After months of negotiations 24 member states signed up to the amended contract. Poland and Hungary did not support the new deal, while Romania is expected to sign next week. The holdouts had complained that it was not a good use of stretched healthcare budgets, given the fading threat from Covid-19. 

This story originally appeared on: Financial Times - Author:Javier Espinoza

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Good morning. It’s a big day for the EU defence sector. Member state ambassadors will try (again) to find a deal on how to spend €1bn on procuring artillery shells for Ukraine, with France and Germany divided over how non-EU companies can contribute.

European investment into the Chinese car sector surged to a record high of €6.2bn last year, more than three times investment in other sectors, as European carmakers warn that cutting ties would be “unthinkable”.

Competing views

An American economist with ties to Big Tech is poised for a top job in Brussels. But not everyone is happy with that prospect, writes Javier Espinoza.

Context: One of the most influential positions in the EU single market is the chief competition economist, who has the ear of the European Commission on all matters of economic policy and can potentially block mammoth mergers.

Fiona Scott Morton is a lead candidate for the role, according to multiple people with direct knowledge of the matter. The Yale professor was a top figure during the Obama administration.

But civil society groups, including the Open Markets Institute, an anti-monopoly coalition, have written to Margrethe Vestager, the EU’s executive vice-president in charge of competition, with a number of concerns.

One of them is that Scott Morton did consulting work for corporations such as Apple and Amazon. The “proximity to Big Tech firms will hamper her ability to enforce the EU’s competition laws neutrally and effectively against them,” the groups write in their letter.

They also noted that not being an EU citizen could raise questions over Scott Morton’s selection process and wondered why another EU candidate without conflicts of interest was not selected.

The letter also takes issue with how she sees competition, notably her support of “maximising the output and sales to consumers at the lowest prices possible, ignoring other actors and issues affected by concentrated economic power, including workers, small businesses, the environment, democracy and the wider public interest.”

A person close to Scott Morton defended her record by saying the consulting work she has done for Big Tech ended two years ago and there may not be conflicts of interest.

Scott Morton and the commission declined to comment.

What to watch today

1. EU commission presents proposals on anti-corruption initiatives and ammunition production.

2. EU employment and social affairs ministers in Stockholm for an informal meeting.

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This story originally appeared on: Financial Times - Author:Javier Espinoza

Brussels wants the ability to act swiftly to manufacture vital treatments across the bloc during health crises such as Covid-19. The draft proposal from the European Commission and seen by the Financial Times is part of a sweeping reform of pharmaceutical regulation that has already unnerved the industry, and could change before publication on Wednesday.

However, ‘t Hoen noted that a “general”, EU-wide compulsory licence system was still missing. She said the powers should be expanded so it could be used outside of extraordinary situations, for example to prevent a crisis, counter high prices or provide life-saving medication.

Sergio Napolitano, general counsel at lobby group Medicines for Europe, said the increase in voluntary licensing agreements during Covid, for example between rival manufacturers, had proved to be the right tool to strike a balance between innovation and access.

This story originally appeared on: Financial Times - Author:Javier Espinoza

Illumina could make the case that it had already done so with its existing technology. It provided the machines that in 2020 decoded the genetic sequence of the virus that causes Covid-19, enabling researchers to develop vaccines and drugs in record time.

Surging demand for its technology and a pandemic-era biotech investment boom caused the market capitalisation of the company — which has an 80 per cent share of the sequencing market — to peak at about $75bn in August 2021.

Analysts say the bad news is prompting investors to question the company’s strategy of buying Grail, which Illumina forecasts will generate an operating loss of $670mn in 2023 on revenues of $90-110mn. Illumina shares are hovering near five-year lows and it is now worth $33bn.

Dan Brennan, analyst at Cowen, an investment bank, said many investors are not “fans of the deal” and it came up in almost every conversation he had with them.

He said Illumina has over the past decade been an attractive, high-growth investment because it sells its sequencers at high prices (up to $1.25mn each) and has recurring revenues from the reagents and other products required to operate them. Grail is a riskier business because it is burning lots of cash and there is uncertainty about whether its technology will be a commercial success, said Brennan.

Twelve years ago, the process cost around $10,000. Illumina’s benchmark in 2020 was around $600 but it plans to reduce this to $200 with its new machine.

Another early-stage company Ultima Genomics has said it can cut sequencing costs to $100. MGI, which was spun out from BGI last year through an IPO, has begun selling its sequencers in the US market following the expiration of key Illumina patents last year.

“Illumina has really been dominating the market for more than a decade and customers need competition,” said Molly He, a former Illumina executive who is chief executive and founder of Element Biosciences.

She said Illumina started offering Element customers big discounts when the company entered the market last year. But Element has also benefited from increased interest in its products from Grail competitors that use DNA sequencing, she added.

“They [customers] are obviously worried about what is going to happen after Illumina acquires Grail: would they still have access to high quality, low cost sequencing?”

Illumina said discounting was a standard business practice and rejected any suggestion that its ownership of Grail would influence its relationship with customers of its DNA sequencing business. But this was a key concern highlighted by European authorities when they blocked the Illumina/Grail merger.

Vijay Kumar, analyst at Evercore ISI, an investment bank, said it was a “big, bold and aggressive” move by Illumina to acquire Grail because Illumina was paying $8bn for a company with very little revenues at the time. But the decision to close the Grail acquisition despite opposition from Brussels was a gamble, he said.

“Francis bet big on this,” Kumar said. “Ultimately the buck has to stop with the CEO.”

This story originally appeared on: Financial Times - Author:Javier Espinoza

Illumina plans to take the EU to court on the grounds that the bloc’s regulators have no jurisdiction over a merger that involves two US companies, and in which where the target has no revenues in Europe, two people with direct knowledge of the move said.

An administrative law judge ruled in favour of the deal in the US last week, a blow to the US Federal Trade Commission’s attempt to unwind the deal.

The company will point to the US ruling, which the FTC has appealed against, as evidence that Brussels is making a mistake in opposing the transaction.

Regulators in Brussels are keen to use this merger as an example of the expanding reach of the EU’s power. A court in Luxembourg recently ruled the EU had jurisdiction to scrutinise the deal despite opposition from Illumina. It is very rare for regulators to arrive at opposing views on clearing a merger.

This story originally appeared on: Financial Times - Author:Javier Espinoza

Illumina, a gene sequencing company, said in a statement that it had “received a favourable decision” from the judge presiding over the case, who had “rejected” the agency’s argument that the deal would hurt competition in the nascent market for early cancer detection tests.

“As we’ve stated from the outset, this transaction is procompetitive, will advance innovation, lower healthcare costs and save lives. We are pleased that, after considering the evidence, the [judge] has reached the same conclusion,” said Charles Dadswell, general counsel of Illumina.

That would set the stage for a battle in federal court, where judges almost never block companies pursuing so-called vertical mergers.

This story originally appeared on: Financial Times - Author:Javier Espinoza