Weekend Update #79
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
All eyes were on the Fed this week as investors tried to predict what the central bank would do on the heels of a hot headline CPI reading last Friday of 8.6%, which exceeded consensus estimates of 8.3%, and University of Michigan inflation expectations 5-10 years out coming in at 3.3%. The Fed had guided towards a 50 basis point hike at their previous meeting, and on Wednesday they announced they were going forward with a 75 basis point hike as part of their two-pronged mandate of ensuring price stability and maximizing employment.
Markets rallied following the hikes but this wasn’t enough to keep all three major indices from ending the week in the red, furthering their respective downward trajectories. The Dow, S&P and Nasdaq were down 4.79%, 5.79% and 4.79%, respectively, for the week. Year-to-date, the Nasdaq is down 31.5%, the S&P is down 22.8% and the blue-chip Dow is down 17.5%, itself flirting with bear territory.
Elsewhere in financial markets, 30-year mortgage rates approached 6% while the prime rate—the interest rate assessed to banks’ most creditworthy borrowers—edged higher to 4.75%, which will make marginal car loans and credit card debt more expensive to take on.
In the cryptocurrency space, the lending firm Celsius announced last weekend they were putting a pause on withdrawals, swaps, and transfers as they addressed liquidity concerns within the firm. A few days later, Babel Finance became the second major digital-asset lender to take similar actions, saying it is facing “unusual liquidity pressures.” Bitcoin is currently hovering above the $20,500 mark while Ethereum finds itself at the $1,085 price point—levels that represent year-to-date respective declines of 55% and 70% for the digital assets.
You can find more details on the above updates and more in this week’s Blue Room Newsletter.
See more below from Team Leader Omar Guzman.
FOMC Statement
June 15, 2022
Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent (from 3/4 to 1 percent) and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. Patrick Harker voted as an alternate member at this meeting.
Press Conference
Jerome Powell, Federal Reserve Chairman
Good afternoon. I will begin with one overarching message. We at the Fed understand the hardship that high inflation is causing. We're strongly committed to bringing inflation back down and we're moving expeditiously to do so. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two and a half years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.
From the standpoint of our congressional mandate to promote maximum employment and price stability, the current picture is plain to see: the labor market is extremely tight and inflation is much too high.
Against this backdrop, today, the Federal Open Market Committee raised its policy interest rate by three quarters of a percentage point and anticipates that ongoing increases in that rate will be appropriate.
In addition, we are continuing the process of significantly reducing the size of our balance sheet. I'll have more to say about today's monetary policy actions after briefly reviewing economic developments.
Overall, economic activity edged down in the first quarter as unusually sharp swings and inventories and net exports more than offset continued strong underlying demand. Recent indicators suggest that real GDP growth has picked up this quarter with consumption spending remaining strong. In contrast, growth in business fixed investment appears to be slowing and activity in the housing sector looks to be softening, in part reflecting higher mortgage rates.
The tightening in financial conditions that we've seen in recent months should continue to temper growth and help bring demand into better balance with supply. As shown in our Summary of Economic Projections (SEP), FOMC participants have marked down their projections for economic activity with the median projection for real GDP growth running below 2% through 2024.
The labor market has remained extremely tight with the unemployment rate near a 50-year low, job vacancies at historical highs, and wage growth elevated. Over the past three months, employment rose by an average of 408,000 jobs per month, down from the average pace seen earlier in the year, but still robust. Improvements in labor market conditions have been widespread, including for workers at the lower end of the wage distribution as well as for African-Americans and Hispanics.
Labor demand is very strong while labor supply remains subdued with the labor force participation rate little changed since January. FOMC participants expect supply and demand conditions in the labor market to come into better balance easing the upward pressures on wages and prices.
The median projection in the SEP for the unemployment rate rises somewhat over the next few years, moving from 3.7% at the end of this year to 4.1% in 2024—levels that are noticeably above the March projections.
Inflation remains well above our longer run goal of 2% over the 12 months ending in April; total PCE prices rose 6.3%, excluding the volatile food and energy category, core prices rose 4.9%.
In May, the 12-month change in the Consumer Price Index came in above expectations at 8.6%, and the change in the core CPI was 6%. Aggregate demand is strong—supply constraints have been larger and long-lasting [sic] than anticipated and price pressures have spread to a broad range of goods and services.
