fortune--2020-01-28--A.I. is unstoppable. And A.I. is struggling.

This is the web version of Eye on A.I., Fortune’s weekly newsletter on the news in artificial intelligence. To get it delivered daily to your in-box, sign up here.
Not only is A.I. coming for your job, but there’s probably nothing you can do to stay ahead of the automation wave.
That’s the takeaway from a recent report from Gartner, the technology research firm, forecasting that 69% of the tasks managers currently perform will be automated within the next four years, “requiring a complete overhaul of the role of the manager.”
The same report also predicted big trouble ahead for companies’ attempts to retool and reskill their workforces to face this newly-automated future. It forecast that 47% of learning and development budgets will wind up wasted as A.I. eliminates about two-thirds of what Gartner calls “on-the-job, task-based learning opportunities.”
But for every report such as this about the vast potential of artificial intelligence to radically reshape the nature of work there seems to be another one that points to a yawning gap between that potential and what most companies are finding they can actually achieve with the technology today.
In the here and now, automation’s march does not seem to be quite so smooth. Another report out last week from Plutoshift, a Silicon Valley startup that provides software to help industrial companies collect data and implement predictive analytics, found that many manufacturing firms were struggling to use A.I.
Of the 250 industrial firms Plutoshift surveyed,
over 72% found that they had taken far more time than anticipated to implement the necessary data collection processes for applying machine learning.
and perhaps as a result, only 17% of those surveyed said they were actually at the full implementation stage of using A.I.,
while about 70% said they were still studying what resources they’d need, assessing possible business use cases, or conducting small pilot projects only.
“Companies in the middle of this transformation usually lack the proper technology and data infrastructure,” Prateek Joshi, Plutoshift’s founder and chief executive officer, says. “In the end, these implementations can fail to meet expectations.”
Worryingly, almost 20% of companies cited “peer pressure” as the reason they had embarked on A.I. projects.
These dueling surveys, along with some other bits of A.I. news (see below) about companies using misleading marketing to sell their software, raise the looming spectre of disillusionment with the technology. Are businesses entering a new era of snake (or sn-A.I.-ke) oil salesmanship?
Jeremy Kahn
@jeremyakahn
jeremy.kahn@fortune.com
A.I. in the news
Clearview faces class-action lawsuit over facial recognition
Clearview, a controversial New York-based A.I. startup that sells facial recognition technology to law enforcement agencies, is facing a class-action lawsuit in Illinois that accuses the company of violating that state's stringent biometric data privacy law, according to a ZDNet.com report. (More on Clearview below.) The Illinois law, which prohibits entities from using residents' biometric data without consent, is an important tool for privacy advocates: Facebook is facing a similar class-action lawsuit in the state over its auto-tagging features—and the U.S. Supreme Court just decided last week not to take up Facebook's appeal, so it looks like the plaintiffs will have their day in court.
New York police dispute Clearview marketing claims
A story in Buzzfeed News cast doubt on Clearview's marketing claims that its technology helped New York police capture a terrorism suspect. Clearview had suggested, in an email and a video on its website, that its facial recognition software had played a role in the August 2019 arrest of a man who had allegedly planted rice cookers, designed to look like improvised explosive devices, around the city, setting off a bomb scare. “The NYPD did not use Clearview technology to identify the suspect in the August 16th rice cooker incident,” a department spokesperson told BuzzFeed News. The department also said "there was no institutional relationship" with Clearview, although the company founder, Hoan Ton-Thot, says the department is trialing its technology.
London police begin using live facial recognition system
The London Metropolitan Police announced that they will begin deploying a facial recognition system made by Japan's NEC Corp. across the city to aid in catching wanted suspects. It said the cameras and software would be deployed in areas of the capital where intelligence suggests such suspects were most likely to be found. Privacy advocates vowed to challenge the police department's use of the technology in court.
Google's Pichai repeats his 'more important than fire' claims
Google CEO Sundar Pichai repeated his claim that artificial intelligence is "more profound than fire or electricity" in a speech at the World Economic Forum in Davos, Switzerland. Pichai was hardly the only major tech company executive to talk about A.I. or to call for increased government regulation of the technology at Davos. But some saw these speeches about A.I. ethics as little more than a cynical ploy by the titans of tech to shift the discussion away from controversies over data privacy violations, content moderation, anti-competitive business practices or tax dodging. (For more on Pichai's views on A.I. and many other issues, I recommend you read Adam Lashinsky's illuminating Q&A with him in this month's issue of Fortune, which you can find here.)
IBM unveils A.I. regulation principles for businesses
Big Blue has issued a policy paper on A.I. regulation. The company wants regulators to take a "risk-based" approach to technology, something it called "prevision regulation," in contrast to broadly applied rules that would treat the technology the same no matter how it was being used. IBM said three big principles should govern A.I. regulation: accountability, transparency, and fairness and security. For companies, IBM advocated five more-detailed principles: each organization should appoint a lead A.I. ethics officer, undertake a risk-based assessment of potential A.I. harms, be transparent about when and where A.I. is being used, deploy explainable A.I., and test its A.I. systems for bias.
More sn(A.I.)ke oil claims?
Somewhat lost in all the other controversy surrounding Clearview and its facial recognition software: a discussion that goes to the heart of what's wrong with how a lot of today's machine learning-based solutions are sold.
In marketing materials, which Buzzfeed reports Clearview shared with the Atlanta Police Department, the company claimed it could identify an individual face out of a dataset of 1 million faces with 98.6% accuracy, compared to 83.3% from a system built by Tencent and 70.4% from Google-built software.
But, as Chris Dulhanty, a graduate student in computer vision and image processing at the University of Waterloo, in Canada, pointed out in a Twitter exchange with Clare Garvey, a senior associate at Georgetown University Law School's Center for Privacy and Technology, this claim is very likely misleading: Clearview and many other facial recognition companies have been touting their performance on a benchmark dataset of 1 million faces called MegaFace. (The creation of Megaface, which is maintained by the University of Washington with sponsorship from Google, Intel and the National Science Foundation, is itself controversial for grabbing Flickr photos without the explicit consent of those who posted them.) But there are actually two versions of this dataset: the original one, and a "cleaned" version which removed a lot of allegedly mislabelled data.
Dulhanty says that Clearview seems to be comparing its results from the cleaned-up dataset against Google's and Tencent's from the original. In other words, this is not a valid apples-to-apples comparison. What's more, good performance on the cleaned version of Megaface doesn't clearly translate to accurate performance under the real-world conditions in which police want to use facial recognition.
How much of A.I. marketing in general is guilty of similar sins? My guess is a lot. And I think this may factor into the disappointment many companies experience when they try to use such systems.
Eye on A.I. research
Performance of skin cancer-screening A.I. varies across lesion types. A study published in The European Journal of Cancer examined an A.I. software called Moleanalyzer-Pro made by FotoFinder Systems. The software has been approved for sale across Europe. FotoFinder had previously performed a study published in Annals of Oncology that pit MoleAnalyzer-Pro against 58 dermatologists on 100 lesion images and found that on average, it out-performed the humans. But the new Journal of Cancer study, which was performed by researchers at a number of European universities in collaboration with FotoFinder's own research department, found that MoleAnalyzer-Pro's performance varied greatly depending on the exact type of lesions it was analyzing. Significantly, the scientists found that the system actually performed worst on exactly those lesion types human doctors are taught to treat as most suspicious.
As Luke Oakden-Rayner, the director of medical imaging research at Australia's New Royal Adelaide Hospital, says, this study shows the importance, particularly in medicine, of not putting too much emphasis on the average performance of A.I. models, and instead investigating how these models perform on different sub-types of data. The clinical significance of false positives and false negatives are never equal across sub-types. As he tweeted, "AI makes inhuman errors (distracted by background, weak to noise etc), so subset testing is critical for safety. Imagine using the system clinically w/out this knowledge!"
Fortune on A.I.
This tech giant says A.I. has already helped it save $1 billion—by Maria Aspan
Inside big tech’s quest for human-level A.I.—by Jeremy Kahn
A.I. is transforming the job interview—and everything after—by Maria Aspan
Medicine by machine: Is A.I. the cure for the world’s ailing drug industry?—by Jennifer Alsever
A.I. breakthroughs in natural-language processing are big for business—by Jeremy Kahn
Brain food
OpenAI's GPT-2 language model is designed to take human-written prompt of a sentence or two and then compose several paragraphs of novel text based on it. It is one of the largest language models ever built, comprising some 1.5 billion parameters and trained on billions of words-worth of data.
Gary Marcus, the emeritus New York University professor of cognitive psychology and current CEO of A.I. startup Robust AI, takes a long, hard look at the model in a piece for The Gradient. Marcus finds the A.I. model impressive in its fluency, its relative ability to stick to a topic over many sentences, its ability to do some question-answering and its ability to deal with typos and missing words. But he finds the model falls far short of any real language understanding.
Marcus says there are two competing ideas about how humans acquire language skills: On the one hand, Marcus says, are nativists, a line of thought he traces from Plato and Kant to Noam Chomsky, Steven Pinker, Elizabeth Spelke, and, well, himself. These people believe that fundamental aspects of language are innate—hard-wired into the brain somehow. He contrasts these folks to empiricists, whom he traces from philosopher John Locke to deep-learning pioneer Geoff Hinton, chief A.I. scientist at Facebook Yann LeCun, and Hinton's former grad student, current OpenAI chief scientist Ilya Sutskever. Empiricists, Marcus says, think language is completely learned. GPT-2 is pure empiricism, according to Marcus, and in its failings makes the case for taking a more nativist approach.
In his essay, Marcus makes an elegant and important distinction between predicting and understanding language:
"Prediction does not equal understanding ... Prediction is a component of comprehension, not the whole thing ...We frequently encounter words that we have not predicted and process them just fine. Shakespeare's audience was probably a little surprised when the Bard compared the subject of his 18th Sonnet to a summer's day, but that failure in prediction didn't mean they couldn't comprehend what he was getting at. Practically every time we hear something interesting, we are comprehending a sentence goes some place that we didn't predict."
The same distinction probably applies to the rest of artificial intelligence too: Today, people in the field frequently conflate accurate prediction with intelligence. But is human intelligence really just the cumulative sum of repeated predictions? Are our brains simply prediction machines? Some A.I. scientist certainly argue so. But, as Marcus's Shakespeare example demonstrates, there is reason for skepticism. In fact, many of the things humans refer to as "genius"—in art or music and perhaps in business, too—come from the ability to achieve something in the least predictable way.
What does A.I. mean for your company? Find out at Brainstorm A.I.
If you’re interested to learn how some of the biggest, most influential companies are strategizing about artificial intelligence, come to Fortune’s Brainstorm A.I. conference in Boston on April 27-28, 2020. A.I. is a game-changing technology that promises to revolutionize business, but it can be confusing and mysterious to executives. The savviest leaders know how to cut through the deluge of A.I. buzzwords and reap the technology’s benefits.
Attendees of this invite-only confab can take part in cutting-edge conversations with top corporate execs, leading A.I. thinkers, and power players. Among them: United States Chief Technology Officer Michael Kratsios; Accenture CEO Julie Sweet; Land O’Lakes CEO Beth Ford; Siemens U.S. CEO Barbara Humpton; Royal Philips NV CEO Frans van Houten; Landing AI founder and CEO Andrew Ng; Robust.AI founder and CEO Gary Marcus; and top machine learning experts from Bank of America, Dow, Verizon, Slack, Zoom, Pinterest, Lyft, and MIT. You can request an invitation here.


