Microsoft’s Xbox to Cut 3200 Jobs, Divest Studios in Overhaul

Summary

Bloomberg Intelligence Podcast Summary

Episode: Microsoft’s Xbox to Cut 3,200 Jobs, Divest Studios in Overhaul

Date: July 6, 2026
Hosts: Paul Sweeney & Nathan Hager
Key Guests: Brody Ford (Bloomberg Tech Reporter), Bailey Lipschultz (Bloomberg Senior Equities Reporter), Tim Craighead (Bloomberg Global Chief Content Officer), Sam Fazella (Bloomberg Pharmaceutical Analyst)

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Episode Overview

This episode centers on major investment and corporate news, including Microsoft's sweeping job and studio cuts in its Xbox division, SK Hynix's landmark US IPO, ten global companies to watch in Q3 2026, and Novartis’s $1.5 billion acquisition of British biotech Myricks Bio. The show features analysis from Bloomberg Intelligence and expert guests on the strategic, financial, and market impacts for companies and investors.

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1. Microsoft Xbox: Layoffs, Divestitures & Strategic Shift

Segment Start: 02:07

Key Discussion Points:

• Microsoft’s Xbox division will cut 3,200 jobs (20% of division staff) and divest multiple studios as part of a company-wide restructuring.
  Brody Ford's reporting highlights significant operational trim in both Xbox and sales arms as cost-cutting moves tied to Microsoft’s AI and datacenter investments.
  • "A lot of this is fueled because they're spending so much on AI... they're taking a closer look across all divisions." (Brody Ford, 02:27)
• Microsoft aims to reorient Xbox as a platform, not a content creator.
  The company’s commitment is to the Xbox ecosystem, with less interest in owning studios/content:
  • "Owning content makers maybe isn't the business they want to be in, but owning the platform is something they're still interested in doing." (Brody Ford, 03:27)
• Profitability Challenges:
  Despite being a decent chunk of revenue, Xbox operates at margins “three to 10 times lower than comparable businesses”—a major concern post-$69B Activision acquisition.
  • "The issue is the profit... the margins haven't kept up. The growth isn't quite what they hoped it would be." (Brody Ford, 04:15)
• AI, Supply Chain, & Console Margins:
  Both Microsoft and industry peers (e.g. Sony PlayStation) are facing squeezed margins due to rising component costs—driven by AI demand for memory and chips.
  • "If you're a console maker that's already running at pretty slim margins, then all of a sudden your memory chips double in price, that's going to make everything tough." (Brody Ford, 05:10)
• Investor Sentiment & Stock Price:
  Microsoft’s stock down 20% YTD—rare for the company. Executives project calm, but employees are anxious. Wall Street remains torn between the (costly) AI build-out and threats to Microsoft’s long-standing software cash cows.
  • "Wall Street is worried about all this spending. Is it going to pay off all the data centers? On the other end, their traditional software businesses... does that last in the age of AI?" (Brody Ford, 06:13)
• Upcoming Earnings Outlook:
  Expect continued focus on margins and capex discipline.
  • "I think we'll hear them talk about how, look, we're spending a ton of money on our data centers, on our chips... But we're doing what we can to trim costs everywhere." (Brody Ford, 07:09)

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2. SK Hynix’s Massive $28B US IPO

Segment Start: 11:20

Key Insights:

• SK Hynix (South Korea memory chip leader) launches a 17.79M-share US ADR IPO valued at ~$28B, making it the third-largest IPO ever.
  • "Nominally at $28B, it would be the third largest IPO ever on any exchange." (Bailey Lipschultz, 11:58)
• ADR mechanics:
  Each ADR is 1/10 of a local share; Hynix retains its Korean primary listing.
• Market context:
  • Tech IPOs are surging but some question if this marks a market top, given semiconductors' cyclical nature:
    • "Can we structurally say this time is different? Semiconductors are the most cyclical business on Wall Street." (Bailey Lipschultz, 13:08)
  • Demand for AI/data center chips drives optimism; bottlenecks for compute capacity a key risk.
• Index inclusion:
  Hynix is not "fast track" eligible for the Nasdaq 100, but likely in the long term. US listing broadens access for institutional and retail investors.
  • "In the long run it will likely be included in the NASDAQ... that is a fundamental shift for a company that has been very difficult to trade for US investors." (Bailey Lipschultz, 14:04)
• Investor appetite, timing:
  Major asset managers indicate interest for up to $7B of the deal; pricing scheduled for late Thursday with trading on Friday.
  • "If you want to invest in SK Hynix, you probably know who the company is and you're not selling a whole new pitch." (Bailey Lipschultz, 15:40)

