EpiPen, Battle of the CRM Titans, and more | French Toast & Finance #3

Business news to start your week off right in the time it takes to eat breakfast. Because staying informed is way easier than you think.

Mylan stock surges after paying government millions

Mylan has been embroiled in a battle with the United States government over having allegedly overcharged patients for its EpiPen medication. The drug company was able to sidestep fees from Medicaid and Medicare by classifying the EpiPen as a generic. By law, when a drug company sells a generic, it is required to pay states a 13% rebate on each sale, while a non-generic results in a 23.1% charge for the company.

Mylan had allegedly misclassified the EpiPen as a generic, effectively cheating the government out of hundreds of millions of dollars in rebates (basically a sales tax paid by the company selling the product), and boosting their profit margins.

So now, after forking over four hundred and sixty five million dollars to the US government, why on earth has the stock price increased over nine percent?

Because Mylan settled, making all of the allegations just that: allegations. While there is no doubt that Mylan did wrongly classify EpiPen, the investigation as to how much money it saved by doing this had not been completed, and now it never will be. I have a suspicion that Mylan saved at least a bit more than the $465 million for which they settled.

This move stopped any actual legal fallout from occurring, and now that the company is going to reclassify the EpiPen as a regular drug, the company can operate with (hopefully, for investors’ sake) little scrutiny from the government. The stock surged by about 9% after hours on Friday, and the price in after-hours trading is $39.50.

Battle of the Titans- Microsoft vs. Salesforce

Microsoft CEO Satya Nadella with Salesforce CEO Marc Benioff. Best frenemies| Photo Credit: duongcongminh via Compfight

Microsoft is preparing for war, announcing the company will be undercutting Salesforce’s prices in the CRM (Customer Relationship Management) market that Salesforce has dominated for so many years. Microsoft announced that it will be integrating LinkedIn, which it recently purchased, into its own CRM platform in the near future.

The thought process behind this decision is that in Salesforce’s software, a lot of connections are still made through LinkedIn, and by using the tool in their own service, Microsoft would essentially be cutting out the middle man in the use of the professional social network.

Salesforce CEO Marc Benioff has been petitioning for the blocking of the Microsoft-LinkedIn acquisition, saying that Microsoft will have the ability to shut competitors out of the service, which houses the data over some 450 million business professionals, and will create an unfair advantage. Microsoft denies any plans to block third-party use of the site, however. Of course, if Benioff can’t have the purchase blocked, he can simply fight back with their own undercutting strategy: Salesforce recently acquired Quip, a direct competitor to Microsoft Office. By integrating Quip into Salesforce’s already all-inclusive suite of CRM plans, Salesforce hopes to create an all-encompassing platform that can squelch that of Microsoft.

This is shaping up to be a battle for the ages, and investors appear to be waiting for the outcome with bated breath: stock prices for both companies remained relatively steady for the week.

Paris Climate Agreement Ratified

Polar bears rejoice as the agreement to reduce emissions enters into effect 4 years earlier than planned.

The Paris Climate Agreement is monumental: nations whose emissions account for over 55% of the global greenhouse gas emissions have come together to reduce pollution to levels that will prevent the global temperature from raising by 2 degrees Celsius or greater.

The Agreement may not seem like it will do much, “When have governments been quick to change anything?” I hear you asking. Well first of all, let’s be a little optimistic here. It could happen. And, even if it does not happen in full effect, even a minor reduction in global emissions rates (as little as one percent) would dramatically improve air quality, help clear up skies and reduce the acidity of oceans that absorb the polluting gases.

From a business perspective, this is a vital step: climate change threatens global supply chains and operations the world over. Rising seas threaten manufacturing plants and offices, temperature increases could kill plants that are valuable raw materials, and drought within nations will increase food costs and scarcity.

The impact of this Agreement on the world cannot be overstated, and is a subject that deserves more depth. Luckily, I wrote an article for that :)

California Recycling Centers Headed for the Trash Heap

Recycling may be great for the environment, but it’s not good business

Scrap prices have tumbled in the past years

I know, I know, I was just touting the benefits for the Paris Climate Agreement. By now you should know that for every positive there is a negative, and this week’s is the state of the recycling industry. Since 2014, the price for a ton of aluminum cans has declined by 24% and the price for a ton of plastic bottles has tumbled by 44%.

These prices reflect the state of the oil market (everything is interconnected), as inexpensive oil has made it about the same or even cheaper for companies to manufacture plastic products than to recycle them. It has also made energy cheaper, which helps reduce the cost of producing aluminum, a process that is very electricity-intensive.

The effects are being felt around America, but in California especially. The golden state has a Beverage Container Recycling Fund, which reimburses recycling centers for every can or bottle dropped off by a resident (you didn’t think the cash they hand you came from thin air, did you?). Within two years, though, the fund will be full of nothing but thin air: if the fund continues to lose money at the current rate, it will be totally dry by mid-2018. In just one year, the reserves of the fund decreased from $246 million to $195 million.

California is working on solutions to this problem, like mandating beverage companies to reimburse the centers instead of the state. To make matters worse, Chinese recycling importers have been more strict with their inspections of scrap. China is the largest consumer of recycled scrap material.

China discards any containers with food or drink still in them over a certain degree, and this has reduced the revenues of recycling companies. For every ton of bottles and cans sent over, only a portion is actually fit for use, and only that portion is paid for. As a result, recycling companies in the U.S have become more intensive in their own screening processes, driving up labor costs and slashing profits.

Waste Management, while closing about 20% of its recycling centers in America, has actually adapted quite well to the situation, with profits increasing and a growing stock price as it negotiates better contracts with cities for collection and waste disposal. Meanwhile in California, almost 30% of the state’s recycling centers have been shuttered.

Until oil prices increase drastically, this trend will not disappear as it makes little financial sense for companies to process recycled scrap. Perhaps with the Paris Climate Agreement, however, incentives will be offered to companies to continue recycling efforts. Regardless, this is worrying for the environment and the recycling economy entrenched in California and other states.

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May your Monday be short and your coffee be bold. Have a great week!

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