The R&D World Index (RDWI) climbed 2.57% this week, with Eli Lilly leading the charge at a 10.84% gain, while tech giants ramp up AI investments amidst regulatory challenges. In the week ending August 9, 2024, the index closed at 3768.96 for the 25 companies in the RDWI.

The index was up 2.57% (or 94.45 basis points). Seven RDWI members gained value last week, ranging from 0.34% (AbbVie) to 10.84% (Eli Lilly & Co.). In contrast, 18 RDWI members lost value the previous week, with losses ranging from -0.56% (Merck & Co.) to -8.24% (Intel), which recently announced plans to cut 15,000 workers.

Charles River posts sales decline citing weakened pharma R&D

Charles River Laboratories International, Wilmington, Massachusetts, announced last week that it expects to post a decline in sales for 2024, primarily owing to lower demand from pharmaceutical clients. The company was previously expected to grow this year. Pharma’s reduction in research spending was cited as unusual and sudden. Its revenues dropped by about 3.2% year over year in the second quarter. The decline was driven by the company’s Discovery and Safety Assessment and Research Models and Services segments. Pharma clients blame their cuts on the Inflation Reduction Act, which allows Medicare to negotiate some drug prices directly with manufacturers. The cuts were also made due to a looming patent cliff, which will see more than $200 billion in annual drug sales come under threat from copycat generics. Over the past several years, Pharma has warned that they might need to cut back on innovation when the government forces companies to negotiate the prices of their top-selling drugs. Analysts expect Bristol-Myers Squibb and Pfizer to see sales contracts later in this decade as an example of these scenarios.

MG Motor and possibly Tesla opening plants in Mexico

MG Motor, the previously British automaker before its purchase by SAIC, Shanghai, China, in 2007, announced last week that it plans to build a manufacturing plant and an R&D center in Mexico. SAIC said its plant aims to make Mexico a pole for growth and expansion in Latin America and the Caribbean. Automaker Tesla, Austin, Texas, has said its plans to build a plant in Mexico are on hold to see if Republican candidate Donald Trump wins the November election — as he said he would impose heavy tariffs on electric vehicles (EVs) made in Mexico.

Malaysia proposes minimum 2% GDP investment in R&D

Malaysia announced last week that it is proposing a new legislative act that mandates a minimum investment of 2% of the country’s gross domestic product (GDP) into R&D. The government currently spends less than 1% of its GDP on R&D. Other Asian countries have stated that they are also increasing their R&D investments to compete against China (2.5% of GDP) and South Korea’s (more than 4% of GDP) R&D efforts. Singapore invests about 2.2% of its GDP in R&D, while Taiwan invests about 3.54%. Malaysia recently launched the Malaysia Science Endowment fund, which will co-finance R&D projects with foreign and private partners.

Lilly stock rebounds — eyeing $1,000 stock valuation

For readers following the rapid value rise in our RDW Index of Eli Lilly & Co., Indianapolis, Indiana, market analysts last week noted that they are resetting their targets for the company to $1,000 or more. Lilly is currently at $890, up from $600 at the beginning of 2024. Analysts see the potential for continued revenue growth as “huge.” Morgan Stanley said Lilly had the most robust growth profile within its coverage universe. Wells Fargo analysts state Lilly’s obesity Zepbound and its diabetic drug Mounjaro (both different indications for tirzepatide) represent a “$100 billion global opportunity.”

The following interactive “Cryo-EM structure of the tirzepatide-bound human GIPR-Gs complex” was deposited by Zhao et al. and released on March 2, 2022 to the Protein Data Bank. The primary citation for this structure is Zhao et al. (2022), Nature Communications, DOI: 10.1038/s41467-022-28683-0.

The sales projections for Eli Lilly’s tirzepatide, marketed as Mounjaro for diabetes and Zepbound for obesity, paint a picture of meteoric growth potential. Conservative estimates suggest a steady rise in sales, reaching $22.48 billion by 2030. However, more optimistic projections, fueled by strong clinical data and the drug’s potential in both the diabetes and obesity markets, forecast substantially higher figures. GlobalData, for instance, predicts Mounjaro will become the leading drug in its class by 2029, with $27 billion in sales, while Zepbound could reach $27.2 billion by 2030. These optimistic forecasts are further supported by analysts like those at Bank of America, who project peak annual sales of $48 billion. While these projections highlight the immense potential of tirzepatide, it’s crucial to consider the inherent uncertainties of forecasting and the evolving competitive landscape in the pharmaceutical market.