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3. Ten Companies to Watch for Q3 2026

Segment Start: 20:35

Highlights from Tim Craighead:

• Selection criteria:
  Timely catalysts anticipated to trigger shifts in perception and valuation across 10 key companies globally.
  • "These 10... have timely catalysts coming up in the third quarter that we think can change the market perception..." (Tim Craighead, 21:00)
• Microsoft:
  Out-of-favor, but boasting one of the largest LLM cloud platforms; strong product pipeline with the new 365 suite. Analysts expect possible revenue upside.
  • "The bottom line seems like the perception is that Microsoft is going to be disrupted... But in our perspective, they've got one of the biggest, if not the biggest LLM cloud platforms." (Tim Craighead, 21:00)
• Mattel:
  Cautious view—Barbie demand up on the movie, but the company faces a market shift to building sets and trading cards.
  • "There's a nice big surge in... Barbie demand... What we've seen since then is a progressive shift more towards building sets and trading cards... Dolls are not [cool]." (Tim Craighead, 22:40)
• SolarEdge:
  Energy security in Europe drives solar demand recovery, with more upside not yet priced in. The European opportunity is growing.
  • "The ramp up that we're seeing in terms of solar equipment related orders we think will continue to surprise..." (Tim Craighead, 24:11)
• Hong Kong Land:
  Iconic offices gaining value post-pandemic and post-national security law outflows; market and professional surge revives rents and asset values.
  • "The whole thing that's going on with Hong Kong in terms of office is it's coming back to life... Asset value for Hong Kong land specifically, we think is on the upswing." (Tim Craighead, 25:10)

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4. Novartis’ $1.5B Myricks Bio Cancer Drug Deal

Segment Start: 29:46

Key Points:

• Novartis acquires British biotech Myricks Bio for up to $1.5B, focused on targeted, potent cancer treatments.
  • "Novartis is already quite active in cancer... one of the areas that they are quite active in is getting radioactive material to your tumor..." (Sam Fazella, 30:20)
• Deal specifics:
  $1.1B up-front for early-stage/potentially preclinical assets is seen as aggressive.
  • "This is a rich number for such an early company... There's very little chance they would have been able to go public." (Sam Fazella, 31:52)
• Strategic rationale:
  Builds out Novartis pipeline, especially in antibody drug conjugates and direct-to-tumor therapies—a broader platform play for the long haul.
  • "These chemicals can be attached to any antibody to attack different types of tumors. So it's a platform." (Sam Fazella, 33:13)
• Industry context:
  Most large pharma (Eli Lilly, Merck, AstraZeneca, Abbvie) have strong cash flows and are able to pursue similar deals to refresh their long-term pipelines.
  • "Most pharma companies are in a position of strength from a cash flow perspective to be able to do these types of deals." (Sam Fazella, 34:51)

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Notable Quotes & Memorable Moments

• On Microsoft's AI-driven cost-cutting:
  "They're spending so much on AI and building out data centers... they're taking a closer look across all divisions. So today, Xbox is the one that we see really kind of getting that hammer." (Brody Ford, 02:27)
• On the logic of Xbox as a platform:
  "Owning content makers maybe isn't the business they want to be in, but owning the platform is something they're still interested in doing." (Brody Ford, 03:27)
• On the cyclical nature of semiconductor IPOs:
  "Semiconductors are the most cyclical business on Wall Street... The big question is, will we continue to see demand for building out data centers?" (Bailey Lipschultz, 13:08)
• On the return of Hong Kong's commercial sector:
  "The Hong Kong Stock Exchange IPOs are alive, the financial markets are alive, professionals are coming back and rents are rising." (Tim Craighead, 25:10)
• On big pharma’s healthy M&A appetite:
  "Most pharma companies are in a position of strength from a cash flow perspective to be able to do these types of deals." (Sam Fazella, 34:51)

