E Pizza And Profits

The NY Times food section today focused on how to bake superior bread, appropriate for the end of Passover which idled this blog earlier this week. We stuck it out although my granddaughter, 11, could not live a whole week without pizza. Having already given up bacon and lobsters, Jews recall the exodus from Egypt by spending a week (8 days in the diaspora) without leavened bread.

Tomorrow I will ponder the outlook for gold. Today we have too much catch-up to do. Here is a perspective on the market shared by two mentors-followers:

Michael Kurtz of Nomura (Hong Kong) writes:

"Not only are the tarnished Biotech, Electric Vehicle, and Internet darlings at the centre of the latest pullback0 much smaller as a percent of the NASDAQ market cap (<25%) than were the original [AD2000] tech bubble's main characters (>75%), but their descent into disfavour also has not been accompanied by material stree or de-risking in other key markets: US high-yield credit spreads; emerging and frontier markets), or periferal European sovereign credits. Moreover, US equity sector correlations have remained reassuring lo9w (sub-70%) rather than spiking toward GFC [global financial crisis] highs (of ~90%). What happens in New Growth largely stays in New Growth." 
FIC Capital Inc. of NYC writes:

"Contrary to some market pundits, we do not view the current market pullback as presaging a larger correction to come or a broader slowdown in the economy given that the selloff has been concentrated among just a few sectors." (My CFA son works at FIC.)

 More (much more) follows from Britain, Switzerland, Hong Kong, Israel, Panama, Sweden, Italy, Ireland, Canada, Finland, Denmark, Colombia, and Mongolia.

*As most readers are aware of by now, a major trading of assets between British GlaxoSmithKline and Swiss Novartis was announced yesterday. GSK will give up its oncology arm to the Swiss firm which is specializing in cancer drugs, making the unit's research and marketing less costly, and giving GSK a nice pool of up to $16 bn ($14.5 bn up front and the rest milestones). GSK is well-down in the race for oncology meds, no. 17 according to the Financial Times. Cancer drugs contributed only ~4% to GSK profits according to Dow Jones. The NVS deal is an exit strategy.

Meanwhile GSK will acquire NVS's vaccines unit for $7.1 bn, again the weaker drug firm pulling out for a budding specialist. Moreover, the two firms will combine their ~$11 bn sales consumer healthcare line in a new jv GSK will control--and which it may buy Novartis out of.

The deal is complex but it also marks a change in how drug companies operate. The all-sector pharma company model of Jean-Pierre Garnier at GSK and Daniel Vasella at NVS has been abandoned in favor of specialization. Sir Andrew Witty, whom I have criticized here for failing to enforce ethical drug selling standards post-Garnier has at last come up with a major strategy change, to seek competitive advantage rather than to be all things to all men. The GSK stock rose 4.5% yesterday on the news. Panmure Gordon raised GSK two ranks from hold to buy yesterday. Fitch said neither firms' ratings would be affected by the deal.

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