fortune--2020-01-28--Ahead of its fourth-quarter earnings, Facebook faces costly regulatory pitfalls

New York Times reporter writing a bin Salman book was targeted with NSO Group spyware , report says

This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
Good morning, Data Sheet readers. Tech writer Danielle Abril here filling in for Adam.
With Facebook’s fourth-quarter earnings coming up on Wednesday, I’ve got my eyes on how it’s handling concerns from regulators across the world. When the dust finally settles, the company could end up paying a hefty price—just perhaps not in fines.
Lawmakers in America have been cracking down on the company for failing to ensure the privacy of its users, leaving data vulnerable to hackers, and allegedly stifling competition by buying up social media competitors like WhatsApp and Instagram. Yesterday, Reuters reported that the feds are beefing up their staff to aid with their antitrust probes into Facebook and its Big Tech cohorts Amazon, Apple, and Google. And last year, the Federal Trade Commission slapped the social media giant with a $5 billion fine for mishandling user data.
The U.S. is not alone in its scrutiny of the company.
Facebook is reportedly facing a fine of “billions of euros” from Ireland’s Data Protection Commission, the leader of the European Union’s investigations, for similar issues, according to the Wall Street Journal. And Facebook almost lost an antitrust lawsuit in Germany that would’ve changed how it collects user data, the fuel for its advertising machine. The crisis was averted after an appellate court ruled in Facebook’s favor.
All of that said, Facebook’s business, which generated $55.8 billion in revenue last year, has been fairly unscathed by regulatory scrutiny. And most analysts don’t expect that to change come Wednesday. They predict that Facebook will report $20.9 billion in revenue for the quarter and $70.5 billion for the year.
RBC Capital Markets remains “quite impressed with Facebook’s scale and overall usage relative to its peers,” according to an analyst’s latest note. Raymond James and Monness, Crespi, Hardt & Co. also remain positive on Facebook’s stock ahead of earnings.
But Colin Sebastian, a Baird senior research analyst, raises an interesting point. Though the potential of regulatory fines may do little to hurt Facebook’s overall business, they could portend a costlier toll in the long run.
“My … concern is more generally whether the distraction of investigations and regulations stunts innovation or puts further pressure on profitability,” he noted. “As time goes on, and more governments decide to take their ‘pound of flesh,’ distraction becomes a bigger concern.”
It’s hard to take down a company once it becomes a behemoth. But if the company is too busy heeding international regulators, it could unintentionally lose its lead.
Danielle Abril
Twitter: @DanielleDigest
Email: danielle.abril@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
Way better than a laptop. Monday marked the 10th anniversary of the introduction of Apple's iPad. Former Microsoft exec Steven Sinofsky shared an interesting tweet storm about how he initially misjudged the device. And longtime Apple watcher John Gruber dug into why the iPad still hasn't lived up to its potential. "Great though it is in so many ways, overall it has fallen so far short of the grand potential it showed on day one," he wrote.
Bird on the wire. The British government tried to split the baby in the controversy over allowing gear from Chinese telecom maker Huawei into the U.K.'s new 5G wireless networks. While being excluded from "sensitive parts" of the networks, Huawei will be allowed to supply much of the rest of the system, despite U.S. concerns.
Fumbled. The official Twitter accounts for more than a dozen National Football League teams were hacked on Monday, though rather benignly. "We are here to Show people that everything is hackable," the hackers, calling themselves OurMine, wrote on the teams' feeds. The messages were quickly deleted.
You had one job. Antivirus software developer Avast has been selling customers' web browsing history to clients including Home Depot, Pepsi, and Microsoft, an investigation by Motherboard found. The data appears to have been collected by a web browser plugin which ostensibly protects users from malicious sites. In another tale of data hijinks online, counterfeit restaurants appear to be cropping up on delivery services like GrubHub and Uber Eats. The fake food suppliers have taken the names of popular, real restaurants that don't offer take out.
Putting your money to work. Fortune's quarterly investment guide includes some stock picks from top fund managers, and there's plenty of tech on their plates. Diane Jaffee, who manages TCW’s Relative Value Large Cap Fund, touts Cisco Systems. “In this kind of environment where the world is aflame, you do want the power of a very large, super well-run company,” she says. Mark Baribeau, head of global equity at Jennison Associates, likes the globally expanding Shopify.
FOOD FOR THOUGHT
Corporate tax receipts have plummeted since 2017 tax cuts slashed the rate imposed on corporations. But way before that, tech companies like Apple, Amazon, and Microsoft were innovating new ways to minimize their tax bills. In an article co-published by Fortune and ProPublica, Paul Kiel tells the convoluted and fascinating tale of the Internal Revenue Service's efforts to challenge a Microsoft transaction in Puerto Rico.
Here’s how it would work. Microsoft’s Puerto Rican subsidiary would produce all the CDs for the American market. Because it was the sole producer, it would buy the exclusive rights to Microsoft’s technology. Those licenses would entitle the Puerto Rican company to a share of Microsoft’s American profits...the factory subsidiary would send the parent company about $31 billion over 10 years — and receive almost $70 billion in profits in return over the same period. Instead of being taxed in the U.S., where the rate was 35%, the $39 billion difference between those figures would be taxed in Puerto Rico at a rate near 0%. It was a long-term plan that could continue indefinitely. It didn’t matter that the transaction was fundamentally absurd. Microsoft would never actually sell its most valuable asset to another company, let alone to a little tropical factory.
ON THE MOVE
Some corporate boards are diversifying. Intel is adding Alyssa Henry, general manager and head of the seller business unit at Square, as former Intel CFO Andy Bryant steps down...and Advanced Micro Devices CEO Lisa Su is joining the board of Cisco Systems, increasing the company's board size to 11 people...former Apple, Tesla, and (most recently) Google software engineer Chris Lattner is joining custom chip startup SiFive as senior vice president and lead platform engineer...former BMC Software CEO Peter Leav, who navigated the company to a sale to private equity last year, will be the new boss at cybersecurity firm McAfee starting next month...Airbnb's new global head of real estate will be Jesse Stein. He arrives from KHP Capital Partners, where he was senior vice president.
IN CASE YOU MISSED IT
Silicon Valley pays tribute to Kobe Bryant the basketball legend—and investor By Polina Marinova
The top corporate apps in 2019 included some surprises By Jonathan Vanian
Verizon is the best wireless carrier, report says, but 5G could change everything By Aaron Pressman
Apple’s new golden child— services—is in the earnings spotlight. Here’s why By Don Reisinger
Why 2020 is shaping up to be a strong year for IPOs By Lucinda Shen
Why Melinda Gates is investing $50 million to make the next Silicon Valley—starting in Chicago By Maria Aspan
Lender SoFi is back from the brink with a new strategy to target the ‘everyman’ By Jeff John Roberts
BEFORE YOU GO
I got a little overexcited at the post office the other day when I discovered that illustrations from Ezra Jack Keats' children's book The Snowy Day had been made into Forever stamps. Absolutely brilliant. The book, which came out in 1962, won the prestigious Ralph Caldecott Medal for the best children's picture book of the year. They announced the 2019 award on Monday: The winner was The Undefeated, by Kwame Alexander and illustrated by Kadir Nelson, a poetic story of black history in America.
Aaron Pressman
On Twitter: @ampressman
Email: aaron.pressman@fortune.com


fortune--2020-01-28--Why Melinda Gates is investing $50 million to make the next Silicon Valley—starting in Chicago

Melinda Gates is investing $50 million in creating more tech opportunities for women—outside of the industry’s usual power centers.
The philanthropist in October pledged $1 billion towards expanding women’s power and influence over the next decade. On Tuesday, Gates’ Pivotal Ventures said that $50 million of her pledge will go towards creating “inclusive tech hubs” in Chicago and two other yet-to-be-named cities, over the next five years.
The “Gender Equality in Tech Cities” initiative will focus on increasing the percentages of women who graduate with computing degrees and who get hired into (and retained/promoted at) tech jobs; it also aims to increase the amount of venture capital invested in startups with at least one female founder. Pivotal Ventures is devoting the money to several partners, including Break Through Tech, a spinoff of a Cornell Tech initiative, which will create career development programs for students at the University of Illinois at Chicago and elsewhere; and SecondMuse, an agency that will coordinate programs around hiring women in tech and funding female entrepreneurs.
“As the tech industry continues to expand beyond Silicon Valley to other areas across the country, we have the opportunity to reimagine what the sector could look like,” Gates wrote in a LinkedIn post scheduled to publish on Tuesday morning. “If these emerging tech hubs are supported to prioritize women’s representation and inclusion as they grow, they will be better positioned to tap into the full range of local talent, while also helping create a blueprint for closing the industry’s gender gap nationwide.”
The investment supports Gates’ commitment “to fast-track women in high-impact sectors like tech and ensure that all women (not just white women or women from elite backgrounds) are able to enter and advance in these fields,” as she told Fortune in our recent “25 Ideas for 2020” package.
Pivotal created a short list of potential cities and chose Chicago for its current tech, venture, and larger-business ecosystem—as well as its “attractive cost of living,” according to Renee Wittemyer, Pivotal’s director of program strategy and investment.
“We also believe that Chicago’s rich diversity is an untapped competitive advantage,” Wittemyer said in an interview Monday. “Tech continues to have an outsize influence on society, but women, and women of color in particular are being systemically left behind.”
Pivotal plans to choose the second of its three cities within the next year, she says.
Since Gates made her $1 billion pledge in October, Pivotal Ventures has made related investments of undisclosed amounts in a Techstars accelerator focused on elder care and in a fund focused on creating more opportunities for American women to run for office. Tuesday’s announcement is the first time that Pivotal is disclosing the specific amount it is committing to a part of Gates’ gender-equality pledge.
Still, that amount—$50 million split among three cities over five years— is relatively small, as Wittemyer acknowledges: “This is just the start of what it will take, and we can’t do it alone,” she says. “We really want to use this to crowd in other funders … to help us set the example of what a vibrant and inclusive tech hub could look like.”