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Timestamps for Key Segments

• 02:07 – Microsoft Xbox layoffs and rationale (Brody Ford)
• 04:08 – Xbox financial/materiality discussion
• 05:02 – Industry comparison: Xbox vs PlayStation
• 05:55 – Microsoft stock performance and internal perception
• 07:09 – Anticipated themes for Microsoft’s upcoming earnings
• 11:20 – SK Hynix ADR IPO deep dive (Bailey Lipschultz)
• 13:01 – Analysis: Market timing and risks for semiconductors
• 14:04 – Hynix inclusion in global indexes & US market impact
• 15:38 – IPO timing, bookbuilding and investor appetite
• 20:35 – Ten companies to watch, starting with Microsoft (Tim Craighead)
• 22:40 – Mattel and changing toy trends
• 24:11 – SolarEdge and European energy security trends
• 25:10 – Hong Kong Land on the rebound
• 29:46 – Novartis/Myricks Bio deal and M&A across pharma (Sam Fazella)

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Conclusion

This episode delivers in-depth analysis of pivotal corporate shifts, major market offerings, and sector trends, with special attention to how AI spending and structural shifts are transforming profit models and investor expectations across tech, pharmaceuticals, and global real estate. The commentary is incisive and candid, offering valuable perspectives for both general investors and sector specialists.

Transcript

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[Nathan Hager]

Pieces of news coming across the tape here this morning, particularly on the tech side, is Microsoft's Xbox unit, plans to cut 3,200 jobs and divest studios in another overhaul here. Brody Ford, Bloomberg technology reporter, joins us here. Brody, what's going on at Microsoft here today?

[Brody Ford]

Pretty much across the industry of technology, you see companies trying to rethink where they're spending money. A lot of this is fueled because they're spending so much on AI and building out data centers and infrastructures that they're taking a closer look across all divisions. So today, Xbox is the one that we see really kind of getting that hammer. They laid out a plan to cut about 20% of staff over. Over the next year and broader. At Microsoft, it's a plan to cut about 6,400 people. Again, just kind of trimming both an Xbox and sales, Trying to reorient for what they say will help, you know, them grow in this next era.

[Paul Sweeney]

Roddy, what is the rationale for Microsoft keeping Xbox? The CEO of the Xbox division wrote in a note to staff this morning, and this is based on your reporting that Xbox is operating at margins three to 10 times lower than comparable businesses. I mean, financially, it's not keeping up. So why does Microsoft want to keep it?

[Brody Ford]

It's a good question. Microsoft really has traditionally struggled with consumer businesses. Every time they've kind of tried to spin up, say, like a smartphone or things of this nature over history, it hasn't always gone super well. Xbox they've been traditionally committed to because it was this unique blend of hardware and software, and they found a niche in it. And yeah, today is them trying to reorient that business into something that they can keep and grow for the long. Do you see them spinning off a lot of studios talking about how owning content makers maybe isn't the business they want to be in, but owning the platform is something they're still interested in doing.

[Nathan Hager]

How much is Xbox? Do we know of their total revenue? How material is it for the financials of this company?

[Brody Ford]

It's a decent chunk of revenue. Right? I mean, the issue is the profit. A lot of people buy video games. A lot of people buy consoles. But Microsoft has really struggled to make it super profitable. I think a lot of people forget about the Activision acquisition a couple years ago. I mean, I think I was thinking like $69 billion. It was one of the biggest tech acquisitions of all time. And yet a couple years later, we find that the margins haven't kept up. The growth isn't quite what they hoped it would be. Of course, we have the component crunch right. A lot of things like chips and memory have increased in price, which kind of accelerate all of these issues. So it is a material business for Microsoft. It's not something they're ready to throw away, but it's something that they. They need to really kind of take a closer look at.

[Paul Sweeney]

I know you don't cover Sony per se, but how do Xbox's fortunes compare with, say, the Sony PlayStation?

[Brody Ford]

A lot of console makers are struggling right now because of that memory crunch, Because AI has essentially messed with the supply chains for a lot of different components that go into computers and infrastructures. And so if you're a console Maker that's already running at pretty slim margins. Then all of a sudden your memory chips double in price. That's going to make everything tough. And more broadly, content makers are needing to compete against a wider variety of content that's able to be created with AI as it relates to AAA games. They're not being created with AI. But there's just so many more places for eyeballs to be focused on these days that if you're selling content, it's a more competitive market.

