A federal judge sentenced John Kapoor, the founder of the opioid manufacturer Insys Therapeutics, to five and a half years in prison Thursday for his role in a racketeering scheme that bribed doctors to prescribe a highly addictive opioid and misled insurers.
The case had been closely watched because it represented a rare criminal inquiry into the practices of a drug company that aggressively sold painkillers while the nation was in the grip of a deadly opioid epidemic that killed thousands of people in the last decade.
Beth Wilkinson, a lawyer for Mr. Kapoor, declined to comment on the sentencing but said she planned to appeal.
Federal prosecutors have said that Insys, based in Arizona, embarked on an intensive marketing plan — including paying doctors for sham educational talks and luring others with lap dances — to sell its under-the-tongue fentanyl spray, Subsys, which was federally approved to treat patients with cancer.
Doctors were urged to write prescriptions for a much wider pool or patients, and to mislead insurance companies so they would pay for the expensive medication.
In court Thursday, Mr. Kapoor said he had created the company in part because he witnessed the suffering of his wife, who had died of cancer. “I wanted to believe in Subsys perhaps too much,” he said. “I never wanted Subsys to be prescribed to patients who did not need it.”
Judge Allison D. Burroughs of Federal District Court in Boston also sentenced other former Insys executives this week for their roles in the scheme. They included the former vice president of sales, Alec Burlakoff, 46, of West Palm Beach, Fla., who was sentenced Thursday to 26 months in prison and three years of supervised release.
In November 2018, Mr. Burlakoff — who once so enthusiastically peddled the product that he dressed in a Subsys costume as part of a promotional rap video — pleaded guilty to one count of racketeering conspiracy and agreed to cooperate with the government.
On Wednesday, the judge sentenced the company’s former chief executive, Michael L. Babich, 43, of Scottsdale, Ariz., to 30 months in prison and three years of supervised release. In January 2019, Mr. Babich pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud and one count of mail fraud, and agreed to cooperate with the government.
Other executives who were sentenced included Sunrise Lee, a former regional sales director, who was sentenced to one year and one day in prison; Joseph A. Rowan, another former regional sales director, who was sentenced to 27 months in prison; and Richard M. Simon, a former national director of sales, who was sentenced to 33 months in prison. A former vice president, Michael J. Gurry, was sentenced to 33 months in prison earlier this month.
After its former executives were found guilty, Insys agreed to pay $225 million to settle federal fraud charges and to divest of Subsys, and then it filed for bankruptcy.
Gabrielle Emanuel contributed reporting.
Is Technology Subsuming Marketing?
Data suggests that the importance of marketing in organizational hierarchies has declined, especially compared to functions like engineering, technology, and innovation. The authors previously found that U.S. companies’ advertising expenditures decreased from 1% of total expenditures in 1975 to 0.8% in 2017. In new research, they looked at the top leadership of S&P 1500 firms, and found a dramatic decline in the number of chief marketing officers (CMOs) in the group of top five compensated officers of a firm from 1999 to 2017. Meanwhile, the number of officers representing information or technology in the top five highest-paid category increased.
Last year, we published an analysis showing that U.S. companies’ advertising expenditures decreased from 1% of total expenditures in 1975 to 0.8% in 2017. We concluded that the importance of marketing must have been reduced in the organizational hierarchy, especially compared to, say, engineering, technology, and innovation. (R&D expenditures increased from 1% to 8% in the same time frame.)
Many scholars and practitioners wrote to us arguing that marketing is much more than advertising spend. It was a fair point. Unfortunately, marketing expenses, as opposed to advertising outlays, are not typically disclosed by firms, making it hard to examine the importance of marketing over time based on reported expenditures.
So we turned to another data set: the top leadership of S&P 1500 firms. When we looked at the top five compensated officers of a firm between 1999 and 2017, we found a dramatic decline in the number of chief marketing officers (CMOs) in this top rung — about 35%. Meanwhile, the number of officers representing information or technology in the top five, highest-paid category increased, and now far exceeds the number of CMOs. Because compensation typically reflects an executive’s seniority in an organization, our data suggests that the importance of CMO in the organizational hierarchy has declined, which supports our earlier assessment that marketing as a function is less valued today than it once was.
We found several potential explanations for these trends. One is that the number of tech firms has increased over time, while the number of firms in other industries, such as retail and manufacturing, has declined. Both retail and manufacturing sell physical products and rely heavily on the traditional 4P marketing principles (product, price, promotion, and place).
Another explanation is that marketing itself has changed. Customers now spend an increasing percentage of their income on software-based services that are created, priced, and distributed over the internet. They also get more information about products and services from online sources — bloggers, online reviews, influencers — than from watching advertisements. Advertisements themselves are now instantaneously placed in browsers based on customer data. So the application of the 4Ps today requires more constant experimentation and dynamic decisions (not to mention algorithms, data scientists, econometricians, and big data experts), instead of the well-thought-out and stable policies that are recommended by extensive market research. As a result, IT must play an increasingly important role in marketing, and the importance of the person who looks at marketing from the technology lens must have increased over time. On the flip side, a marketing person who doesn’t understand technology must find it difficult to keep his or her job. One could even argue that marketing is getting merged into the IT function or outsourced to companies such as Google Marketing Platform.
Another explanation is that the technology-oriented founders do not fully appreciate the importance of marketing and underinvest in the function. Many of the leading brands today, such as Google, Microsoft, Amazon, and Facebook, were created by technology prowess. Compare this strategy to the advertising-based brand creation strategy of past successful brands such as Coca-Cola and Nike. It is noteworthy that among Apple, Microsoft, Google, Facebook, and Amazon, the top five most valuable brands identified by Forbes magazine, only Microsoft had a CMO that appears in the list of top five paid executives in 2017.
