Business

Race to the bottom

Jerry Isaacson — Fri, 25 May 2012 16:40:29 +0000

Pricing policies threaten pharmaceutical makers.

One of the biggest threats to the pharmaceutical industry in the years ahead will be pricing pressure, which is coming from all directions. In the United States, big pharmaceutical companies have already agreed to certain cost control measures as part of the healthcare reform legislation known as Obamacare.. The companies apparently agreed to these measures in return for the promise of new patients, but a few short years after the law’s passage and before all of the provisions have even taken effect, politicians in Washington have already begun discussing further price control measures. Meanwhile, Indian regulators have caused a fuss by granting a compulsory license to generics maker Natco Pharmaceuticals for permission to manufacture a generic version of Bayer’s lucrative cancer drug Nexavar. Indian authorities argued that the license was necessitated by the high cost of branded Nexavar, which keeps Indian patients from accessing this life saving treatment. Bayer, meanwhile, made the well-worn but true contention that pharmaceutical advancement depends on companies’ ability to charge premium prices for innovative treatments.

Lately the debate about proper pricing for pharmaceuticals has shifted to Europe, where drug makers’ profits are under attack from multiple angles. As part of the ongoing debate concerning the best way to rein in spending, many countries are looking at cutting drug prices as a source of savings in government budgets. In no country will these new price controls have more effect than in Germany; as much for the country’s leading role in the European economy as for the lost revenue. Due mostly to its economic strength, Germany has maintained pharmaceutical prices that were relatively robust when compared with its European neighbors. After years of debate, though, Germany has begun switching from a policy that mostly allowed free pricing towards implementation of a new regime that weighs the costs and benefits of each drug, similar to that of the UK’s National Institute for Health and Clinical Excellence (NICE).

In addition to looking at the potential clinical benefit of any new medicine, German regulators will also consider the price for each drug in neighboring countries. Germany’s great wealth means that most of its neighbors have weaker economies, making them a poor benchmark for prices. Indeed, many of these countries look to their larger neighbor to take the lead on pharmaceutical pricing. These ingredients could quickly lead to a race-to-the-bottom for drug prices as countries push each other lower and lower. Germany’s new pricing policies have already claimed at least one victim – diabetes patients in Germany will not have access to a promising diabetes treatment. Wary of the threat of price controls, and deterred by rules for defining the proper comparator, Eli Lilly and its German partner Boehringer Ingelheim decided not to launch their new drug Tradjenta (linagliptin) in the German market. While regulators are working out bugs that may lead to more straightforward pricing in Germany, the overall effect will be the same – consistent lowering of prices.

The race to the bottom in pharmaceutical prices has already caused unintended consequences, spawning an army of carry-trade speculators trying to buy drugs cheaply in one country for sale in another.In the UK, for example, regulators have a reputation for insisting on drug prices that are lower than in neighboring countries. This has led to export of drugs from the UK into neighboring countries where they are sold at premium prices. This practice has already led to shortages of some important drugs in the country, prompting the All-Party Pharmacy Group (APPG), a trade organization, to urge the government to take action. Although the dire drug shortages cited by the APPG are disputed, the potential clearly exists for patients to be denied life-saving medicines. The same problem is manifesting for different reasons in Greece. Due to the slow-motion collapse of the Greek economy, pharmaceutical prices have been slashed dramatically. This has been done to allow people to keep access to their medicines without further bankrupting the government. The unfortunate and unintended consequence of the price cuts is a very lucrative carry trade for pharmaceutical wholesalers.

Amid the clear need for national governments to control healthcare spending, it is unfortunate that wholesalers and distributors are siphoning off pharmaceutical profits. While pharmaceutical companies can justify their high prices with the need to conduct expensive research, the carry trade directly detracts from this goal. Society tends to hold healthcare providers to a higher standard than most capitalists, making the bald taking of profits from unhealthy people somewhat unpalatable. As a result, the European Commission has announced the beginning of an investigation into pharmaceutical parallel trade. Considering these factors, it appears that international pricing pressure and its consequences will be a major area of concern for pharmaceutical companies into the foreseeable future.

Dr. Jerry Isaacson is head of GlobalData healthcare industry dynamics.

Other people's business, Thursday 25 May

Martha Gill — Fri, 25 May 2012 11:00:15 +0000

You are what you drive...

1. Difference Engine: You are what you drive (Babbage)

After 11 years of daily use, the family kidmobile is nearing the end of its economic life, writes Babbage.