The surge in prices of crude oil and other commodities that resulted from Russia's invasion of Ukraine is boosting prices for gasoline and food and is creating additional upward pressure on inflation. And COVID-related lockdowns in China are likely to exacerbate the supply chain disruptions.
OVERVIEW
United States Producer Price Index YoY and MoM
PPI is a family of data that gauges the costs of production. There are three areas of PPI classification that use the same pool of data from the BLS: industry, commodity and commodity-based final and intermediate demand (FD-ID).
Finished Goods YoY~ Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.
Final Demand ~ PPI for final demand measures the average change in prices received by domestic producers of goods, services and construction sold for personal consumption, capital, investment, government and export.
Consumer sentiment declined by 14% from May to 50.2, continuing a downward trend over the last year and reaching its lowest recorded value, comparable to the trough reached in the middle of the 1980 recession. All components of the sentiment index fell this month, with the steepest decline in the year-ahead outlook in business conditions, down 24% from May.
Consumers’ assessments of their personal financial situation worsened ~20%.
Forty-six percent of consumers attributed their negative views to inflation, up from 38% in May. — This share has only been exceeded once since 1981, during the Great Recession.
Overall, gas prices weighed heavily on consumers, which was no surprise given the 65-cent increase in national gas prices from last month (AAA). Half of all consumers spontaneously mentioned gas during their interviews, compared with 30% in May and only 13% a year ago. Consumers expect gas prices to continue to rise a median of 25 cents over the next year — more than double the May reading and the second-highest since 2015.
In addition, a majority of consumers spontaneously mentioned supply shortages for the ninth consecutive month.
Michael Cyprys — Goldman, Executive Director & Analyst
All right. Before we get started, for important disclosures, please see the Morgan Stanley
Research Disclosure website at morganstanley.com/researchdisclosures. If you have any
questions, please reach out to your Morgan Stanley's sales representative. I also have been asked to read the safe harbor statement as well.
Before we get started, remind you -- I'd like to remind you to that today's webcast, Brett
might be making forward-looking statements. Actual results may vary materially from
today's statements. Information concerning risks, uncertainties and other factors could cause these results to differ is included in the company's SEC filings. Our discussion today also includes references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on the company's Investor Relations website.
GI Live Keynote - Take-Two CEO Strauss Zelnick and the future of games
Host - Christopher Dring, GamesIndustry.Biz
Speaker - Strauss Zelnick, CEO Take-Two Interactive
Executive Summary
The interactive entertainment business has reached greater heights than pre-pandemic levels, although lower than its shelter-at-home peak
Mr. Zelnick believes that the market has reached a "new-normal" off of which strong growth will occur
TTWO sees small independent publishers as a powerful source for innovation, looking to support them and capitalize off of partnerships with these firms through their subsidiary Private Division
Mr. Zelnick remains skeptical of "metaverse" as a buzzword, and has seen other firms use the market excitement surrounding this entertainment paradigm as a driving force for loftier valuations, sometimes without merit - similar to Web 1.0/Dot-com era companies
Not skeptical of the "metaverse" as a concept for large, interactive virtual worlds, however - TTWO already operates the largest of such platforms in the world with GTA Online, along with other similar environments such as Red Dead Online and 2K Online
Video game industry is all about providing value to the consumer, and that is the single most important catalyst for growth - producers must make exciting, surprising, and entertaining hits to succeed - making good games is the only thing that matters in the interactive entertainment industry
"Arrogance is the enemy of continued success"
Video game streaming (such as with platforms such as Stadia) will not fundamentally change the interactive entertainment business, but has the potential to bring in greater audience - it is a distribution model, not a business model
Subscription gaming models (Xbox Game Pass & PlayStation Plus) are great for catalog properties (extended time-in-market w/ decreased prices) but not as valuable for frontline releases
Publishing new content immediately to subscription platforms restricts key revenue flow from consumers who are looking to play 2-5 titles per month - not comparable to the magnitude of linear streaming
TTWO believes they have the strongest owned IP for console and mobile in the entire interactive entertainment industry with the recent combination with Zynga Inc.