[Nathan Hager]

Microsoft stock's down 20% year to date. It's rare that you see that kind of performance out of Microsoft. What's the feeling within the offices that they're. Redmond, Washington, do they talk about their stock? Do they ignore their stock? How do they just talk about it? Think about it.

[Brody Ford]

When you ask an executive, they say, oh, I don't care about the stock price. I focus on executing. You ask an employee and they say what the heck is going on with our stock price? That's consistent across all companies. The big thing for Microsoft, and you can see this with other hyperscalers, you can see with Oracle very well, is that on one hand Wall street is worried about all this spending. Is it going to pay off all the data centers. On the other end, their traditional software businesses that have really created the cash cow that is Microsoft. Does that last in the age of AI? So they kind of have these two concurrent fears which are leading to some weakness for a stock that has been just a pretty consistent safe harbor and so much choppiness over the market recent years.

[Paul Sweeney]

Brody, I know you cover Microsoft. That company is going to be reporting its quarterly results at the end of this month. Will this Xbox closure, do you think, result in some surprising financials on earnings day?

[Brody Ford]

What I would expect to hear them talk about is ongoing focus on margins, which you know is corporate speak for we're planning to fire 20% of people at Xbox. You know, I think we'll hear them talk about how, look, we're spending a ton of money on our data centers, on our chips. Our capex is in the past hundreds of billions of dollars a year. But we're doing what we can to trim costs everywhere and we're going to make sure that we're really getting an ROI out of every dollar. I think that will be the high level message. And if you poke underneath it, you see phenomenon like the cost cuts today.

[Paul Sweeney]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Nathan Hager]

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[Paul Sweeney]

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you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Nathan Hager]

Believe it or not, kind of flying under the radar screen here. We're kind of getting a quasi IPO coming soon. SK Hynix, their Korean company, they make all the memory chip stocks up like a gajillion percent. They're going to list 17.79 million shares ADRs in the US and I think that's if my math is correct, that's like a $28 billion offering. I mean we're kind of getting numb to these huge numbers with Goldman, I mean Google doing their secondary earlier this year and all the big IPOs we've seen with Space X. But let's put it in context here. We can do that with the Bailey Lipschultz, Senior equities reporter for Bloomberg News. Bailey, talk to us about what SK Hynix is doing here.

[Bailey Lipschultz]

Yeah, so this is a company to your point nominally at 28 billion would be the third largest IPO ever on any exchange. So behind Space X, behind Saudi Aramco, which is pretty mind boggling to be completely honest. The thing to keep in mind is so this is an adr, ADR ipo. So basically they're selling shares for the first time here in the us they will maintain a home listing on the other side of the world in South Korea. Each ADR represents 110 of one common share. Why does that all matter? A as you mentioned, a $28 billion offering is very large. B this is a company worth more than a trillion dollars. And see, this opens up everyone on Wall street, everyone in the US to now actually trade SK Hynix on New York hours on US Hours and be able to cater to not only retail investors but institutional investors. We already saw Baillie Gifford CO2 and situational awareness Partners indicating they want to buy as much as $7 billion of this deal. So Big numbers. But it's also a right time for the company timing.

[Nathan Hager]

I've heard people talk about maybe this is feels a little top of the market kind of thing. Are you hearing that out in the marketplace?

[Bailey Lipschultz]

Yeah. When we talk to people the main question is can we structurally say this time is different and why does that matter for semiconductors? Semiconductors are the most cyclical business on Wall Street. So this is an industry that booms and busts as kind of the PC and smartphone eras evolve and as sales kind of mature from there. The big question is will we continue to see demand for building out data centers? Will we continue to see that here on earth and potentially as Space X wants to do in space? And the big question from there goes, these are companies that want to spend hundreds of billion dollars to build out manufacturing capacity. Right now there's a bottleneck to get compute and get access to these chips. Well, what happens if it's not that easy and that's the big risk.

[Nathan Hager]

So just from a US listing perspective, is this going to go in various indices? Is SK Hynix in the various indexes around the world?

