Financial Times Europe - 19.08.2019

8 ★ FINANCIAL TIMES Monday 19 August 2019

CO M PA N I E S & M A R K E T S

P H I L I P STA F F O R D— LONDON

David Schwimmer’s grand vision of

financial data has received the enthusi-

astic backing of theLondon Stock

Exchange’s shareholders.

Since news of the LSE’s impending

$27bn acquisition of data providerRef-

initivbroke three weeks ago, the

exchange’s shares have risen 20 per cent

as Mr Schwimmer, the chief executive,

acted on his belief that “data capabilities

will define the success of financial mar-

ket infrastructure business”.

But making a success of the deal will

require squeezing more out of Refinitiv,

a company with a record of underper-

formance. And it requires betting

againstBloomberg, a longstanding and

formidable foe.

For the past decade, Refinitiv has lost

ground to Bloomberg, with a 22 per cent

share of the global market for financial

data compared with its bigger rival’s

32 per cent, according to Burton-Taylor

International Consulting.

While Bloomberg managed to pro-

duce a compound annual growth rate of

4.7 per cent in the past five years, for

Refinitiv it declined 0.7 per cent, the

consultancy estimates. As well as failing

to topple its rival in the premium end of

the market, it has faced stiffer competi-

tion from cheaper rivals such as FactSet.

It was partly frustration at the lack of

progress that sentDavid Craig, chief

executive of Refinitiv, looking for a new

investor to bring focus and capital. Last

year he persuaded a private equity con-

sortium led by Blackstone to buy a

majority stake in the business from

Thomson Reuters.

Not only was its Eikon terminal losing

out to Bloomberg, Refinitiv was unfo-

cused, slow to make decisions and had

too many expensive people. IT experts

complained its software was clunky; Mr

Craig grew frustrated at not being able

to make all investment decisions.

The Thomson family, which ran the

parent company, was also frustrated by

the poor return on its $18bn purchase of

Reuters in 2007.

In the past, the problems scared off

other suitors, such as Intercontinental-

Exchange and, in late 2015, the LSE

itself when the exchange briefly consid-

ered buying the assets from Thomson

Reuters, according to two people

involved in the discussions. Xavier

Rolet, the LSE’s then chief executive,

ultimately balked on concerns about

the spending on technology and people,

as well as Bloomberg’s resilience.

With Blackstone backing, Mr Craig is

now “right sizing” Refinitiv — cutting IT

costs and jobs in expensive cities such as

London and New York and hiring in

China. It has begun to reinvigorate its

corporate culture, trying to retain its

collegiate approach while making faster

decisions and ditching unviable projects.

Savings have freed up funds for

more useful purposes. Mr Craig calls it a

“sea change in investment” now that

he can spend $500m in capital expendi-

ture per year.

A more nimble version of Eikon is due

this year. Customers are “surprised by

the agility, new data capabilities and

speed we’re transforming this business”,

Mr Craig said.

Revenue growth rose from 0.9 per

cent in 2017 to 3 per cent in 2018. Profit

margins rose 400 basis points in 2018 to

3 6 per cent.

Privately, LSE and Blackstone execu-

tives admit it is still a challenge to best

Bloomberg in the battle to supply work-

stations to investment banks, even

though Refinitiv has recently won one

such contract — it is about to supply

5,000 desktops to Goldman Sachs.

Mr Schwimmer’s gamble is that the

future lies in an open, flexible approach

to supplying information to banks, asset

managers and institutions around the

world via a terminal, direct feed, or in

the cloud — for customers to use as they

wish.

Phil Snow, chief executive ofFactSet,

is on this side of the argument, describ-

ing data as being like “Lego blocks”.

“The way data has been supplied in the

past is not the way is will be in the

future,” he said.

That view of the world presents a

challenge to Bloomberg, with its distinc-

tive terminal and closed system.

Bloomberg declined to comment.

Refinitiv already leads the market in

taking disparate data formats from

exchanges, banks and other trading

venues and turning it into a format usa-

ble for customers. Some of the world’s

largest quantitative hedge funds, which

rely on technology, prefer Refinitiv’s

adaptable data for testing out trading

strategies.

Global capital markets are changing,

with more automation but also compli-

cated investment strategies that con-

nect different asset classes. Decision-

making relies more on machines and

new sources of information. To keep up,

regulators also require more accurate

data.

“Traditional exchange activities like

trading have come under severe pres-

sure. Providing data is the major excep-

tion as our ability to consume it appears

almost limitless,” said Steve Grob,

former strategy officer at ION Fidessa, a

UK trading and data group.

Mr Schwimmer is forecasting com-

pound annual growth in the LSE’s reve-

nues of 5-7 per cent over the first three

years after the deal is completed. That

would be a stronger rate than rivals such

as Bloomberg and Intercontinental

Exchange’s IDC over the past five years.

To get there, it will look to cross-sell

LSE data such as the FTSE Russell indi-

ces to Refinitiv customers. LSE custom-

ers could use information from its LCH

clearing house before trading on Refini-

tiv’s forex trading platform or

Tradeweb, the $10bn bond and swaps

marketplace in which Refinitiv has a

majority stake.