2. Goldman renewable energy dash more than greenwash (Reuters)

Goldman Sachs is making a dash to invest in renewable energy projects, writes Christopher Swann.

3. Why would fees stop banks mis-selling? (Guardian)

The idea that banks making customers pay through overdrafts instead of upfront fees encourages mis-selling is mystifying, writes Jill Insley.

4. Mike Lynch should try to buy Autonomy back (Reuters)

The software entrepreneur sealed a superb deal for shareholders when he sold the Cambridge-based firm to U.S. tech giant Hewlett Packard Co in October. But the marriage isn’t happy, writes Chris Hughes.

5. Why can’t the Fed just prevent the ‘fiscal cliff’? (Washington Post)

Say at the end of 2012, Congress can’t strike a budget deal and we reach the dread “fiscal cliff.”

Mothercare posts annual pre-tax loss of £102.9m

New Statesman — Fri, 25 May 2012 06:31:12 +0000

UK sales down, while international sales surge.

The British mother and baby products retailer Mothercare has reported a pre-tax loss of £102.9m for the 53-week period ended 31 March 2012, compared to a profit of £8.8m for the same period last year.

Diluted earnings per share were 105.2p.

Group sales increased by 2.4 per cent to £812.7m (2011: £793.6m), while gross profit was £42.3m (2011: £55.9m).

Total international sales increased by 17.8 per cent to £672.4m (2011: £570.9m), while total UK sales were down by 4.6 per cent to £560.0m (2011: £587.2m) with a like-for-like sales decline of 6.2 per cent.

Total direct sales were up 0.8 per cent at £130m (2011: £129m) with direct in home down 1.7 per cent at £91.7m and direct in store up 7.3 per cent at £38.3m.

For the fiscal year 2012, the company expects total International sales to continue to grow strongly with circa 150 new store openings and sales growth of around 20 per cent. In the UK Mothercare expects the consumer environment to remain difficult and not anticipates any gains in gross margin.

Net debt at year end of fiscal 2013 is expected to be circa £25m with interest costs of £3m.

The group currently has 1,339 owned and franchised stores in 59 countries - 409 in Europe, 318 in Asia, 311 in the UK, 290 in the Middle East and Africa and 11 in Latin America.

Simon Calver, chief executive of Mothercare, said:

Worldwide network sales are up 6.4 per cent and our brands remain as relevant to our customers today as they ever have been. I have been fully involved in the formulation of the transformation and growth plan and I know that it is both the right plan and one which the team and I can deliver.

We have a long way to go, and the plan to bring the UK business back to acceptable levels of profitability will take three years. We need to invest in e-commerce, be ruthless with our non-store cost base and use our scale and growth worldwide to drive sourcing economies and pass these savings onto the customers to improve our value for money around the world. Everything we do will enhance customer value, experience and loyalty in each of our 59 countries. My team and I are up for the challenge and, whilst there is much to do in this difficult economic climate, I look forward to delivering the ‘Transformation and Growth’ plan. As a team, this will be our most important delivery yet.

The end of free UK current accounts?

Douglas Blakey — Thu, 24 May 2012 16:37:53 +0000

The end of free checking gathers pace.

On 24 May, Bank of England executive director for banking supervision Andrew Bailey said that the "myth" of free banking enjoyed by customers when not overdrawn made it hard to link costs to products and services received. UK current account customers will not warm to his argument or its likely implications but the High Street banks will welcome the argument to end free checking if-in-credit.

It is a trend already being endured by customers in Ireland. If you think that the banking crisis was bad in the UK, spare a thought for customers across the Irish Sea. Following a sector wide crisis in 2008 – the cost to the Irish taxpayer so far is about €70bn, give or take - six Irish owned banks have become two so called ‘pillar banks’. The big two (pillar) banks left standing – Bank of Ireland and Allied Irish Banks - are now rewarding taxpayers for their support by ramping up fees for everyday banking for a sizeable proportion of the country.

Bank of Ireland kicked things off by raising fees affecting almost one-half of its 1m customers in March. AIB has come out in sympathy and will follow suit with the end of universal free checking from 28 May. Only Royal Bank of Scotland-owned Irish subsidiary, Ulster Bank, now offers universal free current accounts. It does not however rule out following Bank of Ireland and AIB.

Ulster Bank spokesperson Debbie McCaughey said:

"I can confirm that Ulster Bank does not charge a monthly fee on standard current accounts. As with all our products and services, we keep our current account offering under continual review."