Salveen Richter — Goldman Sachs
Good afternoon, everyone. Thanks for joining us. Really pleased to have Vertex with us today and we have CEO, Reshma Kewalramani. With that, Reshma I'm going to open up to you if you have any opening comments and then we can jump into questions.
Reshma Kewalramani — CEO and President, Vertex Pharmaceuticals
Sounds good. Salveen, thanks so much for the invitation. It's so good to be in person and in real life without a screen in front of us. I wanted to make a couple of opening comments. The first was to say I will make some forward-looking statements and I refer you to our SEC disclosures to look through all of the risks. Maybe just start with Salveen, a couple of points about where we are as a company, Vertex is at a new inflection point today with clear sustained leadership in CF, a pipeline that is broad and advanced with five programs that are now post proof of concept and a balance sheet that is strong and growing and allows us to reinvest in innovation, both internal and external. We are looking forward to this conversation with you and I'm excited to address questions you might have about any of the programs, the strategy or the financial profile.
PBCAR0191: New Cohort vs. ASH Cohort Results
CAR T Relapsed Patient Results (11 Patients Evaluable):
100% Overall Response Rate (ORR)
73% Complete Response Rate (CR)
50% Duration of Response (DoR) Greater Than 6-Months
Since the last update, the 6 patients dosed at the higher dose level 4b (“New Cohort”) demonstrated greater hematologic recovery, reduced grade 3 infection, no cytokine release syndrome (CRS), and limited grade 3 immune effector cell-associated neurotoxicity syndrome (CRS).
CAR T Relapsed Updated Results:
December 2021 (ASH) June 2022
Patients Evaluable 6 11
Overall Response Rate (ORR) 100% → 100%
Complete Response Rate (CR) 66% → 73%
DoR Greater Than 6 Months 50%
Updated PBCAR0191 response rates improved upon Precision’s data from ASH 2021 — due to an increase in cell dose to DL4b as well as implementation of an optimized manufacturing process.
Overall, 6 of the 11 subjects remained in an ongoing response at the time of the update.
How PBCAR0191 Results Stack Up
ORR CR 6-Month CR
Allogeneic CAR Ts:
ALLO-501A (Allogene Therapeutics) 63% 40% 33%
CTX110 (CRISPR Therapeutics) 58% 38% 21%
PBCAR0191 (Precision BioSciences) 100% 73% 17% *In CAR T Relapsed Patients
Autologous CAR Ts:
Breyanzi (Bristol Myers Squibb) 73% 54% 28%
Kymriah (Novartis) 50% 32% 18%
Yescarta (Gilead) 72% 51% 36%
PBCAR0191’s overall response and complete response rates were very strong relative to other data in the CAR T space, and at 6 months, 3 of 6 evaluable patients remained in a response (DoR >6 Months).
Schrödinger at 2022 Jefferies Healthcare Conference
June 9, 2022 at 3:30 PM EST
Moderator: Michael Yee — Jefferies
Speakers: Ramy Farid — President & Chief Executive Officer
Karen Akinsanya — President of R&D, Therapeutics
Ramy, it’s been a bit of a crazy period volatility-wise, but you have a great software business you’ve been executing on. Can you talk about the trends you’re seeing with your software business?
Ramy Farid — President & Chief Executive Officer
Schrödinger had a good quarter, building on a number of other good quarters
The growth is coming from all different areas
Seeing broader adoption from big pharma companies
Seeing growth coming from new companies signing up
Seeing growth in both life sciences and materials sciences
They have seen growth globally, in all territories
There are macroeconomic issues going on, but so far, Schrödinger has not seen an impact from that
That’s always a possibility, but they haven’t seen anything
There’s actually a possibility to see what they saw during the first Covid-19 lockdown: As resources became scare, there became a higher demand to run calculations
The same thing is happening now — There may be budgetary pressures, costs are going up
This is a time when you invest in a technology that is reducing costs
Obviously, Schrödinger is keeping a close eye on it
There are some significant things going on and some uncertainty
People seem to believe that cost-cutting — in small biotechs and globally — you’re actually positive towards that?
Ramy Farid — President & Chief Executive Officer
Exactly
New customers are important, but revenue per customer or experiments per customer is important. How do you see that playing out? What are the drivers between the low end and the high end this year?