fortune--2020-01-28--U.K. refuses to ban Huawei from its 5G mobile networks, setting up a clash with Trump

Britain will let Huawei Technologies Co. play a limited role in building the country’s next-generation mobile phone networks, denying a long-running attempt by the U.S. to have the Chinese tech giant barred.
In a statement released midday in London, the U.K. said it will keep high risk vendors, alluding to Huawei, out of the most sensitive core parts of the networks but will allow the company to supply other gear that’s critical to the roll-out of 5G, such as antennas and base stations.
The country will also impose a cap of up to 35% on the Shenzhen-based vendor’s radio access components, so phone carriers like BT Group Plc’s EE and Vodafone Group Plc may face a challenge reducing their dependence on Huawei. The Chinese company currently has a similar overall share of the U.K.’s 4G networks.
High risk vendors, a category which could also include China’s ZTE, which is already banned from the U.K., are also to be “excluded from sensitive geographic locations, such as nuclear sites and military bases.”
The recommended 35% cap will be kept under review and could reduce over time, the statement said. BT is already set to switch out Huawei components inherited when it bought the EE mobile network in 2016.
The widely-expected announcement by Prime Minister Boris Johnson’s government is a compromise between the outright ban on Huawei sought by the U.S. and the access sought by telecommunication companies. While it ends months of political wrangling, it remains fraught with peril for Johnson as he prepares to end 47 years of European Union membership for the U.K.
In a statement, Huawei Vice-President Victor Zhang said it was “reassured” that the U.K. government will let the company keep working with carriers on 5G.
“This evidence-based decision will result in a more advanced, more secure and more cost-effective telecoms infrastructure that is fit for the future,” he said, committing to build on Huawei’s more than 15 years supplying U.K. telecom operators.
The Confederation of British Industry, the leading business lobby in the country, said “this solution appears a sensible compromise that gives the UK access to cutting-edge technology, whilst building in appropriate checks and balances around security.” Vodafone Group Plc, which uses Huawei in its U.K. radio network, said “we aim to keep any potential disruption to customers to a minimum.”
U.S. reaction?
A key pillar of Johnson’s vision for a future outside the world’s richest single market is a trade deal with the U.S. and the Huawei license risks setting up a clash with President Donald Trump.
By curbing Huawei’s access but still allowing the supplier to play a role in 5G, British officials are betting they can manage any security risks at home and still maintain intelligence-sharing ties with the U.S. and other allies.
Johnson discussed Huawei in a phone call with Trump on Friday, though his remarks on Monday suggested he wasn’t swayed by the push for a total ban. The prime minister said the U.K. could have the best of both worlds: retaining access to the best technology while protecting the data of consumers. British security services deem the risks manageable.
For the U.K. timing of its announcement is particularly sensitive. U.S. Secretary of State Michael Pompeo, who had warned Johnson’s predecessor not to “wobble” on the issue, is due to visit on Wednesday.
Huawei has been a key supplier to the U.K. and many other European phone networks for over a decade so this decision will be closely watched by others. In fact, many European nations and Canada are leaning in the same direction as the U.K.
The EU will publish its own guidelines on Wednesday which give leeway to member states to restrict or ban Huawei without forcing them to do so. According to a draft of the document seen by Bloomberg, countries should consider banning suppliers based in countries with insufficient “democratic checks and balances” from core 5G components.
A key concern of the U.S. is that other countries will copy-and-paste the U.K.’s solution, relying on its regulatory system and high level of access to Huawei technology.
“The U.K. model isn’t easily replicated,” warned Ian Levy, technical director of the National Cyber Security Centre, in a blog published alongside the decision. “The approach we’ve come up with for the U.K. is specific to the U.K. context. Others shouldn’t assume they’re getting the same level of protection for modern networks if they do similar things without performing their own analysis.”
The market is broken, he added, because it’s not commercially attractive to build good security into networks.
Editor’s note: This story has been updated.
More must-read stories from Fortune:
—Europe may be next in Trump’s trade war offensive
—Berlin’s ‘ghost’ airport might finally open, billions over budget and 8 years late
—The long ocean voyage that helped find the flaws in GPS
—Mysterious GPS outages are wracking the shipping industry
—Into the ‘crucible’: How the government responds when GPS goes down
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-28--Lender SoFi is back from the brink with a new strategy to target the ‘everyman’

SoFi once enjoyed a sweet niche in the financial world: Refinancing the student loans of professionals poised to make lots of money. The San Francisco startup, whose name is short for social finance, also made its name by encouraging its “Members” to meet each other at parties and online. This put a human touch on the student loan business—and also offered SoFi a way to cross-sell mortgages to its high-flying MBA and law school graduates—so-called HENRYs (“High Earners, Not Rich Yet”).
Now the company has a new strategy—to include those of more modest means. At a recent breakfast in San Francisco, SoFi CEO Anthony Noto touted the company’s new everyman approach.
“We discovered people can’t afford to buy their first stock. They want to but then find out shares in a company like Amazon trades above $1,000,” says Noto, explaining how customers are coming to SoFi to buy fractional shares, or $10 positions in ETFs—reflecting a new client base unlikely to have expensive degrees from fancy schools.
Unlike other fintech CEOs, Noto doesn’t affect a touchy-feely manner or pretend his company is driven by altruism. A former Army Ranger and linebacker at West Point who ran operations at Twitter, Noto is also very much a banker. The reason he is pushing SoFi into new mass-market business lines is because he has to.
When Noto took the helms of SoFi in early 2018, the company was undergoing a minor crackup. Its former CEO and co-founder, Mike Cagney, had resigned amid a sexual harassment scandal and SoFi’s home loans were losing $10,000 on average. In response, the company laid off 5% of its staff and Noto focused on new product lines like consumer banking, cryptocurrency and investing. He also ended the losses on home loans, in part by off-loading the underwriting and some of the operations onto third party partners.
Cagney, who stepped down in September of 2017 now runs a startup called Figure that, like Sofi, offers debt consolidation.
“I’m proud of what we built and accomplished at SoFi, a $4.3B profitable financial services company in 6 years, but we also made some mistakes along the way. We’re hopeful that Anthony can steward the company to an even greater outcome,” Cagney told Fortune.
Today, Noto makes the case SoFi has regained its footing with new products and branding that promises to help consumers “get your money right.” This effort includes improving SoFi’s mobile experience, which Noto says had been neglected, and by “putting the social back in SoFi” by encouraging interaction among members. SoFi also made a splash by laying out a reported $400 million to buy naming rights to the Los Angeles stadium where the NFL’s Rams and Chargers will play next year.
Still, the company faces two notable challenges. One is that the supply of quality student loan borrowers who helped SoFi soar in its early years has been largely picked over. The other is that the new fields SoFi is entering like stock buying and consumer investing is fiercely competitive.
“SoFi was pretty catastrophic 18 months ago. Anthony has done a good job righting a listing ship, but those consumer lending businesses are terrible,” said a partner at a venture capital firm who specializes in fintech investments.
The partner, who spoke on condition of anonymity because he did not want to alienate SoFi, said he is skeptical that SoFi will be able to cross-sell many of its loan customers on its newer investing and banking products, noting that consumer interaction with lenders is fairly infrequent. He also pointed to the slumping price of public companies in similar businesses to suggest SoFi’s valuation could get pummeled if it pursues an IPO.
Noto believes he can pull off considerable cross-selling among SoFi’s 900,000 customers, in part by promoting its “Member” culture among customers. He also points to SoFi being one of only a handful of firms that offers fractional share purchases, and to its no-fee bank account services that offers 1.6% interest. Last week, SoFi also announced a tie-up with Mastercard that will help the company offer more perks like cell phone insurance.
Still, building up a banking business could be a slow slog. A person familiar with the company said SoFi currently has 150,000 banking customers, adding that while its lending businesses are profitable, the company overall is not. Noto predicts the banking and investing products—dubbed SoFi Money and SoFi Invest—will gather steam as the company improves its “Member experience” and as more potential customers hear about them.
Meanwhile, Noto has no intention of resurrecting SoFi’s earlier plans of seeking a federal banking charter. Instead, the CEO, who is known for his colorful language, says his company will for now continue relying on larger banks—what he describes as “the oligopolists”—that currently charge SoFi an average 4% interest on its loan capital. This reality, Noto says, underscores how big banks are able to collect outsized profits on their loans even as they offer customers almost negligible returns on their savings.
Noto is intent on playing a long-game, which he believes will be helped by a healthy balance sheet that lists $2.2 billion of available capital. His focus for now is to push every unit of the company, which has recently grown to around 1500 employees, to become profitable. It remains to be seen, however, whether all this will help SoFi, which has raised a total of $2.3 billion at a $4.2 billion valuation, regain its status as a fintech darling.
For Noto, the former soldier and football player, victory at SoFi is likely to come only through a grinding, yard-by-yard struggle.
Correction: An earlier version of this story incorrectly described HENRYs as high income, not high earners.
More must-read stories from Fortune:
—All of your questions on filing taxes in 2020, answered
—The health of the economy in nine charts
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—10 stocks that are poised for a stellar 2020
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-28--Oil giant Total is being sued by cities and NGOs for not fighting climate change hard enough