Yet another possibility is that firms increasingly acquire brands instead of developing them organically. This is evident from the increasing pace of mergers and acquisition transactions. Recall Microsoft’s acquisition of LinkedIn, Facebook’s acquisition of WhatsApp, and Google’s acquisition of YouTube, in multi-billion-dollar deals. This trend might explain the growing importance in the organizational hierarchy of the CFO, who negotiates the acquisition and the integration strategy of the target and arranges financing.
Whatever the definitive explanation, our findings indicate that the importance of CMOs in the organizational hierarchy has declined while that of CTOs has risen dramatically. Our findings should interest board of directors, CEOs, and IT, marketing, and human resources departments, as they consider their future staffing, compensation, and promotion policies. Perhaps it’s time to stop considering marketing and technology as two isolated departments and encourage closer collaborations between them.
Coronavirus latest: Luxury goods makers braced for €40bn hit from outbreak
English school closes after pupils return from Italy ski trip
A fee-paying school in Cheshire, northern England, has said it will close for the rest of the week after pupils returned from a ski trip in northern Italy.
Richard Pollack, headmaster of Cransley School, wrote on its Facebook page that he had been called by NHS clinical services who advised him to ensure that pupils and staff who visited Bormio in Italy last week should self-isolate.
I have decided, in discussion with the SMT and the Chair and Vice-Chair of Governors, to completely minimise possible spread of infection and close the school for the remainder of the week.
During this time, the school will be able to conduct a deep clean, and monitor the results of tests amongst those pupils who are currently showing flu-like symptoms.
He did not say that any of the pupils had contracted the Coronavirus.
Italian authorities said earlier on Tuesday that the country now has 283 cases of the virus following a sudden outbreak in the north.
There have been seven deaths so far, with all of these being elderly people.
No. 10 rejects suggestions UK travel advice contradictory
Downing St has rejected suggestions that Britain is issuing contradictory advice to travellers intending to visit Italy in the wake of the coronavirus outbreak, reports George Parker in London.
The UK’s chief medical officer on Tuesday said that anyone returning to Britain from parts of northern Italy on lockdown because of the virus outbreak must self-isolate.
But the Foreign Office has not advised Britons to stop travelling to Italy; the only place to which it has advised against travel is the Wuhan province of China.
“We are guided by the advice of medical experts,” Downing St said. “Travel advice is kept constantly under review.”
Matt Hancock, health secretary, said people with flu-like symptoms who had been north of Pisa should stay at home for 14 days.
The advice also applied to anyone who recently returned from Italy’s quarantined towns even if they had no symptoms, he said.
Stocks recover some of today’s losses
Global stock markets have stabilised within the past hour yet still show few signs of rebounding from Monday’s wave of selling.
The Stoxx Europe 600 index, a benchmark of the region’s biggest companies, was recently 0.4 per cent lower, having earlier shed as much as 1.1 per cent. On Wall Street, futures tied to the S&P 500 indicated modest rises at the open, a day after one of the largest sell-offs since the financial crisis.
Croatia confirms first case of virus
Valerie Hopkins reports from Budapest:
Croatia has confirmed its first case of the novel coronavirus.
Premier Andrej Plenkovic said that the patient was a young man with mild symptoms who had been in Milan from February 19-21.
Mr Plenkovic told a news conference:
The patient is in the Zagreb clinic for infectious diseases…He is in isolation and his condition is good at the moment.
On Sunday night, Croatia introduced health checks for people arriving from the Italian regions of Veneto and Lombardy in addition to previously instituted checks for travelers arriving from China and South Korea.
The director of the Croatian Public Health Institute said there is a plan to introduce similar checks for people arriving from Italy’s Emilia-Romagna and Piedmont regions.
Croatian airports said they were taking all necessary precautions to protect passengers against infection, including rooms for medical checkups. Croatia Airlines told local media it would not cancel or restrict flights to Rome.
Singapore imposes restrictions on arrivals from virus-hit parts of Korea
Stefania Palma reports from Singapore:
Singapore has implemented new travel restrictions on South Korea similar to those it rolled out for Wuhan, Hubei and other parts of mainland China.
New visitors with recent travel history to Cheongdo county and Daegu city will not be allowed to enter or transit through Singapore, said Lawrence Wong, co-chair of Singapore’s coronavirus taskforce.
Singaporean citizens, permanent residents or long term pass holders returning from these two regions will be placed on “stay-home notice” for 14 days, during which they are not allowed to leave their residence.
Starting from February 26 at 11:59pm, all work pass holders with travel history to Daegu and Cheongdo in the last 14 days will require the ministry of manpower’s approval before starting their journey back to Singapore. They will then be placed on a 14-day “stay-home notice”.
“If the virus were to spread beyond these two regions, and we see broader transmission of the virus in the community, we will impose more stringent measures for the whole of the Republic of Korea,” said Mr Wong.
Singapore has reported 90 confirmed cases.
Austria reports first coronavirus cases
Sam Jones reports from Zurich:
Austria has confirmed its first two cases of Covid-19, the disease caused by the coronavirus outbreak.
Two 24-year old men have been isolated in a hospital in Innsbruck after testing positive for the disease, the governor of Austria’s mountainous Tirol region, which lies across the Alps from the centre of the Italian outbreak, confirmed to state media on Tuesday.
