PHARMA

Drugmakers Enter an Era of Lower R&D Spending Amid Regulatory Pressures and Patent Cliffs

Code Red: Pharma budgets are bleeding, and there’s no immediate remedy in sight. After becoming one of the hottest trades during COVID, drugmakers now face one of the most challenging environments in nearly a decade. They’ve taken a page out of tech’s cost-cutting playbook, hoping to put themselves back on track after a wild ride.

Pharma pullback: Years of hefty research and development (R&D) investments have pharmaceutical companies pumping the brakes. Charles River Laboratories ($CRL), which helps companies develop new drugs, noted that large firms are scaling back on research spending — a move CEO James Foster called “unusual” and “sudden.” And this is just one part of the broader cust-cutting sweeping the industry.

• Over 14K biopharma jobs have been culled this year — mostly in sales and R&D, with firms prioritizing outsourcing and reducing management roles.

• Companies like Pfizer ($PFE) and Bristol-Myers Squibb ($BMY) are embracing cutbacks ahead of expected revenue declines later this decade.

These Cuts Are No Surprise To Pundits…

A perfect storm of changes, including new legislation, slowing sales, and an incoming patent cliff, forces companies to adapt. Many major drugs are about to lose their 20-year exclusive selling rights — opening up the market to generics and putting $200B+ of industry revenue at risk. Researchers have also warned that companies would cut R&D as the Inflation Reduction Act opens up drug price negotiations, potentially impacting earnings and innovation.

• Earlier this year, Bristol Myers warned that the IRA “will have a serious impact on future innovation for patients” after a judge tossed out their lawsuit challenging the price-cutting initiatives.

• However, the Foundation for Research on Equal Opportunity argues that profits from big pharma companies often don’t lead to new discoveries — instead claiming that smaller startups generate most new drugs.

Forward-looking: Pharma companies might scale back on expensive clinical research and drug trials for now, but they’ll eventually have to pay up to replace drugs that go generic. Analysts predict a surge in mergers and acquisitions as major drugmakers use their cash reserves to buy promising new treatments, particularly in areas like cancer. Others, like Amgen ($AMGN) and Eli Lilly ($LLY), are pouring more funds into weight-loss drugs. Even Big Pharma isn’t immune to chasing shiny new objects.

PARTNERED WITH STANSBERRY RESEARCH

50-year Wall Street Veteran Shares AI Masterkey

If you’re investing in AI stocks, you’ll want to check out this tool. Designed by 50-year Wall Street vet Marc Chaikin, its tech is used by both Bloomberg and Reuters — here’s why: The Power Gauge can analyze over 10 different fundamental and technical signals, and then uses those signals to give stocks a rating of “bearish,” “bullish,” or “neutral.”

• In 2023, it isolated multiple breakout AI stocks.

• One of these was Meta — before it went up 100%.

• And it found Nvidia in 2020, before it went up over 1,800%.

So why is it important now?

While AI mania is in full swing, some popular AI stocks are starting to show alarming technical and fundamental signals. They could soon lose 5%, 10%, or even more of their value. Protect your portfolio from AI stock crashes.

Get access to the Power Gauge here

LARGECAP RECAP

📺 Warner Bros. Discovery Faces More Trouble After $10B Quarterly Loss

No, this isn’t “Midsommar” or “Sinister” — it’s just another nightmare quarter for entertainment titan Warner Bros. Discovery ($WBD). And this time, the HBO parent company had analysts and investors running scared. Amid an increase in cable cutting and falling ratings, WBD took a $9.1B impairment on its cable business — representing the lion’s share of the company’s $9.98B quarterly loss.

• The damage comes after a review of its cable portfolio — including CNN, Food Network, and HGTV, among others — revealed diminishing value.

• Making matters worse, the company’s failure to secure renewals for its TNT channel in the NBA’s new media rights deal has created even more disruption in its portfolio.

Shareholder value destroyer: CEO David Zaslav acknowledged that the media landscape has changed significantly since the WarnerMedia and Discovery merger in 2022, valued at $43B. Today, the whole company is worth less than half of that — with its stock down 90% from its peak to an all-time low. As a result, the company has told investors that it might consider strategic alternatives. CFO Gunnar Wiedenfels stated on the quarterly earnings call, “You shouldn’t be surprised to see us engaging in partnership discussions.”

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Markets & Economy

Labor market shows resilience: Weekly jobless claims fell to 233K, below expectations, easing concerns about a weakening job market. However, continuing unemployment claims rose to 1.9M, the highest since Nov. 2021. The overall upbeat report sparked a futures rally. [Read]

Coca-Cola faces $6B tax bill: A US court ruled Coca-Cola ($KO) owes $6B to the IRS over profit shifting to overseas subsidiaries. The beverage giant plans to appeal, arguing that the IRS and the tax court misinterpreted regulations. [Read]

Mortgage rates hit 15-month low: The average 30-year fixed rate dropped to 6.47%, potentially reviving the sluggish housing market and easing the homebuyer burden. However, high home prices and low inventory continue to challenge affordability. [Read]

Business & Wealth

Bumble swipes left on near-term growth: Dating app Bumble ($BMBL) announced a strategic reset to improve customer experience and monetization, even if it means short-term losses. While Q2 revenue grew 3% annually, niche dating apps are gaining ground. [Read]

Ken Griffin bets big against cannabis: Hedge fund billionaire Ken Griffin is contributing $20M to oppose Florida’s Amendment 3, which would legalize recreational cannabis. Griffin argues it would create a monopoly for large dispensaries, plus increase crime and addiction. [Read]

Costco tightens membership rules: Costco ($COST) is introducing membership scanners at store entrances nationwide to crack down on card sharing. The bulk retailer is also raising membership fees by $5 and $10 for standard and executive memberships, marking the first increase in seven years. [Read]

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DIGIT OF THE DAY

Homeowners Who Invested in Clean Energy Upgrades Received $8.4B in Tax Credits from the IRS in 2023

Going green saves both the planet and your wallet, thanks to Uncle Sam’s tax credits. Last year, Americans claimed $8.4B in tax breaks for clean energy upgrades — surpassing government projections for their first full year. This increase in claims comes after the Inflation Reduction Act, signed by President Joe Biden in 2022, extended these credits for ten years and increased their value.

• Over 3.4M US households took advantage, receiving an average of ~$5.1K for residential clean energy and $882 for energy-efficient home improvements.

• The states with the highest claims included California, Florida, and New York, where popular upgrades included solar panels, heat pumps, and energy-efficient water heaters.

Tax privilege: Despite the popularity of these credits, only 2.5% of taxpayers utilized them in 2023. Additionally, 66% of the total tax credits disproportionately benefited those with higher incomes. AnnDyl Policy Group’s Saul-Rinaldi noted this imbalance is largely due to their nonrefundable nature. And to benefit from tax credits, you need to owe taxes — so higher earners with bigger tax bills reap more rewards.