Oil giant Total SA is being sued by 14 local governments and a handful of non-governmental organizations in France for not doing enough to reduce its carbon emissions and fight global warming.
The legal challenge is the latest sign that the biggest oil companies are coming under increasing pressure from activists, investors and governments to cut emissions as the fight against climate change ramps up.
Local authorities, including from Grenoble near the Alps, are asking a court near Paris to order Total to “recognize the risks generated by its activities and to align itself on a trajectory compatible with limiting global warming to 1.5 degrees Celsius,” Sherpa, an activist group that’s part of the legal action, said in a statement on Tuesday.
“By 2050, Grenoble residents will experience three months of heat waves a year, and snow will continue to disappear in winter,” Grenoble Mayor Eric Piolle said. “We also have a responsibility to push the biggest emitters of greenhouse gases to lead by example.”
The debate over climate change and the role of the energy industry is becoming increasing heated. Oil companies have faced protests from activists for years, but now even some of their largest investors are urging them to do more.
Total “regrets” that legal actions has been taken when “solutions required to meet both the need for energy for all and the climate change stakes require a cooperation of all players,” the company said in an emailed statement. “Total has publicly acknowledged the climate issues for a long time, and take them into account in its strategy.”
The company is targeting at least a 13% reduction in greenhouse gas emissions at its operated oil and gas facilities in the 10 years to 2025. It also has an “ambition” to reduce the carbon intensity of energy products sold to its customers by 15% in the 2015-30 period.
Total has spent billions of dollars to expand in wind and solar power as well as in batteries, and plans to invest as much as $2 billion annually in low-carbon electricity.
More must-read stories from Fortune:
—Making green energy more trusted with the same tech that keeps cryptocurrency safe
—Retailers reuse and recycle the way to increased growth
—2020 Crystal Ball: Predictions for the economy, politics, technology, and more
—Climate change is hitting the insurance industry hard: How Swiss Re is adapting
—The Future 50 sustainability all stars
Subscribe to The Loop, a weekly look at the revolutions in energy, tech, and sustainability.


fortune--2020-01-29--Fortune’s Blue Ribbon Companies 2019

Fortune’s Blue Ribbon Companies 2019

This surprising sector is beating the S & P 500 , and it seems impervious to coronavirus

These 51 companies appeared on at least four of our ten most rigorous 2019 annual rankings—the Fortune 500, Global 500, 100 Best Companies to Work For, Change the World, Future 50, World’s Most Admired Companies, Fastest-Growing Companies, Most Powerful Women, Most Powerful Women International and Businessperson of the Year. Now they’re on one more: our Blue Ribbon list.
Here are the companies that made the Blue Ribbon list this year:
Companies with 7 list appearances
Accenture (ACN)
No. 15 on Businessperson of the Year
No. 21 on Change the World
No. 46 on Future 50
No. 9 on Most Powerful Women
No. 298 on the Fortune Global 500
No. 61 on the 100 Best Companies to Work For
World’s Most Admired Companies
Facebook (FB)
No. 49 on Future 50
No. 6 on Most Powerful Women
No. 48 on Most Powerful Women International
No. 22 on Fastest-Growing Companies
No. 184 on the Fortune Global 500
No. 57 on the Fortune 500
World’s Most Admired Companies
Companies with 6 list appearances
Alibaba (BABA)
No. 16 on Businessperson of the Year
No. 37 on Change the World
No. 11 on Future 50
No. 10 on Most Powerful Women International
No. 182 on the Fortune Global 500
World’s Most Admired Companies
Apple (AAPL)
No. 16 on Change the World
No. 32 on Most Powerful Women
No. 11 on Most Powerful Women International
No. 11 on the Fortune Global 500
No. 3 on the Fortune 500
World’s Most Admired Companies
Bank of America (BAC)
No. 8 on Change the World
No. 50 on Most Powerful Women
No. 58 on the Fortune Global 500
No. 25 on the Fortune 500
No. 92 on 100 Best Companies to Work For
World’s Most Admired Companies
IBM (IBM)
No. 22 on Change the World
No. 4 on Most Powerful Women
No. 30 on Most Powerful Women International
No. 114 on the Fortune Global 500
No. 38 on the Fortune 500
World’s Most Admired Companies
JPMorgan (JPM)
No. 10 on Businessperson of the Year
No. 38 on Change the World
No. 26 on Most Powerful Women
No. 41 on the Fortune Global 500
No. 18 on the Fortune 500
World’s Most Admired Companies
Progressive (PGR)
No. 6 on Businessperson of the Year
No. 11 on Most Powerful Women
No. 391 on the Fortune Global 500
No. 99 on the Fortune 500
No. 76 on 100 Best Companies to Work For
World’s Most Admired Companies
Salesforce (CRM)
No. 49 on Change the World
No. 9 on Future 50
No. 39 on Fastest-Growing Companies
No. 240 on the Fortune 500
No. 2 on 100 Best Companies to Work For
World’s Most Admired Companies
Companies with 5 list appearances
Adobe (ADBE)
No. 25 on Future 50
No. 33 on Fastest-Growing Companies
No. 339 on the Fortune 500
No. 22 on 100 Best Companies to Work For
World’s Most Admired Companies
Alphabet (GOOGL)
No. 18 on Future 50
No. 10 on Most Powerful Women
No. 37 on the Fortune Global 500
No. 15 on the Fortune 500
World’s Most Admired Companies
Amazon (AMZN)
No. 31 on Future 50
No. 11 on Fastest-Growing Companies
No. 13 on the Fortune Global 500
No. 5 on the Fortune 500
World’s Most Admired Companies
Best Buy (BBY)
No. 32 on Change the World
No. 18 on Most Powerful Women
No. 276 on the Fortune Global 500
No. 74 on the Fortune 500
World’s Most Admired Companies
Centene (CNC)
No. 7 on Change the World
No. 78 on Fastest-Growing Companies
No. 168 on the Fortune Global 500
No. 51 on the Fortune 500
World’s Most Admired Companies
Mastercard (MA)
No. 8 on Businessperson of the Year
No. 2 on Change the World
No. 33 on Most Powerful Women International
No. 210 on the Fortune 500
World’s Most Admired Companies
Microsoft (MSFT)
No. 1 on Businessperson of the Year
No. 16 on Most Powerful Women
No. 60 on the Fortune Global 500
No. 26 on the Fortune 500
World’s Most Admired Companies
Nvidia (NVDA)
No. 26 on Future 50
No. 7 on Fastest-Growing Companies
No. 268 on the Fortune 500
No. 38 on 100 Best Companies to Work For
World’s Most Admired Companies
SAP (SAP)
No. 43 on Most Powerful Women
No. 27 on Most Powerful Women International
No. 427 on the Fortune Global 500
No. 28 on 100 Best Companies to Work For
World’s Most Admired Companies
Walgreens Boots Alliance (WBA)
No. 13 on Change the World
No. 26 on Most Powerful Women International
No. 40 on the Fortune Global 500
No. 17 on the Fortune 500
World’s Most Admired Companies
Walmart (WMT)
No. 5 on Change the World
No. 15 on Most Powerful Women
No. 1 on the Fortune Global 500
No. 1 on the Fortune 500
World’s Most Admired Companies
Companies with 4 list appearances
AbbVie (ABBV)
No. 381 on the Fortune Global 500
No. 96 on the Fortune 500
No. 63 on 100 Best Companies to Work For
World’s Most Admired Companies
American Express (AXP)
No. 270 on the Fortune Global 500
No. 72 on the Fortune 500
No. 13 on 100 Best Companies to Work For
World’s Most Admired Companies
Anthem (ANTM)
No. 5 on Most Powerful Women
No. 79 on the Fortune Global 500
No. 33 on the Fortune 500
World’s Most Admired Companies
Boeing (BA)
No. 25 on Most Powerful Women
No. 68 on the Fortune Global 500
No. 28 on the Fortune 500
World’s Most Admired Companies
Capital One Financial (COF)
No. 387 on the Fortune Global 500
No. 98 on the Fortune 500
No. 39 on 100 Best Companies to Work For
World’s Most Admired Companies
Cisco (CSCO)
No. 225 on the Fortune Global 500
No. 64 on the Fortune 500
No. 6 on 100 Best Companies to Work For
World’s Most Admired Companies
Costco Wholesale (COST)
No. 9 on Businessperson of the Year
No. 35 on the Fortune Global 500
No. 14 on the Fortune 500
World’s Most Admired Companies
CVS (CVS)
No. 17 on Most Powerful Women
No. 19 on the Fortune Global 500
No. 8 on the Fortune 500
World’s Most Admired Companies
Delta Airlines (DAL)
No. 260 on the Fortune Global 500
No. 69 on the Fortune 500
No. 97 on 100 Best Companies to Work For
World’s Most Admired Companies
FedEx (FDX)
No. 152 on the Fortune Global 500
No. 47 on the Fortune 500
No. 95 on 100 Best Companies to Work For
World’s Most Admired Companies
General Dynamics (GD)
No. 7 on Most Powerful Women
No. 343 on the Fortune Global 500
No. 92 on the Fortune 500
World’s Most Admired Companies
General Motors (GM)
No. 2 on Most Powerful Women
No. 32 on the Fortune Global 500
No. 13 on the Fortune 500
World’s Most Admired Companies
Goldman Sachs (GS)
No. 204 on the Fortune Global 500
No. 62 on the Fortune 500
No. 62 on 100 Best Companies to Work For
World’s Most Admired Companies
Hilton (HLT)
No. 41 on Change the World
No. 345 on the Fortune 500
No. 1 on 100 Best Companies to Work For
World’s Most Admired Companies
Home Depot (HD)
No. 20 on Most Powerful Women
No. 62 on the Fortune Global 500
No. 27 on the Fortune 500
World’s Most Admired Companies
Intel (INTC)
No. 24 on Change the World
No. 135 on the Fortune Global 500
No. 43 on the Fortune 500
World’s Most Admired Companies
Intuit (INTU)
No. 21 on Future 50
No. 482 on the Fortune 500
No. 24 on 100 Best Companies to Work For
World’s Most Admired Companies
Johnson & Johnson (JNJ)
No. 35 on Most Powerful Women
No. 109 on the Fortune Global 500
No. 37 on the Fortune 500
World’s Most Admired Companies
Lockheed Martin (LMT)
No. 1 on Most Powerful Women
No. 197 on the Fortune Global 500
No. 60 on Fortune 500
World’s Most Admired Companies
Micron Technology (MU)
No. 3 on Fastest-Growing Companies
No. 409 on the Fortune Global 500
No. 105 on Fortune 500
World’s Most Admired Companies
Morgan Stanley (MS)
No. 45 on Most Powerful Women International
No. 218 on the Fortune Global 500
No. 63 on Fortune 500
World’s Most Admired Companies
Northrop Grumman (NOC)
No. 13 on Most Powerful Women
No. 416 on the Fortune Global 500
No. 108 on Fortune 500
World’s Most Admired Companies
Paypal Holdings (PYPL)
No. 11 on Businessperson of the Year
No. 24 on Future 50
No. 204 on Fortune 500
World’s Most Admired Companies
PepsiCo (PEP)
No. 42 on Most Powerful Women International
No. 154 on Fortune Global 50
No. 48 on Fortune 500
World’s Most Admired Companies
Procter & Gamble (PG)
No. 36, 37 on Most Powerful Women International
No. 146 on Fortune Global 500
No. 45 on Fortune 500
World’s Most Admired Companies
Prudential Financial (PRU)
No. 30 on Change the World
No. 156 on Fortune Global 500
No. 50 on Fortune 500
World’s Most Admired Companies
Publix Super Markets
No. 342 on Fortune Global 50
No. 91 on Fortune 500
No. 12 on 100 Best Companies to Work For
World’s Most Admired Companies
Starbucks (SBUX)
No. 28 on Most Powerful Women
No. 40 on Most Powerful Women International
No. 121 on Fortune 500
World’s Most Admired Companies
Synchrony Financial (SYF)
No. 4 on Businessperson of the Year
No. 24 on Most Powerful Women
No. 173 on Fortune 500
No. 51 on 100 Best Companies to Work For
USAA
No. 400 on Fortune Global 500
No. 101 on Fortune 500
No. 30 on 100 Best Companies to Work For
World’s Most Admired Companies
Yum China Holdings (YUMC)
No. 14 on Businessperson of the Year
No. 17 on Most Powerful Women International
No. 362 on Fortune 500
World’s Most Admired Companies
More must-read stories from Fortune:
—The World’s Most Admired Companies in 2020
—Will retiring baby boomers crash the stock market?
—Millions have been purged from voter rolls—and may not even realize it
—Mysterious GPS outages are wracking the shipping industry
—Google CEO Sundar Pichai on managing a tech giant’s growing pains
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-29--Tax incentives juiced Tesla’s recent sales. But now those incentives are gone