Tech giants ramp up AI infrastructure investments amid regulatory challenges

RDW Index members Microsoft, Redmond, Washington; Meta Platforms, Menlo Park, California; Alphabet, Mountain View, California; and Amazon, Seattle, have all reported jumps in purchases of property and equipment associated with artificial intelligence (AI). Data centers such as the nuclear-powered Cumulus Data Assets in Pennsylvania (pictured) play an important role in supporting these AI-driven expansions. Amazon bought the data center from Talen earlier this year. While Big Tech companies don’t disclose the exact outlays, their investments are expected to pay off over several years. The current risk for these companies is investing too little rather than too much in the technology infrastructure.

These same high-tech companies are also rallying to kill a bill going through the California legislature, SB 1047, which requires that developers of large AI models conduct safety tests to reduce the risk that their technology will lead to catastrophic harm. This harm is defined as cyberattacks that cause at least $500 million in damage or mass casualties. The developers are also required in the bill to ensure that humans can stop their AI if it starts behaving dangerously. Colorado and Utah recently passed the country’s first laws regulating AI, but they are much narrower in scope than SB 1047.

Blackstone acquires majority stake in Westwood Professional Services

Private equity firm Blackstone, New York City, announced last week that it is acquiring a majority stake in Westwood Professional Services, Plano, Texas. Terms for the acquisition were not disclosed. Westwood is an engineering and consulting company focused on renewable energy, public infrastructure, and property. Construction and renewable energy developers typically use Westwood’s engineering and project design services in the early stages of their projects. Westwood has made several acquisitions over the past several years.

Woodside Energy acquires ammonia plant in Texas for $2.35B

Woodside Energy, Sydney, Australia, announced last week that it has agreed to acquire an under-construction ammonia plant in Beaumont, Texas, from OCI Global, Amsterdam, Netherlands, for roughly $2.35 billion. First ammonia production is expected in 2025. Woodside is currently focused on oil and natural gas production. A key attraction of the Beaumont plant is its agreements with industrial gases group Linde, Dublin, and Exxon Mobil Spring, Texas. These agreements will allow Woodside to mitigate its Scope 3 emissions (currently not trackable by the company).

Company	Ticker	Exchange	2020 R&D billions$	08/02/24	08/09/24	8/2/24 to 8/9/24	1/1/22 to 8/9/24
Alphabet/Google	GOOGL	NASDAQ	27.303	168.40	165.39	-1.79%	14.18%
Microsoft	MSFT	NASDAQ	17.198	408.49	406.02	-0.60%	20.72%
Volkswagen AG	VWAGY	OTC	17.259	10.52	10.21	-2.95%	-65.03%
Apple	AAPL	NASDAQ	18.667	219.86	216.24	-1.65%	21.78%
Facebook/Meta	META	NASDAQ	13.874	488.14	517.77	6.07%	53.94%
Intel	INTC	NASDAQ	14.503	21.48	19.71	-8.24%	-61.73%
Johnson & Johnson	JNJ	NYSE	13.750	164.14	160.62	-2.14%	-6.11%
Roche Holdings AG	RHHBY	OTC	14.143	40.71	40.18	-1.30%	-21.27%
Merck & Co.	MRK	NYSE	11.381	115.20	114.55	-0.56%	49.46%
Novartis	NVS	NYSE	9.387	112.87	111.89	-0.87%	27.92%
Toyota	TM	NYSE	10.724	173.02	168.59	-2.56%	9.02%
Pfizer	PFE	NYSE	8.336	30.43	28.55	-6.18%	-51.65%
Alibaba	BABA	NYSE	6.006	77.45	79.99	3.28%	-32.66%
GM	GMM	NYSE	6.727	41.17	43.48	5.61%	-25.84%
Honda	HMC	NYSE	8.806	30.03	29.49	-1.80%	3.66%
Ford	F	NYSE	9.340	10.03	10.10	0.70%	-51.37%
AbbVie	ABBV	NYSE	13.949	189.29	189.93	0.34%	40.27%
Sanofi SA	SNY	NYSE	7.750	53.05	52.37	-1.28%	4.53%
Cisco	CSCO	NASDAQ	6.331	46.66	45.47	-2.55%	-26.67%
Bristol-Myers Squibb	BMY	NYSE	7.130	48.77	46.72	-4.20%	-25.07%