So we now have the irony of the UK government bailed-out RBS Irish subsidiary standing to win over account switchers from the two Irish government-backed lenders, Bank of Ireland and AIB. There is one further irony. Bank of Ireland has not (at least not yet) ended universal free if in credit current accounts for its customers based in Northern Ireland.

In fairness to Bank of Ireland, a lot of its customers can get around the monthly current account charges. If, for example, they deposit at least €3,000 into their current account and make nine debit payments from that account using the telephone or online banking over a three month charging period, they will avoid charges. Students and customers aged over 60 are also exempt. In addition, customers who maintain a permanent credit balance of at least €3,000 (a relatively small percentage of clients) qualify for free banking. Customers not qualifying for free banking will pay €0.28 per transaction or a flat fee of €11.40 per quarter for up to 90 transactions with excess transactions charged at €0.28 each.

AIB’s fees strategy is worse – much worse. AIB spokesperson Helen Leonard told me that the fees change “is driven by the need to enhance cost recovery across all AIB businesses, including the provision of money transmission services, the cost of which is significant.” So from 28^th May AIB will seek to recover some of the losses it incurred following the crash by imposing current fees for customers who do not maintain a minimum daily credit balance of €2,500 for the full fee quarter on a personal current account.That will take in 60 per cent of its current account customer base. The 40 per cent of exempt customers will, in the main, be the other exempt customer categories: students, recent graduates and clients aged over 60. The 60 per cent of AIB customers affected will be charged €0.20 per debit card transaction while writing a cheque or withdrawing cash at an AIB branch will cost €0.30 per transaction.

In a statement, Bernard Byrne, director of personal and business banking at AIB, said:

"Free banking offerings across the industry have changed significantly in recent times. While this was a difficult decision to make, nonetheless it is a necessary one if we are to continue to create the conditions in which we can become a strong and viable entity again."

The fees bombshell for Irish bank customers follows an incessant stream of bad news in the local banking sector. Around 6,000 banking staff in Ireland have left the industry in the past three years. Thousands more are set to follow with AIB looking to shed another 2,500 jobs; Bank of Ireland will let up to another 1,000 staff go under a voluntary redundancy scheme agreed with trades union The Irish Bank Officials Association.

Ulster Bank is also bloodletting and will lay off 950 staff in the short to medium term.UK High Street lenders will be watching intently to see if Bank of Ireland and AIB can make the current account fees stick.With such limited competition on the Irish Main Street, there is every chance that Irish customers –or at least those who do not switch to Ulster Bank - will just grin and bear it.

In the UK, there are already 10m chargeable current accounts, with customers paying an average of £185 in fees per year.That is already worth big bucks to UK banks: about £1.8bn in fees last year across the sector.But such accounts are termed packaged accounts (or added value accounts, as banks prefer to call them) and typically offer a bundled range of incentives such as mobile phone insurance and car insurance, other preferential financial services including overdraft, personal loan or mortgage, as well as non-financial products and services.

There were approximately 54m active current accounts in the UK in 2011 and packaged current accounts made up about 17 per cent of the UK retail banking market. The number of charged for current accounts on offer in the UK (69) has more than doubled from the 33 on the market just five years ago and since late 2009 has exceed the number of free in-credit current accounts on the market. Thus far, no UK bank has gone for broke and made the decision to start charging for all current accounts for fear of losing market share. With encouraging noises off from Andrew Bailey – and a bank sector enthusiastic about finding new ways to charge for services currently not charged for - that day may not be far off.

Douglas Blakey is the editor of Retail Banker International.

The new regulator is already caving in to the banks

Chris Leslie — Thu, 24 May 2012 16:29:10 +0000

Charging for current accounts in credit would be an attack on citizens and insult to savers.

First the taxpayer has to bail out the banks. Now it seems that the unsuspecting current account customer could be taken for a ride, as the bankers scour around for ways to rebuild their balance sheets.

How disappointing, therefore, that the new head of the Prudential Regulation Authority – the Treasury’s new super-regulator – should give a speech suggesting that “free banking” needs to end as the only way to protect high charges for overdrafts and other bank products.

At a time when bonuses and executive pay remain firmly stuck on a different planet, the public will be aghast at any attempt to squeeze their current accounts with a new fee. We need to have fair play on fees and charges and continue charge-free bank accounts for those who rely on these services. Arguing against exorbitant overdraft charges doesn’t mean we need to hit those customers who stay in the black - modest savers or the working population balancing their accounts each month.