[Bailey Lipschultz]

It's in some. When you just kind of look using the WGT function which will pull up which indexes the company is in. Obviously again it's one of the bigger, bigger companies in the world. So it's in obviously a big driver behind the cost be the Korean exchange. It's also in a number of those emerging market, emerging market indexes. The big thing to keep an eye on and the big thing that does matter is it's not eligible for fast track NASDAQ 100 inclusion. But in the long run it will likely be included in the NASDAQ and 100 and everything that that brings obviously we're talked about that with Space X. That is a fundamental shift for a company again that has been very difficult to trade for U.S. investors. And then the question from there goes, okay, do we get to see double and triple or triple levered ETFs and kind of what happens with that entire explosion from there?

[Nathan Hager]

So will this open up new buyers, I guess potential new owners for this stock?

[Bailey Lipschultz]

Yeah. When we've spoke with a number of institutional investors whether they couldn't trade companies that are listed in an emerging market, whether they just don't want the headache of worrying about foreign exchange and hedging some of those risks, those have been top of mind. We do know a few investors that we spoke to for for our story that went out Sunday morning. There also are investors who just aren't comfortable with an adr. They want to own companies that are domiciled here. They want to own companies that their primary listing is in the US as opposed to this. It'll be interesting to see what kind of premium it trades at. This is kind of ripping off the playbook that we saw with Taiwan semi. But again, that was a company that raised a few hundred million, not closer to 30 billion.

[Nathan Hager]

What's the timing of this deal?

[Bailey Lipschultz]

It'll price and it'll trade on Friday. We expect pricing to happen sometime Thursday morning here so that it would open up kind of making sure that people are able to trade accordingly in South Korea there Friday morning. It's a truncated process. It's a quicker process. But even talking to the bankers on the deal, if you want to invest in SK Hynix, you probably know who the company is and you're not selling a new entire pitch. The one thing that we've been pointing out is their main roadshow at 1:30pm New York time will be the only real interaction with management on a webcast for potential.

[Nathan Hager]

So they're just doing a webcast, kind of a webcast.

[Bailey Lipschultz]

Very quick process. Again, it's tied to it. I'm overcomplicated.

[Nathan Hager]

Just another great day to be an IPO banker, right?

[Brody Ford]

Yeah.

[Bailey Lipschultz]

They're making I think it was 50 bips on this deal. So, okay, we had a few bankers who said, you know, this is, this isn't easy. But when you compare to being at the beck and call of Elon Musk night and day between the space X ipo.

[Nathan Hager]

Exactly. And we have about anthropics, that's still thinking maybe fall, late fall, something like that.

[Bailey Lipschultz]

We've heard nothing to change expectations around that September October timeframe. Obviously, potential delay of open air into next year becomes a question of if you're anthropic, do you need to race and get out in September or do you want to have a better kind of visibility into your business maybe in that October, November timeframe?

[Paul Sweeney]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Nathan Hager]

Support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge on public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my Direct Index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent and not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors LLC SEC registered advisor complete disclosures [e-mail] disclosures when you own your

[Paul Sweeney]

own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for Business card brings the best Sapphire Reserve benefits to business owners who expect hardworking rewards. Designed to meet the needs of business owners at scale, this Pay in Full card elevates your travel experience and offers premium benefits and value toward business services that will take your business to the next level, fuel your business and maximize rewards. With 8x points on all purchases through Chase Travel, 3x points on social media and search engine advertising, annual partnership credits and more. Make every journey more rewarding with a $300 annual travel credit and access to a network of airport lounges. Whether you're looking for pre flight productivity or time to rest and recharge. Chase Sapphire Reserved for business, it's the card that gives back all you put in. Learn [e-mail] ReserveBusiness Chase for Business make more of what's yours. Accounts subject to credit approval, restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank, NA member FDIC let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling the system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a healthcare company linking patient care and pharmacy services to and using data and technology to drive the whole system so care is connected, not complicated for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients and those prescriptions. Optum is working to bring costs down and save patients money and make it easier to get refills. Little by little, Optum is helping make health care work as one for everyone. Head to business.optum.com to see how

[Podcast Announcer]

you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul Sweeney]

We want to go now to our colleague in London who along with his colleagues have put together a list of 10 companies to watch for in the third quarter of 2026. There are companies that dabble in chips, chocolate and Barbie. So let's check in with Tim Craighead. He is our global chief content officer on the 10 companies that you want to watch for right now. Good morning Tim. What's the first one you would want to highlight?

