The Wall Street Journal - 30.07.2019

B4| Tuesday, July 30, 2019 ** THE WALL STREET JOURNAL.

Coury, who will become execu-

tive chairman of the new com-

pany, said Upjohn fits Mylan

“like a glove.”

The new company will be

U.S.-based, a return of sorts

for Mylan after becoming a

Dutch corporation in 2015

through an acquisition, while

keeping its headquarters in

Pittsburgh. That deal came

amid a flurry of what are

called inversions by U.S. com-

panies, in which they moved

their corporate home overseas

to lower their tax burdens.

Meantime, Upjohn was head-

quartered in Shanghai.

The deal is expected to

close in the middle of next

year. By that time, Pfizer is ex-

pected to be a far leaner ver-

sion of what it was just a few

years ago, and on its way to

realizing Mr. Bourla’s vision

for the drugmaker’s future—or

dashing his hopes.

Part of Mr. Bourla’s convic-

tion about the benefits from

such a finely toned Pfizer

stems from a Silicon Valley

tour that he took company

leadership on in January. The

group visitedAlphabetInc.’s

Google,AppleInc. andSales-

force.comInc., among other

firms, to understand their rec-

ipes for success, Mr. Bourla

said.

The takeaway, he said, was

each company’s culture was

different but marked by em-

ployees who are inspired and a

single-minded purpose.

Washington it has ways to

punish U.S. businesses within

the context of the China-U. S.

trade fight, experts said.

“These are the tools in the

arsenal that can be ready to be

fired,” said Samm Sacks, a cy-

bersecurity expert at the

Washington-based think tank

New America.

While additional regula-

tions had been expected fol-

lowing the introduction of a

new cybersecurity law in 2017,

Beijing seemingly held them in

abeyance while trade talks

with the U.S. progressed early

this year. Greater access for

American tech companies is a

priority for U.S. negotiators,

and Chinese officials showed a

willingness to discuss issues

related to cybersecurity.

But negotiations foundered

in May, and Beijing then

started releasing the new draft

rules. More followed after

Washington placed restric-

tions on Chinese telecommuni-

cations-gear maker Huawei

TechnologiesCo.

“China’s resumption of reg-

ulatory efforts signals less

willingness to bow to U.S. de-

mands in hopes of [a trade]

agreement,” said Paul Triolo,

head of geo-technology at re-

search firm Eurasia Group.

The Office of the U.S. Trade

Representative didn’t respond

to a request for comment.

The recently released drafts

cover at least eight categories.

Of particular concern are pro-

posed cybersecurity reviews

that operators of “critical in-

formation infrastructure”

would have to go through to

procure network equipment

that could affect national se-

curity. The scrutiny would in-

clude a review by an inter-

agency organization.

The draft doesn’t precisely

define “critical information in-

frastructure” operator. China

has broadly said the classifica-

tion includes those with com-

puter-network operations in

telecommunications, energy,

transportation, information

services and finance. U.S.

trade negotiators are pressing

for more details.

The proposed rule also

states that operators must as-

sess risks including the likeli-

hood of supply-chain disrup-

tion due to “politics,

diplomacy and trade”—word-

ing that policy experts say is

likely in direct response to

U.S. actions against Huawei.

These rules could deter Chi-

nese companies from procuring

foreign equipment if they fear

the products would be subject

to lengthy reviews or even get

blocked, said Yan Luo, a Bei-

jing-based attorney focused on

cybersecurity policies at Cov-

ington & Burling LLP.

—Kersten Zhang

contributed to this article.

TECHNOLOGY

MTV’s reboot of “The Real

World.” Facebook also lets us-

ers upload videos that can ap-

pear on Watch and, if ap-

proved by the company, make

money from ads.

Marketers and agency ad

buyers met Watch with cau-

tious optimism when it ar-

rived in August 2017.

Facebook had accumulated

billions of users, but those us-

ers didn’t think of Facebook as

a place to watch TV-quality

video series.

