Larrrryyyy

MARKETS

• Brexit: U.K. Labour Party Leader Jeremy Corbyn signaled that he would support a new Brexit referendum. Of course, there’s a big hill to climb before another vote would take place.
• U.S. economy: Ask a bunch of business economists when they think the next U.S. recession will begin and...three out of four will respond, “By the end of 2021.”

PHARMA

Big Pharma Faces the Music

And it’s less Natasha Bedingfield than it is Alice in Chains. Seven major drug executives will testify in a highly anticipated Senate hearing today, where they’ll attempt to defend the exploding cost of prescription drugs in the U.S.

Who’s on the guest list? Top brass from Pfizer, Merck, AstraZeneca, Johnson & Johnson, Bristol-Myers Squibb, AbbVie, and Sanofi will face Senate Finance Committee Chairman Chuck Grassley (R-IA) and his merry band of inquisitors.

What to expect: First, questions from a rare united front of lawmakers on both sides of the aisle. And in response, as the WaPo puts it, “a corporate version of a ‘devil made me do it’ argument.”

Here’s that argument

A common line of defense for drugmakers argues the industry is trapped in a malfunctioning reimbursement system. That system allegedly forces companies to hike prices then offer deep discounts (in the form of rebates) in order to win the goodwill of insurance businesses.

The stats are staggering, regardless of who’s to blame.

• Recent estimates suggest total U.S. prescription drug spending will grow 60% from 2019 to 2027 to reach $576.7 billion.
• A vial of insulin that cost under $200 a decade ago now goes for about $1,500. Osteopetrosis drug Actimmune costs $350/month in Britain...and $26,000/month in the U.S.

According to Rx Savings Solutions, drugmakers will “push back against the idea that drug price hikes really go to their bottom line.” Fyi, though it’s lagged behind the broader market so far in 2019, healthcare was the best-performing major S&P 500 sector last year.

Bottom line

Drug pricing is already a major issue for 2020, and reforming this industry might be the only thing President Trump and his political foes on the left can agree on. That and fireworks on July 4th.

So, could it be time for Big Pharma to have its Big Tobacco moment? We’ll find out—tune in to C-SPAN at 10:15 am ET.

LIFE SCIENCES

Wait, GE Has a Biopharma Unit?

Well...not so much anymore—it agreed to a $21.4 billion deal to sell most of the business to the life-sciences conglomerate Danaher (+8.43%).

The sale’s a giant leap for General Electric (+6.39%) CEO Larry Culp in his effort to pay down debt and transform the company, which has more baggage than you logging on to Hinge post-breakup.

• Over the last two years, a GE stock wipeout knocked more than $200 billion off its shareholder value. Tack on over $100 billion in debt and...well, you get the picture.

That’s why GE has made an effort to focus on just two sectors: aviation and power. Shedding this biopharma unit fits into Culp’s master turnaround plan, right alongside selling GE’s stake in oilfield services provider Baker Hughes and divesting from GE Transportation.

• The unit headed to Danaher has been one of GE’s fastest-growing, with its $3 billion in annual revenue representing about two-thirds of total sales at GE’s life sciences business.

Speaking of which...Culp’s other turnaround play was an IPO of GE Healthcare. But GE announced yesterday that will take the back burner while execs focus on this sale.

DEALS

The Dominoes Kept Falling on Merger Monday

If it wanted to hog the spotlight, GE picked the wrong day to make a big deal. Let’s recap some of the other M&A activity on a busy Monday.

1) Hello, Newmont. Barrick Gold (-3.30%) offered $17.8 billion for rival Newmont Mining to create a gold mining—choose your descriptor—“behemoth,” “juggernaut,” or “industry leader.”

• There are a couple of hurdles, though. The hostile bid represents an 8% discount to Newmont’s share price as of Friday’s close. Plus, Newmont (-1.04%) already made plans to buy Goldcorp, a deal that would have to be ripped up in order for Barrick to swoop in.

2) JAB, the owner of Panera and Keurig Dr Pepper, is getting into pet care. It agreed to buy a majority stake in Compassion-First Pet Hospitals (now valued at $1.22 billion).

• Because that Mediterranean diet and reconstructive surgery? Not just for homo sapiens anymore. And people spending more on their pets means more entrants into the space...just ask Mars about its recent acquisitions.

BANKING

Farewell, Merrill

Bank of America (-0.08%) is dropping the name Merrill Lynch from some of its businesses more than a decade after it bought the firm in a fire sale during the ‘08 financial crisis. Weird timing—we thought double names were back in style.

• The details: Say goodbye to the Merrill Lynch name on Bank of America’s trading and investment banking operations. Look out for a rebrand of most of BofA’s wealth management biz as simply “Merrill.”

Zoom out: Bank of America’s move illustrates how far it's come from the crisis era, when it was too concerned with rebuilding to be bothered with PR. But given record net income last year, BofA has the flexibility to break out the moodboards for a little branding refresh.

Still, it’s the end of an era for Mother Merrill. The bank—known for its “thundering herd” of brokers—had been the rare exception of a crisis-era acquisition whose name didn't disappear (RIP Wachovia and Bear Stearns).

Our question: Now that eager 21-year-old finance majors can’t explain to their parents that their investment banking internship is with BAML (‘bæm-‘mʌl), what will they say now? Bofa?

TECH

Meet Facebook’s (Reportedly Miserable) Content Moderators

We all know that Facebook (+1.69%) has recently beefed up its content review workforce in the face of criticism.

But have you thought about what its 15,000 moderators do? According to a new report from The Verge, these outsourced workers are paid $15/hour to watch potentially gruesome videos so that when you pull up your FB feed...you don’t have to.

And per The Verge’s interviews with employees at one particular vendor (called Cognizant), it’s a highly stressful, mentally demanding environment where marijuana and alcohol use are common. Workers are permitted nine minutes a day of “wellness time.”

What does Facebook have to say? In a Monday blog post, VP of Global Operations Justin Osofsky emphasized how quickly the company has scaled its content review teams but admitted, “there’s a lot we still need to do.”

Zoom out: Could better technology be the answer? FB touts AI as a way to flag harmful content, but we still don’t know whether it’ll ever effectively replace human moderators.

WHAT ELSE IS BREWING

• The SEC asked a judge to hold Tesla (-5% after hours) CEO Elon Musk in contempt for violating its settlement. This is about that Feb. 19 tweet of an inaccurate production forecast.
• Roche, the Swiss drugmaker, is buying biotech Spark Therapeutics for $4.3 billion (rain check on including you guys in the M&A section).
• Indra Nooyi, the former CEO of PepsiCo, has joined Amazon's board.
• United Airlines and Delta confirmed that some seat-back screens contain inactive camera lenses. You need to fly premium economy for the privilege, though.
• Sunday night’s Oscars had 29.6 million viewers, a 12% increase from last year. That snaps a four-year ratings losing streak.

BREAKROOM

Profit or Loss
We’ll name a company. You have to decide whether it posted a profit or a loss last quarter.

1. Snap
2. Blue
3. Spotify
4. Tesla
5. Berkshire Hathaway (just to make sure you were reading yesterday)

Breakroom Answers