Governor Günther Platter said a dedicated isolation unit at Innsbruck would be established in anticipation of further diagnoses.
Both identified cases are said to be mild. At least one of the two men was recently in Lombardy, according to the Austrian media.
Austria’s minister of health, Rudolf Anschober, is attending a crisis meeting in Rome today of health ministers from countries bordering Italy to co-ordinate cross-border measures in the EU to fight the virus.
UAE bans all air traffic with Iran on deepening virus concerns
Simeon Kerr reports:
The United Arab Emirates has banned all air traffic with Iran as fears grow about the spread of the coronavirus across the Gulf.
The civil aviation regulator said on Tuesday passenger and cargo flights to and from Iran would be suspended for at least a week. The move followed an earlier decision communicated to airlines to suspend flights to Iran with the exception of the capital, Tehran.
On Monday, the Arab Gulf states of Bahrain, Kuwait and Oman all announced their first cases of the virus, drawn from travellers returning from Iran, where an outbreak started last week.
In the early hours of Tuesday, Bahrain suspended flights to and from Dubai and Sharjah, both of which are popular transit points for Shia Muslim pilgrims travelling to the Islamic republic.
Bahrain’s eight confirmed cases – which include four Saudi nationals – had returned to the tiny Gulf kingdom from Iran via Dubai.
Dubai, the world’s busiest airport in terms of international travellers, is an important travel hub for Iranians. The UAE has confirmed 11 cases, three of whom have recovered.
Dubai’s Emirates and Abu Dhabi’s Etihad airlines are among few international carriers that still serve Beijing airport.
Trump: Virus ‘under control’ in the US
President Trump has said his government has the outbreak of the coronavirus “under control” in the US, which has seen comparatively few cases.
Speaking in New Delhi during an official visit to India, the president said the disease is “very well under control” and that, as far as he knows, people with the illness in the US “are all getting better.”
The US has reported 53 cases, and has quarantined some of its citizens that had been on the cruise ship Diamond Princess off Japan.
Italy confirms 283 cases of the virus
Miles Johnson in Rome reports:
Italian authorities said the latest number of confirmed infections was 283 by midday local time. This includes 212 in Lombardy, 38 in Veneto, 23 in Emilia Romagna, three in Lazio, three in Piedmont, two in Tuscany and one each in Trentino and Sicily.
There have been seven deaths so far, with all of these being elderly people.
Epidemic is ‘globalisation game changer’, says French finance minister
The coronavirus epidemic is a “game changer for globalisation” because it shows the world needs to reduce dependence on China for supplies of medical ingredients and other products, France’s finance minister said, reports Victor Mallet in Paris.
“It shows the imperative need to relocalise a certain number of activities and to be more independent in a certain number of supply chains,” Bruno Le Maire said in Athens on Tuesday after meeting his Greek counterpart Christos Staikouras.
“The best example is health and medicines,” Mr Le Maire said. “We cannot continue to depend at the level of 80 or 85 per cent on active ingredients for medicines that are made in China. That would be irresponsible and unreasonable.”
Big pharmaceutical groups have been trying to reduce their dependence on China.
France’s Sanofi said on Monday it would spin off its active pharmaceutical ingredients business into a separate company by 2022 to create a “new industry champion” that would help Europe ensure adequate supplies and prevent drug shortages.
Mr Le Maire said he had recently launched a study of France’s industrial dependence on China in sectors such as medicines, vehicles and aerospace with a view to making the country less vulnerable to supply disruptions.
By Monday night, France had no recorded patient suffering from the coronavirus – although one 80-year-old Chinese tourist had died earlier from the disease in a Paris hospital. Authorities were asking anyone arriving from China, parts of east Asia and northern Italy to monitor their health and limit contact with others.
Olivier Véran, French health minister, said on Tuesday the epidemic was “at the gates”, but he added that there were no plans to close the border with Italy or to cancel the Uefa Champions League football match between Lyon and Juventus scheduled for Wednesday in Lyon.
Turkey repatriates 132 citizens from Iran
A special flight bringing Turkish citizens from Tehran has landed in Ankara, the Turkish health ministry said on Tuesday.
Turkey has closed its borders with Iran after an outbreak of coronavirus in the country, reports Laura Pitel in Ankara. Turkish Airlines, the national flag carrier, has halted flights to and from all Iranian cities except Tehran.
Fahrettin Koca, Turkey’s health minister, said 132 passengers and crew were on board the flight to Ankara. They will be transported to hospital and kept under watch for 14 days, he said.
Here’s the statement on Twitter.
Turkey has not yet reported any cases of the virus, which has been detected in neighbouring Iraq and Iran.
Brussels tells EU staff in locked down Italian towns to self-isolate
Mehreen Khan reports from Brussels:
The European Commission has warned its staff working in so-called “red” areas affected by Covid-19 in Italy – 11 towns mainly in the north of the country – to remain in quarantine by staying and working from home for two weeks.
Today, Brussels health commissioner Stella Kyriakides travels to Italy and will convene a meeting of health officials from Italy, Austria, and other affected countries.
The virus outbreak has led to some governments putting additional border checks inside the Schengen passport-free area on the grounds of public health.
An EU commission spokeswoman today said it was “too early to say whether measures related to the borders will be taken” during the meeting with officials and Ms Kyriakides.
Trump confident China will get outbreak ‘under control’
Amy Kazmin reports from New Delhi:
US President Donald Trump on Tuesday expressed confidence that China would get the coronavirus outbreak “under control,” and called yesterday’s stock market plunge something that “nobody would have ever predicted.”