[Tim Craighead]

Well, if you don't mind, I'll give you just a little bit of context on this just to put it into some perspective. I think you set it up quite well. But I would just simply add that these 10 are part of a broader group of what we call focus ideas, which are high conviction fundamental views that our analysts have across sectors across the globe. There's about 160 of them and the reason why we got to these 10 is that they all have timely catalysts coming up in the third quarter that we think can change the market perception company by company. And look, the biggest one, it's in AI. It's very much, it seems like out of favor is Microsoft. This is a stock that has been under pressure since last autumn even while other hyperscalers like Amazon and Google have been, have been trading better in the semiconductor companies. Clearly that are all AI driven have been, have been on fire. And bottom line seems like the perception is that Microsoft is going to be disrupted, to use the buzzword. But in our perspective they've got one of the biggest, if not the biggest LLM cloud platforms that are being used and they've got a new Microsoft 365 suite that comes out in the second half. We think both of those can continue to drive revenue that's going to positively surprise Barbie, Mattel.

[Nathan Hager]

What's the story there, Tim?

[Tim Craighead]

Yeah, well the, the interesting thing with this is not all of these focus ideas, not all of these 10 companies are constructive, positive calls. There's also ones where we're cautious or concerned and that's the case with, with, with Mattel. You know, there was a nice big surge in doll demand, Barbie demand in and around the Barbie movie a couple of years ago. Going back to your stomping grounds Paul in media and what we've seen since then is a progressive shift more towards building sets and trading cards in terms of what's cool in the world of toys. Dolls are not. And we think that there is continued disapp standpoint of doll sales, specifically Barbie as we look through the second half of the year.

[Paul Sweeney]

I did see Toy Story and I feel like, you know, maybe that gives a little bit of a jumpstart to

[Nathan Hager]

you saw Toy Story 5.

[Paul Sweeney]

Toy Story 5 and what do you think? I liked it.

[Nathan Hager]

Oh, good.

[Paul Sweeney]

Yeah, it was good. I like, you know, the face off against tech and screens and all that. But I digress. Tim, I wanted.

[Tim Craighead]

We will hear. Yeah, we will hear more about that in their earnings release.

[Nathan Hager]

So.

[Paul Sweeney]

Okay, so that is something we can update as we get closer to that. I want to get to a European company as well because you have Solar Edge as a company to watch for in Europe and I think about what's going on with the heat wave there and how energy security continues to be an issue for the continent.

[Tim Craighead]

Yeah, it is all about energy security and you know it's, it's been lit up obviously yet again in the wake of the crisis or the conflict in the Middle East. You know, it started to begin with with Russia, Ukraine and Europe is, is in the, is in the hot seat, no pun intended. And the, the ramp up that we're seeing in terms of solar equipment related orders we think will continue to surprise. It's been recovering for a, for a couple of quarters and we think that there is more to come and not fully yet appre it, but it is all about its European business, even though I think it's actually based in Illinois. But the European opportunity is what's driving revenue surprise.

[Nathan Hager]

Hong Kong land. What is this company and why should we be paying attention?

[Tim Craighead]

Yeah, so if, if either of you or any of the listeners have been to Hong Kong, one of the iconic buildings right on the, the central Hong Kong business district waterfront has these famous circular windows. That's these guys building along with many others. And the whole thing that's going on with Hong Kong in terms of office is it's coming back to life. It was under a significant amount of pressure post pandemic and the national Security law being implemented. People were leaving, businesses were leaving, but they are now coming back. There's a surge. The Hong Kong Stock Exchange IPOs are alive, the financial markets are alive, professionals are coming back and rents are rising. And that asset value for Hong Kong land specifically we think is on the upswing.

[Paul Sweeney]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Nathan Hager]

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[Nathan Hager]

Novartis agreed to buy British biotech Myricks Bio for as much as $1.5 billion, adding an experimental cancer drug designed to deliver more potent treatments directly to tumors while limiting damage to healthy cells. Let's break it down, plus all the healthcare news. We can do that with Sam Fazella. He's the director of research and he's a pharmaceutical analyst for Bloomberg Intelligence. He's based in London. Sam, talk to us about Novartis. Kind of what are their strengths, where do they need to get better and what are they doing with this particular deal?