The opportunity and the challenge is

allowing customers to draw the signal

from the noise.

“People say ‘data are the new oil’ but

you have to make it a usable product,”

said the head of digital at a global bank,

who declined to be named.

“There’s a disconnect — there’s a com-

plete abundance of data and not enough

insight.”

LSE has to beat Bloomberg at its own game

Exchange boss Schwimmer bets on Refinitiv and revolution in the way financial data are supplied to unseat incumbent

Sources: LSE Group; Refinitiv

LSE and Refinitiv

Revenue breakdown by region (%)

Sources: LSE Group;

LSE Group

bn







Refinitiv

bn





UK

North America

Europe

Emerging markets and other

Revenue

(£bn)

Ebitda

(£bn)









Ebitda

margin (%)

% of

recurring

revenue

Refinitiv LSE

 

 

LSE’s reaction to Refinitiv deal

Pence per share















Jan  Aug

David Schwimmer, LSE chief executive, believes ‘data capabilities will define the success of financial market infrastructure business’— Luke MacGregor/Bloomberg

Terminal boost

‘The way data has been

supplied in the past is

not the way is will be

in the future’

D O N ATO PAO LO M A N C I N I— LONDON

HA N N A H KU C H L E R— NEW YORK

Gilead Sciencesdid not apply for exclu-

sivity when it sought US approval for

Truvada, a drug that could end the HIV

epidemic, to be used as a preventive

treatment in 2012, according to a

review of federal documents.

Activists and legal experts say this lack

of exclusivity and the publicly backed

patents for the drug mean that Gilead’s

effective monopoly in the US is invalid,

and that generic alternatives could have

been made available sooner.

Analysis of the US Food and Drug

Administration’s Orange Books, which

among other information list drug pat-

ents as provided by pharmaceutical

groups, shows no exclusivity for Tru-

vada for preventive use, a treatment

known as pre-exposure prophylaxis, or

PrEP.

PrEP is 99 per cent effective in pre-

venting HIV infection. The FDA

approved Truvada for therapeutic use

in 2004 and for preventive use in 2012.

“Truvada was not granted any exclu-

sivity specific to PrEP by the FDA that

was in effect between 2012 and now.

That absence of exclusivity meant and

means one fewer obstacle for generics to

come into the market,” said Christopher

Morten, a staff attorney and lecturer at

Yale Law School.

Gilead dismissed this, however, say-

ing: “The patents listed in the Orange

Book for Truvada cover all uses of the

product, including for treatment for

HIV [and two types of prophylaxis,

including PrEP]. We did not obtain new

patents related to the PrEP indication.”

The drugmaker is under fire in the US

over the high price it has set for Truvada

in PrEP, where it has no competition.

Activists and intellectual property

experts say the drug would not have

been approved for HIV prevention with-

out crucial trial data sponsored by the

government’s Centers for Disease Con-

trol and others. This means, they say,

that the drugmaker could owe the gov-

ernment royalties on sales of the drug.

The drugmaker charges more than

$20,000 a year for treatment in the US —

a threefold increase from 2004. It disa-

grees with suggestions that it owes any

royalties on the drug. Gilead declined to

say how much it costs to make or sell

Truvada.

Mr Morten and his colleagues at Yale

analysed the CDC’s patents on behalf of

PrEP4All, an advocacy group. The CDC

did not respond to requests for com-

ment.

Gilead said that it “strongly believes”

that the US government patents are

invalid. It said it has spent about $1.1bn

in research and development since

2000 on Truvada, but declined to break

down costs or its expenditure on PrEP

development. The drugmaker said its

scientists had worked on precursor

PrEP research but were not given appro-

priate credit, yet it declined to say why it

had not sought to secure recognition of

their contributions.

According to Financial Times analysis

based on data and estimates compiled

by RBC Markets, if royalties were

found to be due Gilead could owe at least

$1bn.

The Washington Post revealed the

existence of the government patents,

prompting a US Department of Justice

review. Gilead declined to comment on

the review. The Department of Justice

did not respond to requests for com-

ment.

Of the roughly $13bn in Truvada sales

in the US since 2013, $5bn were for PrEP.

If it were found to owe royalties, the sum

could fall anywhere between 7 per cent

of that $5bn, or three times as much if

damages were to be awarded.

“The seven-year failure of the CDC to

adequately scale up PrEP in the US has

resulted in tens of thousands of Ameri-

cans unnecessarily acquiring HIV,” said

James Krellenstein of PrEP4All. “The

CDC holds patents that could simulta-

neously lower the price of PrEP, while

providing billions of dollars of addi-

tional resources to the most vulnerable

communities to help end the HIV epi-

demic in America.”

Pharmaceuticals

Gilead did not apply for exclusivity rights

in preventive use of HIV drug Truvada

Gilead contends that its patents

cover all uses of Truvada

AUGUST 19 2019 Section:Companies Time: 18/8/2019 - 18: 54 User: john.hayes Page Name: CONEWS2, Part,Page,Edition: EUR, 8 , 1

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