“The verdict is still out on

Watch—I don’t consume Face-

book that way,” said Jordan

Jacobson, head of social at the

digital agency iProspect. “But

Facebook is still one of the

two media partners that is on

every single media plan these

days, and they have one of the

biggest bank accounts in the

world, so I wouldn’t count

them out.”

The agency is spending at

least several hundred percent-

age points more on Watch this

year, Mr. Jacobson estimated.

A Facebook spokeswoman

declined to comment on video

ad revenue for Facebook

Watch.

Advertisers have warmed

up to Watch somewhat as time

has passed, buyers said.

One senior media buyer,

who oversees more than $350

million in marketer ad spend-

ing each year, said he plans to

spend at least $1 million this

year on ads inside Watch. That

isn’t an enormous sum, but he

didn’t advertise on Watch at

all last year.

It will be part of a bigger

deal the buyer has signed with

Facebook to spend more than

$10 million on Facebook video

ads in 2019, up 50%, the buyer

said.

There are several ways to

buy video ads on Facebook.

The options include paying to

run them in Facebook’s News

Feed or to buy “in-stream” in-

ventory—commercials that air

before and during videos—

which typically means the vid-

eos on Watch.

Mike Henry, chief executive

of OpenSlate, a tech company

that offers brand-safety ser-

vices for marketers on You-

Tube and Facebook, said all of

the 40 clients using its Face-

book-specific product plan to

spend at least “six figures,

sometimes seven figures” on

in-stream Facebook commer-

cials. “Advertisers that have

started spending on Facebook

have continued to spend and

increase their budgets,” Mr.

Henry added.

Advertisers edging into

Watch aren’t driven by com-

parisons with YouTube, which

is owned byAlphabetInc. In

June, Facebook said Watch

had 720 million monthly users

globally who spend at least

one minute on Watch, up from

400 million in December. By

comparison, YouTube said in

May that it had two billion

monthly users, up from 1.9 bil-

lion last summer.

Rather, some marketers are

comparing Watch favorably to

other parts of Facebook.

Mr. Jacobson, the iProspect

executive, said the agency’s

growing Watch spending is

partially driven by higher

completion rates for its com-

mercials there than for video

ads in the News Feed.

Advertisers are beginning
to direct more money toward
Facebook Watch, but the
video-viewing platform re-
mains far behind YouTube in
revenue and audience.
FacebookInc. built Watch
to lure more video advertising
with professionally produced
shows such as Jada Pinkett
Smith’s “Red Table Talk” and

BYSAHILPATEL

Facebook Watch Slowly Lures Video Ads

Platform draws more

advertisers, but many

are skeptical amid

YouTube’s lead

small cities filled with servers,

drives, routers and other com-

ponents,” is seeking to recycle

and resell components where it

can to keep parts out of land-

fill, the Mountain View, Calif.,

company said in a post. Google

and Amazon declined to com-

ment on plans to refresh infra-

structure.

Microsoft is ramping up ef-

forts to make sure recycling,

refurbishing and resale of

cloud-infrastructure compo-

nents are more sustainable

while also secure.

Alistair Field, chief executive

of Sims, is betting that deals to

recycle data centers will

emerge within 12 to 18 months

and build over several years.

He estimated around 2 mil-

lion metric tons a year of obso-

lete equipment could be recy-

cled annually from the middle

of the next decade.

“The trial is really around

how do you manage that pro-

cess: How do you make sure

each step is secure in terms of

the data? And what parts of

that process does the customer

want to be involved in?” Mr.

Field said.

In 2016, only 20% of all e-

waste globally was recycled

correctly, according to a report

by the United Nations Univer-

sity, the International Telecom-

munication Union and the In-

ternational Solid Waste

Association the following year.

“Although cloud-computing

trends can lead to fewer de-

vices because all services can

be accessed from one device,

more cloud computing also

means more data centers and

more e-waste,” it said.

While profit margins could

be strong as cloud operators

pay for data security, “nobody

really knows how much [cloud

e-waste] Amazon or Google is

going to release on an annual

basis,” Mr. Field said.