When reporting earnings on Wednesday, Tesla is unlikely to emphasize the short-term benefits of a worrisome long-term trend for the company: the elimination of tax incentives for electric cars buyers.
In the U.S., for instance, buyers of a Tesla, or any other electric vehicle, could once get a whopping $7,500 rebate on their tax bill. The argument was that the subsidy helped get fuel-burning cars off the road, thereby reducing pollution.
But the U.S. credit began phasing out after Tesla sold 200,000 cars, dropping first to $3,750 on Jan. 1, 2019, then to $1,875 in July 1, 2019. Since Jan. 1 of 2020, U.S. Tesla buyers haven’t qualified for any tax credit.
It’s a similar situation in the Netherlands, a large market for Tesla, where tax credits also expired at the end of 2019.
Expiring tax credits or other incentives, for cars or any other product, create a phenomenon often referred to as “pull forward.” Buyers who may have been contemplating buying a Tesla were extra-motivated to buy at the end of last year, even if they may have normally waited a month or two.
According to many stock analysts, that “pull forward” should be at the front of investor’s minds when they evaluate Tesla’s fourth-quarter results on Wednesday.
Tesla has already announced record-high deliveries in the final quarter of 2019, and is expected to report good financial results on January 29. The current median analyst projection is for Tesla to post adjusted profits of $1.75 per share.
That’s would be just a bit below the $1.86 third-quarter adjusted earnings per share, which was far higher than the 42-cent loss that analysts had predicted. Tesla’s string of improving results has produced a huge rally in its shares, with its stock more than doubling since Oct. 23.
But there’s strong evidence that Tesla’s fourth-quarter deliveries were partly a sugar high driven by expiring tax credits. That would mean the first quarter of 2020 could see a serious crash in car sales, at least in two key markets.
According to analysts at Cowen, 95% of the growth seen in Tesla’s fourth-quarter deliveries can be attributed to this “pull forward” in the U.S. and the Netherlands. Analyst Toni Sacconaghi at AllianceBernstein has already warned to expect “seasonal softness” in first-quarter demand, largely because of this hangover.
Data to that effect is beginning to trickle in. According to near-real-time Dutch vehicle registration data, 12,053 Teslas were registered in the country in December of 2019. But three-quarters of the way through January 2020, only 33 Teslas had been registered.
Unless something big changes, that would mean a 99.6% monthly decline in a market that made up nearly 15% of Tesla’s fourth quarter deliveries.
Tesla has experienced tax credit-related plunges before. The first half of 2019 saw Tesla’s sales, profits, and stock price take a beating when the U.S. tax credit dropped by $3,750. Some governments have even cut their tax incentives with little warning, including Hong Kong, where electric vehicle sales collapsed in 2017 after regional authorities scrapped an incentive.
But some bullish analysts believe that demand in China and Europe (outside of the Netherlands) will help offset incentive-related losses. Dan Ives, an analyst with Wedbush Securities, believes that pent-up European demand will drive as many as 100,000 added sales there in the next year. Then China could take the reins: Tesla’s Shanghai factory is now fully operational, and Ives believes the Chinese market could eventually account for an added 175,000-200,000 cars sold annually.
Another point in Tesla’s favor, at least in the long term, is that its most successful competitors in the electric vehicle market are in the same boat as far as tax credits. General Motors, for instance, had sold 200,000 electric cars by the end of 2018, so tax credits for its vehicles like the popular Chevy Bolt will expire on April 1. That means the Bolt will have a slim $1,850 tax edge over the comparable Tesla Model 3 for only three months.
Perhaps a bigger competitive worry, at least in the U.S., are manufacturers that are further behind the curve on sales, or just entering the electric vehicle market. Volkswagen, Audi, and Jaguar all have new or planned electric cars that could be serious Tesla competitors. And they can sell tens of thousands more cars while still benefiting from the full $7,500 U.S. incentive.
Even the bullish Ives admits this is a problem for Tesla. Electric vehicle shoppers, he says, “will be looking at other models,” adding that “the tax incentives are definitely a headwind.” He estimates 5% to 10% of U.S. sales that may have gone to Tesla could be diverted to competitors thanks to incentives alone.
But Tesla has a clear ace in the hole – its reputation as an innovator, and its legion of ardent fans. “The Tesla brand, it’s the gold standard,” says Ives. “And that’s been their huge advantage. At least in the near term, it’s held pretty strong.”
How effectively that brand can stand up to a headwind of up to $7,500 per car, though, remains to be seen.
More must-read stories from Fortune:
—The World’s Most Admired Companies in 2020
—How 5G will transform the electric vehicle industry
—Automakers are reinventing how electric vehicles sound
—What was Carlos Ghosn thinking with his great escape? A former colleague offers clues
—Short-sellers took on Tesla and Elon Musk in 2019 and lost their shirts


fortune--2020-01-29--Our economic picture is unprecedented in modern history

Scientists are racing to develop a coronavirus vaccine , but it could take years to reach the market

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
How’s the economy doing? Fortune’s Lance Lambert tried to answer that question with nine key charts, as part of our new quarterly investment report. The story those charts tell is decidedly mixed. Two of the nine indicators are flashing red: the manufacturing purchasing managers’ index and the business spend index. Five more are in the yellow, “caution” zone—GDP, the yield curve, consumer confidence, the stock price-to-earnings ration, and auto sales. And two of the nine are green: employment and building permits.
What’s missing from those charts, however, is monetary and fiscal policy—both of which are pedal to the metal. The Fed is flooding the economy with money and holding its benchmark interest rate at an historically low level of 1.5% to 1.75%. And the Congressional Budget Office today predicted the budget deficit would exceed $1 trillion this year.
The result is an economic picture unprecedented in modern history. Predicting where it goes from here, based on past experience, is a fool’s errand. But it’s no surprise markets are on edge. Uncertain times ahead.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
BA China
British Airways has cancelled all flights to mainland China, in response to the coronavirus crisis (current death toll: 132). It is the first global airline to take the step, and did so following advice from the U.K.'s Foreign Office against all but essential travel to China. United Airlines has temporarily reduced its schedule for flights to Beijing, Hong Kong and Shanghai, but so far the U.S. has held back from banning flights. CNN
Bosch warnings
The German auto supplier Bosch has warned that global automotive production may have peaked. The company is cutting jobs and reviewing its business as a result of the fact that global auto production is on track to fall for the third consecutive year. Separately, Bosch CEO Volkmar Denner also warned the coronavirus crisis could end up disrupting the sector's supply chain. Reuters
Gaming stocks
More coronavirus-related news: gaming stocks in Hong Kong were hammered today, due to falling numbers of visitors to casino-packed Macao from the mainland—a year-on-year drop of just under 80% during the Golden Week holiday period. Melco International Development was down 5.2%, Wynn Macau 4.1%, Sands China 5.6% and Galaxy Entertainment 5.2%. CNBC
Huawei U.K.
The U.K.'s decision to accept Huawei into its 5G infrastructure rollout—to a limited degree—risked incurring the wrath of the U.S., which had starkly warned against doing so. But it seems Prime Minister Boris Johnson has talked President Donald Trump down from a full-blown confrontation, based on the importance of the countries' security and economic relationship. Guardian
AROUND THE WATER COOLER
Time's Up
In partnership with Time’s Up, Fortune reached out to all the 2020 presidential candidates with a list of questions about the economic issues that most directly affect working women and working families (such as paid family leave, sexual harassment, the gender pay gap, and more). Thirteen of the remaining 15 candidates—including President Trump—participated, with many doing exclusive video interviews. Fortune
Match Group
Match Group CEO Mandy Ginsberg is stepping down to deal with personal issues, including surgery to remove potentially dangerous breast implants, and the devastation of her Dallas home by a tornado. The new CEO as of March 1 will be Shar Dubey, the current president at Match Group, which operates a range of dating apps including Match and Tinder. Wall Street Journal
Nissan CEO
Is Makoto Uchida the right person to be leading Nissan at this crucial moment in the auto giant's trajectory? Just two months after he became CEO, a Financial Times analysis suggests there are doubts, due to his allegiances in the firm and his less-than-prominent leadership style. FT
Government spending
The federal government needs to rein in its small online purchases because it can't properly keep track of them, according to U.S. General Services Administration administrator Emily W. Murphy. Writing for Fortune, Murphy notes that these purchases add up to more than $6 billion a year, and the government owes it to citizens to ensure that the cash is "spent transparently and responsibly, without adding unnecessary bureaucracy." Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-01-29--This surprising sector is beating the S&P 500, and it seems impervious to coronavirus

