Partner Payout

Pfizer has a new project ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 21, 2022

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TOGETHER WITH

Good morning.

If you have the feeling it's going to be a very long day, you're right. It's June 21, the Summer Solstice and the longest day of the year (if you live in the Northern Hemisphere, that is). In northwestern Seattle, for example, the sun will be up for 16 hours today.

But also, because it's Seattle, the forecast calls for cloudy weather. There's a reason they invented grunge.

Morning Brief

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Pfizer handed a cash injection to its lead partner in developing a Lyme disease vaccine.

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Marketing budgets fall victim to the crypto crash.

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The big winners of an Ernst & Young breakup could be Ernst & Young partners.

Biotech

Pfizer Buys Stake in French Lyme Disease Jab Partner

There is currently no available vaccine for Lyme disease, the tick-borne infection that, while rarely fatal, can leave patients with debilitating side effects for months.

On Monday, Pfizer took a $95 million, 8.1% stake in French vaccine developer Valneva to reset the terms of an alliance to develop the first Lyme disease shot in two decades.

"Yuppie Vaccine"

Only one Lyme disease vaccine, GlaxoSmithKline's LYMErix, has ever been approved by the US Food and Drug Administration. But its commercial rollout in 1998 was a bigger failure than New Coke. Lyme was seen as a concern for snooty vacation home owners, a panel of experts convened by the Center for Disease Control even dismissed LYMErix as a "yuppie vaccine" for people who "shop at L.L. Bean."

Despite a lack of clinical evidence, a class-action lawsuit over the vaccine's perceived negative side effects led to more bad publicity. LYMErix sales fell from 1.5 million doses in 1999 to 10,000 in 2002, after which it was pulled from the market. Pfizer and Valneva enter a totally different world:

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Lyme disease is a "yuppie" concern no more. A bacteria transmitted by tick bite, it can cause rashes, facial paralysis, and arthritis, and about 476,000 Americans are diagnosed and treated every year — something the CDC says indicates "the need for more effective prevention measures."

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Pfizer's deal gives Valneva a cash injection to take its Lyme disease candidate, VLA15, closer to market. The French company will shoulder 40% of development costs, up from 30% under a previous agreement, but will also be eligible for $100 million in milestone payments from the new vaccine — which will enter late-stage trials this year.

One Jab to Another: Ironically, Valvena is focusing on its Lyme jab because its Covid vaccine failed to catch on, with the UK and EU calling off procurement orders due to its lower efficacy as a booster compared to established shots like... Pfizer's (which is expected to do $32 billion in sales this year). One day your enemy, the next day your friend.

Cryptocurrencies

Crypto Companies are Slashing Ad Budgets Amid Dire Market Wipeout

It's been a harrowing few weeks for anyone tracking the Nasdaq or the S&P 500. But look to the land of cryptocurrencies — once touted by some evangelists as safe haven from the volatile world of centralized banking — and you'll find a state of play that's equally precarious.

One figure, in particular, tells the story: ad spending. Four months after buying multimillion-dollar Super Bowl ad slots, major crypto firms are punting on their campaigns.

Misfortune Favors the Brave

Bitcoin's price has plummeted 70% since Matt Damon declared "Fortune Favors the Brave" in an October 2021 commercial for exchange marketplace Crypto.com, and 60% since the company paid $700 million for the naming rights to the Los Angeles Lakers' home stadium. In fact, since Bitcoin's all-time peak in November last year, the broader crypto-economy has witnessed a nearly $2 trillion market wipeout.

Unfortunately for celebrity endorsers like Damon and Lakers star LeBron James, crypto marketing budgets are shrinking like digital token valuations:

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Since Bitcoin's November peak, overall digital ad spending by major crypto firms like Coinbase, Gemini Trust, and FTX Trading has dropped even more than the price of bitcoin itself — at least 90%, market-research firm Sensor Tower told WSJ on Monday.

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Crypto.com's ad spending is down from $40 million during the Super Bowl lead-up in January to $2.1 million in May; Gemini's is down from $3.8 million in November to under $500,000 in May. Coinbase reined in its ad budget after its $31 million "floating QR code" Super Bowl spot, but slightly upped spending last month to mock crypto doomsayers (bitcoin has fallen nearly 50% since May 4).

Regulators, meanwhile, are preparing perhaps the final death knell for this era of crypto ad spending: a recent PSA campaign from the SEC is warning amateur investors of heeding advice from celebrity crypto endorsement.

The Bit Short: One financial firm — the Bethesda, Maryland-based ProShares — is now effectively allowing investors to bet against the bitcoin craze, with its Short Bitcoin Strategy ETF soon to trade on the NYSE. Hey Matt Damon, how do you like them apples?

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Auditing

Ernst and Young Partners Looking at Millions If Firm Splits

"Breaking up is hard to do," sang heartthrob crooner Neil Sedaka in 1962, clearly unaware of life as an Ernst & Young partner in 2022.

According to internal plans obtained by The Wall Street Journal, a proposed split of the professional service company's audit and consulting businesses could net millions for the company's partners. They're calling it a divorce made in heaven.

Crunching the Numbers

The big accounting firms — Deloitte, PricewaterhouseCoopers, KPMG, and Ernst & Young — have come under intense pressure in the US and the UK. Regulators are particularly keen for them to square how they deal with conflicts of interest when selling consulting services to companies while also claiming to be independent auditors of companies' finances.

UK regulators fined EY £2.2m last year for failing to scrutinize transport group Stagecoach and are also investigating its audits of hospital group NMC Health and investment firm London Capital, both of which went bankrupt amid fraud claims (EY is being sued by NMC's administrators for $2.7 billion). To get a jump on the regulatory pressure, last month EY partners began drafting plans to split the company in two:

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EY's consultants, who advise companies on taxes, deals, and spending, would comprise a new firm that goes public, with 15% of the company sold for $10 billion while it borrows $17 billion, according to a version of the proposal viewed by the WSJ. Partners would own 70% of the company and the remaining 15% would go to stock awards for employees.

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A huge chunk of the money raised and borrowed through the IPO would be used to pay off the partners at EY's accounting business, which would become a standalone auditing firm. They would each get two to four times their annual pay of $850,000 to $900,000.

The new consulting firm would inherit some 60% of EY's $42.5 billion in projected revenue for the 2022 fiscal year, with the rest going to the audit firm. The split and IPO could come late next year.

Independence Day: EY plans to make a "go or no go" decision in principle about a split before the July 4 weekend, according to the WSJ. Here's guessing some executives will be working the long weekend.

Extra Upside

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A company offering NFT-backed loans — yes, NFT-backed loans — just raised $8 million.

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