Roche Weighs In

Plus: Management says AI is here just to do scut work, and we believe them. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 5, 2023

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TOGETHER WITH

Good morning.

What a bunch of softies this new generation is shaping up to be.

Forget the action figures and baby dolls, this holiday toy season is all about stuffed animals, the softer the better. Toy sales are down 8% year-over-year, but plushies are up 4%, growing to $1.7 billion in October, The Wall Street Journal reported. The competition to create the softest product has never been harder. "The average plush might have 300 to 400 threads per inch," David Socha, CEO of Beverly Hills Teddy Bear, told the WSJ. "But ours is 1,000-plus per inch. It's buttery, silky, cloud-soft that is cool to the touch." Cool, but we'll stick with our Red Rider BB gun, thank you very much.

Morning Brief

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Roche wants to rival Wegovy.

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AI can make you partner, even if you're not all that good.

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Some Florida developers aren't battening down the hatches.

Healthcare

Roche Elbows into Weight-Loss Drug Market Via M&A

The weight-loss drug market is starting to get a little bloated.

Conducting R&D by way of M&A, Roche agreed Monday to acquire anti-obesity drug developer Carmot Therapeutics for an appetizing $3.1 billion. It's the latest step in Big Pharma's race to prevent Novo Nordisk's Wegovy from gaining a significant first-mover advantage.

Belly Up

Like many pharma deals, Roche's purchase is more about building a pipeline and investing in potential, and less about the present day. Carmot offers a promising development pipeline of several different weight loss drugs, with its lead drug being a weekly injection that's soon entering the second of three trial phases. That means it's still years away from a potential public debut, though Roche touted results from Phase 1 testing as displaying the drug's "best-in-class potential to achieve and maintain weight loss with differentiated efficacy." That's in addition to a daily injectable, also soon to conduct a second trial phase, as well as a daily-pill version that's in Phase 1 trials. Pills tend to generate more excitement in the biotech world given their ease of use compared to injections.

For Carmot, the acquisition is an abrupt change of plan. It filed for an IPO just two weeks ago, intending to raise $100 million to push its drugs through the remaining stages of the development and approval pipelines. Instead, it played little fish to Roche, which built up a treasure trove of capital selling treatments and testing equipment during the pandemic.

Together, the two will chart a course into a rapidly developing competitive landscape:

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The weight-loss drug market is projected to reach $100 billion by the end of the decade, and everyone wants a slice. Last month, AstraZeneca signed a $2 billion licensing deal with Chinese company Eccogene in hopes that the company's in-development pill version could supplant Novo Nordisk's popular injections.

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Eli Lilly has seen its market cap soar to over a half-trillion dollars this year en route to bringing weight loss drug Zepbound, approved by the FDA in November, to market. Pfizer, on the other hand, scrapped its own weight loss pill last week following unsuccessful trials, after ditching another candidate earlier this year.

Papa Roche: Analysts at Jefferies called Roche's Carmot acquisition "in line with [a] strategy to use balance sheet to rejuvenate pipeline depth," which was depleted by unsuccessful late-stage trials of an Alzheimer's drug. Roche also just dropped over $7 billion in October to acquire bowel-disease treatment developer Telavant. Carmot, meanwhile, marks something of a do-over for Roche, which years ago tried and failed to develop its own weight loss drug. Money can't buy you love, but it does buy innovation.

- Brian Boyle

Artificial Intelligence

Consultancy Firms Are Using AI to Fast-Track Partnerships

The reason your boss is giving ChatGPT all your work is so you can get promoted faster. Really. That's what they're saying.

According to a Bloomberg report published Monday, large consulting and law firms are trying to get junior staffers on the fast track to partner using tools like ChatGPT to tackle the avalanche of grunt work that the newbies typically get buried under during their first years on the job. This comes the same day as a report from Business Insider that argues the largest beneficiaries of ChatGPT's prowess are low-performing employees.

The Great Smoothening-Out

ChatGPT, while a million miles away from the human-like intelligence that its makers say they're steering toward, is nevertheless already having profound effects on the working world. KPMG told Bloomberg that it's handing work to new graduates that it previously would have given three years into their careers, and PwC said it's giving graduates more time to pitch clients instead of the hours it used to make them spend prepping documents for meetings. And these moves aren't originating from young staffers but top brass, as EY's chief innovation officer told Bloomberg: "We are trying to take years off of the time it takes for somebody from when they're hired to when they become a partner."

This is an attractive shift for younglings getting their first taste of corporate life, but Business Insider's Aki Ito argues that AI doesn't necessarily help everyone the same amount:

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Ito analyzed studies in six different areas, including management consultancy and law schools, that largely found AI tools disproportionately benefited low-performers. In the case of the law school students, broad use of ChatGPT-4 actually hurt the grades of students at the top of their class.

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Even if AI does play havoc with our ideas of meritocracy, in all cases overall productivity was raised. The question is whether that translates to higher wages for youngsters suddenly on track for top jobs, or it devalues the whole hierarchy.

One study cited by Ito found that top freelancers on freelancing platform Upwork were squeezed by the arrival of ChatGPT and similar bots. They received 7% fewer job offers and their earnings sank by 14%.

Creative Accounting: It's not just individual employees whose work might receive a boost from AI. EY's assurance managing partner for the UK and Ireland Kath Barrow told The Financial Times that the company has been putting an AI tool to work scouting for accounting irregularities. She told the FT that out of the first 10 companies whose books the AI had a chance to rifle through, it raised question marks over two. Those same clients later confirmed they'd found instances of fraud.

– Isobel Asher Hamilton

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Real Estate

Florida Developers Still See Building Wooden Homes as a Good Idea

(Photo by Josh Olalde via Unsplash)

Sounds like somebody never finished The Three Little Pigs.

All along Florida's waterfront, an area prone to tropical storms with winds that can reach 160 miles per hour, developers are continuing to build cheaper wood-frame homes and apartments, The Wall Street Journal reported.

There's a Storm a-Coming

Even if the world phases out fossil fuels and miraculously reaches net-zero emissions by 2050, reversing climate change will still take some time, which means you might want to think about how to withstand Mother Nature's growing onslaught of hurricanes, tsunamis, and superstorms.

For the most part, Florida's homes and buildings are built with concrete and other structurally sound materials. It's been that way since Hurricane Andrew destroyed more than 25,000 homes in 1992. But despite the growing size and frequency of superstorms, there's been a slight resurgence in wood-frame homes on the Sunshine State's coastline. Why? Because it's a cheaper way to keep up with demand, with more than a million people moving there last year:

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Insurance premiums for wood frames are understandably expensive, but the low price of materials and labor often make up for it. Roughly 1,700 apartment buildings, or 8% of the state's inventory, are made of wood-frame construction, and currently 13 buildings with wood frames and more than 3,700 units are under construction, the WSJ reported.

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In addition to Jacksonville, they're popping up in places like Tampa, and Fort Myers Beach in southwest Florida, where last year Hurricane Ian destroyed 5,000 homes and resulted in the deaths of nearly 150 people.

Timber! Wood frames are sturdier than they once were — new building codes require hurricane-proof windows and stronger connections between wooden planks — but many engineers and architects are still wary. "If you connect it properly, it is strong," Anne Cope of Insurance Institute for Business and Home Safety told the WSJ. "If you don't, it's simply a house of cards." That's one hand you might not want to play.

- Griffin Kelly

Extra Upside

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Messing with Meta: Harvard researcher claims the Ivy League school ousted her for addressing the 'digital harms' of Facebook and Instagram.

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They're lovin' it: You know who's not derisking from China? McDonald's.

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