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. The sun is shining here in Rome, the European markets are all trading in positive territory, as are U.S. futures. Even crude is rebounding, as I write. So, no need to worry about coronavirus, right?
Hardly. CEOs on earnings calls are getting hounded about the virus’ impact on sales. Apple, which crushed it in Q4, says it’s cutting store hours in this vital market, and limiting employee travel there. The upshot: you’re going to hear a lot more about coronavirus this quarter, and into the next.
But I want to switch gears this morning and talk about a sector of the market that seems remarkably immune to global contagions: real estate. Our Adrian Croft dug deep into the global real estate sector in the “chasing returns” feature for Fortune‘s Quarterly Investment Guide and found 12 take-aways for investors. What caught my eye is the booming market in REITs, or real estate investment trusts. REITs trade on stock exchanges and pay dividends, so they’re becoming more attractive to every-day investors.
And there’s an impressive bull run going on in the REITs market at the moment. The Wall Street Journal‘s Matt Wirz suggests it’s no fad. Investors are looking for returns that they can’t get from bonds in this low-interest rates world.
And that brings me to today’s chart.
S&P 500 had a good 2019, but nothing like the REITs
***
Nobody would complain about the S&P 500 performance in 2019. But select REITs had an even better year. If you looks closely at the chart you’ll see the hottest REITs reflect bigger business trends. There’s been a boom in data center construction, for example. Not surprisingly data center REITs are flying.
Nareit, the trade group for REITs, broke it down further in a recent report.
Check out the rest of Adrian’s story on real estate. There’s also a fascinating breakdown on the overseas real estate markets for those of you looking to invest in a place in the sun. It’s January. Why not?
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
Today's reads
Comeback. In the summer of 2011, Bank of America was on the ropes. It had the capital reserves, but not the confidence of the markets, to bail itself out of the mortgages crisis it inherited in buying up parts of Merrill Lynch and Countrywide. Fortune's Shawn Tully goes back to that moment and talks to the men, including CEO Bryan Moynihan, about how they pulled off what Tully calls "the single most outstanding comeback from the financial crisis." What's next for BofA? Read on.
Boeing in the spotlight. All eyes will be on Boeing's new CEO David Calhoun today as he faces equity analysts for the first time as the company reports results. We'll hear more about, among other things, the progress it's made on raising debt to shore up finances in the wake of the 737 MAX crisis. It may be the toughest call of the year for a CEO. Analysts say Calhoun has to be candid and clear about how the company is addressing the toxic corporate culture at the root of its problems.
Apple Cash. Of the many impressive metrics Apple reported yesterday, the one that stands out to many analysts is its cash reserves. In short, it's ticking up again, topping $207 billion. I've been watching Apple pre-market trading much of the morning, and it looks set to pop at the open of markets today.
Market candy
Parabolic chart of the day. Never heard of Kawamoto? It's a Japanese medical supplies manufacturer that specializes in surgical-style masks. Its shares achieved escape velocity earlier this week thanks to the Wuhan coronavirus contagion that's going global. This chart says it all. Buckle up before viewing.
HT to Welt's Holger Zschaepitz.


fortune--2020-01-29--Scientists are racing to develop a coronavirus vaccine, but it could take years to reach the market

Government scientists and pharmaceutical companies in Australia, China, and the U.S. are racing to develop a vaccine for the novel coronavirus that has infected over 6,000 people worldwide and killed more than 130.
But even if researchers come up with a vaccine—which a team in Hong Kong said it has already done—the drug would need to pass rounds of animal testing, human clinical trials, and regulatory approval before it can be released on the market, a process that will take several months at minimum and possibly up to several years.
A race against time
The chief scientific officer for Johnson & Johnson told CNBC on Monday that “dozens of scientists” at the pharma giant are working on a vaccine for the virus, and said the company is “pretty confident” it can produce one.
The Coalition for Epidemic Preparedness Innovations (CEPI), a public-private organization launched in 2017 to develop epidemic-preventing vaccines, announced last week it would fund work at two U.S. pharmaceutical companies, Moderna Therapeutics and Inovio Pharmaceuticals, along with the University of Queensland and the U.S. National Institute of Allergy and Infectious Diseases, to develop vaccines for the novel coronavirus, known as 2019-nCoV.
“Everybody is trying to move as quickly as possible,” said Jacqueline Shea, chief operating officer at Inovio, to the New York Times.
The new virus, which health officials suspect broke out at a now-shuttered wet market in Wuhan, is a member of the coronavirus family, which encompasses the common cold as well as rarer and more lethal viruses like severe acute respiratory syndrome (SARS) virus and Middle East respiratory syndrome (MERS) virus.
Existing data from the SARS and MERS outbreaks and familiarity with the spike protein characteristic of coronaviruses may help scientists develop a vaccine for 2019-nCoV. The experimental vaccine created by the University of Hong Kong (HKU) researchers, for example, was produced by modifying part of the existing flu vaccine.
But even if scientists come up with a vaccine, clinical trials and regulatory approval will likely push back the drug’s release date by a year or more. The HKU team did not give a specific time frame but said that animal testing could take months and human clinical trials could take “at least one year even if expedited.”
The Johnson & Johnson executive estimated it would take eight to 12 months for the company to reach the human clinical trial stage.
During the SARS outbreak—which killed almost 800 people and infected over 8,000 globally—scientists also set to work on creating a vaccine, a project slowed by the Chinese government’s initial concealment of the epidemic.
The scientists eventually created a SARS vaccine, but it was never released. By the time it reached the human trial stage, which took about 20 months, public health officials had contained the outbreak. A vaccine for MERS is still in development and has only been tested on animals so far.
“Uncharted territory”
“I think we are [in] uncharted territory in terms of a timeline, especially vis-a-vis regulatory approval, which under normal circumstances would take years,” said Edward Hammond, a Texas-based biotechnology researcher who has studied pandemic influenza preparedness.
“In the U.S. context at least, in order to have anything with formal approvals within a couple years, [government officials] will have to invoke emergency provisions.” Hammond added.
For any vaccine to be fast-tracked through regulatory channels, the U.S. government would have to declare a public health emergency, which would allow for an emergency use authorization of medical products from the Food and Drug Administration, according to FDA guidelines on the subject.
The Centers for Disease Control and Prevention said on Wednesday that the virus is “not currently spreading” in the U.S., and “the immediate risk in the U.S. is considered low.” The U.S. on Wednesday had five confirmed coronavirus cases.
As of Jan. 29, the number of recorded cases of the novel coronavirus surpassed 6,000. The majority of them are in China, where an additional 20,000 people are being observed for possible coronavirus infection.
Outside of China, countries across the globe have reported cases of the virus, including 14 in Thailand, seven in Japan, and four in France. Germany on Tuesday reported the first known case of human-to-human transmission of the virus. Taiwan and Vietnam have since reported human-to-human transmitted infections.
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fortune--2020-01-29--One drug, one patent?

One drug, one patent?

This is the web version of Brainstorm Health Daily, Fortune’s daily newsletter on the top health care news. To get it delivered daily to your in-box, sign up here.
Good afternoon, readers.
How should the drug patent system work?
Biopharma executives, unsurprisingly, tend to emphasize the importance of innovation—and regularly argue that strong intellectual property protections are essential to the project of advancing human medicine.
Democratic presidential candidate Michael Bloomberg is taking a different tact, proposing that any new branded pharmaceutical drug should only be able to win one patent.
That would be a massive transformation for the industry if it were to go through. It’s something we need to keep our eyes on.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
The scapegoat. We still don't know how this virus (the coronovirus, that is) progresses. It's a complicated procedure. Any vaccine will take months, if not years, to develop. I wish I had more to add, but the reality is: We just don't know what is going on.
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fortune--2020-01-29--Latino writers push back against Oprah’s Book Club pick, ‘American Dirt’

Getting into China gets more difficult as airlines cancel flights to fight virus spread