Speaking in India – where he is on a two day visit, Mr Trump said he had spoken to China’s President Xi Jinping, and said he expected the Covid-19 outbreak would be reined in.
“They are working very hard. If you know anything about him, I think he’ll be in pretty good shape,” Mr Trump said, after a meeting with Indian CEOs. “They’ve had a rough patch, but it looks like they are getting it under control.”
“It is a problem that is going to go away,” he said.
He also said the US was well-prepared to prevent a coronavirus outbreak, noting that his administration had just sought funds from Congress to help bolster its own preparations for another outbreak and help other countries.
“We want other countries to be happy, and healthy and well.”
International spread a ‘game-changer’ for markets
This week’s sharp moves in stock markets from Milan to Seoul have come as investors reassess the potential economic damage from the coronavirus, and as the disease spreads in countries thousands of miles from the source of the outbreak in China.
Analysts at ING said the international spread of the virus is a “game-changer” for investors who had hoped the economic impact of the virus would largely be contained to China and its immediate neighbours.
European stocks slide as virus fears return
Stocks are sliding across Europe, as fresh concerns over the spread of the coronavirus ripple through markets. The losses follow one of the most significant global sell-offs since the financial crisis on Monday, as investors moved out of risk assets and sent stocks tumbling.
• The Stoxx Europe 600 was recently 0.8 per cent lower, adding to Monday’s losses of more than 3 per cent. The index was down as much as 1.1 per cent in mid-morning dealings.
• Spain’s Ibex fell more than 1.4 per cent, following news a hotel on the Canary Islands has been quarantined after an Italian doctor tested positive for coronavirus.
• Italian stocks slipped 1.2 per cent and have now lost more than 6 per cent of their value so far this week, with new cases reported in the country on Tuesday.
Luxury goods brands brace for up to €40bn coronavirus hit
Persis Love writes:
Luxury goods makers are set to face a €30bn to €40bn hit to their revenue as the Covid-19 outbreak has caused sales in China to grind to a “sudden stop”, according to a new survey of industry executives.
Top executives polled by Alliance Bernstein and Boston Consulting Group said they expected the coronavirus epidemic to shave 9 to 11 per cent from luxury groups’ overall sales, with earnings dented by around 13 per cent.
“Sales in Greater China have ground to a sudden stop and the lack of travelling Chinese are holding back sales in Asia and in Europe,” said Alliance Bernstein. Chinese nationals account for greater than a third of the revenues of luxury goods companies, the investment manager said.
Overall, Alliance Bernstein has cut its sales forecast for luxury goods makers by 6 per cent on average, “with a heavier cut for companies more exposed to Chinese nationals or hard luxury [generally defined as watches and jewellery].” It added that most of the executives it surveyed expected revenues to reach “pre-crisis” levels by next year.
Shares in luxury goods companies have fallen sharply since the extent of the outbreak in China became apparent in mid-January. MSCI’s global gauge of luxury and apparel groups has dropped 12 per cent since January 17.
Canary Islands hotel quarantined after Italian guest tests positive
A hotel on the Canary Islands has been quarantined after an Italian doctor tested positive for coronavirus.
The man was confirmed to have been infected after being tested at a local hospital yesterday, causing local authorities to activate a coronavirus health protocol.
In a statement on Monday night, the Canarian government said the man had been put into isolation and that further testing would be carried out in Madrid.
Iran confirmed cases rise to 95
Najmeh Bozorgmehr reports from Tehran:
Iran’s health ministry has confirmed 15 people have now died in the country from the novel coronavirus, with a total of 95 people testing positive for the disease.
This is an increase from Monday’s figures, which showed 12 people had died out of 61 infected.
The rise in infection numbers means Iran now has the fifth most confirmed cases of the disease globally, overtaking Hong Kong and Singapore, but remaining behind mainland China, South Korea, Italy and Japan.
It has suffered the second most deaths, after China, which was already the case on Monday.
Iraqi street protests called off
Chloe Cornish in Beirut reports:
The arrival of the coronavirus may force a halt to demonstrations in Iraq, which has been roiled by mass protests since October.
Iraq’s new prime minister designate Mohammad Tawfiq Allawi has been trying to corral political parties into agreeing on a cabinet, after the protests brought down the previous administration. Government-formation in Iraq is characterised by horse-trading by political parties, with many positions informally designated for different sectarian groups in an attempt to share power between Iraq’s diverse communities.
As a deadline for government formation comes later this week, Muqtadr al-Sadr, Iraq’s best known populist politician who commands a massive street following, had called for marches to protest Iraq’s sectarian political quota system. But the cleric called off the rallies on Tuesday, telling supporters: “Leave it for the sake of your health and your lives”.
Iraq’s ministry of health has said the public should avoid large gatherings, Reuters reported. The ministry has also ordered restrictions on travellers from countries who have suffered the outbreak, including temporarily closing border crossings with its neighbour Iran and halting the return of Chinese oil-field workers.
Four more coronavirus sufferers have been diagnosed in Iraq, the health ministry said on Tuesday, in the country’s northern Kirkuk province. All the patients are members of a family who had visited Iran, and are the first Iraqi nationals to be discovered with the virus. It brings total cases to five.
UK instructs travellers from quarantined Italian towns to self-isolate
The British government has placed travellers returning from the locked-down northern Italian towns in the same category as those coming to the country from the Wuhan, where the virus originated, instructing them to shut themselves off from the public even if they lack symptoms.
