” said Mukherjee. “Everything will be worse if the underlying asset loses all its value.” 



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