[Sam Fazella]

So, Paul, first happy post 4th of July to you guys all for your independence from the British all those years, 250 years ago and to the audience obviously. So here we have Novartis buying a cancer drug company. Novartis is already quite active in cancer. In fact, one of the areas that they are quite active in is getting radio radioactive material to your tumor rather than you going to get radiation from an external beam or a machine. This is things that are kind of trying to target the tumor, particularly prostate cancer in this case, that they've got a marker on prostate cancer cells get radioactivity in there. But one of the other things that that has been evolving very rapidly recently is getting chemotherapy directly to the tumor rather than injecting it all over the body. The hope being that you can reduce the side effect profile and increase the efficacy. That's what this new deal is. And this is something relatively new for them. They had deals like this before. When you look back in 2013 and 2016, they had done some of these antibody drug conjugate type deals. But obviously that's over 10 years ago. For the later deal. So nothing seemed to have come out of that. So this is their back into that space and I think it's quite an interesting clever deal. Big upfront number though, that's quite interesting. $1.1 billion cash upfront.

[Paul Sweeney]

So I'm glad you bring up that point. That idea of big upfront payments, is that the new norm now in these kinds of deals?

[Sam Fazella]

So I don't know how competitive this deal was. I'm hoping to talk to some of the founders who I know because they're in our backyard. Right. To try and understand, you know, what was it that attracted Novartis so strongly to this. I mean this is a British biotech company. So that means automatically that they're not necessarily able to go and raise hundreds of millions from the local market. They are in preclinical stage or very close to at least what publicly information. The publicly available information we have is preclinical. So this is a rich number for such an early company. There's very little chance that they would have been able to go public. So wine of artists paid so much upfront rather than do what usually happens, I. E. Pay a smaller amount and leave the rest of it for a milestone in a year, two, three years time. It's going to be interesting to find out they do have some very clever chemistry in here. And this is not just an ordinary, for want of a better phrase, not that any of these drugs are ordinary antibody drug conjugate. They have, they have new drugs that they're trying to get into the tumors. So that's interesting.

[Nathan Hager]

How is, what's, what's the call out there on Novartis stock these days? Sam, what do people have to kind of believe here to jump on this one?

[Sam Fazella]

Yeah, so the shares have been doing reasonably well. The company's got a decent pipeline. One of their big drugs is Cosentyx, which is not for oncology, it's for psoriasis and that type of disease, arthritis type diseases or autoimmune diseases, let's put it that way. And that's a big drug and some people are worried about it going off patent like every pharma company. That's the rule of the game with them. We think in our group that Cosentix has got a longer life than people think. So you know, they have an active oncology business where there's some. Again, same sort of story, but with those radiochemicals, if you remember I just highlighted and a whole bunch of other drugs that are coming on. And here I think they're Going into this, this is going to be a long way off in terms of paying back because it's pretty clinical, early phase. Right. So it's going to be five, 10 years, eight years. So it's not aimed at today's problems. A bit like the type of Lilly deals we were talking about last week, which are some early deals that are being designed to, to make sure the company has got assets to keep thriving going forward. And this can pay off in many different ways. Remember, these chemicals can be attached to any antibody to attack different types of tumors. So it's a platform.

[Paul Sweeney]

It's a platform and everyone's trying to build one. Let me get your thoughts, Sam, Overall on M and A in the space you mentioned the Lilly deals. And we know that Lilly is operating from a position of strength, being able to go out and build up its pipeline in a way that perhaps other drug makers aren't able to. Who else is operating from that kind of position of strength, in addition to Eli Lilly?

[Sam Fazella]

Yeah. So Merck has got a pretty good cash flow position. AstraZeneca has got strong cash flow. GSK did a deal, one of the deals we spoke about recently. So most of the pharma companies are in a pretty decent shape. AbbVie, you know, they've got great, great growth. And you can see analysts are upgrading the stock on almost a daily basis. So most companies do. Pfizer is the one that has done its M and A to a degree and now we're waiting for that to bear fruit. The latest one, they have done other deals. They have been doing licensing and partnership deals. So most pharma companies are in a position of strength from a cash flow perspective to be able to do these types of deals. And their balance sheets are relative light across the sector as a whole. And so there's access to credit there too, if they wanted to.

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[Paul Sweeney]

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[Nathan Hager]

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