Ramy Farid — President & Chief Executive Officer
Now that they’ve been public for a couple of years, they hope investors are used to the seasonality of the business
It’s been like that for a long time
The way the business works is with annual renewable licenses
The quarters where contracts are renewing are going to be bigger quarters
Since they’re tied to pharma budgets, you see much larger renewals happening in Q4 and Q1
As far as usage trends, they are definitely seeing the impact of the past several years of customers adopting the software at some scale
The customers are seeing an impact of their projects
The more calculations they run, the fewer molecules they have to run in the lab, which reduces the time and cost to get to a development candidate
Customers adopted the software in the first place because of the validation that Schrödinger presented to them originally from internal programs and collaborations
Now, they’re starting to experience that themselves
Schrödinger is hopeful that trend will continue
That was one of the big questions last year where Wall Street was still trying to get comfortable with that — because there was no quarterly guidance. People are still wondering when does the acceleration kick in? Because I think the guidance is still the same at 15%
Ramy Farid — President & Chief Executive Officer
Schrödinger is seeing encouraging signs
Obviously, there are potential headwinds given what’s happening with budgets
They are absolutely convinced they are nowhere near achieving the TAM in the software business — not even close
There is an enormous opportunity ahead
It would be dangerous to underestimate the effort it takes to transform the way drug discovery is done in pharma companies
Schrödinger has done that internally
They’ve completely transformed the role of a chemist, the role of a modeler, the role of a structural biologist
That doesn’t happen overnight in a large company with tens of thousands of employees
It’s a little hard to predict when an inflection happens
They are confident in the guidance they gave this year
There are reasons to be optimistic
But there are challenges as well
Two weeks ago, I wrapped up my penultimate year of college and returned home – flying from St. Louis to San Francisco. The two cities are more dissimilar than alike, as the climate, culture and sheer size of the metropolises are vastly different. However, even though the culture shock from transitioning from one city to another always hits me, this past homecoming what I was most surprised of was the difference in gas prices. California boasts a nation-wide high of $6.34/gallon – more than 15% greater than the runner-up, Nevada, coming in at $5.49. At my local gas station in St. Louis, gas comes in at a mere $4.59/gallon – a nearly 40% difference. Missouri is in the bottom quintile in terms of gas prices by state. However, even $4.59 seems outrageous given the monthly average for national gas prices hovered around $2.40 at the beginning of 2021. Frankly, given the recent spike, I would not be surprised if I saw someone take inspiration from Fred Flintstone and break out the Flintmobile.
However, putting aside the specifics of gas prices, and its various economic and political bases, the underlying commodity behind gas prices is directly contributing to this meteoric rise in prices at the pump. Focusing on crude through the lens of West Texas Intermediate, the price of crude has increased more than 55% year-to-date.
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Curious Visions Toward Abstract Photography
Through June 19, 2022
Spanning more than 2,800 square feet on the sixth floor of the Martin Building, the new Delisa & Anthony Mayer Galleries nearly double the space for photography in the museum and will be a place to see regular rotations of work from the permanent collection and beyond.
The inaugural two-part exhibition, Curious Visions: Toward Abstract Photography, explores experimentations with abstraction from the past 100 years. Approximately 60 works are featured, spotlighting historical images by photographers including Berenice Abbott, Eliot Porter, Man Ray, Aaron Siskind, Edward Weston, and Minor White alongside contemporary artworks by Gary Emrich, Jungjin Lee, Laura Letinsky, Alison Rossiter, and others. The exhibition encourages viewers to identify different ways of thinking about abstraction, and to understand techniques that artists have used to explore that aspect of photography.
The new galleries also incorporate opportunities for visitors to engage and rethink their relationships to photography in daily life. An interpretive area, "Through the Lens," explains how cameras work and how different lenses affect the way pictures look. Visitors can look through replica box cameras and watch a video presentation that dives into the work of the abstract photographer Aaron Siskind. Additional prompts inspire visitors to experiment and capture their own images both in the galleries and beyond.
Martin Building, Level 6
Included in general admission
Related Events
June 21, 2022 - 6 pm–7:15 pm
Making Pictures: Women Photographers from the DAM CollectionBehind the Camera: Women in Photography Summer Course Session 2
July 19, 2022 - 6 pm–7:15 pm
Women Photographers Here and NowBehind the Camera: Women in Photography Summer Course Session 3
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