60 Business The EconomistJune 1st 2019
2R
ocketinternetishelpingabout
200 businessesreachforthestars,
andhasinvesteda totalof€400m
($445m)inthem. Whenthestartup
incubatorunveileditsfirst-quarter
resultsinBerlinonMay29th,analysts
focusednotonthesefirmsbutonRocket
itself—specifically,thenextstageinits
trajectory.
Rocketwentpublicin2014.Itsbusi-
nessmodelgainednotoriety:apeing
successfulAmericanonlinefirmsin
Europeandemergingmarkets.Theidea
wastocreatelocalmarketleaders—or
forceAmericanoriginalstoacquire
them.EarlyknockoffsincludedPinspire
(Pinterest),Plinga(Zynga),Wimdu
(Airbnb)andCitydeal(Groupon).In-
vestorslovedit.
Twoyearslaterthestrategystalled.
Rocketprovedbetteratlaunchingcom-
paniesthanrunningthem.Mostofits
startups lost money; a dozen folded. Its
self-depiction as a “network of compa-
nies”, not an investment firm, left share-
holders unconvinced. It issued its first
profit warning in September 2016, by
which time its market value had fallen to
just €2.9bn, compared with a peak of
€8.7bn in 2015.
So Rocket changed course. It has
jettisoned its previous hands-on ap-
proach and no longer has board seats at
any of its listed companies. It is selling
down its main holdings. That has proved
lucrative: the sale in May of its remaining
stake in HelloFresh, which markets meal
kits, earned it €350m. It is set to make a
killing on Jumia, an African e-commerceplatformwhichhashada volatilelisting
thisyearinNewYork.
AllthishasleftRocketwith€3.1bnin
cash,littledebt—anda problem.It in-
vests small sums early, and brings in
more outside capital later. Running
down its cash pile at the current pace
could take decades. Oliver Samwer,
Rocket’s boss, wants to spend more on its
startups’ later funding rounds. But its
current crop of firms—in “property tech”
and business-to-business market-
places—looks years away from scale.
Rocket could use the cash to take
itself private. Being public has not
created value for shareholders. It has
enough ammunition: even if it paid a
25% premium to buy out other investors,
it would have €1bn in cash left over, says
Sarah Simon of Berenberg, a German
bank. That would be some re-entry.Stagethree
RocketInternetEurope’sstartupfactoryisstrugglingtospenditscashUnusedpropellantSource:Companyreports *AtMay15th 2019RocketInternet,cashandcashequivalents,€bn2014 15 16 17 18 1900.51.01.52.02.53.03.5
*na narette-makers agreeing to pay states $206bn
over 25 years to settle lawsuits seeking to
recover smoking-related health-care costs.
Anti-opioid campaigners hope for a re-
prise. Wall Street is jittery—on the first day
of the trial j&j’s share price sank by 4%.
The campaigners should temper their
expectations, for three reasons. First, Pur-
due Pharma, a middling drugmaker that, as
opioids’ most prominent promoter, has be-
come synonymous with their abuse, is no
longer on trial in Oklahoma. The firm, con-
trolled by the Sackler family, reached a set-
tlement for $270m with the state ahead of
opening arguments. Teva, an Israeli maker
of generic opioids, settled for $85m. That
leaves j&j, a big company but a bit player in
the opioids market, as the sole defendant.
j&j’s stout defence, laid out in its open-
ing argument, suggests a guilty verdict is
no foregone conclusion. That is the second
reason for caution. Larry Ottoway, j&j’s
lead attorney, fingered other culpable par-
ties. He noted that America’s Food and
Drug Administration (fda), which regu-
lates all pharmaceuticals, has in the past
declared that opioids “rarely caused addic-
tion”. The Drug Enforcement Agency strict-
ly controls the import of precursor chemi-
cals going into opioids and authorises
doctors to prescribe them by issuing li-
cences. In Mr Ottoway’s telling, Oklaho-
ma’s medical supervisors were aware of
opioid abuse as far back as the early 2000s
but did not stop it. He summed up his
opening remarks bluntly: “When you’re
right, you fight.”
Third, and most curious, Oklahoma’s
case rests on a novel legal theory that has
not been tested in a pharmaceutical con-
text. Rather than allege fraud or product li-
ability, Mr Hunter claims j&jinfringed the
state’s law governing public nuisances.
Usually that argument is used against
transgressions like polluting waterways or
interfering with the use of parks.
Richard Ausness, a legal scholar at the
University of Kentucky, argues that “publicnuisance is not the strongest claim but
they are stuck with it.” Trying to litigate
fraud may have proved problematic, he
speculates, because the people allegedly
defrauded were doctors and patients, not
the state itself.
Whatever the outcome of this trial, its
verdict seems likely to be appealed at the
state Supreme Court. The federal judge in
the Ohio mega-case is pushing all parties
hard to reach a settlement, but this is prov-
ing difficult. If they do not, the trial will be-
gin in five months. There are other state
trials in the works, but many state attor-
neys-general are still weighing up whether
to go it alone or to join hands.
These factors conspire to keep the legal
outlook for the industry uncertain for the
time being. But as the broader ramifica-
tions for all opioid-makers crystallise,those for Purdue are already clear. The
company and its owners have turned toxic.
JPMorgan Chase, a big bank that provides
payment services to Purdue, and McKin-
sey, a consultancy that advised it on how to
market opioids, both said last week that
they are dropping the drugmaker as a cli-
ent. Museums around the world, which
once welcomed Sackler money, are now
turning it down. The firm is considering
declaring bankruptcy.
For Americans angered by drugmakers’
role in the opioid crisis, that may seem a
fitting comeuppance. That is not the same
as recompense. If Purdue ends up in bank-
ruptcy court, those financial proceedings
could cause every opioid case involving the
firm to grind to a halt, cautions Andrew
Pollis of Case Western University in Ohio.
“Chaos is possible,” he says. 7Wheels of justice