Public Health England has classified the roughly 10 northern Italian towns that have been put under containment measures as “Category 1” areas — alongside Wuhan city and Hubei province in China, Daegu and Cheongdo in South Korea, and all of Iran. This means people returning from there “should immediately self-isolate, even if asymptomatic, and call NHS 111 to inform of recent travel”.
The rest of northern Italy has been classified as “Category 2”, meaning travellers from there who develop symptoms should self-isolate and report themselves to the health authorities. It is the first European location to be added to the 14-member list, which includes the likes of China, South Korea, Japan and Thailand.
The classifications come as the number of people infected in Italy has risen to 232, the third highest level of infections of any country globally, after China and South Korea.
The symptoms outlined by Public Health England include coughing, fever and shortness of breath.
Outbreak hits SMCP profits and prompts capital markets day delay
Paris-based SMCP said the coronavirus outbreak has knocked its sales and profits over the past month as the group of affordable luxury brands was prompted to delay its capital markets day until after the summer.
Shares in the Paris-listed group, which is part-owned by Chinese textiles group Shandong Ruyi, were on track for an all-time low on Tuesday as they fell more than 10 per cent in early trading. The shares have shed almost 40 per cent this year.
SMCP said the virus outbreak that began in China has had a “material negative effect” on Chinese shoppers since January 29, which has led to a “significant” impact on its sales and profits.
A “meaningful part” of the group’s stores in mainland China and Macau has been closed since January 29, with others open on reduced hours, the French group said on Tuesday.
SMCP said on Tuesday it had generated a strong performance in the first three weeks of January in mainland China. That corroborates with its full-year earnings report in which it recorded about a 30 per cent rise in China sales, with an “outstanding performance” in mainland China.
The French group postponed its capital markets day to September 30 from April 2.
“We have put in place a global team to monitor the situation on a daily basis, with the key priority of ensuring the safety, health and protection of our employees and our customers,” said chief executive Daniel Lalonde.
While we cannot predict the duration of the crisis, we have been taking appropriate measures to mitigate the impact on our business. Beyond this, I remain fully confident in our strategy, the strength of our brands and their potential in China.
Global cases pass 80,000
Confirmed cases of the novel coronavirus have continued to rise, with the number of people infected worldwide pushing past 80,000 overnight.
Steve Bernard, Interactive Design Editor, has charted the latest figures:
European stocks move lower
There was only a brief respite for European stock markets this morning, which have moved lower for the day less than an hour after the open.
The Stoxx 600 index was 0.1 per cent lower, taking its losses for this week to 3.8 per cent. Italy’s FTSE MIB index – which fell around 5 per cent on Monday – shed another 0.5 per cent.
Investors tiptoe back into riskier assets
Safe-haven assets including government bonds and gold have slipped in early European trading, as investors tiptoe back into riskier parts of the market. Still, the moves have barely unwound Monday’s sharp market activity.
“Overnight it seems that there has been a bit of a pause for breath,” strategists at Rabobank said.
• The yield on the 10-year US Treasury note rose less than one basis point to leave it hovering near all time-lows at below 1.4 per cent. Yields move inversely to prices.
• Gold fell 0.7 per cent to $1,650 per troy ounce, but is still trading near seven-year highs having risen more than 8.5 per cent so far this year.
• The US dollar fell slightly against a basket of global currencies.
World bank’s pandemic bonds sink as coronavirus spreads
Persis Love writes:
Investors are betting that a pandemic bond issued by the World Bank in 2017 will pay out relief funds to developing countries for the first time, due to the high death toll from the coronavirus, according to a story by the FT’s Anna Gross.
The bonds, which are designed to help developing nations deal with a serious outbreak of disease, were issued in two classes – the riskier bond requires the disease to cross an international border with a death toll of at least 20 in the second country before a payout is made. The other tranche will trigger a payout if fatalities in developing countries outside mainland China, where the virus originated, reach 2,500.
The “Tranche B” bonds are currently trading at 57 cents on the dollar, suggesting a payout is likely. While the less risky bond has maintained its value, investors suspect a decrease in its nominal value is on the cards.
So far, the death toll outside mainland China has reached 34 – 12 in Iran, eight in South Korea, five in Italy and four in Japan. In China, almost 2,600 deaths have been recorded
Read the full story here.
European stocks open higher
European stocks opened higher, recouping a fraction of Monday’s significant losses.
The regional Stoxx 600 index rose 0.5 per cent in the early minutes of trading, but is still trading lower for the year after coronavirus fears swept through global markets in the previous session.
Italy’s FTSE MIB nudged 0.5 per cent higher, after losing 5 per cent of its value in its worst day since 2016 on Monday.
Japanese hot spring inn goes broke as Chinese tourists fade away
A sharp decline in Chinese tourists has prompted the operator of a decades-old seaside hot spring inn to file for bankruptcy, the first Japanese company to do so on account of the impact of the coronavirus outbreak, writes Kana Inagaki in Tokyo.
Fujimiso, a 64-year-old midsized inn based in the central Japanese town of Gamagori, plans to close down its business after a number of Chinese tourist groups cancelled reservations last month in the wake of the spread of Covid-19, according to credit research firm Tokyo Shoko Research.
A lawyer for the inn said effects from the coronavirus outbreak triggered some of its financial woes, which included a cash shortage from 2013. The group had been pinning its turnround on rising demand from Chinese tourists.
Arrivals from China rose 14.5 per cent from a year earlier, accounting for 30 per cent of the tourists that visited Japan in 2019, according to the Japan National Tourism Organization.