During a trip to Mexico to visit family, writer Myriam Gurba took American Dirt, a novel about immigration and cartel violence that was being touted as one of the biggest U.S. releases of 2020. The writer was of mostly white descent, and Gurba felt the book didn’t ring true.
“I was reading the book in Parque Revolución in Guadalajara. I’d look up and see real Mexico,” said Gurba, of Long Beach, Calif. “I’d look down back at the book and see fake Mexico.”
Since before its publication, American Dirt, by Jeanine Cummins, garnered suspicion and criticism from many Latino writers and activists at the same time—and partly because—it was being heralded by many in the book community as a vital new work on the Southern border crisis. It was praised by novelist Don Winslow as a modern Grapes of Wrath.
The novel has become a flashpoint in debates over who gets published, how reputations are formed, and who can tell which stories in an industry—from publishers and editors to booksellers and agents—that is predominantly white.
Nicolas Kanellos, founder and publisher of Houston-based Arte Publico Press, the largest publisher of Hispanic literature in the U.S., said a lot of the anger stems from the exclusion of Latino writers by major publishers.
“This has been going on for decades and these New York publishers don’t get it,” said Kanellos.
Cummins, author of three previous books, has faced criticism for previously identifying as white but mentioning her Puerto Rican grandparent as the novel got closer to publication. “You don’t get to bring out your Puerto Rican abuela when it’s convenient,” said Daisy Hernández, a Colombia American writer who teaches writing at Miami University of Ohio and wrote a 2014 memoir, A Cup of Water Under My Bed.
In the past, some white writers have received acclaim for their portrayal of Latinos in the U.S. Edna Ferber, a Michigan-born Jewish novelist, was widely admired by some Latinos for her portrayal of Mexican Americans in her 1952 novel Giant. She interviewed civil rights leaders Dr. Hector P. Garcia and John J. Herrera in her research into discrimination in Texas. John Steinbeck enjoyed a following among Mexican Americans for his stories set in Northern California.
And in 1974, California-born John Nichols was praised for his novel The Milagro Beanfield War, which explored the complicated relationship between Hispanics and whites in northern New Mexico and the battle over water rights.
Others, like T. C. Boyle and D.H. Lawrence, faced criticism for stereotypical portrayal of Latinos.
Bernadine Hernández, an English professor at the University of New Mexico, said that since those earlier books, colleges have introduced Chicano Studies and created a more critical Latino reading audience.
“It’s also coming at a time when Latinos are more sensitive and critical readers,” she said. “We can go to social media and express it.”
Gurba accused the big publishers of “librotrafficking,” comparing them to a cartel that controls who gets to tell Latino stories. Her scathing review of American Dirt, in which she accuses Cummins of appropriating works by Latinos, went viral.
American Dirt, published last week, tells the story of a Mexican woman and her 8-year-old son fleeing to the U.S. border after a drug cartel kills the rest of their family. It has been in the top 10 on Amazon.com for the past week, and has been praised by authors ranging from John Grisham and Stephen King to noted Latina authors Erika Sanchez and Sandra Cisneros.
Then Oprah Winfrey offered one of publishing’s most cherished honors: endorsement for her book club. Some Latino celebrities posted selfies with the book; Mexican-born actress Salma Hayek later apologized for promoting American Dirt without having read it after she was attacked on social media.
In a video posted last weekend on Instagram, Winfrey said she now realizes the book struck “an emotional chord” with Latinos and created a need for deeper conversation. Winfrey wants to hold a discussion on the politics of publishing for an Apple TV special in March.
In a statement, Sanchez, author of I Am Not Your Perfect Mexican Daughter, said Monday that she blurbed the book only after she saw that Cummins identified as Puerto Rican. “What’s resulted is not at all what I expected, obviously,” Sanchez said, adding that she was taking a break from social media.
Latino critics say American Dirt contains stereotypes, incorrect regional slang, and cultural inaccuracies.
Cummins confided in the book’s afterword that she didn’t know if she was the right person to write the book. She has told The Associated Press she spent extensive time in Mexico and met with many people on both sides of the border. “So many of the stories center on violent men and macho violent stories about people who commit atrocities,” she said. “My hope was to reframe the narrative and show it from the point of view of the people on the flip side of violence.”
Still, Latino anger hit a crescendo on social media after Gurba posted an image of a release party from last year that featured barbed wire centerpieces. Cummins, referencing the blue and white barbed wire art on the book’s cover, posted an image of it painted on fingernails.
Some Latinos are organizing gatherings to challenge Cummins at planned readings. So far, at least three events have been canceled, in part over security concerns. Tony Diaz, a Mexican American novelist in Houston, is organizing a protest outside the Blue Willow Bookshop, which is hosting Cummins on Monday. “We will never set foot in that bookstore again,” he said.
Blue Willow owner Valerie Koehler said the store is discussing options with the publisher over the event. “We believe in free speech and the power of story,” Koehler said in a statement.
Matt Sedillo, a Los Angeles-based poet and author of Mowing Leaves of Grass, said publishers need to make room for Latinos today or risk going out of business tomorrow. “Until then, we are going to have to build our own networks outside of the big publishers,” Sedillo said. “And then they will come begging for us.”
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fortune--2020-01-29--GOP doesn’t have votes to block witnesses, McConnell says

Republican leaders do not yet have the votes to block Democrats’ demand for more witnesses at President Donald Trump’s impeachment trial, Senate Majority Leader Mitch McConnell conceded to fellow GOP senators late Tuesday. It could be a major hurdle for Trump’s hopes to end the trial with a quick acquittal.
Democrats are demanding several witnesses, especially John Bolton, Trump’s former national security adviser who writes in a forthcoming book that Trump told him he wanted to withhold military aid from Ukraine until it helped with investigations into Democratic rival Joe Biden. That’s the crux of one major article of impeachment against the president.
McConnell gave the news to senators, according to a Republican familiar with a closed-door meeting of GOP senators and granted anonymity to discuss it.
McConnell convened the meeting shortly after Trump’s legal team made its closing arguments in the trial.
There are still several days before any potential witness vote would be taken. A decision to call more witnesses would require 51 votes to pass. With a 53-47 majority, Republicans can only afford to lose three.
If senators agree they want more witnesses they would then have to vote again on which ones to call.
The news came as Trump’s legal team argued forcefully against the relevance of testimony from Bolton and concluded their defense as the Senate braced for debate on witnesses.
While scoffing at Bolton’s manuscript, Trump and the Republicans have strongly resisted summoning Bolton to testify in person about what he saw and heard as Trump’s top national security adviser.
Senate Republicans spent two days behind closed doors discussing ideas to satisfy those who want to hear more testimony without prolonging the proceedings -or jeopardizing the president’s expected acquittal.
Those lost steam, and Democrats showed no interest.
Chuck Schumer, the Senate’s top Democrat, called a proposal for senators to be shown the manuscript in private, keeping Bolton out of public testimony, “absurd.”
“We’re not bargaining with them. We want four witnesses, and four sets of documents, then the truth will come out,” Schumer said.
‘Senators are being warned that if they agree to call Bolton to testify or try to access his book manuscript, the White House will block him, beginning a weeks-long court battle over executive privilege and national security. That had seemed to leave the few senators, including Sen. Mitt Romney of Massachusetts, Susan Collins of Maine and Lisa Murkowski of Alaska, who have expressed a desire to hear new testimony without strong backing.
Also, other Republicans including Sen. Pat Toomey want reciprocity — bring in Bolton or another Democratic witness in exchange for one from the GOP side. Some Republicans want to hear from Biden and his son, who was on the board of a Ukrainian gas company when his father was vice president.
A day after the defense team largely brushed past Bolton, attorney Jay Sekulow addressed the controversy head-on by dismissing his manuscript — said to contradict a key defense argument about Trump’s dealings with Ukraine — as “inadmissible.”
“It is not a game of leaks and unsourced manuscripts,” Sekulow said.
The argument built on a separate one Monday night from Trump attorney Alan Dershowitz, who said that nothing in the manuscript — even if true — rises to the level of an impeachable offense. Sekulow also sought to undermine the credibility of Bolton’s book by noting that Attorney General William Barr has disputed comments attributed to him by Bolton.
The legal team also delved into areas that Democrats see as outside the scope of impeachment, chastising former FBI Director James Comey and seizing on surveillance errors the FBI has acknowledged making in its Russian election interference probe.
Trump’s attorneys argued that the Founding Fathers took care to make sure that impeachment was narrowly defined, with offenses clearly enumerated.
“The bar for impeachment cannot be set this low,” Sekulow said. “Danger. Danger. Danger. These articles must be rejected. The Constitution requires it. Justice demands it.”
Before consideration of witnesses, the case now moves toward written questions, with senators on both sides getting 16 hours to pose queries. By late in the week, they are expected to hold a vote on whether or not to hear from any witnesses.
“I don’t know that the manuscript would make any difference in the outcome of the trial,” said Roy Blunt of Missouri, a member of GOP leadership. And some Republicans said they simply don’t trust Bolton’s word. Rand Paul of Kentucky called Bolton “disgruntled”’ and seeking to make money off his time at the White house.
John Kelly, Trump’s former White House chief of staff, told an audience in Sarasota, Florida, that he believes Bolton.
White House officials privately acknowledge that they are essentially powerless to block the book’s publication, but could sue after the fact if they believe it violated the confidentiality agreement Bolton signed against disclosing classified information.
Trump is charged with abusing his presidential power by asking Ukraine’s leader to help investigate Biden at the same time his administration was withholding hundreds of millions of dollars in security aid. A second charge accuses Trump of obstructing Congress in its probe.
Trump and his lawyers have argued repeatedly that Democrats are using impeachment to try to undo the results of the last presidential election and drive Trump from office.
On Tuesday, as he was resting his case, Cipollone played video clips from House Democrats during the presidential impeachment of Bill Clinton — including several who are now managers of the Trump impeachment trial — in an attempt to depict them as hypocritical for sounding the alarm then about the partisan dangers of impeachment.
“What they are asking you do is to throw out a successful president on the eve of an election, with no basis, and in violation of the Constitution,” Cipollone said. “Why not trust the American people with this decision? Why tear up their ballots?”
Democrats, meanwhile, say Trump’s refusal to allow administration officials to testify only reinforces that the White House is hiding evidence. The White House has had Bolton’s manuscript for about a month, according to a letter from Bolton’s attorney.
No matter the vote on witness, acquittal still seems likely given that Republicans hold a 53-47 majority in the Senate and conviction would require a two-thirds majority.
According to data compiled by C-SPAN, the House managers used just under 22 of their 24 hours over three days, while the White House team used almost 12 hours, or half their time.
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fortune--2020-01-28--Apple’s iPhone sales roar back to life after years of slowing growth