At ERI’s recycling facilities

in Indiana and Massachusetts,

workers currently pick through

debris, including shredded by

hand. John Shegerian, ERI’s co-

founder and executive chair-

man, wants to invest more in

robots to do some of that work,

in a bet that e-waste volumes

will rise. The company is seek-

ing partners to help fund new

investment.

A call that Mr. Shegerian re-

ceived from a tech company

some months ago highlighted

the scale and potential unpre-

dictability of the opportunity.

“They say, by the way, we

have warehouses of stuff we

have been just stockpiling for

the past 10 years; you are going

to have to clean that stuff out,”

he said. “And the volume num-

bers are, like, earthshaking.”

SYDNEY—The world’s $300

billion scrap-metal market is

looking beyond junked cars and

copy machines to a new prize:

the cloud.

Largedatacentersare

mushrooming in number as

global demand grows for stor-

age. Investment in cloud infra-

structure has surged since

2015, and the market for data-

center equipment is expected

to grow at an average annual-

ized rate of roughly 16% this

year and next, according to

Citigroup Inc.

Cloud servers typically have

a lifespan of only about three

years, according to experts,

meaning that some of the earli-

est equipment already has

passed its use-by date. The

rapid pace of technological

change is creating a new mar-

ket for companies such asSims

Metal ManagementLtd.—one

of America’s biggest recyclers

by volume—and California-

basedElectronic Recyclers In-

ternationalInc.

Data-center equipment con-

tains components such as pro-

cessors and fans that can be

stripped out and resold in the

electronics market. They also

contain metals such as alumi-

num, copper and steel that

many experts think will be-

come more valuable as large

economies such as China rely

more on consumption and less

on exports for growth.

Sims and ERI are separately

involved in trials to handle the

recycling of small amounts of

cloud-computing material in

the U.S., betting on a sharp

pickup in the years ahead. The

pilot efforts come as scrap-

metal companies seek to rein-

vigorate profits dented by ris-

ing trade barriers and weak

commodity prices.

Annual capital spending by

Amazon.comInc.,Microsoft

Corp. and Alphabet Inc.’s

Google, which run enormous

networks, increased above $60

billion combined in 2018, up

50% from the year before, ac-

cording to company data. All

are upgrading and expanding

data centers.

Heightened concerns around

the security of sensitive data

make tech companies wary

about how they dispose of un-

wanted equipment.

Some companies use armed

guards to protect obsolete

servers on their journey to

scrapyards. The industry also

can’t agree with what can be

salvaged. Some tech firms de-

mand that all equipment be

shredded and melted entirely.

Google, which describes its

data centers as being “like

BYRHIANNONHOYLE

Scrap Metal From

Cloud Is Boon to

Recycling Industry

BEIJING—Cybersecurity
proposals by China have U.S.
businesses worried that the
draft regulations represent ad-
ditional barriers to the Chi-
nese market, a concern that
could complicate U.S.-China
trade talks.
The new rules and stan-
dards, floated over the past
two months with little fanfare,
flesh out an existing cyberse-
curity law that Washington
and many foreign businesses
already consider draconian.
Some would forbid certain
data from leaving China or at
least slow the process of dis-
patching data, which would in-
crease uncertainties and costs
for business. Tough rules for
procuring equipment could
also place foreign products at
a disadvantage.
If enacted, the measures are
likely to hit a swath of Ameri-
can companies, including such
tech manufacturers asCisco
Systems Inc.,International
Business MachinesCorp.,Ju-
niper NetworksInc. andDell
TechnologiesInc. Providers of
financial services and the au-
tomotive sector also could be
affected.
U.S. businesses and trade
groups say some of the pro-
posals are too vague and give
Chinese officials leeway on en-
forcement. The Cybersecurity
Administration of China and
the Ministry of Public Secu-
rity, which are involved in the
various drafts, didn’t respond
to requests for comment.
The rules reflect multiple
factors shaping China’s cyber-
security landscape, including
growing consumer awareness
over data privacy and a recent
global trend of establishing
new privacy rules, experts say.
Even if the proposals reflect
broader concerns, the timing
of their release suggests Bei-
jing is using them to show

BYYOKOKUBOTA

China Cyber Rules Vex U.S. Companies

“Companies that stay true

to their purpose perform

much better,” Mr. Bourla said.