Stocks recover some of Monday’s slide
Global stocks were set to recoup some of their heavy losses on Tuesday, a day after spiralling concerns over the spread of the coronavirus sparked one of the heaviest market sell-offs of the past 10 years.
Futures pointed to gains of just under 1 per cent for European and Asian stocks, following a largely steady session in Asia. The yield on the US 10-year Treasury rose two basis points off the previous session’s near-record lows, as investors cautiously exited the safety of government debt. Japan’s Topix was a significant underperformer in Asia though, catching up from a day’s holiday and falling more than 3 per cent as a panel of experts warned that the country is on the brink of a rapid increase in cases.
The S&P 500 erased its gains for the year with a drop of 3.4 per cent on Monday, while the Dow Jones fell more than 1,000 points, as cases of the virus from Italy to South Korea dashed hopes that the outbreak has been contained.
UAE halts most flights to Iran
Simeon Kerr reports from Dubai:
The United Arab Emirates has temporarily suspended air traffic with Iran, except for the capital Tehran, as Gulf states boost efforts to stem the spread of the coronavirus.
Dubai International Airport in a statement on Tuesday said the ban, following a directive from the civil aviation regulator, would be in place until further notice, with passengers arriving from Tehran subject to thermal screening.
The move comes after Bahrain earlier on Tuesday barred flights from Dubai and Sharjah in the UAE for 48 hours over coronavirus fears.
Bahrain, Oman and Kuwait on Monday reported their first cases in travellers returning from the Islamic republic, where an outbreak of the virus has been centred on the holy city of Qom.
Flydubai, the emirate’s low-cost airline, in a statement on Tuesday said it would suspend flights to the cities of Isfahan, Lar, Mashhad and Shiraz. Its twice-weekly flights to the capital Tehran will continue.
There are no direct flights from Bahrain to Iran, so many Bahraini Shia Muslims travelling to pilgrimage sites in the Islamic republic, such as Mashhad, often travel via Dubai and Sharjah.
Flydubai and Sharjah’s Air Arabia have networks that extend beyond the capital of Iran. Dubai’s main carrier, Emirates, only serves Tehran.
Italian minister calls for EU budget flexibility over virus outbreak
Italy’s deputy economy minister, Laura Castelli, has suggested the EU could offer the country some extra latitude with its budget targets if the coronavirus outbreak causes substantial damage to its economy, according to a Reuters report.
The Italian economy contracted 0.3 per cent quarter on quarter in the final three months of 2019 — the steepest decline in six years. Economists have said that the global impact of coronavirus could drive a further contraction in the current quarter.
Speaking on Italian radio this morning, Ms Castelli said:
There are resources that the EU can give us in relation to economic events that could lower GDP considerably. We hope we won’t need it but it’s a situation in which the EU should.
US raises South Korea travel warning to highest level
US health authorities have warned Americans to avoid all but essential travel to South Korea after the number of cases of coronavirus in the east Asian country approached 900.
The Centers for Disease Control and Prevention has put a so-called level 3 travel advisory rating on South Korea, which is its highest level of cautionary warning.
The CDC said in a notice:
CDC recommends that travelers avoid all nonessential travel to South Korea. There is limited access to adequate medical care in affected areas.
Here, the FT’s Edward White and Katrina Manson provide more context on the spread of the virus in South Korea. As well as warning its citizens not to visit its long-term Asian ally, the US may also scale back the military drills it runs with South Korea that serve to buttress Seoul’s defences against possible attack by Pyongyang.
Europe: what you might have missed
A panel of Japanese government experts has warned the country is on the brink of a rapid increase in coronavirus cases after 160 infections were confirmed in 16 prefectures, leaving authorities puzzled as to their origins. Read more here.
US stock futures rebounded slightly following the worst day for global stocks in two years on Monday and most Asian markets steadied, although shares in China fell on concerns over the government’s recent handling of the outbreak.
Donald Trump has asked Congress for $2.5bn to combat the spread of coronavirus in the US.
Chinese health authorities reported 71 new deaths from coronavirus to the end of Monday and 508 new cases of the virus. Read more about when case counts and politics collide.
Hong Kong’s economy will be hit harder by coronavirus than during the 2003 Sars outbreak, according to economists at Standard Chartered, with the lingering effects of recent social unrest reducing the chances of a sharp rebound in activity.
Filming of the latest Mission Impossible in Venice has been put on hold after the coronavirus spread to Italy, where a number of sequences were set to be shot.
Hong Kong extends school suspension to April 20
Nicolle Liu reports from Hong Kong
Hong Kong has extended a school suspension until at least April 20 as the coronavirus outbreak shows no obvious signs of slowing down, Kevin Yeung, the secretary for education announced.
Further assessment is needed to decide the actual class resumption date Mr Yeung said, adding that his bureau is considering the option to resume classes in stages. Classes were suspended in early February in a bid to prevent the spread of coronavirus.
However, the city’s university entrance examinations will keep to the original schedule and will start on March 27. Special measures will be implemented, including distributing surgical masks to all candidates and arranging desks to ensure a suitable distance between pupils.
Bahrain suspends flights from Dubai
Simeon Kerr reports from Dubai
Bahrain on Tuesday suspended all flights from Dubai and Sharjah in the fellow Gulf state of the United Arab Emirates for 48 hours as it seeks to stem the spread of coronavirus.
The tiny Gulf monarchy on Monday reported its first case from someone who had travelled back from Iran, where an outbreak of the virus has been centred on the holy city of Qom. Kuwait and Oman also reported cases from travellers returning from the Islamic republic. Iran’s land borders have been closed and many neighbours have suspended flights.