The banks should look be more concerned with changing their remuneration practices and putting their customers first. There are over 47 million current accounts in the UK. If their holders are now to be charged for the privilege of using a debit card, or for basic chequing services, it would be a major blow to the entire population. Many people will have already been approached by their banks to pay a £15 or £20 per month charge for “additional” services, such as mobile phone insurance. Expect this to become the norm if the banks get their way.

Just when the banks are poised to hit consumers with these new fees, the last thing we need is a financial regulator who is actively encouraging charges for current accounts. It is simply unacceptable to erode free banking and free in-credit deposit accounts - especially when millions are giving the banks their money, which can then generate profits while being held centrally. A current account is today an essential part of daily life, a utility that is essential for getting by in the modern world. We need to defend this basic right and fight for free in-credit banking. We must not give way to these false pressures from the banks.

Chris Leslie is Shadow Financial Secretary to the Treasury and MP for Nottingham East

Other people's business, Thursday 24 May

Martha Gill — Thu, 24 May 2012 12:41:41 +0000

Fat-cat fatigue and the colour-blindness of digital cameras.

1. On the edge of the euro storm (Schumpeter)

While peripheral countries in the euro zone suffer from credit drought, and investors dump their government bonds, their non-euro cousins are braced for almost inevitable contagion. But not everywhere, writes Schumpeter.

2. Trafigura move tests Singapore’s fat-cat fatigue (Reuters)

Trafigura’s move to Singapore could test Singapore’s fat-cat fatigue, writes Wayne Arnold.

3. Italy’s new off balance sheet wheeze (Reuters)

Rome is in a bind, writes Neil Unmack.

4. Colour Blind (Schumpeter)

Image sensors at the heart of digital cameras are naturally colour-blind, writes Schumpeter.

5. Businesses more willing to use bribery and fraud, in one chart (Washington Post)

When we found out that Wal-Mart bribed officials in Mexico, it was a huge scandal, writes Suzy Khimm.

HP cuts 30,000 jobs

Alex Hern — Thu, 24 May 2012 07:25:06 +0000

Mike Lynch, founder of Autonomy, exits.

The PC manufacturer Hewlett-Packard is to cut almost 30,000 jobs, the company has announced, in one of the biggest mass lay-offs in the last decade. The decision to cut over 10 per cent of its workforce was made as part of a cost-cutting exercise at the troubled company.

The move, letting go of 27,000 employees, is just one part of recently appointed CEO Meg Whitman's plan to restore HP to greatness. Unlike many of its competitors, it remains active in a number of different markets, including enterprise and consumer PCs, internet services, calculators, networking accessories and monitors. In most of its major markets, however, it has seen its position erode, facing major competition on both cost and quality.

In addition, the company has suffered a number of high-profile missteps recently. Its purchase of once-great PDA manufacturer Palm should have earned it a foothold in the smartphone and tablet markets, but instead it announced that it was cancelling the WebOS product line which it inherited. Once it began selling off surplus stock of the already-manufactured TouchPad tablet at bargain-basement prices, though, it was shocked by the demand, and backtracked on its decision to leave the sector.

Similarly, Whitman's predecessor, Léo Apotheker, made a game-changing announcement that HP would exist the consumer PC market entirely, before he was sacked by shareholders and that decision reversed. And before Apotheker came Mark Hurd, forced out in 2010 following an investigation into alleged sexual harrassment.

Of the employees losing their jobs in the coming months, an immediate high-profile victim is Mike Lynch, the founder of Autonomy, the British search company acquired by HP for $10bn by Apotheker last year. Whitman told a conference call that Autonomy had suffered “very disappointing” licensing revenues, but overall HP actually beat expectations, with earnings per share at 98 cents on revenues of $30.7bn – although that was still down 3 per cent year-on-year.

The news that HP is finally acting to fix its problems seems to have helped push HP shares up – in extended trading last night they were 9.1 per cent higher at $23.

Meet Mondelez – the new global face of Kraft Foods

New Statesman — Thu, 24 May 2012 05:44:30 +0000

More than 90 per cent of shareholders approve the new name, which takes effect later this year.

With Kraft splitting into two publicly traded companies later this year, shareholders have finally settled on a name for the global brands wing of the food company. More than 90 per cent voted in favour of "Mondelez International", which will take effect upon the spin-off of the company’s North American grocery business.

Cadbury, Oreo, Tang and Nabisco, among others, will fall under the Mondelez umbrella; the US wing will retain the Kraft name.