Over the past few years, Apple CEO Tim Cook and his team have been adding new businesses, like smartwatches and a Netflix-like video streaming service, to offset slowing sales of the iPhone. But in the latest holiday quarter, the push to diversify was nearly irrelevant as iPhone sales experienced a renaissance.
iPhone revenue jumped 8%, versus an average growth of less than 1% for the same quarter in the prior four years, the company said on Tuesday. Revenue for the unit reached a record $56 billion, more than investors had expected.
The iPhone rebound helped increase Apple’s total sales by 9% to a record $91.8 billion. On average, analysts had forecast far lower overall sales of $88.4 billion.
“Our record performance was fueled by iPhone,” Cook told investors on a conference call after the results came out.
The latest iPhone sales results are a big change from a year ago, when revenue from the unit plunged 16% to $52 billion. Cook also pointed to the “double digit” rate of growth in Apple’s other businesses.
In aftermarket trading on Tuesday, Apple’s stock price rose 1% to $321.70, extending a long winning streak. Over the past three months, Apple’s shares have soared nearly 30% while over the past year they’ve nearly doubled.
Analysts agreed with Cook that iPhone sales were key to the most recent quarter. “This was a strong quarter for Apple, primarily driven by strong sales of the iPhone 11 lineup,” eMarketer analyst Yoram Wurmser noted.
“Whilst many are talking of services as the key growth driver for Apple, hardware continues to drive the bulk of both revenue and profit as Apple pushes its widest and most compelling set of products in years,” Dominic Sunnebo, director of consumer insights at Kantar, wrote after the results came out.
Apple anticipated the iPhone slowdown several years ago and, in response, began emphasizing other businesses, like its app store, cloud services, and content services including Apple Music. Last year, Cook pushed Apple even deeper into services, adding gaming and video streaming along with its own credit card in partnership with Goldman Sachs.
Cook didn’t disclose actual numbers for Apple’s the two newest services, saying only that the gaming was “fast off the blocks” and that Apple TV+ was “off to a rousing start.”
“We see great promise for these recently launched services,” he added.
Several key moves helped bolster iPhone sales compared to prior years. In its three phones last year, Apple focused on improving the cameras, in contrast to 2018, when the camera in the cheapest model, the iPhone XR, was lower quality. Apple also trimmed the prices for some iPhones compared to 2018 models. And ahead of the holiday season, the company pitched generous trade-in offers, sometimes through on-phone notifications. Trade-ins doubled in the quarter compared to the same period a year earlier.
Services revenue grew 17%, meeting Apple’s internal benchmarks, Cook said, but less than analysts had hoped. For example, services revenue of $12.7 billion was less than the $14 billion expected by Creative Strategies analyst Tim Bajarin.
Wearables, which includes the Apple Watch, headphones, and earphones, showed stronger growth. Sales in the division rose 37% to $10 billion, fueled by the popularity of the new AirPods Pro, which cost almost $250 a pair.
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fortune--2020-01-28--Michael Bloomberg’s radical plan to cut prescription drug costs

In recent years, the rising cost of prescription drugs has been top of mind for consumers and politicians alike. Now Democratic presidential candidate Michael Bloomberg is in on the discussion, citing price increases at a rate five times higher than inflation for 3,400 drugs during the first six months of 2019.
Earlier this week, Bloomberg suggested proposed upending the number of patents a therapy can benefit from as a way to slash the cost of prescription drugs. In fact, Bloomberg’s proposal would restrict new brand name medications to just one patent.
That would limit companies to one 20-year patent period for new branded pharmaceuticals. Right now they can also extend their market dominance by establishing follow-on patents, a process dubbed “evergreening.” Bloomberg’s proposal would take a buzzsaw to that process.
Pharmaceutical companies regularly use patents—including “patent thickets”—to protect their cash cows. For instance, companies commonly seek new patents to iron out wrinkles in a manufacturing procedure for a drug, or tweaks to dosages and delivery mechanisms for a treatment. Along the way? The evergreening thwarts competition from cheaper generic rivals .
There could, however, be other ways to achieve the same goal. For instance, a drug’s initial patent might dictate when generic competitors are allowed on the market (without discounting follow-on patents for ensuing innovations).
And Bloomberg isn’t the only Democratic candidate challenging the drug industry. Sens. Elizabeth Warren and Bernie Sanders, as well as other presidential hopefuls, have endorsed a range of drug pricing reforms spanning the gamut from direct Medicare price negotiations to upending the current biopharma IP system.
A recent Morning Consult poll has Bloomberg surging to 12% support nationally. He’s still a long-shot for the Democratic nomination—but proposals like this from a billionaire could shape the conversation udring the primary stretch.
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fortune--2020-01-29--Why a drug that costs $2.1 million per dose is on a sales streak

Lyft to cut 2 % of staff in pursuit of a profit next year

This is the web version of Brainstorm Health Daily, Fortune’s daily newsletter on the top health care news. To get it delivered daily to your in-box, sign up here.
Good afternoon, readers.
Since its introduction in May, Novartis’s gene therapy medication, Zolgensma, has been the subject of plenty of controversy. For one thing, it’s the world’s most expensive drug by list price, coming in at a cool $2.1 million before discounts and rebates. And last August, a data manipulation scandal over the therapy, which was originally produced by AveXis, a biotech that Novartis snatched up in 2018, drew rebukes from the Food and Drug Administration (FDA)—though the therapy has remained on the market.
But the road bumps haven’t dampened sales of Zolgensma, the first-ever gene therapy approved to treat a devastating rare disease called spinal muscular atrophy. The muscle-wasting disorder typically affects children, and some forms of the disease usually lead to death before a child reaches his or her second birthday. And if the promise of treatment for the disease isn’t enough, the drug requires just a single dose, delivered via infusion, as a lasting cure for spinal muscular atrophy.
The hope for a forever cure appears to be driving Zolgensma’s success, high price and all. Novartis announced this week that the therapy brought in $186 million in sales in the fourth quarter of 2019 (and it’s only been on the market since late May). Major private insurers, as well as government programs like Medicaid, have been willing to cover the drug for most patients with the condition, according to Novartis.
This could well prove a critical test case in the gene therapy world. Drug manufacturers are betting that steep prices won’t matter (or, at least, won’t matter much) if they can prove that a therapy will prevent more drastic (and expensive) health conditions down the line, or save lives. Zolgensma’s early success may bolster that argument.
Zolgensma’s primary competitors are Biogen’s Spinraza and an experimental treatment from Roche called risdiplam, which is expected to be approved by May. Both of those treatments have significantly different formulations and delivery methods than Zolgensma.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Yale is testing virtual reality group therapy sessions for cancer patients. Researchers at the Yale School of Medicine want to see if virtual reality technology can help cancer patients in need of counseling and support groups. They're testing VR-based chat rooms so patients can build a support community and get help dealing with their anxiety and stress levels without requiring more energy-draining trips outside to their week. (Becker's Hospital Review)
INDICATIONS
The trouble with getting a coronavirus vaccine to market. My colleague Naomi Elegant delves into the challenges of getting a coronavirus vaccine to market—including the various regulatory issues, and testing on animals and humans. Multiple drug companies (including pharma giant Johnson & Johnson) have been playing up their efforts to develop a vaccine, but as we learned from the 2014 Ebola outbreak, those aspirations often brush up against the reality of the development process. Researchers at the University of Hong Kong have said that they've developed an experimental coronavirus vaccine that modifies an existing flu vaccine. (Fortune)
THE BIG PICTURE
CVS's new program to eliminate out-of-pocket costs for diabetes drugs highlights a persistent health care problem. Drug chain CVS (which now encompasses insurer Aetna) has a new plan to nix out-of-pocket spending for diabetes drugs. A new service for employer health plans and other insurance providers would allow companies to shepherd patients to lower-cost options such as generic diabetes treatments. In the past few years, the rising cost of insulin and other diabetes drugs has fueled a spike in diabetes-related health care spending.
WHO to mull whether the coronavirus outbreak is a global health emergency. The World Health Organization (WHO) initially declined to declare the coronavirus outbreak a global health emergency. Now, the agency is reconsidering its decision, and will meet on Thursday to think over its options as the virus spreads to multiple countries. (Reuters)
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Can Tesla grow without critical tax incentives?, by David Z. Morris
Commentary: 5G's side streets will be empty without fiber's interstate, by Jeff Storey
Fortune's Blue Ribbon Companies 2020, by Fortune Editors
Recycling hasn't changed in years, but America is on the cusp of a reckoning, by Tracey Lindeman
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fortune--2020-01-29--Tesla’s Stock Soars 11% on Second-Consecutive Quarterly Profit

Why a drug that costs $ 2.1 million per dose is on a sales streak

Tesla stayed on a roll by reporting better-than-expected revenue and the accelerated arrival of its next electric vehicle, sending the stock soaring after hours.
The Model 3 maker’s $7.38 billion in sales for the fourth quarter beat estimates and carried the company to its second consecutive quarterly profit. That sets a pattern, with first-half losses in each of the last two years giving way to positive results.
Tesla shares climbed as much as 11% to $645.27 after the close of regular trading. The stock was already up 39% this year.
CEO Elon Musk triggered an epic rally three months ago by claiming Tesla will be able to achieve industry-leading profitability by cutting costs and improving execution. He bolstered his case by opening a new China car plant in record time and accelerating the launch of the Model Y, which he’s predicted will become the company’s new best-seller. The crossover will start deliveries by the end of March, faster than the company said previously.
Musk, 48, has thus far disproved predictions that Tesla will struggle to compete with the impending arrival of electric vehicles from established automakers. The Model 3 was the only EV bought in significant volumes last year in the U.S., and it vaulted toward the mainstream in Europe, ranking as the third-best seller among all models in December.
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fortune--2020-01-29--Lyft to cut 2% of staff in pursuit of a profit next year

Lyft Inc. will eliminate about 90 jobs as the unprofitable ride-hailing company seeks to deliver on a promise to stop losing money by the end of next year.
The dismissals represent about 2% of employees and affects the marketing and sales departments. The San Francisco-based company said despite the cuts, it intends to hire more than 1,000 people this year.
“We’ve carefully evaluated the resources we need to achieve our 2020 business goals, and the restructuring of some of our teams reflects that,” Alexandra LaManna, a spokeswoman for Lyft, said in an emailed statement.
The stock was down 1.8% at 3 p.m. in New York. The cuts were reported earlier Wednesday by the New York Times.
Lyft has struggled since going public last year. Like Uber Technologies Inc., Lyft built a multibillion-dollar business by heavily subsidizing the cost of rides for customers and offering bonuses to drivers. Both companies have reduced those subsidies in recent months as a response to increased pressure from investors to turn a profit.
Uber, the most-used ride-hailing app in the U.S., embarked on a larger workforce reduction last year, when it eliminated more than 1,000 jobs. The two companies are also battling a new California law that seeks to reclassify their drivers as employees instead of independent contractors. Some analysts have estimated the change could result in price hikes of as much as 30%.
Lyft plans to report 2019 financial results on Feb. 11. It previously said it expects 2019 revenue to be $3.57 billion to $3.58 billion, citing increased ridership. The company has pledged to turn an adjusted profit, excluding taxes and other expenses, by the fourth quarter of 2021.
More must-read stories from Fortune:
—The long ocean voyage that helped find the flaws in GPS
—Atari-themed hotel deal punctuates the gaming pioneer’s turnaround
—Into the ‘crucible’: How the government responds when GPS goes down
—This tech giant says A.I. has already helped it save $1 billion
—What is tech doing to protect the whistleblower’s identity? Not much
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.