His plan is risky, especially

without the safety net that the

steady cash flow from off-pat-

ent drugs provided. Compa-

nies fail more often than they

succeed at bringing novel

drugs to the market, yet Pfizer

is betting it can win approval

for a number of prospects.

“Any failure would poten-

tially impact it a little bit

more, whether that’s a new

drug or any risk,” said Ashtyn

Evans, an analyst at Edward

Jones. “On the other side, the

successes will have a bigger

impact, too.”

Pfizer shares fell 3.8% on

Monday, while Mylan rose

more than 12%. Analysts said

Pfizer’s drop was unrelated to

the Mylan deal; rather, Pfizer

lowered its guidance to reflect

the formation of the Glaxo

joint venture.

Mr. Bourla said that as a

child he had an affection for

both medicine and animals,

which drew him to become a

veterinarian. Working in

Greece, he developed an inter-

est in commercial aspects of

animal health and was re-

cruited.

Pfizer also reported its sec-

ond-quarter results Monday.

Its profit rose 30% to $5.05

billion on revenue that slipped

1.5% to $13.26 billion. Pfizer

reported net income of 89

cents a share for the quarter,

up from 65 cents a share a

year earlier.

The drugmaker lowered its

full-year guidance to earnings

of $2.76 to $2.86 a share on

revenue of $50.5 billion to

$52.5 billion. Mylan said its

own second-quarter sales to-

taled $2.85 billion, an increase

of 2% from a year earlier.

knows well, R&D can be risky.
Pfizer executives are con-
vinced the bet is a good one,
after years of cultivating the
company’s pipeline and with
the opportunity to increase
sales by mid- to high-single-
digit percentages, after years
in the low-digit percentages.
“Our compass is growth,
top-line growth,” Mr. Bourla
said.
Pfizer’s recent history of
slow sales stemmed from the
loss of patent protection for
big-selling drugs like Lipitor
for cholesterol and male-impo-
tence treatment Viagra.
Early this year, Pfizer
parked those declining brands
in a new unit called Upjohn
and began breaking out its
sales. Under the new deal, Up-
john will merge with Mylan,
best known for the EpiPen
emergency allergy treatment,
to create a new company.
The new company, which
isn’t yet named, is expected to
be among the world’s biggest
sellers of generic and off-pat-
ent medicines with more than
$19 billion in yearly sales. Un-
der the terms, shareholders of
Pfizer will own 57% of the new
company, while Mylan share-
holders will own the rest.
Pfizer will be paid $12 bil-
lion in proceeds from new
debt raised by the new com-
pany. Its leadership will be
drawn from both companies.
Mylan Chairman Robert

Continued from page B1

New CEO

Remaking

Pfizer

DrugDeal

AmergerannouncedMondaywillbringtogetherMylanNVand

Upjohn,PfizerInc.’sdivisionofoff-patentdrugs,inwhatwillbeone

ofthelargestcompaniesoflow-costprescriptionmedicines.

Estimated2020world-widesalesinbillionsfor...

Source: company filings, S&P Capital IQ

*Pfizer’s estimated 2020 revenue does not

adjust for this transaction, the GSK/Pfizer

consumer joint venture and includes Upjohn

revenue.†2020 pro forma outlook revenue.

‡Includes revenues from consolidated sub Taro.

Pfizer*

Novartis

GlaxoSmithKline

EliLilly

Amgen

Mylan+Upjohn†

Teva

SunPharma‡

Perrigo

Endo

Amneal

$54

49

43

24

23

$17

5

5

3

2

19-

...selectedspecialtypharma/generics

...selectedpharmaceuticalcompanies

Cybersecurity proposals if adopted could complicate business in China for Cisco and other tech giants.

VCG/GETTY IMAGES

Workers at Sims recycle computers, servers and processors.

ALYSSA SCHUKAR FOR THE WALL STREET JOURNAL