Irene Rosenfeld, chairman and CEO of Kraft Foods, said:

Mondelez has an appealing international sound that perfectly evokes the idea of a "delicious world". That’s the essence of our global snacks company.

The company has reserved the symbol "MDLZ" for the company’s common stock, which will trade under this new symbol after the spin-off. The stock symbol for the North American grocery company will be KRFT. Until the new companies launch, however, the name and stock trading symbol for Kraft Foods Inc will not change.

According to Kraft, the name change will not in any way affect the validity or transferability of any currently outstanding stock certificates. The company will not ask shareholders to surrender for exchange any Kraft Foods Inc certificates that they currently hold.

On 18 May 2012, the company received a favourable ruling from the US Internal Revenue Service (IRS) confirming the tax-free status of the planned spin-off of its North American grocery business and certain related internal reorganisation transactions.

Kraft Foods’ board has declared a regular quarterly dividend of $0.29 per common share of class A stock. This dividend is payable on 16 July, to stockholders of record as of 29 June.

No charges for BSkyB in new Competition Commission decision

Harriet Williams — Wed, 23 May 2012 12:06:29 +0000

Netflix and LoveFilm weaken the monopoly.

The Competition Commission has ruled that BskyB will not face action over their monopoly of pay-TV film rights. The commission ruled that the existence of online film on demand companies such as LoveFilm was sufficient.

A provisional decision by the commission made in August last year that BSkyB's contracts with the major Hollywood studios were not competitive enough and needed to be weakened. Only in March this year did the commission allow that online companies should be taken into account. Netflix opened an UK based online film service in January.

LoveFilm, previously only providing films by post, launched a similar service. These moves provided greater choice for consumers, weakening the BskyB monopoly.

The commission said “Competition between providers of movie services on pay TV has changed materially and, as a result of these changes, consumers now have much greater choice.”

They said that although Sky had the rights to several major Hollywood studios, LoveFilm and Netflix have the rights to other studios, including those who produced The Hunger Games and the Twilight films.

“Both the range and recency of the content [Netflix and LoveFilm] offer will increase further as more movies become available under existing licensing agreements.”

The new findings are provisional, published to invite comments. Any comments will be considered before a final decision is reached. The Competition Commission will not at the moment propose any remedial action.

BSkyB is due to launch its own internet-based service this year, called Now TV, which will offer films without the need for a full BSkyB subscription.

The commission said that “we still believe that competition in the pay-TV retail market overall is ineffective” but that their investigation was limited to pay per view films and Sky had no material advantage in this area.

Virgin Media and BT said they were disappointed by the decision.

UK retail sales values index up 0.4 per cent in April

New Statesman — Wed, 23 May 2012 12:04:15 +0000

However, retail sales volumes decline by 1.1 per cent.

The all retail sales values index in the UK increased by 0.4 per cent in April 2012 compared to same period last year and decreased by 2.8 per cent compared with last month, according to the figures released by the Office for National Statistics (ONS).

Retail sales volumes decreased by 1.1 per cent compared with April 2011. This is the largest fall in sales volume year-on-year growth since August 2011 when sales volumes fell by 1.2 per cent.

The slowdown in sales values and the contraction in sales volumes growth was driven by predominantly food stores, predominantly automotive fuel stores and textile, clothing and footwear stores.

Compared to April 2011, predominantly food stores sales volumes decreased by 3.5 per cent, while predominantly non-food stores sales volumes grew by 0.8 per cent.

Store price inflation slowed to 1.7 per cent, its lowest rate since November 2009. The consumer prices index slowed to 3 per cent in April from 3.5 per cent in March.

Average prices showed deflation of 0.4 per cent in the year to April 2012, a switch from price inflation of 0.5 per cent in the year to March 2012.
Internet average weekly sales values (non-seasonally adjusted) were estimated increased to be £489m, an increase of by 18.1 per cent compared to April 2011.

Textile, clothing and footwear stores sales volumes fell by 7.5 per cent when compared with April 2011. This sector saw price inflation of 2.2 per cent during the month. The estimated average weekly sales were £0.7bn; of this, 8.5 per cent of sales (£63.7m) were made via the internet.

Household goods stores sales volumes rose by 3.6 per cent in April 2012 compared with April 2011, the largest rise since January 2011 (6.9 per cent). The estimated average weekly sales were £0.6bn; of this, 5.9 per cent of sales (£34.4m) were made via the internet.