Dubai, home to the world’s busiest international airport, is an important hub for travel into China, Asia and Iran. Sharjah’s low-cost airline also serves four airports in Iran.
The United Arab Emirates has reported 11 cases of the virus, three of whom have recovered. The federation of seven emirates has banned citizens from traveling to Iran and Thailand in the wake of outbreaks there.
Bahrain’s aviation regulator also called on all citizens and residents who are in countries affected by the virus to contact the authorities before returning to the tiny Gulf kingdom.
Kuwait has suspended flights to South Korea, Italy and Thailand, where there have been significant outbreaks.
The Gulf state has also banned entry to expatriates who have in the past two weeks visited these countries. Kuwaiti nationals returning from those countries are being put into isolation at medical facilities.
‘Mission: Impossible 7’ filming paused as virus spreads across Italy
George Hammond reports from Hong Kong
The spread of the coronavirus is now causing issues for Hollywood. Paramount Pictures, one of the world’s biggest movie studios, has paused shooting for Mission: Impossible 7 after the virus spread to Venice, where a number of sequences were set to be shot.
The outbreak in Italy has led to 229 cases and seven deaths. Authorities have quarantined a number of towns in the north of the country and cancelled the final two days of the Venice carnival.
Paramount, which is owned by ViacomCBS, said in a statement that it was altering the production schedule of Mission: Impossible, which stars Tom Cruise, out of “an abundance of caution for the safety and well-being of our cast and crew”.
The studio had already pushed back the release date of another of its films, Sonic the Hedgehog, in China as a result of the virus. Since announcing worse-than-expected fourth-quarter results last week, the share price in ViacomCBS has dipped 25 per cent, from $35.7 to $26.9.
Japanese experts warn over spread of coronavirus cases
Robin Harding reports from Tokyo
Japan is on the brink of a rapid expansion in coronavirus cases and the next 1-2 weeks will be decisive in preventing it, a panel of government experts has warned.
“We’re at the crossroads,” said Shigeru Omi, director of the Japan Community Heathcare Organisation, at a press briefing. “Local transmission is already going on.”
The warning came as the number of domestic infections rose to 146 – excluding cases on the Diamond Princess cruise ship or evacuees from Wuhan – with patients in 16 different prefectures of Japan. In numerous cases, the source of the infection is not clear.
The panel of experts recommended moving from a strategy of keeping the infection out altogether to containing it and slowing its spread. It no longer makes sense to test everybody who might have been exposed to Covid-19, they said, as doing so would overwhelm the healthcare system.
Instead, Japan is asking anybody who catches a cold to stay at home and isolate themselves, only seeking medical help if they suffer severe symptoms or a temperature above 37.5° Celsius for more than four days.
“The biggest objective of our response from this point should be to control the speed of the infection’s spread and minimise the number of deaths and people with severe symptoms,” said the expert panel.
Trump asks Congress for $2.5bn to combat coronavirus
Brendan Greeley reports from Washington
The White House said on Monday that it would formally ask Congress for $2.5bn in supplemental funding to combat the spread of coronavirus in the US.
If approved, the money would pay to develop and manufacture vaccines and treatments for patients in the US, as well as protective gear for hospitals and first responders.
Out of the request, $1bn would go to the Biomedical Advanced Research and Development Authority to produce vaccines. BARDA is responsible for moving potential medical countermeasures for pandemics through the Food and Drug Administration’s approval process, and into mass production.
The rest will be split between producing “therapeutics”, treatments for existing patients, and buying protective gear for hospitals and first responders.
According to someone familiar with the request, the therapeutics will replicate antibodies found in the coronavirus patients currently being treated at the biocontainment unit at the University of Nebraska Medical Center in Omaha. The protective gear will be distributed to hospitals that have been trained through the National Ebola Training and Education Center to handle highly infectious diseases.
“Today, the Administration is transmitting to Congress a $2.5 billion supplemental funding plan to accelerate vaccine development, support preparedness and response activities and to procure much needed equipment and supplies,” said Rachel Semmel, spokeswoman for the Office of Management and Budget. “We are also freeing up existing resources and allowing for greater flexibilities for response activities.”
Until now, the administration had paid for its coronavirus response out of existing funds within the Department of Health and Human Services. The supplemental appropriation would be managed by the office of the Assistant Secretary for Preparedness and Response.
No rapid post-outbreak Hong Kong recovery: Standard Chartered
Hong Kong’s economy will be hit harder by coronavirus than during the 2003 Sars outbreak, according to economists at Standard Chartered, with the lingering effects of recent social unrest reducing the chances of a sharp rebound in activity.
Kelvin Lau, senior economist, Greater China, expects the city’s economy to contract by 2.4 per cent in 2020, a sharper fall than the 1.5 per cent previously forecast. The outbreak comes at a time when the economy is already in recession following months of protests.
“The biggest reason for our significant GDP downgrade is that the economy was already badly battered before the outbreak, reducing its ability to weather another shock and amplifying the impact of previous strains,” he said.
Mr Lau expects Hong Kong’s economy to contract by 6 per cent in the first quarter and by 3.9 in the second quarter. He forecasts a “much slower recovery” than during SARS in 2003. During that outbreak, the economy contracted by 2.3 per cent and 2.4 per cent in the first and second quarters of 2003 respectively.
The US-China trade war and months of anti-government protests pushed Hong Kong’s economy into recession in the third quarter. Hong Kong’s economy contracted 1.2 per cent year on year in 2019.