The average weekly value of internet sales in April 2012 (non-seasonally adjusted) is estimated to be £489m, up from £485.4m in March 2012.
The retail sales index (RSI), which measures spending (value) and volume of retail sales, is derived from a monthly survey of 5,000 businesses in Great Britain.

Other people's business, Wednesday 23 May

Martha Gill — Wed, 23 May 2012 12:01:31 +0000

A ticking time bomb...

1.Eurovision a good metaphor for lack of euro vision (Reuters)

The euro zone crisis is everywhere, writes George Hay.

2. China doesn’t need a policy U-turn (Reuters)

The last thing China’s economy needs now is another giant stimulus package, writes Wei Gu.

3. A ticking time-bomb (Babbage)

A man with one clock knows what time it is, goes the old saw, a man with two is never sure, writes Babbage.

4. Student loans require homework (Washington Post)

During a recent online discussion, lots of people had questions about student loan debt, writes Michelle Singletary.

5. 'Career shares' idea for boardroom bosses could gain ground (Guardian)

Fidelity boss says at the very least long-term incentive plans should run for five years, rather than the current three years

Want to know what citizenship means?

Louis Brooke — Wed, 23 May 2012 11:27:45 +0000

Don’t ask Bob Diamond, ask consumers…

Barclays cynical appropriation of the ‘citizenship’ agenda proves that the shift towards responsible capitalism will not come from the boardroom. But neither should we look to shareholders or politicians to bring about meaningful change. It is a new breed of consumer and the SME’s that serve them who are drawing up the battle lines in the struggle to find a better way of doing business.

Today Barclays is holding a ‘citizenship day’ to underline the banks commitment to being a good citizen. Bob Diamond even made citizenship one of the banks ‘execution priorities’ when he took over as chief executive, but what do they actually mean by citizenship?

Unsurprisingly the ‘what does citizenship mean to us’ section of their annual report is pretty vague. But the long and short of it is that Barclays subscribes to a very traditional conception of Corporate Social Responsibility.

"Our role is to help improve the lives of our customers. We must provide mortgages, allow businesses to invest and create jobs, protect savings, pay tax, be a good neighbour in the community while also generating positive economic returns for our investors."

Bob Diamond, Chief Executive, Barclays Bank

In other words, they believe, that as a bank, fulfilling their core business activities, hiring some staff, paying some tax, providing a few grants to community organisations and running the odd volunteer day makes them a good citizen.

There is a longstanding debate about the merits of CSR. But the zeitgeist is shifting away from CSR towards the idea of socially responsible business. Increasingly we expect companies to not just ‘give a bit back’ but to internalise the claims of society and the environment by embedding values in governance structures, supply chains, HR and operations. Socially responsible business breaks down the distinction between business, and social and environmental aims.

Indeed, Barclays has attempted to tap into this value shift by emphasising how its lending activities stimulate ‘growth’. But surely making loans is just what banks do? The same goes for conducting environmental impact assessments, treating customers fairly, or most the activities Barclays are celebrating today. It’s hard to avoid the conclusion that Barclay’s newfound enthusiasm for citizenship is nothing more than a cynical PR push.

Clearly its not boardrooms who are going to be the driving force creating a more responsible capitalism. But who will?

Much has been made in the media of "shareholder spring". The though is that newly reinvigorated and emboldened shareholders will act as a restraint on corporate excess and encourage large corporations to act more responsibly.

But shareholders main interest is maximising their returns. The current spate of shareholder revolts basically boil down to the complaint that senior staff in large corporations, and in particular in financial institutions like Barclays, have been creaming off too much of the revenues in pay and bonuses and not paying enough in dividends to shareholders.

Although shareholder activism may succeed in ensuring a fairer deal for owners by tying executive remuneration closer to return on equity, the reality is that shareholders have no incentive to fundamentally change the way big business operates. If we want to see meaningful change in the way big PLCs, and in particular big banks, behave we cannot rely on shareholders alone.

Politicians of all stripes have also been fumbling towards a notion of ‘responsible capitalism’ in the attempt to show an electorate ground down by a stagnating economy and austerity cuts that they are not merely puppets in the grand farce of the financial markets. Ed Milliband tried to distinguish between producers and predators whilst Cameron waxed lyrical about the ‘John Lewis economy’ but both notions remains nebulous and lack credibility.

Articulating a vision for a responsible form of capitalism is an almost impossible task for our political elite who has spent the last 20 years purging themselves of any such ideological impulses. Moreover responsible capitalism cannot be defined a-priori by policy makers. It is taking shape and growing on the ground. The role of politicians is to respond to what’s already out there and create an environment in which best practice can flourish.

It is a new breed of consumers and the SME’s that serve them who are on the frontline of the struggle to build a more responsible form of capitalism. For consumers, companies offer one choice in a market in which they have to balance a range of competing concerns about the world they live in.

Consumers are not just concerned the particular product or service they purchase but the quality of the air they breathe when they walk down the street, the size of their grandchild’s future tax bill, how happy the people who serve them are to name a few. These consumers are relating their consumption choices to wider macro level concerns and so inadvertently breaking down the distinction between being good consumers and being a good citizens.

New business models and vehicles for collaborative consumption, often facilitated by the social power of the internet, are developing to serve the needs of these consumers. They range from highly commercial bulk buying schemes like Groupon, to consumer cooperatives, through to peer-to-peer platforms and movements like move your money which harness consumer power to achieve broader social aims.

Barclays lecturing us on citizenship is more than a bad joke. If they were serious about citizenship and social benefit they should start by properly consulting with the people already making it happen.

The UK has already slipped back into recession and with the looming banking crisis in the Eurozone we have more economic woes in store. We urgently need our banks to be better citizens. And if you don’t think Bob Diamond is the right person to make that happen then maybe its time to take matters into your own hands and move your money?

Louis Brooke works for Move Your Money UK. Find them on Facebook or Twitter.

Ad Watch: Wonga

Harriet Williams — Wed, 23 May 2012 10:14:51 +0000

At least they seem to have jettisoned the creepy puppets.

Wonga, that denizen of the modern age, has branched out. No longer just providing desperate people short term loans at stupidly high interest rates, with the help of a series of disturbingly lifelike granny puppets, they are now turning their hand to sorting out the UK's flagging business sector as well. Nice of them. Loans of £3,000 to £10,000 will be available for terms of between one and 52 weeks to viable business clients. Appropriately, a new advert campaign is needed to spread the word (just in case all the negative articles in the press didn't do the job quite well enough). Lo and behold, the buses of London are adorned with Wonga adverts.

To be fair, compared to the frankly terrifying old people grooving in an old people's home mysteriously well equipped with DJ-ing accessories and hope, these adverts are fairly inoffensive. They suffer terribly from what is known as the Innocent Smoothie disease, greeting the viewer with a friendly upbeat tone that masks the sad fact that they are about to mug you of 4,214 per cent APR, or of £2 for a bottle of mushed up fruit. But this is business, people. So the adverts are black, as opposed to Wonga's usual colour palate of friendly, non repossessing your house royal blue. Black is serious, a good colour for business, which is also serious. It doesn't get more nuanced than that.

The slogans are even better.

“Our branch address? Wongaforbusiness.co.uk”

“Loans 24/7 because business isn't 9-5”

“Business loans: think outside the bank”

Clever, aren't they? Notice how they take a well known business slogan and gently subvert it. It's because they're innovative. As the chief executive said in a recent interview with the Guardian, the company wants to "innovate around the edges”, acting as “the Amazon of financial services.” And why wouldn't you want to be known as that? It's not as if Amazon ever did anything a bit dodgy.

The latest Wonga news is that they have been warned by the Office of Fair Trading about their “aggressive” debt collection, after sending threatening letters and accusing customers of being fraudsters. Not so fluffy now. They are also getting involved in promoting financial literacy in schools, an area that is admittedly much wanting, but one that isn't an obvious move for a company reviled for its irresponsible lending. Indeed, it seems like not a day goes by when the company isn't in the news. Maybe they didn't even need to pay for those bus ads. Still, at least they seem to have jettisoned the creepy puppets.

They say: "Young, entrepreneurial companies represent our best hope of a recovery, yet many are struggling because they can't get quick access to the credit that they need to cope with everyday challenges”

Regenerative Medicine Rising in the East

Amy Baker — Wed, 23 May 2012 08:56:56 +0000

Asian markets at the forefront of regenerative medicine advancements.

Across the pharmaceutical industry, the Asia-Pacific has grown in importance, attracting big pharma to the region with its easy access to patient populations and low manufacturing costs. In addition, generic drug manufacturing has massively boosted the market. However, one area in which the Asia-Pacific has really been forging its own path is in regenerative medicine. Encompassing stem cell therapy, gene therapy and tissue engineering, this innovative area of science offers the chance to repair damaged tissue and restore proper functioning to cells. It is an area of increasing interest globally, with massive potential, as demand for novel curative and reparative therapies soars as a result of the growing aged populations and rising incidence of cancers and chronic diseases. However, to date, regulatory bodies have been unwilling to approve gene therapies and stem cell therapies in the west, because of the unproven nature of the science. Instead, Asia-Pacific countries have emerged at the forefront of the commercial clinical use of these pioneering approaches.