The economists said the virus has also come at a time of weaker global growth compared to 2003 and when room for extra stimulus is more limited. Hong Kong was less closely linked to the mainland at the time of Sars, so schemes to allow more visits by mainland Chinese tourists to the territory were introduced to bolster Hong Kong’s recovery.
The bank expects unemployment to rise to 5 per cent by the end of 2020 as businesses that were already suffering from the effects of the protests “have little cushion to withstand another shock”.
Once the virus is contained, unresolved social and political tensions are expected to continue to weigh on growth with a slow return of confidence in tourism, catering and real estate. Mainland Chinese tourist numbers, which fell by more than 50 per cent at the end of 2019 amid the protests, are unlikely to recover quickly.
He expects back-to-back yearly deficits as the government offers targeted relief measures.
Megvii IPO plans delayed
By George Hammond in Hong Kong and Mercedes Ruehl in Singapore
Megvii, China’s $4bn facial recognition company, has let its application for a listing in Hong Kong lapse.
The company had been targeting an initial public offering of around $500m, but has delayed due to market conditions, according to people with knowledge of the matter.
Megvii must now file its latest financial data within three months to reactivate its original application. But if the company does not refile within that time frame – a scenario that is more likely with the disruption caused by the coronavirus – Megvii will have to formally reapply to list, according to a person with knowledge of the discussions.
The company has already faced other challenges to its IPO plans, including scrutiny last year after finding itself on a US commerce department blacklist, on the grounds that its technology was alleged to have aided human rights abuses in China’s Xinjiang province.
Since the coronavirus outbreak, listing activity in Hong Kong has all but dried up. Hong Kong was the world’s biggest listing venue in 2019, and momentum continued into the first three weeks of this year, when 21 companies listed on the city’s exchange.
The five subsequent weeks saw just one company list, and a number of others withdraw because of market uncertainty, according to Dealogic data.
This post has been updated to clarify when the company has to refile
China reports dozens more deaths from coronavirus
Health authorities in China reported 71 more deaths in the mainland from coronavirus to the end of Monday, taking the total number of fatalities to 2,663. That compares to 150 new deaths on Sunday. Three of the deaths came from outside Hubei, the centre of the outbreak.
There were 508 additional cases of the virus on Monday, bringing the overall number to 77,658. New cases rose from 409 a day earlier.
US and S Korea consider scaling back military exercises
By Edward White in Seoul and Katrina Manson in Washington
The US and South Korea are considering scaling back joint military exercises on the Korean peninsula, as the fallout from the spread of coronavirus continues to widen.
Mark Esper, the US defence secretary, told reporters in Washington that an upcoming training exercise was being reviewed by General Robert Abrams, the head of the US forces in South Korea, and General Park Han-ki, chairman of South Korea’s Joint Chiefs of Staff.
A decision on postponing or cancelling upcoming drills – exercises which are typically designed to boost defences and preparedness for a potential attack by North Korea – has not been made, a spokesperson for the US forces in South Korea said.
South Korea is one of the worst hit countries outside of China, with eight deaths and 893 confirmed coronavirus cases, according to the latest official figures.
The outbreak has centred around Daeugu, the country’s fourth biggest city, where most cases have been linked to a pseudo-Christian sect known as the Shincheonji Church of Jesus.
Health officials plan to test Shincheonji’s 215,000 members for the virus after the secretive group buckled to government pressure to provide a list of its members’ names, Seoul said on Tuesday.
The move came after Kwon Young-jin, Daegu mayor, said a top health official with responsibility for fighting the disease identified himself as a Shincheonji member after testing positive for the virus.
Steve Cochrane, an economist at Moody’s, said if the virus spreads further from Daegu its impact on the country’s economy would increase with the potential to interrupt industrial and technology supply chains.
“While the city is not a significant growth driver of the Korean economy, it is linked with the rest of the country and the world through supply chains in various manufacturing industries,” he said.
Japan stocks drop amid coronavirus pandemic worries
Stock markets in Asia-Pacific dropped on Tuesday following on from the worst day for global stocks in two years as the number of coronavirus cases outside China spiked.
Japan’s Topix was down 3.7 per cent and on track for its worst one-day performance in over a year after returning from a long weekend. Australia’s S&P/ASX 200 fell as much as 2.6 per cent. The Kospi in South Korea, which fell sharply on Monday following hundreds of confirmed cases in the country over the weekend, was up 0.2 per cent.
On Wall Street overnight, the S&P 500 tumbled 3.4 per cent following deep declines in Europe and Asia. In Italy, the MIB index suffered its worst one-day performance since 2016 after the country placed towns under quarantine in a bid to contain a surge in coronavirus cases.
Iran has reported 12 deaths from the virus, the highest outside China, with eight deaths in South Korea and seven in Italy. The spread of the virus outside China stoked fears that the outbreak would knock economic growth.
“COVID-19 is now present in 30 countries but the World Health Organisation has said it is not a pandemic as it is not spreading in an uncontained way,” ANZ analysts said in a note. “Pandemic or not, markets are selling off and retreating to safe havens.”
Demand for so-called havens steadied. Gold fell 1 per cent to $1,644 after climbing to a 7-year high in the previous session. The yield on the 10-year US Treasury rose 2 basis points to 1.3956 per cent. A flight to the safety of government debt on Monday saw the yield on 10-year US Treasuries near a record low.
Michael Ryan, World Health Organisation executive director for health emergencies, said on Monday that a Covid-19 pandemic is not inevitable. “We’re still in the balance,” he said. “We are in a phase of preparing for a potential pandemic”.
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