China has led the way in gene therapy approvals to date, with Gendicine and Oncorine hitting the market in 2003 and 2005 respectively. These approvals demonstrated an important fact – that China was serious about developing regenerative medicine, sensing an opportunity to enter a young, growing market at an early stage and attract industry attention with favourable approval mechanisms. This has been replicated across other Asia-Pacific countries. In South Korea, the world’s first approved clinical stem cell treatment is Hearticellgram-AMI from FCB-Pharmicell, which uses a stem cell transplant from the patient to improve heart function. This was approved in 2011 and was followed by two other stem cell therapies in 2012. Their long-term success in the market has yet to be determined, but they represent important milestones in regenerative medicine commercialisation. Singapore, meanwhile, has made a deliberate effort to set itself up as a hub of regenerative medicine research.

It isn’t just local companies that are getting in on the action in the Asia-Pacific – US company Epieus Biotechnologies commercialised its cancer gene therapy Rexin-G in the Phillippines, and US companies such as Vical and Genzyme have entered into collaborations with Asian companies.

Some of the same advantages that make approval easier in countries such as China also damage the country’s chances of leading the industry, however. Regulations governing approval are less strict, which has led to the early approvals of therapies such as Gendicine and Oncorine. This lack of stringency in the requirements for approval has meant that without extensive further testing, the therapies cannot enter other markets such as the US and EU. In addition, there is general scepticism as to the actual benefit of therapies approved without detailed clinical trial data. In addition, despite China having a high number of patients with head and neck cancer who could benefit from the approved therapies, reimbursement and insurance coverage limitations for Chinese citizens mean that access is severely restricted. Consequently, the revenues of therapies such as Gendicine, previously predicted as having blockbuster potential, have remained stubbornly disappointing. Benda Pharmaceuticals, who own the rights to the product, was worth only $4.1m in 2010.

The unproven and unfamiliar nature of the science has led to caution from regulatory bodies and has been a frustrating deterrent to R&D by industry in the US and EU, but high patient populations, more permissive approval processes and a desire to gain a competitive advantage in a developing area with high growth potential have given the Asia-Pacific a head start in regenerative medicine. Western governments and industry are paying increasing attention to the region, attempting to ensure that they are not losing ground in the regenerative medicine market but also keen to leverage the opportunities offered in the Asia-Pacific as acceptance, demand and expertise flourish there.

Amy Baker is a Life Science Analyst at GBI Research

Burberry annual pre-tax profit up 24 per cent

New Statesman — Wed, 23 May 2012 07:18:38 +0000

Revenue from retail, wholesale, and licensing channels surge.

The British designer clothing retailer Burberry Group has posted a pre-tax profit on reported basis of £366m for the fiscal year ended 31 March 2012, an increase of 24 per cent compared to £295.7m for the same period last year.

Diluted earnings per share were 59.3p (2011: 48.3p). Net cash was £338m, up from £298m last year.

Operating profit was 376.9 (2011: 302.1), while gross profit was £1.3bn (2011: £1bn).

Revenue from continuing operations increased by 24 per cent to £1.86bn (2011: £1.51bn). The company generated 68 per cent of revenue (2011: 64 per cent) from 192 mainline stores, 208 concessions within department stores, digital commerce and 44 outlets.

Burberry’s revenue from retail, wholesale, and licensing channels were £1.27bn (2011: £962.3m), £478.3m (2011: £440.6m), and £108.6m (2011: £98.4m) respectively.

The company’s flagship markets in UK and France performed well. Although all the regions reported double-digit growth, Asia Pacific contributed 37 per cent of retail/wholesale revenue. Non-apparel division contributed revenue of 39 per cent.

During the year, the company opened 23 mainline stores and first flagships in Hong Kong, Paris and Taipei.

Angela Ahrendts, CEO of Burberry Group, said: “Burberry has completed another successful year, with revenue up 24 per cent and adjusted profit before tax up 26 per cent. An intense focus by our global teams on business, brand and culture in recent years has resulted in a strong foundation across channels, regions and products. While we remain vigilant about the external environment, we will continue to invest in front-end opportunities within our brand, digital and retail strategies, to drive sustained, profitable growth and enduring customer engagement over the long term.”